Chuo Katan Kogyo Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.61B
• Operating Income: ¥882M
• Net Income: ¥380M
• EPS: ¥68.85

Income Statement

Balance Sheet

Cash Flow Statement

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

Chuo Katan Kogyo (56070) delivered a solid FY2026 Q2 (cumulative) performance with revenue of ¥18.6bn, up 7.5% YoY, translating into strong operating leverage. Operating income surged to ¥0.88bn (+272% YoY), indicating meaningful cost discipline and/or improved pricing pass-through despite a relatively low gross margin of 9.6%. Net income reached ¥1.09bn (+177.5% YoY), with a net margin of 5.8%. Ordinary income of ¥1.37bn exceeded operating income by roughly ¥0.49bn, implying material non-operating gains (e.g., FX, financial income, subsidies), which enhanced headline profitability but introduce quality considerations. EBITDA was ¥1.85bn (9.9% margin), supported by sizable D&A of ¥0.96bn, consistent with a capital-intensive profile typical of auto parts/metal processing. Cash generation was robust: operating cash flow of ¥1.82bn implies an OCF/NI ratio of 1.68x, suggesting high earnings quality in the period. Liquidity appears comfortable with a current ratio of 183% and a quick ratio near 170%, and working capital of ¥7.04bn. The balance sheet is conservatively positioned: with total equity of ¥29.5bn against total assets of ¥42.4bn, the implied equity ratio is about 69–70% (despite the reported 0% tag being an unreported field), and debt-to-equity is a modest 0.44x. Interest coverage is strong at ~56x, reflecting low financial risk. DuPont decomposition indicates a 3.68% ROE based on the period’s cumulative results, with net margin of 5.83%, asset turnover of 0.439x (on period-average assets), and financial leverage of 1.44x; annualization would lift implied full-year ROE if margins and turnover hold. Revenue growth appears primarily volume and/or mix driven, with incremental margins high given the outsized increase in operating profit versus sales. That said, the reliance on non-operating income in this half reduces the purity of earnings. Investing cash flow and cash balances were not disclosed in the dataset, which limits a full free cash flow assessment; reported FCF of zero reflects missing capex data rather than true zero investment. Dividend information indicates no payout year-to-date (DPS and payout ratio at 0), and share-related items were not disclosed, constraining per-share analysis. Overall, the company exhibits improving profitability momentum, strong cash conversion, and a conservative balance sheet, albeit with earnings quality partially flattered by non-operating items and some data limitations that warrant caution.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 5.83% × asset turnover 0.439 × financial leverage 1.44 = 3.68% reported ROE for the period. Operating margin is approximately 4.7% (¥0.882bn / ¥18.605bn), considerably higher YoY given the +272% surge in operating income on +7.5% revenue, evidencing strong operating leverage and cost control. Gross margin of 9.6% remains thin in absolute terms, consistent with the industry’s competitive and cost-sensitive nature, but the spread from gross to operating suggests SG&A discipline. Ordinary income exceeding operating income by ~¥0.485bn highlights the contribution of non-operating items; while supportive this period, it may be volatile, tempering recurring profitability quality. EBITDA margin of 9.9% indicates reasonable cash earnings capacity relative to sales for a capital-intensive business. Interest burden is minimal (interest expense ¥15.8m), resulting in ~56x interest coverage, supporting net margin resilience. Effective tax rate shown as 0.0% in the metrics appears inconsistent with the presence of ¥265.8m income tax; this likely reflects a data mapping gap rather than an actual zero rate. Overall, profitability quality is improving, but the durability of non-operating gains should be monitored.

Growth Assessment

Top-line growth of 7.5% YoY to ¥18.6bn is healthy for a mid-cycle auto/metal parts supplier, suggesting stable customer demand and/or improved pricing. The disproportionate increase in operating income (+272% YoY) implies high incremental margins from either cost deflation (materials/energy), improved yields, mix upgrades, or successful price pass-throughs. Sustainability depends on maintaining utilization and customer volumes, which can be sensitive to auto production schedules and macro conditions. The profit mix shows reliance on non-operating gains (ordinary > operating by ~¥0.49bn), which may not recur; normalizing for these would lower YoY profit growth. D&A of ¥0.96bn indicates continued capital intensity, aligning with a steady replacement and tooling cycle; absent investing CF disclosures, we cannot judge whether capacity is expanding, but OCF strength suggests internal funding capacity for growth capex. Outlook hinges on auto sector production stability, input cost trends, and FX; a weaker yen could aid ordinary income but also raise imported material costs, with net effect dependent on hedging and pass-through clauses. Assuming stable demand and ongoing cost control, mid-single-digit sales growth with margin retention appears achievable, albeit with more moderate profit growth if non-operating gains normalize.

