G-TEKT CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥154.51B
• Operating Income: ¥4.47B
• Net Income: ¥3.73B
• EPS: ¥84.14

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

FY2026 Q2 was a softer quarter operationally for G-TEKT, with top-line decline and margin compression leading to lower operating profit, partly cushioned by solid non-operating gains and strong cash generation. Revenue fell 7.7% YoY to 1,545.1, reflecting demand softness and/or model mix headwinds in key auto markets. Operating income declined 16.6% YoY to 44.66, and ordinary income decreased 4.7% YoY to 52.39, indicating a larger drop at the operating level than at the ordinary level. Net income contracted 7.6% YoY to 36.01, while total comprehensive income surged to 84.38, likely driven by FX translation and valuation effects. Gross profit came in at 134.13, implying an 8.7% gross margin, while the operating margin was approximately 2.9% (44.66/1,545.1). Based on prior-period implied figures, operating margin compressed by about 31 bps YoY (from ~3.20% to ~2.89%). EBITDA was 140.46 with a 9.1% margin, highlighting a depreciation-heavy P&L (D&A 95.80), which partly supports cash flow despite weaker EBIT. Non-operating income of 13.79 (mainly interest income 4.43 and dividends 1.25) exceeded non-operating expenses of 6.06, adding 7.73 to bridge operating income to ordinary income. Earnings quality appears high this quarter, with OCF of 121.21 exceeding net income by 3.37x, aided by depreciation and likely working-capital inflows. Liquidity remains strong: current ratio at 174.5% and cash/deposits at 437.47 comfortably cover short-term loans of 242.42. Leverage is conservative with D/E at 0.55x and interest coverage at 8.15x. However, capital efficiency is weak: ROE is 1.6% and ROIC is only 1.5%, well below a typical 7–8% target threshold, indicating limited value creation. The non-operating income ratio of 38.3% signifies elevated reliance on non-core items to support ordinary profit. Capex was heavy at -165.35, resulting in a negative proxy FCF (OCF – Capex) of about -44.14, implying near-term cash demands for investment. Reported payout ratio of 106.1% raises sustainability questions in light of negative proxy FCF and low ROIC, though dividend amounts are not disclosed. Looking ahead, margin recovery, capex payback, and stabilization of demand in key OEM programs will be critical to re-accelerate ROIC toward acceptable levels.

Profitability Analysis

Decomposing ROE using DuPont: ROE (1.6%) = Net Profit Margin (2.3%) × Asset Turnover (0.457) × Financial Leverage (1.55x). The most notable drag this quarter is margin pressure at the operating level: operating income fell 16.6% against a 7.7% revenue decline, compressing OPM by ~31 bps (from ~3.20% to ~2.89%). Asset turnover at 0.457 is modest, reflective of a capital-intensive stamping/welding footprint and large global fixed assets; no QoQ/YoY comparator is provided, but weak revenue likely lowered turnover. Financial leverage at 1.55x is conservative and stable, providing limited ROE amplification. Business drivers of margin compression likely include pricing/mix shifts with OEMs, cost inflation (energy, logistics), and potentially lower utilization in certain regions. Non-operating support (net +7.73) helped narrow the gap from operating to ordinary profit, but does not resolve core margin weakness. Sustainability: depreciation-heavy structure provides cash cushion, yet ROIC at 1.5% indicates that current returns on invested capital are below cost of capital; absent a demand/mix improvement or cost resets, sustained margin expansion is uncertain. Watch for SG&A discipline: SG&A was 89.46 (5.8% of sales); while we lack a YoY SG&A figure, the larger drop in OI relative to sales implies operating deleverage.

Growth Assessment

Revenue declined 7.7% YoY to 1,545.1, pointing to softer auto production volumes and/or model transitions at key customers. Operating profit fell 16.6% YoY to 44.66, indicating negative operating leverage as fixed costs were under-absorbed. Ordinary profit decreased a milder 4.7% to 52.39, supported by net non-operating gains. EPS (basic) was 84.14 JPY; book value per share is high at 5,102 JPY, reflecting a strong equity base but low earnings yield this period. EBITDA margin at 9.1% remains decent for the segment, but conversion to EBIT is pressured by high D&A (95.80). Profit quality is bolstered by OCF at 121.21; however, heavy capex (-165.35) weighs on free cash generation in the period. Outlook hinges on recovery in OEM schedules, ramp of new programs, and cost pass-throughs; stabilizing steel/energy prices and FX could aid margins. Given low ROIC (1.5%), the investment program must translate into tangible EBIT uplift to be accretive.

