Mitsubishi Steel Mfg.Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥79.93B
• Operating Income: ¥2.12B
• Net Income: ¥843M
• EPS: ¥44.59

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

Verdict: Soft quarter operationally with margin compression, but bottom-line recovered from a very low base and cash conversion was strong. Revenue was 799.27 (100M JPY), down 0.7% YoY, indicating broadly flat demand conditions. Operating income fell 32.9% YoY to 21.21, implying operating margin of about 2.7%. Ordinary income declined 14.9% YoY to 14.15, as non-operating expenses (10.69) outweighed non-operating income (3.63). Net income rose to 6.74 (+1990.1% YoY), largely reflecting comparison against a prior-year low base rather than robust current profitability. Gross profit was 104.00, yielding a gross margin of 13.0%, while EBITDA was 39.45 and EBITDA margin was 4.9%, consistent with subdued operating leverage. We estimate operating margin compressed roughly 130 bps YoY (from ~3.9% to ~2.7%) given the sharper decline in operating income relative to revenue. Net margin improved to 0.8% from near zero/negative last year, aided by the base effect despite non-operating headwinds and a high effective tax rate (43.2%). Earnings quality was solid: operating cash flow of 35.39 (5.25x net income) comfortably exceeded accounting earnings, supported by depreciation (18.24) and likely working capital inflows. Liquidity is adequate with a current ratio of 181.7% and quick ratio of 160.4%. Leverage is on the higher side for a cyclical manufacturer (D/E 1.67x; interest coverage 3.28x), requiring continued focus on debt service amidst compressed margins. ROE at 1.4% and ROIC at 1.5% are subpar versus cost of capital benchmarks, highlighting capital efficiency challenges. Short-term funding (short-term loans 218.98) is sizable versus cash (144.98), but current assets (782.29) provide coverage; refinancing discipline remains important. Free cash generation capacity appears intact this half (OCF 35.39 versus capex 12.70), supporting balance sheet resilience. However, the calculated payout ratio of 149.2% suggests dividend sustainability risk unless earnings recover or payouts are recalibrated. Forward-looking, restoring operating margin and improving asset turnover are key to lifting ROE/ROIC; cost control, pricing, and product mix upgrades will be critical amid input price and demand uncertainties.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 0.8% × Asset turnover 0.605 × Financial leverage 2.67x ≈ ROE 1.4% (matches reported). The largest drag is margin compression at the operating level: operating income down 32.9% YoY against a 0.7% revenue decline implies weaker operating leverage and pricing/mix pressure; we estimate operating margin compressed by ~130 bps YoY to ~2.7%. Asset turnover at 0.605 is low for a cyclical metals company, reflecting a sizable asset base relative to sales; this constrains ROE despite leverage. Financial leverage (2.67x) provides the majority of ROE uplift, but with interest coverage at 3.28x, the room to add leverage is limited. Business drivers: cost of sales absorption and SG&A rigidity (82.78) curtailed operating profit despite stable revenues; non-operating expenses (notably interest expense of 6.47) further pressured ordinary income. Sustainability: current margin pressure appears cyclical and potentially reversible with improved demand/pricing, but near-term visibility is limited; leverage-driven ROE is not a durable solution without better margins and turnover. Watchpoints: SG&A growth versus revenue is unclear (detail unreported), but fixed-cost stickiness likely exceeded revenue performance; prioritize cost containment and mix improvements.

Growth Assessment

Top-line: Revenue declined 0.7% YoY to 799.27, indicating flat-to-slightly weaker demand. Profitability: Operating income fell 32.9% YoY to 21.21, far outpacing the sales decline, signaling negative operating leverage and/or pricing/mix deterioration. Ordinary income was 14.15 (-14.9% YoY), cushioned somewhat by non-operating income but weighed by interest expense (6.47). Net income rose sharply to 6.74 (+1990.1% YoY) due to a low base last year; current net margin is modest at 0.8%. Quality: EBITDA margin of 4.9% and interest coverage of 3.28x reflect compressed but positive operating performance. Outlook: Near-term growth hinges on end-market recovery (auto/industrial), cost passthrough, and energy/raw material cost trends; absent margin restoration, earnings growth will be constrained. Medium term: Balance sheet liquidity supports continuity of operations and selective investment, but low ROIC (1.5%) underscores a need for portfolio and productivity improvements to drive sustainable growth.

