The Japan Steel Works,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥135.66B
• Operating Income: ¥12.19B
• Net Income: ¥6.10B
• EPS: ¥137.11

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

For FY2026 Q2 (consolidated, JGAAP), Japan Steel Works (5631) delivered strong top- and bottom-line momentum, with revenue of ¥135.7bn (+25.3% YoY) and operating income of ¥12.2bn (+47.1% YoY). Ordinary income reached ¥12.6bn and net income ¥10.1bn (+67.9% YoY), indicating meaningful operating leverage and improved mix/pricing. Gross margin was 19.5%, and operating margin approximates 9.0%, reflecting better cost pass-through and scale effects. The DuPont bridge shows a 7.44% net margin, 0.345x asset turnover, and 1.94x financial leverage, yielding ROE of 4.97%—a modest but improving return profile given the growth in earnings. Interest coverage is robust at ~100.8x (OP/interest), evidencing low financial strain and conservative financing costs. Liquidity is solid with a current ratio of 176% and working capital of ~¥128.0bn, providing ample buffer for large projects and order execution. The balance sheet appears balanced: liabilities of ¥203.0bn against equity of ¥202.9bn imply an equity ratio around 51.6% (calculated from non-zero items), consistent with a sound solvency position. Asset turnover at 0.345x remains typical for heavy machinery/project businesses with longer cycles; improving turnover is a lever for ROE upside. Tax expense of ¥2.0bn versus ordinary income implies an effective tax rate in the mid-teens, supportive of net margin uplift; reported 0% in the metrics table is a placeholder due to data reporting conventions. Cash flow statements and D&A were not disclosed (zeros indicate unreported), limiting visibility into earnings quality, capex intensity, and FCF conversion. Inventory disclosure appears small relative to current assets, suggesting receivables and contract assets likely dominate working capital, which is consistent with the project-centric nature of the business. Dividend data were not disclosed for the period; the 0 DPS and 0% payout are placeholders and do not indicate an actual suspension. Overall, the company demonstrates accelerating profitability, disciplined cost control, and strong liquidity, but confirmation via operating cash flow and capex would strengthen the quality assessment. Key watchpoints include order intake, backlog quality, working capital turns, and sustainability of margin gains amid input cost and FX dynamics.

Profitability Analysis

ROE decomposition (DuPont) indicates: Net margin 7.44% × Asset turnover 0.345 × Financial leverage 1.94 = ROE 4.97%. Gross margin of 19.5% and operating margin around 9.0% (¥12.192bn/¥135.662bn) show sizable margin expansion relative to revenue growth (+25.3% YoY vs. operating income +47.1%), confirming operating leverage and improved pricing/mix. Ordinary margin is ~9.3% (¥12.647bn/¥135.662bn), and net margin 7.44% aligns with tax and non-operating flows. Interest burden is minimal (¥121m), and coverage is ~100.8x, implying that profitability is driven by operations rather than financial engineering. The effective tax rate inferred from reported non-zero values is roughly mid-teens (income tax ¥1.98bn vs. ordinary income), supporting net margin resilience. Asset turnover at 0.345x is modest, typical for capital-heavy, order-based businesses; incremental improvements in throughput and working capital efficiency could uplift ROE. D&A was not disclosed, so EBITDA and related margin cannot be assessed; reported EBITDA and margin at 0% are placeholders. Overall margin quality appears to have improved with scale benefits and controlled overheads.

Growth Assessment

Revenue grew 25.3% YoY to ¥135.7bn, signaling strong demand and/or conversion of backlog. Operating income outpaced sales (+47.1% YoY), indicating positive operating leverage and effective cost pass-through. Net income growth of +67.9% YoY underscores both operating gains and limited non-operating drag (low interest burden). The spread between gross and operating margin suggests better SG&A efficiency or favorable mix in higher-margin businesses. With asset turnover at 0.345x, growth appears supported by capacity and order execution rather than balance sheet stretch. Sustainability hinges on continued order inflow, backlog execution, and cost discipline amid potential input cost/FX volatility. Lack of disclosed cash flow and capex data limits visibility into whether growth is cash-generative or working-capital intensive. Near-term outlook levers include pricing retention, supply chain normalization, and delivery schedules. We would monitor order intake/book-to-bill, project mix, and after-sales/service contribution to assess durability of growth.

