CK SAN-ETSU Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥69.00B
• Operating Income: ¥4.16B
• Net Income: ¥3.21B
• EPS: ¥241.30

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

CK San-Etsu reported FY2026 Q2 consolidated results with solid top-line growth but notable margin compression and weaker earnings. Revenue rose 12.0% YoY to ¥68.997bn, demonstrating resilient demand or pricing, yet operating income declined 30.0% YoY to ¥4.156bn as gross margin contracted to 12.3% and operating margin to roughly 6.0%. Ordinary income of ¥2.98bn was below operating income, indicating unfavorable non-operating items (e.g., forex, commodity hedging, or equity-method impacts). Net income fell 30.4% YoY to ¥2.018bn, yielding a net margin of 2.92%. DuPont metrics indicate a calculated ROE of 3.30%, driven by modest asset turnover (0.712x) and moderate leverage (assets/equity ≈ 1.59x). Liquidity is strong with a current ratio of 2.52x and quick ratio of 2.17x, supported by sizeable working capital of ¥37.94bn. The balance sheet is conservative: total liabilities are ¥27.94bn against equity of ¥61.11bn (liabilities/equity ≈ 0.46x; equity/asset ratio computed at ~63.1%). Despite positive earnings, operating cash flow was negative at -¥0.758bn, likely reflecting working capital investment in the context of higher sales and metal price dynamics. Financing cash flow was positive at ¥2.524bn, suggesting the firm tapped external funding (debt or other) to bridge cash needs, consistent with the working capital build. EBITDA is ¥5.036bn (7.3% margin), and interest expense is minimal at ¥15m, yielding very high interest coverage (277x) and indicating low financial risk from borrowing costs. The reported effective tax rate metric is shown as 0.0%, but tax expense of ¥1.502bn versus earnings implies this derived metric is not meaningful due to data limitations on pretax income disclosure. Dividend data are not disclosed in this dataset (annual DPS shown as 0), so payout assessment relies on earnings and cash flow context rather than reported distributions. Overall, the quarter reflects top-line momentum offset by cost pressure and weaker non-operating items, with cash conversion temporarily negative due to working capital. Strategic focus should be on restoring margins, improving cash conversion, and managing commodity and FX exposures. Data limitations exist in several reported zeros (e.g., cash & equivalents, equity ratio, investing cash flow, DPS, share count), which are treated as undisclosed rather than actual zeros.

Profitability Analysis

ROE decomposition (DuPont): Net margin 2.92% × asset turnover 0.712 × financial leverage 1.59 = ROE ~3.30%, aligning with the reported calculated figure. Operating margin stands at ~6.0% (¥4.156bn/¥68.997bn), down YoY given operating income -30% despite +12% sales, implying margin compression from input costs, pricing lag, product mix, or lower capacity utilization. Gross margin of 12.3% suggests tight spreads typical of nonferrous processing businesses, and the gap between gross and operating margins (~6.3ppt) appears stable but strained. EBITDA margin is 7.3%, indicating modest operating leverage; however, the negative YoY operating income versus higher sales shows adverse operating leverage in this period. Ordinary income below operating income indicates headwinds in non-operating items (e.g., FX, commodity hedges, or financial income/expense other than interest), which diluted bottom-line profitability. Interest burden is negligible (¥15m), so profitability pressure is operational or non-operational rather than financing-related. Overall margin quality is mixed: core operations generate profit, but sensitivity to input price swings and non-operating items is elevated.

Growth Assessment

Revenue grew 12.0% YoY to ¥68.997bn, indicating healthy demand or improved pricing for copper-alloy and related products. However, profitability lagged: operating income -30.0% YoY and net income -30.4% YoY point to unfavorable cost-price dynamics or product mix. The divergence between sales growth and earnings contraction suggests that growth quality is currently challenged, possibly due to raw material pass-through timing, higher energy/logistics costs, or weaker high-margin segments. Ordinary income below operating income further implies adverse non-operating factors (e.g., FX losses or hedge valuation). EBITDA of ¥5.036bn provides a cushion, but the EBITDA margin of 7.3% is not expanding alongside revenue, underscoring limited operating leverage during this phase. Near-term outlook hinges on the company’s ability to pass through input costs, normalize spreads, and stabilize non-operating impacts. Sustained revenue growth appears plausible given end-market breadth, but earnings sustainability requires margin recovery and better cost-disciplined execution. Given negative OCF, growth is currently more working-capital intensive, which could cap near-term free cash flow until inventories and receivables normalize.

