Toho Zinc Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥53.83B
• Operating Income: ¥-672M
• Net Income: ¥4.21B
• EPS: ¥-45.86

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

Toho Zinc (5707) reported FY2026 Q2 consolidated results under JGAAP characterized by revenue contraction, thin margins, and a continued net loss, albeit with positive operating cash flow. Revenue declined 15.2% year over year to ¥53.8bn, reflecting a weaker pricing/volume environment for nonferrous products and/or lower treatment charges, while cost discipline partly preserved a 14.1% gross margin. Operating income was a loss of ¥0.7bn, and ordinary income widened to a loss of ¥1.2bn, highlighting pressure from non-operating items, notably interest expense of ¥0.7bn. Net income was a loss of ¥1.35bn (EPS -¥45.86), essentially flat year over year per the disclosure (+0.0% YoY). DuPont analysis indicates ROE of -25.29%, driven by a negative net margin (-2.52%), modest asset turnover (0.553x), and very high financial leverage (18.19x). Liquidity appears ample with a current ratio of 3.25x and quick ratio of 2.74x, aided by sizeable working capital of ¥51.9bn. However, solvency is a concern: total equity is only ¥5.4bn against ¥97.4bn in assets, implying an approximate equity-to-asset ratio of ~5.5% and a reported debt-to-equity multiple of 16.67x. Operating cash flow was positive at ¥1.64bn, indicating an earnings–cash flow divergence driven likely by working capital movements and non-cash charges (depreciation of ¥1.42bn). EBITDA was ¥0.75bn (1.4% margin), barely covering interest expense on a cash earnings basis, suggesting tight interest service capacity in a weak price environment. Dividend distribution remains suspended (DPS ¥0), consistent with loss-making conditions and balance sheet preservation priorities. Several items in the dataset are unreported (e.g., investing cash flows, cash balance, equity ratio, shares outstanding), which constrains precision in free cash flow and per-share analysis; zeros should be interpreted as undisclosed rather than true zeros. Additionally, the liabilities and equity subtotals do not fully reconcile to total assets, which may reflect classification or disclosure scope differences; we base ratio analysis strictly on the provided non-zero figures. Overall, the quarter evidences cyclical headwinds and high leverage amplifying equity sensitivity, partially offset by solid liquidity and positive operating cash generation.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -2.52% × Asset turnover 0.553 × Financial leverage 18.19 = ROE -25.29%. The negative margin is the principal drag, with asset turnover moderate for a smelting/materials business, and leverage magnifying equity losses. Gross margin of 14.1% indicates some processing spread preservation but falls short of absorbing overheads, yielding an operating margin of approximately -1.25%. EBITDA of ¥0.75bn (1.4% margin) versus depreciation of ¥1.42bn highlights negative EBIT capacity before non-operating items. Interest expense of ¥0.72bn compresses ordinary profit, with EBIT/interest coverage at roughly -0.9x and EBITDA/interest at about 1.05x, indicating minimal cushion on a cash earnings basis. Margin quality is vulnerable to metal price and treatment-charge volatility, with operating leverage evident as small changes in gross spread swing operating profit. The presence of positive OCF despite an accounting loss suggests non-cash charges and working capital release supported cash profitability, but recurring profitability remains challenged until gross spreads or volumes recover. Tax expense was reported despite a pretax loss; under JGAAP this can arise from valuation allowances and non-deductible items, making the effective tax rate statistic not economically meaningful this quarter.

Growth Assessment

Revenue fell 15.2% YoY to ¥53.8bn, indicating a weaker demand/price backdrop across zinc/lead-related products and potentially lower TCs or adverse FX. Operating income recorded a ¥0.67bn loss with a YoY change of -53.8%, implying a material shift versus the prior-year base; with a negative base, the absolute improvement/deterioration is ambiguous, but profitability remains in the red. Net loss of ¥1.35bn was flat YoY (+0.0%), suggesting that while top-line contracted, cost actions and working capital may have mitigated the bottom-line deterioration. Asset turnover at 0.553x points to subdued throughput relative to the asset base, consistent with softer volumes or price levels. Given EBITDA margin at 1.4% and interest expense scale, near-term earnings sensitivity to zinc/lead prices, treatment charges, and FX is high. Sustainability of revenue depends on metal prices, smelting throughput, recycling volumes, and downstream demand in construction, autos, and industrials. Profit quality is presently weak given reliance on working capital to support OCF; a durable improvement would require higher gross spreads, better utilization, and continued cost control. Outlook near term remains constrained by macro/commodity conditions; any recovery in benchmark zinc prices or TCs, and stable JPY depreciation, would be supportive, while energy costs and maintenance cycles pose risk.

