Fujikura Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥558.99B
• Operating Income: ¥90.17B
• Net Income: ¥69.67B
• Earnings per Unit (EPU): ¥243.35

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Fujikura delivered a strong FY2026 Q2 print with robust top-line growth translating into outsized profit expansion and double-digit ROE, albeit with a notable earnings quality caveat due to weak operating cash flow conversion. Revenue rose 24.9% YoY to 5,589.94, underscoring solid demand across core businesses. Operating income surged 63.5% YoY to 901.71, outpacing sales growth and signaling strong operating leverage. Ordinary income climbed 75.7% YoY to 917.01, supported by a small positive net non-operating contribution (+15.31). Net income jumped 133.7% YoY to 671.47, lifting net margin to 12.0%. Gross margin stands at 27.9%, showcasing healthy pricing and mix. Operating margin expanded to 16.1%, up an estimated 381 bps YoY (from ~12.3% to ~16.1%), reflecting effective cost control and scale benefits. Net margin expanded by approximately 559 bps YoY (from ~6.4% to 12.0%), aided by both operating leverage and a normalized effective tax rate of 24.5%. ROE improved to 13.6% (Net margin 12.0% × Asset turnover 0.654 × Leverage 1.73x), comfortably above typical 7–8% ROE/ROIC targets in Japan and above the company-reported ROIC of 14.8%. Liquidity is strong with a current ratio of 225% and quick ratio of 163%; solvency is conservative with D/E at 0.73x and interest coverage at 79.9x. However, operating cash flow of 131.25 represents only 0.20x of net income, flagging a material earnings quality issue likely tied to working capital absorption amid growth. Cash and deposits are ample at 1,539.88, and debt/EBITDA is low at 1.16x, mitigating near-term balance sheet stress. The calculated payout ratio is 44.1%, implying dividends are likely sustainable if cash conversion normalizes. Forward-looking, sustained margin discipline and ROIC > WACC provide a favorable base, but cash conversion and working capital management are the key watch items for the second half. Commodity (copper) and FX dynamics remain external swing factors for profitability. Overall, the quarter indicates improving structural profitability with a transitory cash flow drag.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 12.0% × 0.654 × 1.73x ≈ 13.6%. The largest delta vs last year stems from Net Profit Margin, evidenced by +559 bps expansion (approx. 6.4% → 12.0%), while Operating Margin expanded ~381 bps (approx. 12.3% → 16.1%). Asset turnover at 0.654 remains modest, consistent with a manufacturing profile and growth-driven working capital. Financial leverage at 1.73x is moderate and broadly stable, contributing but not driving the ROE improvement. Business drivers: operating leverage from 24.9% sales growth and disciplined SG&A (absolute SG&A 655.19 vs revenue 5,589.94) boosted margins; a benign non-operating result (+15.31) and a 24.5% effective tax rate supported net margin. Sustainability: core margin gains appear supported by mix/pricing and scale, but the extent of net margin expansion may normalize if commodity tailwinds and non-operating gains fade. Watch for SG&A growth relative to revenue in subsequent quarters; current disclosure lacks YoY SG&A detail, so we cannot confirm whether SG&A growth outpaced revenue. Overall margin trajectory is positive, with sustainability contingent on maintaining pricing power and controlling working capital that may be inflating asset base and dampening asset turnover.

Growth Assessment

Revenue grew 24.9% YoY to 5,589.94, indicating strong end-market demand, likely in telecom/optical and power-related businesses alongside healthy industrial/automotive cables. Operating income rose 63.5% YoY to 901.71, demonstrating strong operating leverage. Ordinary income increased 75.7% to 917.01, with a small non-operating tailwind. Net income climbed 133.7% to 671.47, exceeding revenue growth due to margin expansion and lower relative tax drag. EBITDA reached 1,017.27, with an 18.2% margin, supporting improved cash earnings capacity. ROIC at 14.8% is excellent (>8% benchmark), suggesting value-accretive growth. However, OCF of 131.25 vs NI 671.47 highlights poor cash conversion, implying growth is currently working-capital heavy (receivables/inventories build). Profit quality is good on an accrual basis but weak on a cash basis. Outlook hinges on demand resilience in data/telecom and power infrastructure and on successfully passing through copper price fluctuations. Near-term growth durability is supported by book-to-bill dynamics in infrastructure spending, but normalization of margins is a risk if input costs or FX move unfavorably. We expect management to focus on working capital optimization to align cash with earnings in the second half.

