KOBELCO WIRE COMPANY,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.54B
• Operating Income: ¥319M
• Net Income: ¥430M
• EPS: ¥72.87

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: A weak FY2026 Q2 with sharp operating margin compression and negative operating cash flow despite stable balance sheet liquidity. Revenue was 165.39 (−2.4% YoY), with gross profit of 28.26 and operating income of 3.19 (−50.3% YoY), indicating severe operating deleverage. Operating margin fell to 1.93% from an estimated ~3.79% a year ago, implying about 186 bps of compression. Net income was 4.30 (−16.0% YoY), supported by non-operating gains of 1.20 and relatively light taxes (effective tax rate 17.0%), softening the drop at the bottom line. Net margin came in at 2.60% versus an estimated ~3.02% last year, a compression of about 42 bps. Non-operating income accounted for roughly 28% of operating income magnitude (and materially supported ordinary income of 3.47), highlighting reliance on non-core income to offset weak operations. EBITDA was 8.28, placing EBITDA margin at 5.0%—low for covering both interest and capex needs. Cash conversion was poor: operating cash flow was −0.12 against net income of 4.30 (OCF/NI −0.03x), signaling earnings quality concerns likely tied to working capital movements. Liquidity appears sound with current ratio at 233% and quick ratio at 184%, though short-term loans of 55.84 exceed cash of 26.76, implying ongoing rollover needs. Leverage measured by D/E at 0.82x is moderate, but Debt/EBITDA around 13.1x is elevated for a manufacturer, increasing sensitivity to earnings volatility. Asset efficiency remains muted with asset turnover at 0.375 and ROIC at a very low 0.8%, well below cost of capital benchmarks. ROE is 1.8%, driven by thin net margins and low turnover; financial leverage (1.82x) is not overly high and cannot compensate for weak profitability. Capex of −9.15 versus negative OCF suggests negative implied FCF this half, pressuring dividend flexibility given a high calculated payout ratio of 82.5%. Forward-looking, the company must restore operating margin through pricing, mix, or cost control and normalize working capital to improve cash conversion. With commodity/raw material and energy cost dynamics likely still volatile, near-term margin recovery visibility appears limited. Overall, near-term focus should be on stabilizing operating profit and turning OCF positive while maintaining liquidity and managing refinancing of short-term debt.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.8% = Net Profit Margin 2.6% × Asset Turnover 0.375 × Financial Leverage 1.82x. The largest adverse change appears to be net profit margin, given operating income fell 50.3% YoY on only a 2.4% revenue decline; operating margin compressed by ~186 bps (to 1.93% from ~3.79%), while net margin compressed by ~42 bps. Business drivers: weaker gross-to-operating conversion suggests higher SG&A burden relative to sales and/or limited pricing power against input cost pressures; non-operating items cushioned ordinary income but do not reflect core competitiveness. Sustainability: margin pressure could ease if raw material and energy costs normalize and if pricing catches up; however, current EBITDA margin (5.0%) leaves little buffer, making rapid recovery uncertain. Concerning trends: SG&A at 25.07 fell less than operating profit and sits at 15.2% of sales (vs. an implied lower ratio last year), while revenue declined; this negative operating leverage warrants vigilance.

Growth Assessment

Top line slipped 2.4% YoY to 165.39, indicating soft demand or pricing pressure in core steel wire and processed products. Operating profit dropped 50.3% YoY to 3.19, far outpacing the revenue decline, evidencing significant margin compression. Net income declined 16.0% to 4.30, aided by non-operating income (1.20) and a modest tax burden. With non-operating income ratio at ~28%, profit composition skewed away from core operations, reducing quality of growth. Given EBITDA margin of 5.0% and low ROIC at 0.8%, incremental growth at current economics is value-dilutive. Near-term outlook hinges on stabilization of input costs, price pass-through to customers, and normalization of working capital. Without evidence of volume or mix tailwinds, revenue growth sustainability is uncertain; profitability recovery is the key driver of EPS trajectory.

