Quick View
| Metric | Current Period | Prior-year Period | YoY |
|---|---|---|---|
| Revenue | ¥325.4B | ¥348.8B | −6.7% |
| Operating Income | ¥33.2B | ¥42.9B | −22.7% |
| Ordinary Income | ¥37.1B | ¥46.0B | −19.3% |
| Net Income | ¥25.6B | ¥32.8B | −22.1% |
| ROE | 4.5% | 5.9% | - |
Executive Summary
For FY2026 Q3 (cumulative), MORI IRON WORKS CO., LTD. reported Revenue of ¥325.4B (YoY -¥23.4B, -6.7%), Operating Income of ¥33.2B (YoY -¥9.7B, -22.7%), Ordinary Income of ¥37.1B (YoY -¥8.9B, -19.3%), and Net Income of ¥25.6B (YoY -¥7.2B, -22.1%), resulting in lower revenue and earnings. Operating Income declined at more than double the rate of the revenue decline, indicating adverse operating leverage. Ordinary Income was supported by ¥4.3B in non-operating income such as dividends received, moderating the decline. The full-year outlook calls for Revenue of ¥458.0B (YoY -0.7%), Operating Income of ¥46.0B (YoY -14.8%), and Net Income of ¥34.0B, but Q3 progress stands at 71.1% for Revenue, 72.2% for Operating Income, and 77.4% for Ordinary Income, implying that operating improvement in Q4 is a prerequisite for achieving targets.
Key Financial Metrics
[Profitability] ROE 4.5% (down from an estimated 5.8% in the prior-year period), Operating Margin 10.2% (down -2.1pt from 12.3% in the prior year), and Net Margin 7.8% (down -1.6pt from 9.4%) all indicate deteriorating profitability. A DuPont decomposition explains ROE of 4.5% as Net Margin 7.8% × Total Asset Turnover 0.458 × Financial Leverage 1.24x. [Cash Quality] Cash and deposits of ¥151.6B increased by +¥5.0B from ¥146.6B in the prior-year period, and cash coverage of short-term liabilities of ¥68.0B is 2.2x, indicating ample liquidity. [Investment Efficiency] Total Asset Turnover of 0.458 (down from 0.499) and inventories of ¥120.8B accounting for 17.0% of total assets reflect deteriorated inventory efficiency alongside declining sales. [Financial Soundness] Equity Ratio 80.4% (up +0.8pt from 79.6%), Current Ratio 396.0%, Interest-bearing Debt ¥19.8B, Debt-to-Equity Ratio 0.24x, and Interest Coverage 165.9x indicate an extremely sound financial structure.
Cash Flow Analysis
Cash and deposits rose by +¥5.0B YoY to ¥151.6B, maintaining liquidity despite lower operating profit. Inferring cash movements from balance sheet changes, current assets increased by +¥10.9B YoY, with cash and inventories rising in particular, while current liabilities rose by +¥11.0B, including a +¥1.4B (+26.7%) increase in short-term borrowings. The increase in short-term borrowings suggests fluctuations in working capital needs; however, the cash/short-term liabilities ratio is a very high 22.3x, ensuring robust short-term liquidity. Investment securities total ¥280.3B, accounting for 39.5% of total assets, and the +¥5.5B increase in accumulated other comprehensive income indicates that valuation gains have strengthened equity. While the scale of dividend payments and share repurchases cannot be determined from in-period data, the depth of liquidity suggests dividend-paying capacity is secured in the short term.
Quality of Earnings
With Ordinary Income of ¥37.1B versus Operating Income of ¥33.2B, the net non-operating gain is approximately ¥3.9B. This comprises non-operating income of ¥4.3B less non-operating expenses of ¥0.4B, with dividends received presumed to be the main contributor to non-operating income. Extraordinary gains of ¥0.2B and extraordinary losses of ¥0.3B are both small, indicating limited impact from one-off items. Against Profit before tax of ¥37.1B, the effective tax rate is approximately 31.2%, reflecting a standard tax burden. Due to no disclosure of Operating Cash Flow (OCF), the cash convertibility of earnings cannot be directly assessed, but the increase in cash balance suggests operating activities are at least generating minimum cash inflows. However, the coexistence of declining sales and rising inventories indicates a deterioration in working capital efficiency; improving the quality of earnings will require inventory reduction and expansion of OCF.