Financial Health

Total assets are ¥393.6bn, liabilities ¥203.0bn, and equity ¥202.9bn, implying an equity ratio around 51.6% (calculated) despite a reported 0% placeholder. The debt-to-equity ratio of ~1.00x here reflects total liabilities to equity; interest expense is low, indicating limited financial risk from borrowing costs. Liquidity is strong: current assets ¥295.6bn vs. current liabilities ¥167.6bn yields a 176% current ratio; quick ratio of ~173% suggests low reliance on inventory for liquidity. Working capital of ~¥128.0bn provides buffer for project execution and timing mismatches. Inventories reported at ¥5.9bn are small relative to current assets, implying receivables/contract assets dominate; this is typical for long-cycle businesses but elevates collection/timing risk. Overall solvency appears sound with balanced capital structure and strong coverage metrics.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed for the period (zeros indicate unreported), so we cannot directly assess OCF conversion or FCF. Earnings quality appears solid from margins and low interest burden, but confirmation via OCF/NI and working capital movements is not available. Free cash flow cannot be computed without OCF and capex/D&A data. Working capital is substantial and likely concentrated in receivables/contract assets; monitoring days sales outstanding, contract liabilities, and milestone billing will be key to evaluating cash conversion. Absent cash flow data, we assume neutral-to-cautious on FCF quality pending disclosure.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0 due to non-disclosure for the period and should not be interpreted as actual zero payments. With net income of ¥10.1bn and strong liquidity, capacity for shareholder returns likely exists, but sustainability should be judged against cash generation, capex needs, and order cycle risk. Without OCF/FCF data, payout coverage cannot be evaluated. Historically for capital-intensive, order-based firms, prudent payout is anchored to FCF and backlog visibility; policy outlook remains unclear pending management guidance and year-end disclosure.

Risk Assessment

Business Risks:

• Order timing and backlog execution risk inherent to long-cycle, project-based businesses
• Input cost volatility (steel, energy) and pricing pass-through risk
• Foreign exchange exposure affecting export competitiveness and translation of overseas revenues
• Supply chain constraints and delivery schedule slippages
• Customer concentration and large-project execution risk
• End-market cyclicality in machinery, industrial equipment, and energy-related sectors
• Competitive pricing pressure and technology differentiation needs

Financial Risks:

• Working capital concentration in receivables/contract assets increasing cash collection risk
• Potential for higher capex needs not disclosed, affecting FCF and leverage trajectory
• Interest rate and refinancing risk (currently limited given low interest expense)
• Tax rate normalization volatility relative to project geographies and incentives
• Pension/retirement obligations (not disclosed here) that may impact equity and cash flows

Key Concerns:

• Lack of disclosed operating and free cash flow data to validate earnings quality
• Unreported D&A and capex obscure true cash cost structure and maintenance needs
• Sustainability of margin gains amid input cost and FX fluctuations
• Receivables/contract asset build-up potential impacting cash conversion

Investment Implications

Key Takeaways:

• Strong YoY growth with operating leverage: revenue +25.3%, operating income +47.1%, net income +67.9%
• Healthy margins: GM 19.5%, OPM ~9.0%, net margin 7.44%
• ROE at 4.97% with room for improvement via asset turnover and sustained margins
• Robust liquidity (current ratio 176%) and strong interest coverage (~100.8x)
• Balanced balance sheet with calculated equity ratio ~51.6%
• Cash flow and D&A unreported; FCF and capex intensity remain key unknowns

Metrics to Watch:

• Order intake and book-to-bill ratio
• Backlog quality and delivery schedules
• OCF/Net income conversion and working capital days (DSO/DPO/contract liabilities)
• Capex, D&A and maintenance vs. growth split
• Gross and operating margin trajectory and pricing discipline
• FX exposure and hedging impact
• Tax rate trend vs. guidance

Relative Positioning: Versus domestic heavy machinery/project peers, revenue and profit growth appear above average with a solid balance sheet and strong coverage; margins are competitive, while ROE is moderate and could improve with better asset turns and sustained margin execution.

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