Toyo Seikan Group Holdings,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥484.30B
• Operating Income: ¥30.16B
• Net Income: ¥35.23B
• Earnings per Unit (EPU): ¥222.01

Income Statement

Balance Sheet

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: A strong FY2026 Q2 with sharp profit recovery driven by operating margin expansion and sizable below-operating-line gains, but quality is tempered by a large extraordinary contribution and missing cash flow disclosure. Revenue rose 4.3% YoY to 4,843.03, supported by resilient packaging demand and likely improved price/mix. Operating income jumped 64.7% YoY to 301.55, implying operating margin of 6.23% versus an estimated 3.94% a year ago. Ordinary income rose 81.4% YoY to 334.19 as net non-operating gains of 32.64 (78.66 non-op income less 46.02 non-op expenses) augmented the operating recovery. Profit before tax reached 478.68, indicating approximately 144.49 of extraordinary gains versus ordinary income, a material one-time lift. Net income surged 177.0% YoY to 341.27, pushing net margin to about 7.05%. Gross profit was 736.78, for a gross margin of 15.2%, consistent with better pricing and/or input cost normalization. Interest coverage improved to 14.73x, underscoring a comfortable debt service position even as interest expense stood at 20.47. Balance sheet quality is strong: current ratio 189.2% and quick ratio 150.0% point to ample liquidity; debt-to-equity at 0.72x is conservative. However, ROE is only 5.0% and ROIC is 2.9%, flagging capital efficiency as a key structural challenge. Margin dynamics show healthy operating leverage: revenue grew 4.3% while operating profit grew 64.7%. Operating margin expanded by an estimated 229 bps YoY to 6.23%, and net margin expanded by roughly 440 bps to 7.05%. Earnings quality caveat: extraordinary gains (approx. 144.5) and a non-operating income ratio of 23.0% indicate elevated reliance on non-core items this quarter. Cash flow quality cannot be assessed due to unreported OCF/FCF; thus the sustainability of the earnings improvement remains uncertain. Forward-looking, normalization of the extraordinary line and stability of non-operating items will likely moderate bottom-line growth, placing more weight on sustaining operating margin gains. Focus areas for 2H: price pass-through discipline, raw material cost trajectory (metal, PET resin), and progress on ROIC improvement versus a management benchmark near 7–8%.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.0% = Net Profit Margin 7.0% × Asset Turnover 0.411 × Financial Leverage 1.72x. The largest contributor to the YoY change is the Net Profit Margin, which expanded sharply (net income +177% vs revenue +4.3%), aided by both operating margin gains and a sizable extraordinary uplift. Asset turnover remains modest at 0.411, consistent with an asset-heavy manufacturing footprint and significant investment securities on the balance sheet; limited change is evident this quarter. Financial leverage at 1.72x is stable and conservative, so leverage was not the driver of ROE improvement. Business reason: operating margin expansion likely reflects better price/mix and easing input costs (metals/resins), while the extraordinary gains (~144.5) materially boosted PBT and NI. Sustainability: the operating margin step-up has some durability if price pass-through holds, but the extraordinary gains are one-time and should be stripped from run-rate profitability. Watch for SG&A discipline: while SG&A level is 435.23, revenue grew 4.3% and operating income grew 64.7%, suggesting positive operating leverage this quarter; nonetheless, continued SG&A control is needed to sustain margins given ROIC is just 2.9%.

Growth Assessment

Top-line growth of 4.3% appears steady, likely driven by resilient food and beverage can demand and incremental pricing actions. Operating profit growth of 64.7% far outpaced revenue, indicating strong operating leverage from gross margin improvement and SG&A efficiency. Ordinary income rose 81.4%, aided by net non-operating gains (dividends 18.37, interest income 6.79, less higher interest and other non-op costs). Net income growth of 177% was amplified by approximately 144.5 in extraordinary gains, not reflective of recurring operations. Net margin at 7.05% is elevated relative to historical levels implied by last year’s estimated 2.65%. Near-term outlook hinges on maintaining price discipline and stable raw material/energy costs; any rebound in aluminum/steel/PET or utility costs could compress margins. Currency fluctuations could affect import costs and overseas subsidiaries’ contributions. Given ROIC at 2.9%, capital efficiency improvement remains a medium-term management focus; incremental portfolio pruning and capex scrutiny may be required. Growth sustainability into 2H should normalize as extraordinary items fade; core OP trajectory is the better indicator.