Risk Factors
- Persistent revenue decline and adverse operating leverage: Revenue fell -6.7% while Operating Income declined -22.7%, indicating reversed operating leverage. If demand recovery lags, fixed-cost burden may exert further downward pressure on earnings. To meet full-year guidance, Q4 requires Revenue of ¥133.6B and Operating Income of ¥12.8B, but Q3 actual quarterly averages are ¥108.5B and ¥11.1B, indicating a high hurdle.
- Elevated inventory levels and valuation risk: Inventories of ¥120.8B equate to 1.11x of three months’ revenue; inventory build-up amid declining sales embeds risks of valuation losses and obsolescence. Lower inventory turnover will pressure working capital efficiency and hinder OCF generation.
- Question on dividend sustainability: The payout ratio calculated from disclosed data appears extremely high, implying net income alone is insufficient to fund dividends. While cash balance and shareholders’ equity are substantial, maintaining a high dividend amid an earnings downtrend could necessitate drawing on retained earnings and may reduce capacity for future investments.
Industry Benchmark (Reference; our analysis)
[Position within the industry] (Reference information; our analysis) We assess the company’s relative position within Manufacturing (65 companies, as of 2025 Q3). In profitability, ROE 4.5% is 0.4pt below the industry median of 4.9%, while the Operating Margin of 10.2% is +2.9pt above the median of 7.3%. The company maintains high operating efficiency, but ROE remains around the industry average due to a decline in asset turnover. The Net Margin of 7.8% is +2.4pt above the median of 5.4%, indicating relatively strong core earnings power. In soundness, the Equity Ratio of 80.4% is well above the median of 63.9%, placing the company toward the top in financial safety. The Current Ratio of 396.0% (3.96x) also far exceeds the median of 2.67x, indicating exceptionally strong short-term liquidity. The net debt/EBITDA multiple is -2.85x (effectively net cash), more conservative than the median of -1.11x, indicating a more defensive capital structure. In growth, the Revenue growth rate of -6.7% is below the median of +2.8%, placing the company among revenue decliners within the industry. Return on total assets (ROA-equivalent) is approximately 3.6%, roughly in line with the median of 3.3%. The company features high profitability and strong financial soundness within the industry but faces challenges in sales growth. (Industry: Manufacturing 65 companies, comparison: 2025 Q3, Source: our compilation)
Key Takeaways from Earnings
Key takeaways from the results are as follows. First, Operating Income declined at more than triple the rate of the revenue decline, putting focus on revisiting the fixed-cost structure and the effectiveness of initiatives to restore sales. While the Operating Margin of 10.2% is high within the industry, it fell by 2.1pt YoY, necessitating continued monitoring of SG&A efficiency and gross margin trends. Second, the combined ¥280.3B in investment securities (39.5% of total assets) and ¥151.6B in cash totals ¥432B, reaching 60.8% of total assets, indicating a significant tilt toward financial assets in the asset mix. While non-operating income such as dividends received supports earnings, efficient allocation to core operating assets remains an issue. Third, the +26.7% YoY increase in short-term borrowings, though small in scale, suggests changes in short-term funding needs; it is worthwhile to check for any changes in working capital management and funding policies. Regarding the level of the payout ratio and the sustainability of dividend funding, it is desirable to confirm the company’s dividend policy and the relationship between retained earnings and FCF through additional disclosures.
This report is an earnings analysis document automatically generated by AI based on XBRL financial statements. It does not constitute a recommendation to invest in any particular security. The industry benchmark is reference information compiled by our firm based on publicly available financial statements. Please make investment decisions at your own risk and consult a professional as necessary.
