ENVIPRO HOLDINGS Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥9.99B
• Operating Income: ¥422M
• Net Income: ¥34M
• EPS: ¥10.64

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Despite a sharp top-line decline, FY2026 Q1 delivered margin repair and a large rebound in profits, but earnings quality looks mixed given heavy reliance on non-operating and other operating items and limited cash flow disclosure. Revenue fell 18.5% YoY to 99.91, yet operating income rose 33.7% YoY to 4.22, implying stronger operating efficiency and/or beneficial mix/pricing. Gross profit was 16.00 (gross margin 16.0%), while SG&A was 17.34; to reconcile the positive operating income, other operating income is implicitly sizable (estimated around 5.6), highlighting non-core/other contributions to earnings. Operating margin expanded to about 4.23% from an estimated 2.58% a year ago, an improvement of roughly 165 bps despite revenue contraction. Ordinary income printed at 4.40 (+952.5% YoY), boosted by 2.16 in non-operating income versus 0.40 in non-operating expenses, indicating meaningful below-OP support. Net income rose to 3.01 (+780.0% YoY), and EPS (basic) was 10.64 JPY, though the effective tax and profit-before-tax line items show inconsistencies, suggesting classification/timing effects or data mapping gaps. ROE (DuPont) was 1.8% with a 3.0% net margin, 0.322x asset turnover, and 1.82x leverage, indicating modest profitability and low capital efficiency. ROIC was reported at 1.6%, below the 5% warning threshold, underscoring the need for better asset productivity or margin enhancement. Liquidity is solid with a current ratio of 173% and quick ratio of 129%, and leverage is moderate at D/E 0.82x and interest coverage 36.6x. Earnings quality cannot be verified due to unreported operating cash flow; this is a key blind spot. The reported payout ratio of 151.1% looks elevated and likely not covered by recurring free cash flow absent stronger OCF. The profit mix shows a high non-operating contribution, which may not be sustainable if commodity and market conditions normalize. Looking forward, sustaining the margin uplift while rebuilding volumes will be critical, as will evidence of cash conversion improvement. Key swing factors include metal scrap price trends, inventory discipline, and funding costs. Overall, the quarter shows improved profitability optics, but durability rests on core margin resilience and cash flow validation.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 3.0% × Asset Turnover 0.322 × Financial Leverage 1.82x = ROE ~1.8%. The largest driver of YoY change appears to be margin improvement (operating income +33.7% YoY despite sales -18.5%), implying operating margin expansion from ~2.58% to 4.23% (+165 bps). Business drivers likely include better pricing/spreads in recycling/metal recovery, cost control, and material contributions from other operating income; non-operating gains also lifted ordinary income. Sustainability is mixed: operational cost control may endure, but other operating income and non-operating income can be volatile. Watch for SG&A discipline: SG&A of 17.34 exceeded gross profit of 16.00, meaning core gross margin alone did not cover overhead; without other operating income, core profitability would have been negative. This indicates limited operating leverage at current volumes and underscores the need for gross margin improvement and/or further SG&A efficiencies.

Growth Assessment

Top line contracted 18.5% YoY to 99.91, likely reflecting softer metal scrap prices/volumes and cautious demand. Despite this, operating income grew 33.7% to 4.22, evidencing margin repair and/or mix benefits. Non-operating income of 2.16 further amplified ordinary profit (+952.5% YoY), suggesting favorable financial or ancillary gains. Given cyclical exposure, revenue sustainability hinges on commodity price stabilization and volume recovery in recycling and materials trading. Profit quality skews toward non-core support this quarter (other operating and non-operating items), so recurring earnings power should be assessed on core gross profit vs SG&A. Outlook: If volumes and pricing normalize while SG&A remains contained, operating margin could hold near 4%+, but reliance on non-operating income likely fades, tempering ordinary profit growth.

Financial Health

Liquidity is healthy: current ratio 173.1% and quick ratio 128.5% comfortably exceed benchmarks; no warning triggers (CR <1.0) observed. Working capital is positive at 65.18 with cash/deposits of 58.15 against short-term loans of 33.70, limiting near-term refinancing stress. Leverage is moderate: D/E 0.82x, with total interest-bearing loans of roughly 68.17 (short-term 33.70, long-term 34.47). Interest coverage is strong at 36.61x. Maturity mismatch risk appears manageable given cash, receivables (40.59), and inventories (39.79) versus current liabilities (89.21); however, inventory liquidity depends on commodity conditions. Off-balance sheet obligations are not disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be assessed—this is a key limitation. Given NI of 3.01 and notable contributions from non-operating and other operating items, cash conversion should be scrutinized once disclosed. Working capital dynamics (inventories 39.79, receivables 40.59, payables 28.40) could swing OCF depending on price/volume changes in metals. Without OCF and capex data, sustainability of free cash flow coverage for dividends and investment cannot be confirmed. No overt signs of working capital manipulation can be concluded from the limited snapshot.

Dividend Sustainability

The reported payout ratio is 151.1%, which is above the <60% benchmark and raises sustainability concerns absent robust free cash flow. DPS and total dividends paid are unreported, and OCF/FCF are unavailable, preventing coverage analysis. With ROIC at 1.6% and earnings supported by non-core items, maintaining an above-100% payout would likely require balance sheet reliance or a rebound in operating cash. Policy outlook should prioritize alignment of dividends with recurring FCF and ROIC improvement.

Risk Assessment

Business Risks:

• Commodity price volatility (scrap metals, precious metals) impacting spreads and inventory valuations
• Demand cyclicality in manufacturing/end-markets affecting volumes
• Execution risk on SG&A discipline and cost pass-through amid lower sales
• Reliance on other operating and non-operating income to support profits

Financial Risks:

• Potential cash conversion shortfall (OCF unreported) vs. earnings
• Dividend coverage risk given 151% payout ratio indication
• Inventory valuation and liquidity risk under adverse price moves
• Refinancing/interest rate risk on 33.70 short-term loans despite strong cash

Key Concerns:

• ROIC at 1.6% (<5% warning), signaling weak capital efficiency
• Inconsistencies across ordinary income, PBT, tax, and net income figures suggest mapping/classification or timing issues
• Core gross profit did not cover SG&A, implying dependence on other operating income for positive OP

Investment Implications

Key Takeaways:

• Margin repair drove OP growth despite an 18.5% sales decline; operating margin expanded by ~165 bps to ~4.23%
• Profit mix is non-core heavy (other operating and non-operating income), questioning durability
• ROIC at 1.6% highlights need for asset productivity and pricing/spread improvements
• Balance sheet/liquidity are sound, limiting near-term financial stress
• Dividend sustainability is questionable without OCF support given a 151% payout ratio indication

Metrics to Watch:

• Operating cash flow and working capital turns (inventory and receivables days)
• Core gross margin vs SG&A run-rate (ability to sustain positive OP without other operating income)
• Non-operating income composition and recurrence
• Scrap and metal price indices (ferrous/non-ferrous, precious metals) and spread trends
• Leverage/interest burden vs coverage as rates evolve
• ROIC trajectory and capex discipline

Relative Positioning: Within Japan’s recycling/materials recovery peer set, the company exhibits improved near-term margins but remains constrained by low ROIC and dependence on non-core income; balance sheet strength is a relative positive, while cash flow visibility and capital efficiency lag best-in-class operators.

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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