Financial Health

Liquidity is sound: current ratio 181.7% and quick ratio 160.4% comfortably exceed benchmarks; no warning on current ratio. Working capital of 351.77 provides buffer; cash and deposits are 144.98 versus short-term loans of 218.98, but current assets of 782.29 cover near-term obligations (current liabilities 430.52). Solvency: D/E at 1.67x is above the conservative benchmark (1.5x), signaling moderately elevated leverage; interest coverage at 3.28x is below the 5x comfort threshold, implying some sensitivity to earnings declines or rate increases. Long-term loans total 246.06, with noncurrent liabilities at 396.15, indicating a meaningful long-term debt stack; maturity details are not provided, so refinancing timing risk cannot be fully assessed. Equity totals 494.59; financial leverage (assets/equity) is 2.67x. No off-balance sheet obligations are disclosed in the provided data. Overall, liquidity is adequate, leverage is somewhat high for the cycle, and coverage is acceptable but not robust.

Cash Flow Quality

OCF of 35.39 is 5.25x net income (6.74), exceeding the 0.8x threshold by a wide margin—strong cash earnings quality. Depreciation of 18.24 underpins OCF and highlights that accounting earnings understate cash generation this half. With capex of 12.70, estimated FCF is approximately 22.69, indicating capacity to de-lever or fund dividends/investments. Working capital details are not disclosed, but the OCF strength suggests either stable collections or an inventory release; no clear signs of end-period working capital build to inflate earnings. Financing CF of -45.52 indicates net debt reduction or dividends/repurchases; dividends/repurchases are unreported, so we infer debt paydown as a likely driver. Overall, cash conversion is healthy and supports balance sheet stability despite thin margins.

Dividend Sustainability

The calculated payout ratio is 149.2%, implying dividends exceed current earnings capacity; however, DPS and total dividends paid are unreported. On a cash basis, estimated FCF of ~22.69 (OCF 35.39 minus capex 12.70) provides some room for distributions, but sustaining payouts above earnings would rely on continued strong OCF and could limit deleveraging. Without explicit dividend policy guidance or DPS data, we treat dividend sustainability as cautious: viable if earnings and margins normalize, but at risk if operating softness persists or if capex/working capital needs rise.

Risk Assessment

Business Risks:

• Operating margin compression amid flat revenue suggests weak pricing power and/or cost passthrough challenges.
• Exposure to input cost volatility (steelmaking raw materials, energy/electricity) can pressure margins.
• Demand cyclicality in key end markets (automotive, industrial machinery) may cap near-term revenue growth.
• High effective tax rate (43.2%) dampens net profitability leverage.
• Capital intensity with low ROIC (1.5%) risks value dilution absent margin/turnover improvements.

Financial Risks:

• Leverage above conservative benchmark (D/E 1.67x) with moderate interest coverage (3.28x).
• Refinancing risk from sizable short-term loans (218.98) relative to cash (144.98), albeit mitigated by strong current assets.
• Dividend sustainability risk given a calculated payout ratio of 149.2% versus thin earnings.
• Sensitivity to interest rate increases given interest expense of 6.47 and compressed EBITDA.

Key Concerns:

• ROE of 1.4% and ROIC of 1.5% are below cost of capital, indicating weak capital efficiency.
• Non-operating expenses exceed non-operating income, dragging ordinary income.
• Potentially sticky SG&A (82.78) relative to soft sales, reducing operating leverage.
• Data gaps (no segment detail, limited SG&A breakdown) limit identification of cost/profit drivers.

Investment Implications

Key Takeaways:

• Operational softness: operating margin compressed to ~2.7% with operating income down 32.9% YoY.
• Cash conversion strong: OCF 35.39 equals 5.25x net income; estimated FCF ~22.69 supports balance sheet.
• Leverage moderate-high: D/E 1.67x and interest coverage 3.28x require caution if earnings weaken.
• Capital efficiency weak: ROE 1.4% and ROIC 1.5% need improvement via margin and asset turnover.
• Dividend risk: calculated payout ratio 149.2% may be unsustainable without earnings recovery.

Metrics to Watch:

• Operating margin trajectory and gross margin mix (pricing vs input costs).
• Asset turnover improvement (revenue growth vs asset base).
• Interest coverage and net debt trend (financing CF, debt maturities).
• Working capital movements (AR and inventory relative to sales) to validate OCF durability.
• Capex discipline vs growth returns (ROIC uplift).

Relative Positioning: Versus Japanese specialty steel/forging peers, Mitsubishi Steel Mfg. shows adequate liquidity but lower capital efficiency (ROE/ROIC), thinner operating margins, and somewhat higher leverage, offset by strong near-term cash conversion.

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