Financial Health

Liquidity is strong: current ratio 2.52x and quick ratio 2.17x, supported by current assets of ¥62.961bn vs current liabilities of ¥25.021bn and working capital of ¥37.94bn. Inventories are ¥8.713bn (~13.8% of current assets), indicating ample liquid components within current assets. Solvency appears robust: equity of ¥61.111bn vs total assets of ¥96.951bn implies an equity ratio of ~63.1% (the reported 0.0% should be treated as undisclosed), and liabilities/equity is ~0.46x. Interest expense is low at ¥15m, yielding very high interest coverage (277x using EBITDA), implying low refinancing risk at current leverage. Positive financing cash flow of ¥2.524bn suggests incremental funding, likely to support working capital; leverage remains conservative relative to equity. Overall capital structure is healthy, providing resilience amid earnings volatility.

Cash Flow Quality

Net income was ¥2.018bn, but operating cash flow was -¥0.758bn, producing an OCF/NI ratio of -0.38 and indicating poor cash conversion this period. The most likely driver is a working capital build consistent with higher sales and commodity price pass-through (receivables and/or inventories increases), though specific line items are not disclosed. Free cash flow is shown as 0 in the dataset, which should be treated as undisclosed; with OCF negative and investing CF undisclosed, underlying FCF is likely negative if capex was ongoing. Depreciation & amortization totals ¥0.88bn, supporting non-cash earnings quality, but it was insufficient to offset working capital outflows. Financing CF of +¥2.524bn likely funded the OCF shortfall and/or capex, which is consistent with a temporary cash conversion dip during growth phases. Overall, earnings quality is moderate: accounting earnings are positive, but cash realization was weak this quarter.

Dividend Sustainability

Dividend data (annual DPS and payout ratio) are undisclosed in this dataset and appear as zeros; therefore, we cannot infer actual distributions. From an earnings perspective, EPS is ¥241.30 on net income of ¥2.018bn; if dividends were paid, payout capacity would depend on cash generation rather than accounting profit given negative OCF this period. FCF coverage is shown as 0.00x but should be treated as undisclosed; given likely negative underlying FCF, near-term cash coverage of dividends (if any) would be constrained by working capital. The balance sheet is strong with low leverage, which could support distributions, but sustainability would require improved cash conversion in subsequent quarters. Policy outlook cannot be assessed without stated guidance or historical payout information in this dataset.

Risk Assessment

Business Risks:

• Commodity price volatility (copper and alloy inputs) affecting spreads and inventory valuation
• FX fluctuations (notably USD/JPY) impacting input costs and export competitiveness
• Demand cyclicality in end-markets (automotive, electronics, machinery)
• Pass-through timing risk leading to margin compression during rising input costs
• Energy and logistics cost inflation affecting gross margins
• Product mix shifts reducing average margins
• Operational disruptions or capacity utilization swings affecting fixed-cost absorption
• Environmental and regulatory compliance costs for metals processing

Financial Risks:

• Weak cash conversion this period (OCF negative vs positive earnings)
• Working capital intensity during growth phases increasing reliance on external funding
• Potential non-operating losses (FX/hedging) depressing ordinary income
• Exposure to interest rate changes on incremental borrowings despite currently low interest expense
• Potential capex needs to maintain competitiveness impacting FCF

Key Concerns:

• Operating margin contraction despite double-digit revenue growth
• Negative OCF and reliance on financing CF in the period
• Ordinary income below operating income, implying unfavorable non-operating items
• Limited visibility on dividends and investing cash flows due to undisclosed data

Investment Implications

Key Takeaways:

• Top-line growth of 12% YoY did not translate into earnings growth; operating income fell 30% YoY
• ROE at ~3.3% is subdued due to thin net margins and moderate asset turnover
• Liquidity and solvency are strong (equity ratio ~63%, current ratio 2.5x) providing balance sheet support
• Cash conversion was weak (OCF/NI -0.38), likely from working capital build amid growth
• Interest burden is minimal (277x coverage), so earnings sensitivity is primarily operational and non-operational (FX/hedges)
• Financing inflows (+¥2.524bn) likely funded temporary cash needs

Metrics to Watch:

• Gross and operating margin recovery (pricing pass-through, spread management)
• OCF/Net income and working capital turns (inventory and receivable days)
• Ordinary income components (FX/hedging gains or losses and other non-operating items)
• Capex levels vs depreciation and implications for FCF
• Net debt/EBITDA and interest coverage as financing needs evolve
• Revenue mix by end-market and ASP trends

Relative Positioning: Within Japan’s nonferrous metals/fabrication peers, CK San-Etsu exhibits stronger-than-average balance sheet strength and liquidity, modest profitability with pressured margins this quarter, and low financing risk; ROE is currently below peer leaders pending margin normalization.

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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