Financial Health

Liquidity is strong: current assets ¥74.9bn vs current liabilities ¥23.0bn yields a current ratio of 3.25x and quick ratio of 2.74x; inventories of ¥11.7bn are significant but not dominant in liquid resources. Working capital stands at ¥51.9bn, providing operational flexibility. Solvency is the key pressure point: total equity is only ¥5.35bn relative to ¥97.35bn in assets, implying thin capitalization (~5.5% equity-to-asset by calculation) and a high reported debt-to-equity multiple of 16.67x. Interest expense of ¥0.72bn against low EBITDA indicates elevated financial risk. While total liabilities reported are ¥89.2bn, the reconciliation to assets suggests classification nuances; nevertheless, leverage remains high on any view. The absence of a disclosed equity ratio and cash balance limits more granular assessment of net debt and covenant headroom.

Cash Flow Quality

Operating cash flow was positive at ¥1.64bn despite a net loss of ¥1.35bn, producing an OCF/NI of -1.21 (positive OCF with negative NI). This indicates cash generation supported by non-cash charges (depreciation ¥1.42bn) and likely working capital inflows; however, without a detailed bridge, durability is uncertain. EBITDA of ¥0.75bn is modest and close to interest expense, implying that cash conversion benefited from temporary working capital factors. Investing cash flow was not disclosed (reported as 0), so free cash flow cannot be reliably computed; the provided FCF figure of 0 reflects missing inputs rather than economic reality. Financing cash flow was an outflow of ¥1.02bn, suggesting net debt reduction or dividend/lease payments, but detail is unavailable. Overall earnings quality is mixed: accrual earnings are negative, cash earnings positive, and sustainability hinges on ongoing working capital discipline and margin recovery.

Dividend Sustainability

DPS is undisclosed as zero for the period (no dividend), with a payout ratio of 0.0%. Given negative net income and thin equity, capital preservation is prudent. Free cash flow coverage cannot be assessed due to missing investing cash flow; however, positive OCF alone is insufficient to infer sustainable distributable capacity, especially with interest burden of ~¥0.72bn and maintenance capex requirements typical for smelting assets. Company policy signals likely prioritization of balance sheet stabilization over distributions. Any resumption would require a sustained return to positive earnings and demonstrable FCF after capex and interest.

Risk Assessment

Business Risks:

• Commodity price volatility in zinc/lead and treatment charge cycles directly impacting gross spreads
• FX exposure (JPY vs USD) affecting both revenues and input costs
• Energy and reductant cost inflation squeezing smelting margins
• Operational risks at smelting and recycling facilities (maintenance, outages, environmental compliance)
• Customer demand variability in construction, automotive, and industrial sectors
• Supply chain fluctuations affecting concentrates availability and recycling feedstock

Financial Risks:

• High leverage with thin equity base (~5.5% equity-to-asset by calculation) magnifying earnings volatility
• Weak interest coverage (EBIT/interest ~ -0.9x; EBITDA/interest ~1.05x)
• Potential refinancing risk and sensitivity to interest rate levels
• Working capital swings that can materially affect cash flow
• Potential covenant headroom constraints (not disclosed)

Key Concerns:

• Sustained operating losses amid a softer pricing environment
• Dependence on working capital release to generate positive OCF
• Limited buffer to absorb shocks given high financial leverage
• Lack of disclosed investing cash flows and cash balance impedes FCF and liquidity visibility

Investment Implications

Key Takeaways:

• Revenue down 15.2% YoY to ¥53.8bn; margins compressed with operating loss of ¥0.67bn
• ROE -25.29% driven by negative margins and high leverage (18.19x)
• Liquidity strong (current ratio 3.25x; quick ratio 2.74x), but solvency weak with thin equity
• OCF positive at ¥1.64bn despite net loss, aided by non-cash and working capital effects
• Interest burden (~¥0.72bn) nearly equals EBITDA (¥0.75bn), leaving minimal cushion
• Dividend suspended; balance sheet preservation prioritized

Metrics to Watch:

• Benchmark zinc prices, treatment charges, and JPY/USD exchange rate
• Gross margin and EBITDA per tonne/segment (if disclosed)
• Working capital movements (inventories, receivables, payables) and OCF sustainability
• Capex and investing cash flows to assess true FCF
• Interest coverage and net debt/EBITDA (when debt and cash are disclosed)
• Equity base changes (retained losses, potential capital measures)

Relative Positioning: Within Japan’s nonferrous smelting and materials peer set, Toho Zinc currently exhibits higher financial leverage, lower margins, and greater earnings sensitivity to commodity cycles than diversified peers, leaving equity returns more volatile and dependent on a recovery in spreads and disciplined cost/working capital management.

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