HOKKAN HOLDINGS LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥46.89B
• Operating Income: ¥4.25B
• Net Income: ¥3.36B
• EPS: ¥276.20

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

Verdict: A resilient but mixed FY2026 Q2—topline softened and operating margin compressed modestly, yet net profit grew on stronger non-operating tailwinds and a solid tax outcome, while cash generation was healthy but insufficient to cover a heavy capex cycle. Revenue declined 2.1% YoY to 468.94, with operating income down 4.2% YoY to 42.53 and ordinary income down 2.3% YoY to 45.08. Net income rose 7.0% YoY to 34.00, lifting EPS to 276.20 yen. Gross margin printed at 27.7%, and operating margin was 9.07%. We estimate prior-year operating margin at roughly 9.27%, implying about 20bps compression. Net margin improved to ~7.26% from ~6.65% a year ago, an expansion of about 60bps likely helped by net non-operating gains and an effective tax rate of 30.7%. Non-operating income of 6.17 against non-operating expenses of 3.62 contributed a net +2.55 to ordinary income, cushioning weaker operations. Cash flow quality was solid: operating cash flow of 51.99 exceeded net income (OCF/NI 1.53x). However, capex of 82.57 exceeded OCF, implying negative pre-dividend free cash flow this half and a reliance on balance-sheet capacity to fund investment and shareholder returns. Leverage is manageable (D/E 1.11x, interest coverage 13.46x) and liquidity remains sound (current ratio 143%, quick ratio 131%), though just shy of our 150% current ratio “healthy” benchmark. Capital efficiency is the key concern: ROE is 5.2% and ROIC is only 3.2%, below the 5% warning threshold, highlighting a need for better asset turnover or margin uplift. Working capital is adequate with cash and AR comfortably covering short-term borrowings, and no immediate maturity mismatch red flags. Forward-looking, sustaining price pass-through to offset input costs and improving ROIC as capex projects ramp will be critical. The negative pre-dividend FCF suggests a capex peak period; execution on returns from these investments will determine whether ROIC normalizes toward the cost of capital. Given several unreported disclosures (e.g., DPS details, investing CF), we base outlook on available lines—monitor for updates in Q3/Q4 on capex phasing, pricing, and cost trends.

Profitability Analysis

ROE (5.2%) = Net Profit Margin (7.2%) × Asset Turnover (0.343) × Financial Leverage (2.11x). The largest swing factor this quarter was margin mix: operating margin compressed ~20bps (9.27%→9.07%), while net margin expanded ~60bps (~6.65%→~7.26%), aided by net non-operating gains (+2.55) and tax rate dynamics. Business drivers likely include softer revenue (-2.1% YoY) and modest operating deleverage, partially offset by dividend/interest income and manageable interest expense (3.16). The margin compression appears cyclical/operational rather than one-time; non-operating uplift is less repeatable and could normalize. Sustainability: without clear mix or structural cost reductions, net margin support from non-operating items looks transient; improving ROIC will require either better price pass-through, utilization gains, or portfolio optimization. Watch SG&A intensity at 18.7% of sales; absent disclosed YoY SG&A data, we cannot confirm whether SG&A outpaced revenue, but the slight operating margin compression hints at limited operating leverage.

Growth Assessment

Revenue contracted 2.1% YoY to 468.94, indicating soft demand or pricing pressure in the period. Operating income declined 4.2% YoY to 42.53, underscoring mild negative operating leverage. Net income growth of +7.0% YoY to 34.00 was driven by a better below-OP line (net non-operating + tax), not core operational expansion. EBITDA of 73.03 (margin 15.6%) and depreciation/amortization of 30.50 point to a capital-intensive base with room for utilization and mix improvements. With ROIC at 3.2%, incremental growth must be disciplined and returns-focused; near-term profit momentum likely hinges on input cost pass-through and demand stabilization in cans/beverage filling. Outlook: cautious near-term given topline pressure and capex-heavy phase, with potential second-half improvement if cost pass-through strengthens and new investments begin contributing. Key swing factors: steel/tinplate/aluminum input costs, energy costs, and customer pricing resets.