AI Financial Analysis
Executive Summary
FY2026 Q3 results were weaker year on year, with lower sales and a disproportionate decline in operating profit, although the company retains an exceptionally strong balance sheet. Cumulative Q3 revenue declined 6.7% YoY to ¥32.54bn. Operating income fell 22.7% to ¥3.32bn, while ordinary income declined 19.3% to ¥3.72bn. Net income attributable to owners decreased 22.1% to ¥2.56bn. The gross margin declined to 24.1% from 25.0% in the prior-year period, a contraction of approximately 89bp. The operating margin compressed more sharply to 10.2% from 12.3%, down approximately 210bp. Net margin declined to 7.8% from 9.4%, a reduction of approximately 155bp. The earnings decline therefore reflects both lower volume and negative operating leverage rather than a purely revenue-driven effect. SG&A expense increased approximately 2.0% YoY to ¥4.51bn despite the revenue decline, lifting the SG&A-to-sales ratio by roughly 121bp to 13.9%. Non-operating income of ¥0.43bn supported ordinary income, including ¥0.16bn of dividend income, ¥0.03bn of interest income, and ¥0.03bn of foreign-exchange gains. The contribution from non-operating income was helpful but not large enough to offset the operating-profit contraction. Pre-tax income and net income were not materially affected by non-recurring items, as the extraordinary loss was only ¥0.02bn for disposal of fixed assets. Annualized ROE was 6.0%, below the 8% level generally regarded as a minimum attractive return threshold, principally reflecting moderate profitability rather than balance-sheet leverage. The company has substantial financial capacity, with cash of ¥15.16bn, interest-bearing debt of only ¥1.98bn, and total equity of ¥57.09bn. Working-capital intensity is the principal financial-operating issue, with annualized receivable days of 64, inventory days of 134, and a cash conversion cycle of 171 days. Against the full-year forecast, Q3 progress is broadly in line for profit but slightly behind for sales, implying that the company expects a sequential revenue recovery in Q4. Full-year guidance requires Q4 revenue of ¥13.26bn and operating income of ¥1.28bn, equivalent to a 9.7% Q4 operating margin, modestly below the 10.2% cumulative Q3 margin. The key issue for the remainder of FY2026 is whether sales recovery can occur without further margin erosion and whether the elevated inventory burden normalizes.
Profitability Analysis
The annualized DuPont decomposition is net profit margin of 7.8% × asset turnover of 0.611x × financial leverage of 1.24x, resulting in annualized ROE of 6.0%. The low financial leverage is deliberate and reflects the company's equity-rich capital structure; it is not a constraint arising from debt stress. Profitability is consequently the main determinant of shareholder returns. The largest adverse operating movement was margin compression: operating margin declined about 210bp YoY, more than the 89bp decline in gross margin, indicating that fixed or semi-fixed SG&A costs were insufficiently absorbed by lower sales. SG&A rose to ¥4.51bn from ¥4.41bn while revenue fell to ¥32.54bn from ¥34.88bn, demonstrating negative operating leverage. Gross profit declined 10.1% YoY to ¥7.83bn, faster than the 6.7% revenue decline, indicating weaker gross-profit conversion. Operating income then declined 22.7% YoY, substantially faster than sales. The 10.2% EBIT margin remains within a generally good profitability range for industrial manufacturing, but the direction of travel is unfavorable. Ordinary income exceeded operating income by ¥0.40bn because non-operating income exceeded non-operating expenses, with dividend income and equity-method earnings providing support. Interest burden was 1.119, above 1.0 because net financial income exceeded interest expense, while interest coverage was an extremely strong 165.9x. The tax burden was 0.688, corresponding to a 31.2% effective tax rate, which is broadly consistent with a normal Japanese corporate tax burden. Annualized ROA, calculated using period-end assets, was approximately 4.8%, indicating that the return profile is held back by both the earnings slowdown and a relatively large asset base. Improvement in ROE will depend mainly on restoring operating margin and improving asset productivity, particularly inventory efficiency, rather than adding leverage.