Financial Health

Liquidity is strong: current ratio 233% and quick ratio 184%. No warning on current ratio (<1.0) or D/E (>2.0); D/E at 0.82x is moderate. Maturity profile shows short-term loans of 55.84 vs. cash of 26.76, indicating reliance on working capital facilities; however, current assets of 241.80 substantially exceed current liabilities of 103.70, mitigating immediate rollover risk. Interest coverage is 5.91x, at the strong threshold, suggesting manageable servicing under current earnings. Total liabilities are 198.27 against total equity of 242.53, supporting solvency. Off-balance sheet obligations are not disclosed in the provided data; none assessed.

Cash Flow Quality

Earnings quality is weak: OCF/Net Income at −0.03x (<0.8) flags a quality issue. With OCF at −0.12 and capex at −9.15, implied FCF is negative for the period (exact FCF unreported but directionally negative). The negative OCF likely reflects working capital build (e.g., inventories and/or receivables) and/or timing of payables, though precise drivers are unreported. No signs of aggressive revenue recognition can be confirmed without period-on-period working capital deltas; however, the divergence between NI and OCF elevates risk. Sustainability: without a turnaround in OCF (through margin recovery and WC normalization), funding needs will continue to rely on debt or equity, constraining capital allocation.

Dividend Sustainability

The calculated payout ratio is 82.5%, which is high relative to the <60% benchmark. With OCF negative and capex at −9.15, dividend coverage by FCF appears weak this half (FCF not reported but likely negative). Financing cash flow was +1.79, suggesting some reliance on external funding, which indirectly pressures dividend flexibility. Policy outlook cannot be inferred from unreported DPS data; if management targets stable dividends, near-term sustainability hinges on restoring positive OCF and improving margins. Absent cash flow improvement, maintaining a high payout could be challenging.

Risk Assessment

Business Risks:

• Input cost volatility (steel scrap, wire rod, energy) pressuring margins
• Demand cyclicality in automotive, construction, and industrial end-markets
• Pricing power limitations versus larger customers delaying pass-through
• Operational leverage risk given low operating margin (1.93%) and EBITDA margin (5.0%)
• Dependence on non-operating income (~28% of profit contribution) to support earnings

Financial Risks:

• High Debt/EBITDA (~13.1x) elevates sensitivity to EBITDA shocks
• Short-term loan reliance (55.84) versus cash (26.76) requires continuous refinancing access
• Negative OCF against positive NI signals cash conversion risk
• Potential capex and maintenance needs amid weak ROIC (0.8%)

Key Concerns:

• Earnings quality: OCF/NI −0.03x
• ROIC at 0.8% is far below 5–8% thresholds, implying value dilution
• Operating margin compressed by ~186 bps YoY to 1.93%
• Dividend coverage risk with high payout ratio (82.5%) and negative implied FCF

Investment Implications

Key Takeaways:

• Core profitability deteriorated materially; operating income −50.3% on −2.4% revenue
• Operating margin down ~186 bps; net margin down ~42 bps
• Cash conversion is poor (OCF negative), undermining earnings quality
• Balance sheet liquidity is solid (CR 233%), but ST debt rollover is a watch point
• Leverage moderate by D/E (0.82x) but elevated by Debt/EBITDA (~13.1x)
• ROIC of 0.8% signals subpar capital efficiency and limited value creation

Metrics to Watch:

• Operating margin and EBITDA margin trajectory
• OCF/NI and working capital movements (AR, inventory, AP turnover)
• Debt/EBITDA and interest coverage resilience
• Capex intensity vs. cash generation
• Dividend policy updates and payout ratio path
• Pricing pass-through and mix improvements in core segments

Relative Positioning: Within Japanese steel wire and specialty steel processing peers, the company currently screens weaker on profitability (low EBITDA margin, negative OCF) and capital efficiency (ROIC 0.8%), while liquidity is comparatively strong; leverage is acceptable on D/E but heavy on Debt/EBITDA, implying higher earnings sensitivity than well-positioned 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
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