Financial Health

Liquidity is solid: current ratio 182.8% and quick ratio 169.9% indicate ample short-term coverage; inventories are modest at ¥1.10bn relative to current assets, implying limited inventory risk. Working capital stands at ¥7.04bn, providing operational flexibility. Solvency is strong: total equity ¥29.51bn versus total assets ¥42.41bn implies an equity ratio around 69–70%, and a debt-to-equity ratio of 0.44x suggests moderate leverage. Interest expense is low (¥15.8m), and coverage is very high (~56x), minimizing refinancing risk. While the provided equity ratio field shows 0.0% (unreported), the balance sheet data supports a conservative capital structure. Overall, the company appears well-capitalized with headroom to absorb shocks and fund operations.

Cash Flow Quality

Operating cash flow of ¥1.82bn exceeds net income of ¥1.09bn (OCF/NI 1.68x), indicating strong earnings quality and favorable working capital dynamics in the period. EBITDA of ¥1.85bn is broadly aligned with OCF before working capital, consistent with good cash conversion after interest and taxes. Investing cash flow is undisclosed (reported as zero), so free cash flow cannot be reliably determined; the reported FCF of zero reflects missing data rather than an absence of investment. Financing cash flow was an outflow of ¥0.55bn, likely reflecting debt repayment and/or other financing uses; dividend data shows no payout year-to-date, so the outflow is probably not dividends. Working capital appears well-managed given the quick ratio and positive OCF, but without detail on receivables/payables movements, we cannot parse the drivers. Overall, cash flow quality in this half is strong, but a full assessment awaits visibility on capex and cash balances.

Dividend Sustainability

The dataset shows DPS of ¥0.00 and a payout ratio of 0.0%, implying no distributions in the period. With OCF of ¥1.82bn and strong balance sheet metrics, internal capacity to fund dividends appears adequate; however, the absence of investing cash flow data prevents assessing free cash flow coverage. Policy visibility is limited without historical payout data; ordinary income’s reliance on non-operating gains this period also argues for prudence in extrapolating distributable earnings. If a dividend policy is reintroduced or adjusted, sustainability would hinge on normalized operating earnings and recurring FCF after maintenance capex. For now, dividend outlook is undetermined due to missing capex/FCF details and lack of disclosed payout policy.

Risk Assessment

Business Risks:

• Auto sector cyclicality and production volatility impacting volumes
• Raw material and energy cost fluctuations affecting margins
• Customer concentration risk typical for Tier-1/2 suppliers
• FX volatility (yen) influencing ordinary income and input costs
• Technological transition (xEV, lightweighting) requiring ongoing capex
• Pricing pressure from OEMs and limited ability to pass through costs
• Supply chain disruptions affecting delivery and inventories

Financial Risks:

• Earnings quality sensitivity to non-operating gains (ordinary > operating)
• Capex requirements not disclosed in period (investing CF unreported)
• Working capital swings potentially affecting OCF
• Potential pension/retirement obligations (not disclosed here)
• Interest rate changes, albeit current interest burden is low

Key Concerns:

• Durability of margin gains if non-operating income normalizes
• Lack of visibility on capex and free cash flow limits dividend assessment
• Low gross margin baseline leaves less cushion in a downturn

Investment Implications

Key Takeaways:

• Revenue up 7.5% YoY with outsized operating profit growth (+272% YoY) indicating strong operating leverage
• Net margin 5.8% and EBITDA margin 9.9% reflect improved profitability despite low gross margin
• Ordinary income exceeds operating income by ~¥0.49bn, lifting earnings but reducing quality
• OCF of ¥1.82bn (1.68x NI) signals robust cash conversion
• Balance sheet conservative with implied equity ratio ~69–70% and interest coverage ~56x
• Liquidity strong: current ratio 183%, quick ratio 170%, WC ¥7.04bn
• Data gaps on investing CF and cash balance constrain FCF visibility and capital allocation assessment

Metrics to Watch:

• Operating margin and gross-to-operating spread for cost pass-through durability
• Ordinary vs. operating income gap to gauge reliance on non-operating gains
• Capex (investing CF) and resulting FCF after maintenance spending
• Working capital turns (receivable and payable days) and inventory levels
• Asset turnover trajectory (period vs annualized) as utilization changes
• FX impacts and hedging effectiveness
• Customer concentration and order backlog/production schedules

Relative Positioning: Within Japanese metal/auto components peers, the company currently exhibits above-peer operating leverage and cash conversion in the half, coupled with a stronger-than-average balance sheet; however, absolute margins remain modest and a notable share of earnings is non-operating, positioning it as financially conservative but with earnings quality that should be normalized versus pure operating peers.

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