Financial Health

Liquidity is adequate: current ratio 143.3% (slightly below our 150% healthy benchmark but above 1.0) and quick ratio 130.9%. No warning triggers (Current Ratio < 1.0: No; D/E > 2.0: No). Solvency is acceptable with D/E 1.11x and interest coverage 13.46x. Maturity structure appears balanced: current liabilities 353.79 vs current assets 507.10; short-term loans 111.88 are largely covered by cash 92.16 plus near-cash AR 233.06. Long-term loans of 248.33 indicate staggered debt maturities supporting capex. We note no disclosed off-balance sheet obligations. Working capital of 153.31 provides a cushion during capex ramp. Overall balance sheet can support current investment needs, though negative pre-dividend FCF this half reduces headroom if sustained.

Cash Flow Quality

Earnings quality is solid: OCF/Net Income = 1.53x (>1.0), indicating profits are cash-backed. However, capex (82.57) exceeded OCF (51.99), implying negative pre-dividend free cash flow of approximately -30.6 this half. Financing CF was -16.04, suggesting net repayments and/or dividends despite negative pre-dividend FCF—this is manageable short term given liquidity, but not sustainable if repeated. No obvious signs of working capital manipulation given OCF strength vs NI, though detailed WC bridges are unavailable. Sustainability hinges on capex normalization and OCF growth; until then, dividends and debt reduction may compete with investment outlays.

Dividend Sustainability

Calculated payout ratio is 36.8%, well within a sustainable <60% range on an earnings basis. That said, pre-dividend FCF was negative this half due to heavy capex, which can pressure cash-based coverage if capex remains elevated. Dividend details (DPS, total dividends) are unreported; absent that, we infer dividends were likely funded alongside some debt repayment, reducing financial flexibility marginally. Policy outlook: maintainable if capex moderates and OCF trends improve; if capex intensity persists, payout could increasingly rely on balance sheet, raising medium-term risk.

Risk Assessment

Business Risks:

• Input cost volatility (tinplate/steel, aluminum, energy) impacting gross margins and pricing negotiations
• Demand softness in cans/beverage-filling end markets leading to volume deleverage
• Customer pricing pressure and timing of pass-through clauses
• Execution risk on capex projects and ramp-up returns needed to lift ROIC from 3.2%

Financial Risks:

• Negative pre-dividend FCF in the half due to capex outlays
• Moderate leverage (D/E 1.11x; Debt/EBITDA ~4.9x) could constrain flexibility if earnings weaken
• Refinancing and interest-rate risk given total loans of ~360
• Potential working capital swings affecting OCF seasonally

Key Concerns:

• ROIC at 3.2% below the 5% warning threshold indicates capital efficiency challenges
• Operating margin compressed ~20bps YoY while revenue declined, signaling limited operating leverage
• Net margin improvement was supported by non-operating items that may not be recurring
• Limited disclosures (investing CF, DPS) reduce visibility into cash deployment and shareholder return policy execution

Investment Implications

Key Takeaways:

• Core operations softened (rev -2.1%, OP -4.2%) with ~20bps operating margin compression
• Net profit outperformed (+7.0% YoY) on non-operating support and tax, lifting net margin by ~60bps
• Cash earnings quality is good (OCF/NI 1.53x), but capex drove negative pre-dividend FCF
• Balance sheet is sound (current ratio 143%, D/E 1.11x, interest cover 13.5x) despite capex
• Capital efficiency is the main issue: ROE 5.2% and ROIC 3.2% require improvement

Metrics to Watch:

• ROIC uplift from new investments (target >5% near term, >7% medium term)
• Operating margin trajectory and gross margin vs input cost indices (steel/tinplate/aluminum, energy)
• Price pass-through timing in contracts and SG&A intensity vs sales
• OCF vs capex (pre-dividend FCF) and net debt/EBITDA trend
• Working capital metrics (AR and AP days) and short-term debt coverage by cash + AR

Relative Positioning: Within Japan’s metal packaging/beverage-filling peer set, Hokkan shows solid liquidity and manageable leverage but lags on capital efficiency (ROIC 3.2%) and showed mild operating deleverage this half; improving pricing power and project returns will be key to narrowing the gap with higher-ROIC peers.

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