Growth Assessment
Revenue fell 6.7% YoY to ¥32.54bn, and the larger 22.7% decline in operating income indicates that the current revenue mix and cost structure have weakened earnings conversion. Gross profit fell 10.1% YoY, while SG&A expense increased around 2.0% YoY, limiting the company's ability to protect operating income during lower demand. Net income declined 22.1% YoY to ¥2.56bn, broadly consistent with the operating-income decline and supporting the view that the profit weakness is primarily operational. The absence of material extraordinary gains in the current period improves the comparability of reported earnings. In the prior-year period, a ¥0.07bn gain on sale of investment securities provided a small uplift to pre-tax profit; this contribution was absent in the current period. Full-year guidance calls for revenue of ¥45.80bn, down 0.7% YoY, operating income of ¥4.60bn, down 14.8%, and net income of ¥3.40bn. Q3 revenue progress is 71.1% of the full-year target, 3.9 percentage points below the standard 75% Q3 pace. Operating-income progress is 72.1%, 2.9 percentage points below the standard pace. Ordinary-income progress is 77.4%, 2.4 percentage points above the standard pace, aided by non-operating income. Net-income progress is 75.1%, essentially in line with the standard Q3 pace. The forecast requires Q4 sales of ¥13.26bn, which is higher than the average quarterly sales pace achieved in the first nine months. It also requires Q4 operating income of ¥1.28bn and ordinary income of ¥1.09bn. The implied Q4 operating margin of 9.7% is achievable relative to the 10.2% Q3 cumulative margin, but it leaves limited room for additional gross-margin pressure. For a steel and metal-products manufacturer, the key growth variables are demand recovery, sales-price discipline, raw-material cost pass-through, export competitiveness, and inventory normalization.
Financial Health
Financial health is very strong. The current ratio is 396.0% and the quick ratio is 281.4%, both far above healthy liquidity benchmarks and indicating no near-term liquidity stress. Current assets of ¥41.76bn exceed current liabilities of ¥10.55bn by ¥31.21bn. Cash and deposits amount to ¥15.16bn, exceeding short-term loans of ¥0.68bn by 22.33x. Interest-bearing debt totals only ¥1.98bn, equivalent to approximately 3.5% of total equity, while debt-to-capital is 3.4%. The reported debt-to-equity ratio of 0.24x also remains highly conservative, reflecting the low overall liability burden relative to equity. Total liabilities represent only 19.6% of total assets, while total equity represents 80.4%. Short-term debt increased 26.7% YoY to ¥0.68bn from ¥0.54bn, but the ¥0.14bn absolute increase is immaterial relative to cash holdings and working capital. Long-term loans declined to ¥1.30bn from ¥1.47bn, partly offsetting the increase in short-term borrowing. There is no maturity mismatch: current assets of ¥41.76bn substantially cover current liabilities, including short-term loans. Interest coverage of 165.9x confirms that financing costs are negligible relative to operating earnings. Investment securities increased ¥1.56bn YoY to ¥8.63bn, or 12.2% of assets, increasing exposure to market-value fluctuations but also providing a meaningful pool of financial assets. Valuation differences on securities increased to ¥1.95bn from ¥1.53bn, contributing to the rise in accumulated other comprehensive income. Property, plant and equipment was ¥17.03bn, or 24.0% of assets, while land alone represented ¥8.09bn; this creates a substantial tangible-asset underpinning to the balance sheet. The financial-risk profile is therefore low, although the large inventory and investment-security balances should be monitored for capital efficiency.
