TOHO TITANIUM COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥41.04B
• Operating Income: ¥1.32B
• Net Income: ¥1.13B
• EPS: ¥9.83

Income Statement

Balance Sheet

Cash Flow Statement

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

Toho Titanium (5727) reported FY2026 Q2 consolidated results under JGAAP showing a notable profit contraction amid a modest top-line decline. Revenue was ¥41.0bn, down 6.2% YoY, indicating softer demand or pricing in key product lines. Gross profit was ¥7.51bn, implying an 18.3% gross margin, which supports the view that input cost pressures and pricing dynamics are weighing on profitability. Operating income fell 49.5% YoY to ¥1.32bn, compressing operating margin to roughly 3.2%, a sign of negative operating leverage as fixed costs were less flexible against lower volumes. Ordinary income of ¥1.18bn trailed operating income, suggesting non-operating headwinds, including interest expense of ¥148m and possibly other items. Net income declined 38.2% YoY to ¥699m, translating to a 1.70% net margin and EPS of ¥9.83 for the period. DuPont metrics point to subdued returns: asset turnover at 0.331 and net margin at 1.70% produced a calculated ROE of 1.20% with financial leverage of 2.12x. EBITDA was ¥5.17bn and the EBITDA margin was 12.6%, implying significant depreciation and amortization of ¥3.85bn consistent with a capital-intensive profile. Liquidity remains sound, with a current ratio of 159.5% and quick ratio of 102.6%, underpinned by ¥24.87bn of inventories and working capital of ¥26.02bn. The balance sheet shows total assets of ¥123.82bn, total liabilities of ¥66.45bn, and equity of ¥58.29bn, resulting in a reported debt-to-equity ratio of 1.14x. Interest coverage at 8.9x indicates manageable financial burden despite weaker earnings. Operating cash flow was strong at ¥12.60bn, yielding an OCF/net income ratio of 18.0x, which implies significant cash conversion aided by working capital movements. However, several disclosures appear unreported (equity ratio, investing cash flow, cash and equivalents, dividend, and per-share equity metrics), limiting full evaluation of capital allocation, cash buffers, and free cash flow. While the effective tax rate is shown as 0.0% in the provided metrics, the reported income tax expense of ¥478m vs. ordinary income of ¥1.18bn suggests a non-trivial tax burden; methodology differences may apply. Overall, the quarter reflects pressured profitability with resilient liquidity and cash generation, but visibility into free cash flow and dividend policy is constrained by undisclosed items.

Profitability Analysis

ROE decomposition (DuPont) shows net profit margin of 1.70%, asset turnover of 0.331, and financial leverage of 2.12x, yielding a calculated ROE of 1.20%. The low net margin is the primary drag, with margin compression evident as operating income fell 49.5% YoY on a 6.2% revenue decline, indicating negative operating leverage. Gross margin at 18.3% versus operating margin around 3.2% highlights a sizable SG&A and fixed-cost load relative to revenue in the period. EBITDA margin of 12.6% versus operating margin suggests heavy depreciation (¥3.85bn), consistent with a capital-intensive manufacturing base. Ordinary income (¥1.18bn) below operating income (¥1.32bn) points to non-operating headwinds (including ¥148m interest expense), slightly eroding overall profitability. Interest coverage of 8.9x remains adequate, but a continued compression in operating profit could reduce this buffer. Margin quality appears challenged by either weaker pricing or less favorable product mix and potentially higher input costs. Asset turnover at 0.331 indicates modest efficiency, likely influenced by significant asset base and inventory intensity. Overall, profitability is under pressure, with fixed-cost absorption and mix contributing to the outsized decline in operating income versus revenue.

Growth Assessment

Revenue declined 6.2% YoY to ¥41.04bn, implying softer demand or pricing in titanium-related products in 1H. Operating income dropped 49.5% YoY to ¥1.32bn, significantly outpacing the revenue decline, indicating negative operating leverage and/or deterioration in mix. Net income decreased 38.2% to ¥699m, aided somewhat by non-operating factors but still reflecting operational compression. The EBITDA margin of 12.6% suggests the underlying cash earnings capacity remains intact, yet depreciation burden and lower operating margin weigh on accounting profits. OCF strength (¥12.60bn) implies working capital tailwinds or customer prepayments helped cash generation despite lower profits. Sustainability of growth will depend on normalization of demand, pricing discipline, and cost pass-through in raw materials and energy. With asset turnover at 0.331, incremental revenue recovery could have a leveraged effect on profits if fixed costs are largely covered, but conversely, further volume softness would exacerbate margin pressure. Outlook hinges on end-market conditions for titanium sponge/products and potential aerospace/industrial recovery; however, no explicit guidance is provided here.

