CHUGOKUKOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.75B
• Operating Income: ¥-123M
• Net Income: ¥-77M
• EPS: ¥-5.40

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

For FY2026 Q2 (consolidated, JGAAP), 中国工業株式会社 reported revenue of ¥5,753 million, a 3.2% year-on-year decline, indicating mild topline softness. Gross profit was ¥1,072 million, translating to a gross margin of 18.6%, which suggests moderate value-add but limited pricing power or elevated input costs. Operating income was a loss of ¥123 million, and the operating margin turned negative despite only a modest revenue decline, pointing to unfavorable operating leverage and a fixed-cost burden. Ordinary loss narrowed to ¥42 million, implying positive non-operating contributions (approximately ¥81 million) that partially offset the operating loss, with interest expense of only ¥4 million. Net loss was ¥17 million (EPS: -¥5.40), a smaller loss than ordinary due to below-the-line items and taxes that netted out modestly. EBITDA remained positive at ¥42 million, indicating that non-cash depreciation and amortization (¥165 million) meaningfully cushioned cash earnings. On the balance sheet, total assets were ¥12,417 million against total equity of ¥6,053 million, yielding financial leverage (A/E) of 2.05x and a debt-to-equity ratio of 1.09x, reflecting moderate leverage for an industrial manufacturer. Liquidity appears adequate with a current ratio of 147.2% and working capital of ¥1,983 million. Operating cash flow was positive at ¥279 million, significantly exceeding reported net loss and indicating solid cash conversion supported by non-cash charges and likely working capital inflows. DuPont analysis yields an ROE of -0.28%, decomposed from a net margin of -0.30%, asset turnover of 0.463x, and leverage of 2.05x; weak profit margin is the principal drag on shareholder returns. Interest coverage based on EBIT was -30.8x due to the operating loss, but the absolute interest burden is low at ¥4 million, limiting near-term financing stress. Reported effective tax rate appears as 0.0% in the calculated metrics, but a tax line of ¥8 million is disclosed; interpretability is constrained by interim timing and losses. Several line items (e.g., inventories, cash and equivalents, capex/investing CF, equity ratio, DPS, shares) are shown as zero, which in this dataset denotes unreported rather than true zeros; conclusions are therefore constrained. The cash flow statement shows no investing cash flows, but this is likely a disclosure gap rather than zero capex; thus, free cash flow cannot be reliably assessed from the provided data. Despite the interim net loss, the combination of positive OCF, moderate leverage, and manageable interest expense suggests financial resilience, but sustained operating losses would erode this buffer. Looking ahead, stabilization of revenue and margin recovery are critical, given the sensitivity of profits to small changes in volume and mix.

Profitability Analysis

roe_decomposition: ROE -0.28% = Net margin (-0.30%) × Asset turnover (0.463x) × Financial leverage (2.05x). The primary drag is the negative net margin; asset efficiency is modest, and leverage is moderate but not excessive. margin_quality: Gross margin at 18.6% indicates moderate value-add. Operating margin is negative due to fixed cost absorption amid a 3.2% revenue decline. Non-operating gains (approx. ¥81m net) narrowed ordinary loss to ¥42m, but underlying operating performance remains weak. EBITDA margin is 0.7%, showing limited buffer after D&A (¥165m). operating_leverage: Revenue fell modestly, yet operating loss reached ¥123m, evidencing unfavorable operating leverage and a heavy fixed-cost base. Small improvements in volume or pricing could have outsized impact on operating income; conversely, further revenue pressure would deepen losses.

Growth Assessment

revenue_sustainability: Topline declined 3.2% YoY to ¥5,753m, indicating soft demand or pricing pressure. With asset turnover at 0.463x, capacity/utilization improvements would be needed to enhance efficiency. profit_quality: Ordinary loss (¥42m) is smaller than operating loss (¥123m) due to non-operating support; recurring profit quality hinges on restoring operating margin rather than relying on below-the-line items. outlook: Near-term growth will depend on stabilizing orders, pricing discipline, and cost control. Given the sensitivity of profits to small revenue changes, even modest demand recovery or cost pass-through could return the business to operating breakeven; absent that, losses could persist.