Financial Health

Liquidity is solid with current assets of 1,473.63 against current liabilities of 844.45, yielding a current ratio of 174.5% (no warning; >1.5 is healthy). Quick ratio is reported at 174.5%, but inventories are unreported; nonetheless, cash (437.47) and receivables (446.44) alone cover short-term loans (242.42), indicating low near-term refinancing risk. Total liabilities are 1,199.49 versus total equity 2,184.33, placing D/E at 0.55x, a conservative capital structure. Interest-bearing debt detail is partially unreported, but disclosed short-term (242.42) and long-term (245.98) loans total 488.40; interest coverage is comfortable at 8.15x. Maturity mismatch risk appears manageable: sizable cash and working capital (629.18) provide buffer against 844.45 of current liabilities. No off-balance sheet obligations are disclosed in the provided data set. No explicit warnings on thresholds (Current Ratio <1.0 or D/E >2.0) apply.

Cash Flow Quality

OCF/Net Income is 3.37x, indicating strong earnings quality this quarter, supported by non-cash D&A (95.80) and likely working-capital inflows. Capex was heavy at -165.35, implying a proxy FCF (OCF – Capex) of approximately -44.14; investing CF details are unreported, so this is an estimate and may differ from actual FCF if asset sales or financial investments occurred. The negative proxy FCF suggests investment-led cash usage this period; sustainability of dividends and buybacks needs careful monitoring until capex intensity moderates or OCF rises. Working capital movements cannot be diagnosed fully due to missing inventory data, but high OCF versus NI suggests either collection improvements or inventory drawdown. No clear signs of working capital manipulation are evident from the limited snapshot, though further detail on receivables days and payables terms would help.

Dividend Sustainability

Reported payout ratio is 106.1%, which, if accurate, exceeds the typical sustainable threshold (<60%) and is inconsistent with the negative proxy FCF in this period. Dividend amounts (DPS, total dividends) are unreported, limiting precision. With OCF healthy but capex elevated, internal coverage of dividends appears tight this quarter; financing CF was +41.57, suggesting some external funding that could indirectly support cash outflows. Given ROIC of 1.5% and low ROE (1.6%), management may need to balance shareholder returns with reinvestment and balance sheet prudence. Policy outlook cannot be inferred without guidance, but sustainability would improve if capex rolls off and EBIT normalizes, restoring positive FCF.

Risk Assessment

Business Risks:

• Auto production volatility and program timing affecting volumes and capacity utilization
• Pricing pressure from OEM customers impacting margins
• Input cost volatility (steel, energy, logistics) affecting COGS and gross margin
• Execution risk on heavy capex translating into adequate returns (ROIC currently 1.5%)
• FX fluctuations influencing both translation and transaction exposure

Financial Risks:

• Negative proxy FCF due to elevated capex, requiring continued strong OCF or financing
• Dependence on non-operating gains to bridge ordinary profit (non-operating income ratio 38.3%)
• Potential refinancing risk if market conditions tighten, though current liquidity is strong
• Interest rate exposure on variable-rate borrowings (detail not disclosed)

Key Concerns:

• Sustained margin compression at the operating level (OPM down ~31 bps YoY)
• Low capital efficiency (ROIC 1.5%, ROE 1.6%) versus industry return targets
• Dividend sustainability flagged by a >100% payout ratio and negative proxy FCF
• Data gaps (inventories, investing CF, DPS) limit full assessment of cash cycle and shareholder returns

Investment Implications

Key Takeaways:

• Core operations weakened: revenue -7.7% YoY and OI -16.6% YoY with ~31 bps OPM compression
• Strong cash conversion (OCF/NI 3.37x) offsets weaker EBIT, aided by high D&A
• Capex-heavy quarter (-165.35) yields negative proxy FCF (~-44), putting pressure on cash returns
• Balance sheet remains conservative (D/E 0.55x; current ratio 174.5%), mitigating downside risk
• Capital efficiency is the central issue: ROIC 1.5% well below 7–8% benchmarks

Metrics to Watch:

• Operating margin trajectory and gross margin recovery
• OCF sustainability versus capex intensity (proxy FCF turning positive)
• Program ramps and utilization rates impacting asset turnover
• Non-operating income dependence (interest/dividends/other) on ordinary profit
• FX trends and steel/energy cost pass-through to customers

Relative Positioning: Within Japanese auto parts suppliers, G-TEKT exhibits solid liquidity and conservative leverage but underperforms on capital efficiency and operating margin resilience; near-term performance hinges on demand recovery, cost discipline, and capex payback improving ROIC.

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
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