Financial Health

Total assets are ¥123.82bn, liabilities ¥66.45bn, and equity ¥58.29bn, indicating moderate leverage with a debt-to-equity ratio of 1.14x. Liquidity is solid: current ratio 159.5%, quick ratio 102.6%, and working capital ¥26.02bn, implying good near-term coverage of obligations. Inventories at ¥24.87bn are sizable relative to the period’s cost of sales, highlighting inventory intensity typical of the sector; inventory management will be key to avoid cash reversals. Interest coverage at 8.9x suggests manageable debt service capacity given current earnings. The reported equity ratio was listed as 0.0%, which appears undisclosed in this dataset; based on liabilities and assets, the implied equity/asset ratio is approximately 47% (¥58.29bn/¥123.82bn), but we note this as an analytical inference. Cash and equivalents are not disclosed here, limiting assessment of immediate liquidity buffers. Overall solvency appears adequate with meaningful equity and stable capital structure.

Cash Flow Quality

Operating cash flow of ¥12.60bn versus net income of ¥699m yields an OCF/NI ratio of 18.0x, indicating strong cash conversion in the half, likely driven by working capital inflows (e.g., receivables collection and/or inventory drawdowns or payables timing). Depreciation and amortization of ¥3.85bn is substantial, aligning with the capital intensity and supporting cash earnings versus accounting profits. Free cash flow cannot be determined because investing cash flow is undisclosed (reported as 0 in the dataset), and cash and equivalents are also undisclosed. Financing cash flow was an outflow of ¥4.70bn, suggesting debt repayment and/or other distributions, though dividends are not disclosed here. Quality of earnings appears better in cash terms this period, but sustainability depends on whether working capital inflows are one-off or repeatable. Monitoring the reversal risk of working capital in subsequent quarters is critical.

Dividend Sustainability

Dividend data (annual DPS, payout ratio, and FCF coverage) are shown as 0 in the dataset and should be treated as undisclosed rather than actual zeros. Given net income of ¥699m for the period and strong OCF, internal capacity to fund dividends may exist, but without investing cash flow and actual DPS disclosure, coverage cannot be assessed. Payout ratio assessment is therefore not determinable from the provided data. Policy outlook cannot be inferred here; investors should refer to the company’s stated shareholder return policy and any guidance. Until DPS and investing cash flows are disclosed, dividend sustainability analysis remains constrained.

Risk Assessment

Business Risks:

• Demand cyclicality in titanium end-markets (aerospace, industrial, chemicals)
• Raw material and energy cost volatility affecting gross margins
• Product mix and pricing pressure impacting operating margin
• Inventory management risk and potential for working capital outflows in subsequent periods
• Customer concentration or contract timing risk in specialty materials

Financial Risks:

• Margin compression reducing interest coverage from the current 8.9x buffer
• Leverage sensitivity with debt-to-equity at 1.14x amid weaker profits
• Potential reversal of working capital-driven OCF inflows impacting cash generation
• Undisclosed cash and equivalents limiting visibility on immediate liquidity headroom
• Tax expense variability given apparent discrepancy between reported expense and calculated metrics

Key Concerns:

• Operating income down 49.5% YoY on a 6.2% revenue decline, indicating negative operating leverage
• Net margin at 1.70% and ROE at 1.20% point to subdued returns
• Heavy depreciation (¥3.85bn) underscores capital intensity and ongoing capex needs
• Critical cash flow items (investing CF, cash balance) and dividend data are undisclosed
• Inventory intensity (¥24.87bn) requires tight control to sustain cash conversion

Investment Implications

Key Takeaways:

• Top-line contracted 6.2% YoY to ¥41.0bn with disproportionately large profit decline
• Operating margin compressed to roughly 3.2%; EBITDA margin held at 12.6%
• ROE at 1.20% reflects low margins and modest asset turnover despite leverage of 2.12x
• Liquidity is adequate (current ratio 159.5%, quick ratio 102.6%) with ¥26.0bn working capital
• OCF was robust at ¥12.60bn, but sustainability hinges on working capital behavior
• Interest coverage at 8.9x provides cushion, yet prolonged margin pressure could erode it
• Key disclosures (equity ratio, investing CF, cash balance, dividends) are not available in this set

Metrics to Watch:

• Operating margin recovery trajectory and gross margin stability
• Working capital movements (inventories, receivables, payables) and OCF sustainability
• Capex and investing cash flows to assess true free cash flow
• Order trends and pricing in aerospace/industrial titanium markets
• Leverage and interest coverage as earnings normalize
• Any updates to dividend policy and DPS disclosure

Relative Positioning: Within Japan’s specialty metals/materials space, Toho Titanium exhibits solid liquidity and cash generation this half but weaker profitability and returns versus peers with steadier margins; improved demand and pricing are key to narrowing the performance gap.

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