Financial Health

Liquidity is strong: Current Ratio 225.2% and Quick Ratio 162.7% both exceed healthy benchmarks; no warning for Current Ratio < 1.0. Solvency is conservative: Debt-to-Equity 0.73x and Debt/EBITDA 1.16x indicate ample headroom; D/E well below 2.0 threshold. Cash and deposits stand at 1,539.88, supporting flexibility. Short-term loans are 781.95 versus current assets of 5,770.56 and cash/receivables of 3,869.23, indicating low maturity mismatch risk. Long-term loans are 402.50, and interest coverage is very strong at 79.94x, minimizing refinancing risk. Working capital is sizable at 3,207.61, consistent with a manufacturing profile; however, it can create cash flow volatility. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not imply absence of such commitments.

Cash Flow Quality

OCF/Net Income is 0.20x, below the 0.8 threshold, indicating weak earnings quality this quarter and likely driven by working capital build amid strong growth. With Investing CF and Capex unreported, FCF cannot be calculated; thus, coverage of dividends and capex on a free cash basis is indeterminate. EBITDA of 1,017.27 vs OCF 131.25 suggests significant cash tied in receivables and/or inventories. No explicit signs of working capital manipulation are evident from the disclosed data, but the magnitude of divergence warrants monitoring of inventory turns and DSO in subsequent quarters. Financing CF of -295.73 suggests net debt reduction or shareholder returns, supported by strong liquidity. Cash balances mitigate near-term risk, but sustained low cash conversion would pressure FCF if capex and dividends remain elevated.

Dividend Sustainability

The calculated payout ratio is 44.1%, within the <60% benchmark, implying sustainability on an earnings basis. FCF coverage is not calculable due to missing Investing CF/Capex and dividend payment data. Given OCF is weak at 131.25 relative to NI 671.47, near-term cash coverage could be tight if capex needs are significant; however, strong cash on hand (1,539.88) and low leverage provide a buffer. Policy outlook: if management targets stable or progressive dividends, current profitability supports it, contingent on improved cash conversion in H2. We cannot comment on DPS trajectory due to unreported dividend details.

Risk Assessment

Business Risks:

• Commodity price volatility (especially copper) impacting input costs and pricing pass-through.
• Demand cyclicality in telecom/optical fiber, power infrastructure, and automotive/industrial cable markets.
• Project execution and delivery timing risk affecting revenue recognition and working capital.
• Supply chain disruptions leading to inventory and logistics cost pressures.
• FX fluctuations affecting export competitiveness and translation of overseas earnings.

Financial Risks:

• Weak cash conversion (OCF/NI 0.20x) indicating elevated working capital usage.
• Short-term debt reliance (781.95) requires continued access to credit markets, albeit mitigated by strong liquidity.
• Interest rate risk on floating-rate borrowings, though current interest coverage is high.
• Potential capex requirements not disclosed, creating uncertainty for FCF.
• Concentration of current assets in receivables/inventories increases cash flow volatility.

Key Concerns:

• Earnings quality flag: OCF materially below net income.
• Sustainability of margin expansion if input costs or FX turn adverse.
• Limited disclosure on SG&A breakdown and capex impedes deeper cost structure and FCF analysis.
• Potential inventory build and DSO elongation risk during high growth phases.

Investment Implications

Key Takeaways:

• Strong quarter with revenue +24.9% and operating income +63.5%, demonstrating operating leverage.
• Material margin expansion: OPM ~16.1% (+~381 bps YoY) and net margin 12.0% (+~559 bps YoY).
• ROE 13.6% and ROIC 14.8% indicate value-accretive performance.
• Balance sheet strength: Current ratio 225%, D/E 0.73x, interest coverage ~80x, Debt/EBITDA 1.16x.
• Earnings quality caveat: OCF/NI at 0.20x; cash conversion is the key watch point.

Metrics to Watch:

• OCF/Net income ratio and FCF once capex is disclosed.
• Receivable days (DSO) and inventory days (DIO) to gauge working capital normalization.
• Operating margin sustainability and pricing pass-through vs copper price moves.
• Order backlog and book-to-bill in telecom/power segments.
• FX sensitivity and hedging effectiveness.
• Capex plans and ROIC trajectory relative to the 8% benchmark.

Relative Positioning: Versus domestic peers in cables/components (e.g., Sumitomo Electric, Furukawa Electric), Fujikura currently exhibits superior profitability (OPM ~16%, ROE 13.6%, ROIC 14.8%) and conservative leverage, though its cash conversion is weaker this quarter. If working capital normalizes, the company would be positioned in the upper tier on returns with balanced financial risk.

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