Notable B/S Changes
Short-term loans: +¥0.14bn (+26.7%) to ¥0.68bn - borrowing increased, but the absolute amount is immaterial relative to ¥15.16bn of cash and does not change the conservative financing profile. Investment securities: +¥1.56bn (+22.1%) to ¥8.63bn - financial-asset exposure has increased and now represents 12.2% of total assets; valuation movements can affect comprehensive income and equity. Valuation difference on securities: +¥0.42bn (+27.3%) to ¥1.95bn - unrealized gains contributed to the increase in accumulated other comprehensive income, but also increase sensitivity of book equity to market-price changes.
Cash Flow Quality
The operating cash conversion profile requires attention because working capital is elevated for a manufacturing company. Annualized receivable days were 64, exceeding the 60-day warning threshold and indicating slower collection than the benchmark level. This is the root cause of the high-receivable-days quality alert: a larger amount of capital is tied up in customer balances before it is converted to cash. The impact is reduced cash efficiency and potentially greater sensitivity to customer-credit conditions, despite the modest decline in trade receivables to ¥7.61bn. Electronic monetary claims were ¥6.52bn, bringing trade-related receivables and electronic claims to ¥14.13bn. Annualized inventory days were 134, well above both the 90-day general warning threshold and the 60-day manufacturing benchmark. This is the root cause of both high-inventory-days alerts: ¥12.08bn of inventories are being held for an extended period relative to the annualized cost-of-sales run rate. For steel and metal products, 134 days is also substantially above the typical 30-45 day inventory cycle cited for raw materials and finished goods, making the issue particularly material. The impact is increased exposure to demand shortfalls, inventory valuation pressure, raw-material price movements, storage costs, and future margin risk if excess stocks require discounting. Inventory rose modestly by ¥0.06bn YoY, but the more important concern is the high days outstanding relative to sales and cost of sales. Annualized payable days implied by the supplied cash conversion cycle are approximately 27 days, which is below the 30-60 day preferred supplier-credit range. The annualized cash conversion cycle was 171 days, exceeding the 120-day warning level. This long cycle is driven by the combined effect of extended receivables and inventory holding periods, alongside relatively limited supplier financing. The impact is that an otherwise liquid balance sheet must carry a structurally larger operating-capital commitment. Cash of ¥15.16bn provides a substantial buffer against this working-capital burden, but sustainable improvement in cash conversion would strengthen capital efficiency and return metrics.
Dividend Sustainability
The interim Q2 dividend was ¥16.00 per share. On cumulative Q3 net income, the calculated dividend payout ratio is 24.3%, which is conservative and comfortably below the 60% sustainability benchmark. The full-year forecast specifies DPS of ¥36.00 and EPS of ¥89.43, implying a forecast full-year dividend payout ratio of approximately 40.3%. This remains a moderate payout level and leaves a meaningful earnings-retention buffer. Retained earnings were ¥40.21bn, equal to about 70.4% of total equity, providing substantial balance-sheet support for distributions. Cash and deposits of ¥15.16bn also materially exceed interest-bearing debt of ¥1.98bn. The low debt burden and strong liquidity support dividend capacity even during a period of lower earnings. However, the extended 171-day cash conversion cycle means that dividend capacity should be assessed alongside the level and quality of inventory and receivables. The forecast dividend is supported by forecast net income of ¥3.40bn, provided that the anticipated Q4 revenue recovery and margin profile are achieved. No share repurchase amount is provided, so assessment is limited to the dividend payout ratio rather than a total return ratio.
Risk Assessment
Business risks include Demand and pricing risk: Revenue declined 6.7% YoY and operating income declined 22.7%, showing high earnings sensitivity to changes in shipment volume, product mix, and selling prices., Margin risk: Gross margin contracted approximately 89bp and operating margin approximately 210bp YoY; inability to pass through raw-material, energy, labor, or logistics costs could prolong margin pressure., Steel and metal-products cycle risk: The business is exposed to fluctuations in steel input costs, industrial and construction demand, export conditions, trade restrictions, and customer inventory adjustments., Inventory valuation and obsolescence risk: Annualized inventory days of 134 are very high for the sector, increasing the risk of markdowns or inventory losses if demand weakens or material prices fall., Customer collection risk: Annualized DSO of 64 days exceeds the warning threshold, increasing the capital tied up in customers and sensitivity to customer credit quality., Foreign-exchange risk: Foreign-exchange gains were ¥0.03bn in the period; while currently small relative to operating income, changes in exchange rates can affect export competitiveness and non-operating earnings..
