Maruichi Steel Tube Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥120.54B
• Operating Income: ¥15.42B
• Net Income: ¥11.32B
• EPS: ¥46.72

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Strong profitability despite top-line decline, with notable margin expansion and robust balance sheet resilience in FY2026 Q2 cumulative results. Revenue fell 9.7% YoY to 1,205.39, but operating income rose 18.6% YoY to 154.22 and ordinary income increased 13.8% YoY to 166.81. Net income jumped 45.1% YoY to 106.90, reflecting a meaningful lift in after-tax profitability. Operating margin improved to 12.8% (154.22/1,205.39), up roughly 303 bps from an estimated 9.8% in the prior-year period. Net margin rose to 8.9% (106.90/1,205.39), an expansion of about 333 bps from an estimated 5.5% a year ago. Ordinary margin also expanded to 13.8%, up approximately 285 bps YoY by our estimation. Gross margin printed at 21.1%, indicating solid spread over cost of sales amid lower revenues, suggesting either favorable raw material environment, pricing discipline, or improved mix. SG&A ratio was about 8.3% of sales (100.27/1,205.39), implying good cost control supporting the margin uplift. Non-operating income of 18.34 (notably dividend income 7.99 and interest income 3.95) provided an incremental boost, while non-operating expenses were modest at 5.74. The balance sheet remains exceptionally strong: current ratio 432%, D/E 0.19x, interest coverage 514x, and calculated equity ratio around 84%, indicating very low financial risk. Cash and deposits of 927.20 comfortably exceed short-term loans (36.23) and total loans (47.67), minimizing liquidity concerns. Earnings quality cannot be fully assessed because operating cash flow was not disclosed; thus, OCF/NI cannot be evaluated. ROE is low at 3.0%, driven by modest asset turnover (0.287) and low leverage (1.19x), highlighting structural capital efficiency headwinds. ROIC at 4.0% is below the 5% warning threshold, underscoring the need to enhance asset utilization or trim capital intensity. Forward-looking, the company’s strong cost discipline and balance sheet provide cushion, but sustaining higher margins amid lower sales will depend on steel price dynamics, demand recovery in key end-markets, and continued pricing/mix execution.

Profitability Analysis

ROE decomposition: ROE (3.0%) = Net Profit Margin (8.9%) × Asset Turnover (0.287) × Financial Leverage (1.19x). The largest drag is asset turnover at 0.287, reflecting a sizable asset base relative to sales. Net margin improved materially YoY (estimated +333 bps), and operating margin expanded ~303 bps, indicating operating efficiency gains and/or favorable input costs and mix. Business drivers likely include lower raw material costs versus selling prices, disciplined SG&A (8.3% of sales), and modest uplift from non-operating income (dividends/interest), though the main delta appears operational. This margin improvement looks partly cyclical (steel price/cost spread) and partly execution-related (cost control); sustainability will hinge on commodity and demand trends. Watch for any adverse operating leverage if volumes weaken further; a negative signal would be SG&A growth outpacing revenue growth in subsequent quarters (we lack YoY SG&A to confirm this period). Overall, ROE is constrained by low turnover and conservative leverage; to lift ROE structurally, management would need to enhance asset efficiency and capital allocation while defending margins.

Growth Assessment

Top-line contracted 9.7% YoY to 1,205.39, but operating income increased 18.6% to 154.22, signaling strong positive operating leverage from cost/mix tailwinds. Ordinary income rose 13.8% to 166.81, and net income surged 45.1% to 106.90, aided by a lower effective tax burden relative to PBT dynamics and healthy non-operating income. Operating margin of 12.8% vs an estimated 9.8% last year underscores effective pass-through and/or raw material relief. Non-operating income (18.34), comprising dividend (7.99) and interest income (3.95), provided a supportive but not dominant contribution (non-operating income ratio ~17.2%). With ROIC at 4.0% (below 5%), growth quality is constrained by capital intensity and low turnover; improving asset productivity remains a key lever. Outlook hinges on steel price spreads, demand recovery in construction/industrial/auto, and FX impacts on overseas subsidiaries; sustaining current margins with a shrinking top line may be challenging if price-cost spreads normalize. Near-term, strong balance sheet and cash provide flexibility for selective capex and shareholder returns, but reinvestment should target higher-ROIC projects.