Financial Health

liquidity: Current assets ¥6,181m vs. current liabilities ¥4,198m imply a current ratio of 147.2% and working capital of ¥1,983m, providing a reasonable liquidity cushion. Quick ratio equals current ratio due to unreported inventories; actual quick liquidity may be lower. solvency: Total liabilities ¥6,582m vs. equity ¥6,053m gives D/E of 1.09x and leverage (A/E) of 2.05x, consistent with moderate balance-sheet risk. Interest expense is low at ¥4m, mitigating near-term solvency pressure despite operating losses. capital_structure: Funding mix is balanced between liabilities and equity. The low interest burden suggests limited reliance on high-cost debt; however, sustained operating losses would gradually weaken equity and constrain flexibility.

Cash Flow Quality

earnings_quality: OCF of ¥279m versus net loss of ¥17m yields an OCF/NI ratio of -16.41, reflecting strong cash conversion driven by non-cash D&A (¥165m) and likely working capital inflows. This indicates earnings are conservatively presented relative to cash in the period. fcf_analysis: Free cash flow cannot be determined because investing cash flow/capex is unreported (shown as zero in this dataset). Thus, FCF-based coverage metrics are not interpretable. working_capital: Positive OCF suggests favorable working capital movement (e.g., collection of receivables or inventory reduction), but specific components are not disclosed (inventories and cash balances are unreported), limiting granularity.

Dividend Sustainability

payout_ratio_assessment: Dividend data (DPS 0.00, payout ratio 0.0%) appear unreported in this dataset and should not be interpreted as an actual suspension or zero payout. With a net loss in the period, a mechanical payout ratio would be nonsensical. fcf_coverage: FCF coverage cannot be evaluated due to missing investing/capex data; OCF is positive, but without capex, coverage analysis is incomplete. policy_outlook: Given interim losses and the need to prioritize operating recovery and liquidity, a conservative dividend stance would be typical for peers in similar conditions; however, the company’s actual policy is not disclosed here.

Risk Assessment

Business Risks:

• Demand volatility leading to negative operating leverage given fixed-cost base
• Input cost inflation or adverse mix compressing gross margin
• Pricing power constraints in competitive markets
• Execution risk in cost control and productivity initiatives
• Reliance on non-operating gains to offset operating losses

Financial Risks:

• Sustained operating losses eroding equity and weakening coverage metrics
• Working capital swings affecting cash generation
• Limited visibility on capex and investment needs due to unreported investing CF
• Potential refinancing or covenant risks if losses persist, albeit current interest burden is low

Key Concerns:

• Negative operating margin despite only a 3.2% revenue decline
• Thin EBITDA margin (0.7%) leaving little buffer against shocks
• Dependence on non-operating items to narrow losses
• Data limitations on inventories, cash, capex, and dividends constrain assessment

Investment Implications

Key Takeaways:

• Modest revenue decline but disproportionate drop in operating profit indicates unfavorable operating leverage
• Gross margin of 18.6% and positive EBITDA suggest core cash generation potential if volumes stabilize
• Ordinary loss narrower than operating loss due to non-operating gains; recurring profitability requires operating improvement
• Liquidity is adequate (current ratio 147%) and leverage is moderate (D/E 1.09x), with low interest burden
• Positive OCF (¥279m) contrasts with accounting loss, but FCF cannot be assessed without capex data

Metrics to Watch:

• Order intake and backlog to gauge near-term revenue visibility
• Gross margin trends and price/cost spread
• Operating margin and EBITDA margin recovery trajectory
• Working capital days (receivables, payables, inventories) once disclosed
• Capex and investing cash flows to assess FCF and capacity needs

Relative Positioning: Relative to domestic industrial/manufacturing peers, leverage is moderate and liquidity adequate, but profitability underperforms given the negative operating margin and thin EBITDA; cash generation appears more resilient than earnings, contingent on sustained working capital discipline.

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