RINNAI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥216.41B
• Operating Income: ¥22.73B
• Net Income: ¥15.92B
• EPS: ¥113.77

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

Rinnai Co., Ltd. (TSE:5947) reported FY2026 Q2 consolidated results under JGAAP with steady topline growth and notable margin expansion. Revenue was ¥216.4bn, up 2.0% YoY, indicating moderate demand resilience. Gross profit reached ¥71.6bn, implying a gross margin of 33.1%, suggesting improved product mix and/or input cost normalization. Operating income grew 8.2% YoY to ¥22.7bn, lifting the operating margin to approximately 10.5%, evidencing positive operating leverage. Ordinary income of ¥25.3bn exceeded operating income, implying supportive non-operating items (e.g., finance income or FX), though details are not disclosed. Net income surged 30.0% YoY to ¥15.9bn, benefitting from operating gains and a tax burden consistent with historical norms. DuPont analysis shows ROE of 3.52% driven by a 7.36% net margin, asset turnover of 0.369x, and modest leverage of 1.30x, highlighting earnings quality with conservative balance sheet risk. Liquidity is robust: current ratio 333.8% and quick ratio 295.5%, underpinned by sizable working capital of ¥253.9bn. Solvency is strong with debt-to-equity of 0.32x and negligible interest expense, yielding interest coverage of ~473x. Operating cash flow of ¥16.0bn is roughly in line with net income, indicating solid cash conversion for the half-year. However, investing cash flow, cash balance, free cash flow, and dividend data are not disclosed (reported as zero placeholders), limiting full cash return and capital allocation assessment. Inventory stood at ¥41.5bn; based on period COGS, implied turns appear healthy, though only ending balances are available. Overall, the company demonstrates disciplined cost control, resilient profitability, and low financial risk, while growth remains modest and some cash flow and capital allocation details are unavailable. Outlook hinges on sustaining margin gains, stabilizing revenue growth, and maintaining efficient working capital management amid macro and FX variability.

Profitability Analysis

ROE_decomposition: ROE 3.52% = Net Profit Margin 7.36% × Asset Turnover 0.369 × Financial Leverage 1.30. With low leverage, ROE is primarily a function of margins and asset efficiency. The asset turnover of 0.369x indicates a relatively asset-heavy or cash-rich balance sheet, tempering ROE despite solid margins. margin_quality: Gross margin is 33.1% (¥71.6bn/¥216.4bn), reflecting improved pricing/mix or easing input costs. Operating margin is ~10.5% (¥22.7bn/¥216.4bn), up YoY alongside 8.2% operating profit growth against 2.0% revenue growth. Ordinary income margin is ~11.7% (¥25.3bn/¥216.4bn), indicating favorable non-operating items. Net margin at 7.36% confirms disciplined SG&A and tax outcomes. Implied effective tax rate is ~27% (¥5.96bn tax / (¥15.92bn NI + ¥5.96bn tax) ≈ 27%), consistent with normal ranges for Japan. operating_leverage: Revenue grew 2.0% YoY while operating income rose 8.2% YoY, implying operating leverage of ~4.1x in the period, supported by cost discipline and scale benefits.

Growth Assessment

revenue_sustainability: Topline growth of 2.0% YoY suggests stable demand, but momentum is modest and likely sensitive to macro conditions in housing-related and appliance end-markets. profit_quality: Operating profit outpaced sales growth, indicating genuine efficiency gains. Ordinary income exceeding operating income points to supportive non-operating factors; sustainability will depend on FX/financial items which can normalize. outlook: Margin gains provide a cushion if demand slows, but sustaining profit growth will require either reacceleration of revenue or continued cost/productivity improvements. Watch price/mix, raw material trends, and overseas business/FX contributions.

Financial Health

liquidity: Current ratio 333.8% and quick ratio 295.5% indicate ample short-term liquidity. Working capital totals ¥253.9bn (¥362.5bn CA − ¥108.6bn CL). solvency: Debt-to-equity is 0.32x (using total liabilities as proxy for debt), with interest expense of only ¥0.05bn and interest coverage ~473x, reflecting very low financial risk. capital_structure: Assets ¥586.2bn vs. equity ¥451.7bn imply leverage of 1.30x; balance sheet remains conservatively financed, providing flexibility for investment and shareholder returns.

Cash Flow Quality

earnings_quality: OCF of ¥16.0bn closely matches net income of ¥15.9bn (OCF/NI ≈ 1.00), indicating solid cash conversion in H1 and limited accrual build. FCF_analysis: Investing cash flow and capex are not disclosed (shown as zero placeholders), so free cash flow cannot be reliably calculated for the period. working_capital: Inventories are ¥41.5bn. Using period COGS of ¥140.5bn and ending inventory as a proxy, implied turns are ~3.4x for the half-year (annualized ~6–7x), indicative of healthy throughput; however, lack of average balances limits precision.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed (zeros are placeholders). With EPS at ¥113.77 for the period, capacity for dividends appears supported by earnings, but actual policy and distributions cannot be assessed from the provided data. FCF_coverage: Free cash flow is not derivable due to undisclosed investing cash flows; therefore, FCF coverage of dividends cannot be evaluated. policy_outlook: Given strong balance sheet and cash generation, the company has potential flexibility for shareholder returns, but without disclosed DPS or guidance, no conclusion can be drawn on policy direction.

Risk Assessment

Business Risks:

• Demand sensitivity to housing and renovation cycles in key markets
• Energy transition and potential electrification/heat-pump substitution impacting gas appliance demand
• Raw material and logistics cost volatility affecting margins
• FX fluctuations impacting overseas revenue and non-operating income
• Competitive pricing pressure in domestic and international markets
• Product quality, recall, and warranty risks

Financial Risks:

• Inventory obsolescence risk if demand weakens
• Potential normalization of favorable non-operating gains (reducing ordinary income)
• Exposure to input cost inflation compressing gross margin
• Working capital swings affecting near-term OCF

Key Concerns:

• Modest 2.0% revenue growth versus strong profit growth raises questions on sustainability of margin-led earnings
• Low asset turnover (0.369x) constrains ROE despite healthy margins
• Limited disclosure on investing cash flows and cash balance complicates FCF and liquidity granularity
• Dividend data not provided, limiting visibility on shareholder return trajectory

Investment Implications

Key Takeaways:

• Margin expansion with operating margin ~10.5% and net margin 7.36% despite only 2.0% sales growth
• ROE of 3.52% driven by margins with conservative leverage (1.30x)
• Very strong liquidity (current ratio ~3.34x; quick ratio ~2.96x) and minimal interest burden
• OCF roughly equals net income, indicating solid earnings quality
• Ordinary income above operating income suggests supportive non-operating items that may not be recurring
• Data gaps on investing cash flow, cash balance, and dividends limit assessment of FCF and capital returns

Metrics to Watch:

• Revenue growth trajectory and order/backlog indicators
• Gross and operating margins (input costs, pricing, and mix)
• OCF/Net income ratio and working capital days (inventory and receivables)
• Capex and investing cash flows to determine true FCF
• Ordinary income composition (FX/financial items) and sustainability
• Inventory turns and obsolescence risk
• Tax rate stability and any one-off items

Relative Positioning: Within Japan-listed appliance and equipment peers, Rinnai appears conservatively financed with robust margins and cash conversion, positioning it defensively; however, modest topline growth and reliance on margin expansion underscore the need to monitor demand trends and the persistence of non-operating tailwinds.

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