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

Financial Highlights

• Net Sales: ¥79.93B
• Operating Income: ¥2.12B
• Net Income: ¥173M
• 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

Mitsubishi Steel Mfg. Co., Ltd. (TSE:5632) reported FY2026 Q2 consolidated results under JGAAP showing resilient top-line performance but a sharp contraction in operating profitability. Revenue was ¥79.9bn, down 0.7% YoY, indicating broadly flat demand conditions across key end-markets. Gross profit of ¥12.0bn implies a 15.0% gross margin, which remains reasonable for specialty steel and components, but operating income fell 32.9% YoY to ¥2.1bn, compressing the operating margin to approximately 2.7%. The deterioration in operating income versus a nearly flat revenue base suggests negative operating leverage and/or weaker pricing power amid cost pressures. Ordinary income of ¥1.4bn trails operating income, reflecting a sizable interest burden; interest expense was ¥0.75bn, consuming roughly 36% of EBIT and limiting coverage to 2.8x. Despite weaker operating profit, net income rose sharply to ¥0.67bn (+1,990% YoY), likely due to a low base effect and prior-year non-recurring items; the current net margin is still thin at 0.84%. DuPont analysis points to modest ROE of 1.36% driven by slim margins (0.84%), moderate asset turnover (0.605x), and leverage (assets/equity) of 2.67x. Liquidity appears sound with a current ratio of 183% and working capital of ¥37.9bn, suggesting adequate near-term funding capacity. Balance sheet strength is decent: liabilities/equity is 1.80x, while a computed equity ratio (equity/assets) is about 37.4% despite the reported equity ratio field being unreported. Cash flow is a key watchpoint: operating cash flow was negative at -¥0.81bn in the half, implying weak cash conversion versus reported earnings (OCF/net income = -1.20x). Free cash flow could not be assessed due to unreported investing cash flows, so cash coverage of dividends and debt is uncertain at this stage. EBITDA of ¥4.16bn (5.2% margin) provides some buffer, but higher interest costs constrain ordinary profit and cash generation. Inventory of ¥12.2bn is moderate relative to sales; managing inventory and receivables will be important to restore OCF in 2H. With earnings under pressure and interest costs elevated, improved price-cost pass-through and tighter cost control are necessary to stabilize margins. Given several unreported datapoints (e.g., cash balance, investing cash flow, dividends, share count), conclusions should be viewed with caution. Overall, the company remains profitable at the ordinary and net levels, but margin compression, negative OCF in H1, and interest burden temper the quality of earnings.

Profitability Analysis

ROE_decomposition: ROE 1.36% = Net margin 0.84% × Asset turnover 0.605× × Financial leverage 2.67×. The primary drag is the slim net margin, with turnover typical for capital-intensive manufacturing and leverage providing limited amplification. margin_quality: Gross margin at 15.0% is acceptable for the product mix, but operating margin compressed to ~2.7% as SG&A and other operating costs did not flex down with slightly lower sales. Net margin of 0.84% reflects both operating compression and high interest burden. The YoY surge in net income appears base-effect driven rather than a structural improvement. operating_leverage: Revenue declined only 0.7% YoY, yet operating income fell 32.9% YoY, evidencing negative operating leverage. This suggests weaker price realization, input cost inflation (materials/energy), and/or higher fixed cost absorption. Interest expense further amplifies downside from EBIT to ordinary income.

Growth Assessment

revenue_sustainability: Flat to slightly negative revenue (-0.7% YoY) suggests steady but unspectacular demand; likely supported by stable auto/industrial components volumes with limited pricing uplift. profit_quality: EBITDA margin 5.2% and operating margin ~2.7% indicate thin profit buffers; high interest costs (¥0.75bn) pressure ordinary income. OCF was negative despite positive earnings, highlighting weaker cash conversion quality in the period. outlook: Stabilization requires better price-cost pass-through, normalization of working capital, and cost discipline. If end-market demand holds and cost pressures ease, margins can recover in 2H; however, interest costs will continue to cap ordinary income unless debt is reduced.