Financial Health

Liquidity is strong: current ratio 189.2% and quick ratio 150.0% are comfortably above benchmarks. No warning thresholds breached (Current Ratio > 1.0; D/E = 0.72x < 2.0). Maturity profile appears manageable: short-term loans of 1,009.28 are well covered by cash and deposits (1,118.37) plus accounts receivable (2,221.19), reducing maturity mismatch risk. Total liabilities are 4,944.58 versus total equity of 6,830.74, implying a conservative capital structure and leverage of 1.72x assets/equity. Interest coverage at 14.73x indicates low near-term refinancing or rate shock risk. Off-balance sheet obligations were not reported; absence of disclosure is a limitation, but typical industry exposures may include operating leases and purchase commitments for raw materials.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were unreported, so OCF/Net Income and FCF coverage cannot be calculated. Accordingly, we cannot verify whether earnings are backed by cash. Given the large extraordinary gains (~144.5), cash conversion could be weaker than net income suggests if those gains are non-cash or non-recurring. Working capital appears stable with receivables of 2,221.19 and inventories of 1,216.71 against payables of 1,085.64; no obvious signs of aggressive working capital release are evident from reported balances alone. Dividend and capex cash coverage cannot be assessed without OCF/FCF. Overall cash flow quality is indeterminate this quarter due to missing data and the presence of significant non-recurring income.

Dividend Sustainability

The calculated payout ratio is 43.5%, which is comfortably within the <60% benchmark and suggests room for maintenance under normalized earnings. However, DPS and total dividends paid were unreported, and OCF/FCF were not disclosed, preventing a cash coverage assessment. With retained earnings of 5,436.73 and conservative leverage (D/E 0.72x), balance sheet capacity supports ongoing dividends. Key caveat: current period net income includes material extraordinary gains; on a normalized basis, the payout ratio could be higher than 43.5%. Absent FCF data, we assume maintenance of dividends is likely but upside in payout may be constrained until cash generation is confirmed.

Risk Assessment

Business Risks:

• Raw material price volatility (aluminum, steel, PET resin) impacting gross margin
• Energy and utility cost fluctuations affecting manufacturing costs
• Pricing power and pass-through risk with major beverage and food customers
• Volume sensitivity to consumer demand and seasonal beverage consumption
• Execution risk in improving ROIC from a low 2.9% base

Financial Risks:

• Earnings reliance on non-operating and extraordinary items in the quarter
• Interest rate risk on 1,875.32 combined short- and long-term loans (1,009.28 ST, 866.04 LT)
• FX risk affecting imported inputs and overseas subsidiaries
• Potential cash flow shortfall vs. net income due to non-recurring gains (cash conversion uncertainty)

Key Concerns:

• Capital efficiency is weak (ROIC 2.9%), below industry targets
• Extraordinary gains (~144.5) inflated PBT/NI, reducing earnings quality
• Non-operating income ratio at 23.0% signals elevated below-OP contribution this quarter
• Limited disclosure on OCF/FCF and capex constrains visibility on sustainability

Investment Implications

Key Takeaways:

• Core recovery evident: operating margin expanded to 6.23% on 4.3% revenue growth and 64.7% OP growth
• Bottom line boosted by ~144.5 in extraordinary gains; normalize earnings for valuation
• Liquidity and leverage are healthy (current ratio 189%, D/E 0.72x, interest coverage 14.7x)
• Structural challenge: ROE 5% and ROIC 2.9% underscore need for capital efficiency improvement
• Non-operating contributions (dividends/interest) meaningful; sustainability should be monitored

Metrics to Watch:

• Operating margin trend and gross margin resilience
• OCF, FCF and working capital turns (once disclosed)
• Raw material cost indices (aluminum, steel, PET) and energy costs
• Price pass-through cadence with key customers
• Extraordinary and non-operating items normalization
• ROIC progression toward a 7–8% target range

Relative Positioning: Compared with domestic packaging peers, Toyo Seikan shows stronger near-term profit rebound and solid balance sheet strength, but lags on capital efficiency (ROIC/ROE). Sustained operating improvements and clearer cash generation are needed to close the efficiency 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