ASAKA INDUSTRIAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.33B
• Operating Income: ¥148M
• Net Income: ¥109M
• EPS: ¥113.51

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

Asaka Kogyo (single-entity, JGAAP) reported FY2026 Q2 revenue of ¥4,328 million, down 6.6% YoY, indicating a soft demand backdrop and/or price/mix headwinds. Despite a still-solid gross margin of 29.6% (gross profit ¥1,279 million), operating income fell 48.0% YoY to ¥148 million, demonstrating pronounced operating leverage as fixed costs could not be flexed in line with the top-line decline. Ordinary income was ¥160 million, implying modest net non-operating gains of roughly ¥12 million. Net income declined 49.2% YoY to ¥109 million, driving a compressed net margin of 2.52%. DuPont metrics show low overall profitability: ROE is 2.5%, driven by a 2.52% net margin, 0.596x asset turnover, and 1.66x financial leverage (assets ¥7,261 million; equity ¥4,368 million). EBITDA of ¥188 million yields a thin 4.3% margin, highlighting limited cushion against further input cost or volume pressure. Liquidity remains strong with a current ratio of 226% and quick ratio of 142.5%, supported by working capital of ¥2,530 million, although inventories are sizable at ¥1,677 million. Leverage appears manageable with a 0.60x debt-to-equity metric and robust interest coverage of 29.9x (operating income ¥148 million vs. interest expense ¥4.95 million). Operating cash flow was positive at ¥76 million, but trailed net income (OCF/NI 0.70), suggesting working capital absorption and/or non-cash earnings elements. Reported effective tax rate in the calculated metrics (0.0%) is not meaningful; the provided income tax figure (¥96 million) and net income (¥109 million) are not fully reconciled with ordinary income (¥160 million), indicating disclosure scope/timing differences or classification items typical in JGAAP interim statements. Cash and equivalents, equity ratio, investing cash flows, and share data are shown as zero/unreported, limiting precision of per-share and capital allocation analysis. Dividend is reported as zero (DPS ¥0, payout 0%), consistent with conservative cash preservation amid margin compression and low ROE. Overall, the company exhibits a solid balance sheet and ample interest coverage, but profitability has weakened materially due to operating deleverage and thin EBITDA margins. Inventory levels merit monitoring given the OCF shortfall and declining sales. Near-term outlook hinges on demand normalization, price pass-through, and working capital discipline to stabilize margins and restore cash conversion. Given data gaps, conclusions focus on the available non-zero inputs and standard JGAAP interpretations for single-entity interim reporting.

Profitability Analysis

ROE_decomposition: ROE 2.50% = Net margin 2.52% × Asset turnover 0.596 × Financial leverage 1.66. Asset base ¥7,261m; equity ¥4,368m; revenue ¥4,328m; net income ¥109m. margin_quality: Gross margin 29.6% (¥1,279m/¥4,328m) is healthy, but operating margin compressed to 3.4% (¥148m/¥4,328m) as SG&A and fixed costs did not adjust to weaker sales. Net margin at 2.52% reflects limited non-operating contribution (ordinary income ¥160m vs. operating income ¥148m). EBITDA margin is thin at 4.3%, leaving limited buffer against further cost inflation or volume declines. operating_leverage: Revenue fell 6.6% YoY while operating income fell 48.0% YoY, implying high negative operating leverage (~7x sensitivity), indicating a largely fixed-cost base and/or reduced production efficiency and utilization.

Growth Assessment

revenue_sustainability: Top line declined 6.6% YoY to ¥4,328m, suggesting soft end-market demand and/or adverse price/mix. Sustainability depends on seasonality, channel inventory levels, and the company’s pricing power. profit_quality: Ordinary income modestly exceeds operating income, indicating small non-operating gains. However, EBITDA margin at 4.3% and net margin at 2.5% signal limited pricing power and cost pass-through. The OCF/NI ratio of 0.70 points to weaker cash conversion, likely from working capital absorption. outlook: Stabilization hinges on recovering volumes, disciplined SG&A, and inventory normalization. Cost controls and selective price increases could support a sequential margin recovery if demand stabilizes; otherwise, operating deleverage remains a risk.