Financial Health

liquidity: Current ratio 183.3% and quick ratio 156.5% indicate solid short-term liquidity with working capital of ¥37.9bn. Cash balance is unreported, but receivables and other liquid assets appear sufficient to cover current liabilities. solvency: Debt-to-equity (proxied by total liabilities/equity) is 1.80x. Computed equity ratio is ~37.4% (¥49.5bn/¥132.1bn). Interest coverage is 2.8x (EBIT/interest), adequate but thin for cyclical conditions. capital_structure: Assets ¥132.1bn; equity ¥49.5bn; liabilities ¥88.8bn. Leverage supports ROE but constrains flexibility via interest costs. Any increase in rates or refinancing needs could pressure coverage.

Cash Flow Quality

earnings_quality: Net income of ¥0.67bn contrasts with OCF of -¥0.81bn (OCF/NI = -1.20x), indicating poor cash conversion in H1, likely due to working capital build or timing effects. EBITDA of ¥4.16bn supports non-cash add-backs but did not translate into positive OCF. FCF_analysis: Investing cash flow is unreported, so FCF cannot be reliably calculated for the period. The provided FCF figure of 0 should be treated as not disclosed. Capex intensity and maintenance needs remain key unknowns. working_capital: Inventories at ¥12.2bn are manageable; the negative OCF points to increases in receivables or other current assets, or reductions in payables. A 2H unwind is essential to validate earnings quality.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio fields are unreported (zeros are placeholders). Based on EPS of ¥44.59 for H1, capacity for dividends depends on 2H earnings trajectory and cash generation. FCF_coverage: FCF is not computable due to missing investing CF; therefore, cash coverage of dividends cannot be assessed. Given negative OCF in H1 and interest costs, conservative distributions would be prudent until OCF normalizes. policy_outlook: Without disclosed DPS or policy guidance, assume a cautious stance pending visibility on OCF recovery, capex plans, and leverage management.

Risk Assessment

Business Risks:

• Exposure to cyclical automotive and industrial demand affecting volumes and mix
• Raw material and energy cost volatility compressing margins
• Pricing power limitations versus large OEM customers
• Supply chain and logistics disruptions impacting delivery and inventory
• FX fluctuations affecting imported raw materials and export competitiveness

Financial Risks:

• Elevated interest burden (¥0.75bn) limiting ordinary income and cash flow
• Potential refinancing risk if rates rise or credit spreads widen
• Negative OCF in H1 indicating working capital strain
• Leverage at 1.80x liabilities/equity reducing flexibility in downturns

Key Concerns:

• Sustained negative operating leverage with small revenue declines driving large EBIT contraction
• Weak cash conversion (OCF/NI -1.20x) despite positive earnings
• Thin interest coverage (2.8x) amid cyclical end-markets

Investment Implications

Key Takeaways:

• Top line resilient (-0.7% YoY), but margins compressed; operating income down 32.9% YoY
• Net income positive with sharp YoY rebound from a low base; underlying margin still thin at 0.84%
• Interest burden significant; ordinary income materially below operating income
• Liquidity solid (current ratio 183%), equity ratio computed ~37%, but OCF negative in H1
• Data gaps (cash balance, investing CF, DPS) limit precision of FCF and payout analysis

Metrics to Watch:

• 2H operating cash flow recovery and OCF/NI ratio normalization
• Price-cost spread (gross and operating margin progression)
• Interest expense trend and debt reduction plans
• Working capital turns: inventory days and receivable collection
• Capex commitments versus EBITDA to gauge FCF potential

Relative Positioning: Within Japan’s specialty steel and components space, the company exhibits adequate balance sheet strength and liquidity but trails on earnings quality due to margin compression and a relatively high interest burden; restoring cash conversion and improving operating leverage will be key to closing the gap with better-performing 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
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