Financial risks include Working-capital funding risk: The 171-day annualized cash conversion cycle is above the 120-day warning level and could absorb cash if sales growth resumes before inventories and receivables normalize., Investment-security market risk: Investment securities of ¥8.63bn represent 12.2% of assets, and unrealized valuation differences affect equity and comprehensive income., Short-term borrowing increase: Short-term loans increased 26.7% YoY to ¥0.68bn, although the absolute amount and associated refinancing risk are low given cash of ¥15.16bn., Return dilution from excess capital: Very low leverage and substantial cash support solvency but can constrain ROE if operating profitability and working-capital productivity do not improve..
Key concerns include High inventory days of 134: This is the most significant operating-quality alert. It is above both the 90-day general warning threshold and the 60-day manufacturing benchmark, and it raises cash absorption, valuation, and margin risks., Long cash conversion cycle of 171 days: This reflects the combination of 64-day receivables and 134-day inventories with relatively short supplier-credit duration, weakening capital efficiency., Negative operating leverage: SG&A increased despite a revenue decline, producing an operating-income decline more than three times the rate of the sales decline., Sub-8% annualized ROE: Annualized ROE of 6.0% is below the stated 8% concern threshold, highlighting the need for margin restoration and better asset turnover., Execution against Q4 assumptions: Full-year guidance depends on Q4 revenue of ¥13.26bn, implying a meaningful sequential sales step-up, while maintaining a 9.7% operating margin..
Investment Implications
Key takeaways include FY2026 Q3 earnings weakened materially: revenue fell 6.7% YoY, operating income 22.7%, and net income 22.1%., Operating margin fell to 10.2%, but remains in a generally solid absolute range; the concern is the pace of margin compression and negative operating leverage., Balance-sheet risk is low, supported by a 396.0% current ratio, ¥15.16bn of cash, only ¥1.98bn of interest-bearing debt, and 80.4% equity-to-assets., Working-capital efficiency is the central operational risk, with annualized DSO of 64 days, DIO of 134 days, and a 171-day cash conversion cycle., The full-year forecast implies a Q4 sales recovery, while requiring a slightly lower operating margin than the cumulative Q3 margin., The forecast ¥36.00 DPS implies a moderate approximately 40.3% payout ratio based on forecast EPS, supported by strong liquidity and retained earnings..
Metrics to watch include Quarterly revenue recovery relative to the ¥13.26bn Q4 revenue implied by full-year guidance, Operating margin and gross-margin trajectory, particularly the ability to reverse the approximately 210bp YoY operating-margin decline, SG&A growth relative to sales growth and resulting operating leverage, Inventory balance and annualized inventory days, currently 134 days, Trade receivables and electronic claims, with annualized DSO currently 64 days, Cash conversion cycle, currently 171 days, Raw-material price pass-through, sales-price discipline, and product-demand conditions, Investment-security valuation movements and their effect on other comprehensive income, Progress toward FY2026 operating-income guidance of ¥4.60bn and net-income guidance of ¥3.40bn.
Regarding relative positioning, モリ工業 combines a strong tangible-asset base, very low financial leverage, exceptional liquidity, and high interest coverage with currently weaker earnings momentum and below-threshold annualized ROE. Relative to a typical leveraged cyclicals profile, its solvency position is notably conservative. Relative to manufacturing working-capital benchmarks, however, its 134-day inventory cycle and 171-day cash conversion cycle are weak and represent the main area requiring operational improvement.