Financial Health

liquidity: Current ratio 226% and quick ratio 142.5% indicate strong short-term liquidity. Working capital stands at ¥2,530m, with inventories at ¥1,677m (a large component of current assets), which may tie up cash if turnover slows. solvency: Debt-to-equity at 0.60x and interest coverage at 29.9x indicate low financial risk. Financial leverage (assets/equity) is 1.66x, consistent with conservative solvency. capital_structure: Equity ¥4,368m vs. total liabilities ¥2,622m suggests a predominantly equity-funded balance sheet. Equity ratio is shown as 0.0% in the dataset but is unreported; based on available figures, implied equity ratio would be approximately 60%.

Cash Flow Quality

earnings_quality: OCF of ¥76m vs. net income of ¥109m (OCF/NI 0.70) indicates under-conversion of earnings to cash, likely due to working capital build (notably inventories) and timing effects in a single-entity interim period. FCF_analysis: Free cash flow is reported as 0 due to unreported investing cash flows; with capex not disclosed, true FCF cannot be determined. EBITDA of ¥188m and modest interest expense suggest potential capacity to fund maintenance capex, but data is insufficient to confirm. working_capital: Inventories are sizeable at ¥1,677m. With sales down YoY, inventory turnover risk rises, which aligns with OCF lagging NI. Receivables/payables details are not disclosed, constraining deeper analysis.

Dividend Sustainability

payout_ratio_assessment: Reported DPS is ¥0 with a 0% payout ratio; with net income at ¥109m, the company is retaining earnings amid margin pressure and low ROE. FCF_coverage: FCF coverage cannot be assessed as investing cash flows are unreported and FCF is shown as 0 by placeholder. On available OCF, coverage of any hypothetical dividend would be cautious given OCF/NI below 1.0. policy_outlook: Given weak profitability (ROE 2.5%) and the need to preserve liquidity while margins are compressed, a conservative dividend stance appears consistent until cash conversion improves and earnings stabilize.

Risk Assessment

Business Risks:

• Demand volatility in end markets leading to volume swings and operating deleverage
• Input cost inflation (e.g., metals, energy) compressing margins amid limited pricing power
• Inventory buildup and potential obsolescence or discounting if sales softness persists
• Seasonality and weather-related demand variability affecting product sell-through
• Customer concentration or channel dependency increasing earnings volatility
• Competitive pricing pressure in commoditized product categories

Financial Risks:

• Working capital absorption reducing operating cash flow and liquidity headroom
• Potential interest rate increases marginally impacting financing costs (though coverage is currently ample)
• Limited EBITDA margin providing a small buffer against adverse shocks
• Data gaps on cash, capex, and debt structure limiting visibility into near-term cash needs

Key Concerns:

• High negative operating leverage evidenced by a 48% YoY drop in operating income on a 6.6% sales decline
• OCF trailing net income (0.70x), consistent with working capital strain
• Thin EBITDA margin (4.3%), limiting resilience to further cost or volume pressures
• Large inventory balance (¥1,677m) amidst declining revenue

Investment Implications

Key Takeaways:

• Revenue contracted 6.6% YoY; operating income fell 48% YoY, highlighting high operating leverage
• Gross margin remains healthy at 29.6%, but SG&A/fixed costs pressured operating margin to 3.4%
• ROE is low at 2.5% due to weak net margin and modest asset turnover
• Liquidity is strong (current ratio 226%, quick ratio 142.5%); leverage is moderate with robust interest coverage
• OCF underperforms NI (0.70x), pointing to working capital absorption; inventories are elevated
• Dividend is suspended (DPS ¥0), consistent with earnings pressure and cash preservation

Metrics to Watch:

• Gross margin and SG&A ratio trajectory
• Inventory turnover days and working capital intensity
• OCF/NI ratio and operating cash flow trends
• Operating margin and EBITDA margin recovery
• Order intake/backlog and price/mix realization
• Non-operating gains/losses and effective tax rate normalization
• Capex disclosures and true free cash flow

Relative Positioning: Within small-cap Japanese industrial/consumer tools peers, Asaka Kogyo exhibits a conservative balance sheet and ample interest coverage but lags on profitability with thin EBITDA margins and low ROE; near-term performance depends on restoring demand and improving cash conversion.

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