Financial Health

Liquidity is exceptionally strong: current ratio 432.2% and quick ratio 432.2%, with working capital of 1,683.46. Cash and deposits (927.20) and receivables (495.17) comfortably cover current liabilities (506.79), indicating no maturity mismatch risk; short-term loans (36.23) are de minimis versus cash. Solvency is robust: D/E 0.19x and interest coverage 514x; total loans of 47.67 vs total equity of 3,533.97 imply very conservative leverage. Calculated equity ratio (equity/asset) is approximately 84.2% (3,533.97/4,196.95). No red flags on refinancing risk or covenant pressure. No off-balance-sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed; thus, OCF/Net Income and FCF coverage cannot be calculated this quarter. Given the large net cash position and low debt, near-term liquidity coverage of operations and dividends appears ample, but earnings-to-cash conversion quality is unassessable from this dataset. Working capital signals (inventories not disclosed) cannot be evaluated for potential timing effects or revenue cut-off considerations. Non-operating income (dividends/interest) is a modest contributor to ordinary income and does not, by itself, raise quality concerns. We cannot flag OCF/NI <0.8 due to missing OCF data; future disclosure will be needed to assess cash conversion and sustainability of margins.

Dividend Sustainability

Dividend details were not reported, but the calculated payout ratio shows 308.8%, suggesting dividends (or declared guidance) exceed current period earnings on a reported basis. Without OCF/FCF data, cash coverage cannot be confirmed; however, large cash holdings (927.20) and low debt provide near-term capacity to maintain distributions if management chooses. Sustainability over the medium term hinges on restoring payout to within earnings and FCF generation; a payout sustainably below ~60% is a more prudent benchmark. If the elevated payout reflects interim timing, special dividends, or denominator effects (e.g., half-year EPS vs full-year DPS), clarity from management guidance will be key.

Risk Assessment

Business Risks:

• Steel price and raw material spread volatility affecting margins
• End-market demand softness (construction, industrial, automotive) pressuring volumes
• Potential normalization of favorable input costs eroding current margin gains
• Product mix shift risk if high-margin segments weaken
• FX fluctuations impacting overseas operations and financial income

Financial Risks:

• Low ROIC (4.0%) and low asset turnover (0.287) constrain value creation
• High payout ratio (308.8%) may exceed sustainable earnings capacity absent strong FCF
• Dependence on non-operating income (dividends/interest) for a portion of ordinary income
• Limited visibility on inventory levels and working capital due to unreported items

Key Concerns:

• Sustaining double-digit operating margin with declining sales
• Structural capital efficiency constraints driving low ROE (3.0%)
• Data gaps in cash flow and inventory limiting assessment of earnings quality

Investment Implications

Key Takeaways:

• Profitability improved materially despite a 9.7% revenue decline, with operating margin up ~303 bps YoY to 12.8%
• Net margin rose ~333 bps YoY to 8.9%, driving a 45.1% increase in net income
• Balance sheet is exceptionally strong (current ratio 432%, equity ratio ~84%, coverage 514x)
• ROE (3.0%) and ROIC (4.0%) remain low due to modest asset turnover and conservative leverage
• Dividend sustainability unclear given a calculated payout ratio of 308.8% and missing OCF/FCF

Metrics to Watch:

• Operating cash flow and OCF/NI ratio (target >1.0)
• Price-cost spread (steel prices vs raw materials) and gross margin trajectory
• Volume trends in key end-markets and resulting asset turnover
• Inventory levels and turnover once disclosed
• Capital allocation to higher-ROIC projects and any change in payout policy

Relative Positioning: Versus peers in steel tubing, the company exhibits superior balance sheet strength and currently strong margins but lags on capital efficiency (ROIC, ROE).

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis