Neturen Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.37B
• Operating Income: ¥512M
• Net Income: ¥636M
• EPS: ¥13.61

Income Statement

Balance Sheet

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 soft FY2026 Q2 with revenue contraction and margin compression, partially cushioned by non-operating gains, and an OCI-driven swing to negative comprehensive income. Revenue declined 9.1% YoY to 263.74, while operating income fell 40.1% YoY to 5.12, signaling weakened operating leverage. Ordinary income decreased 23.8% YoY to 8.80, helped by 4.48 in non-operating income (dividends 1.35, interest 0.74). Net income declined 24.8% YoY to 4.62, with EPS at 13.61 JPY. Gross profit was 49.16 (GPM 18.6%), SG&A was 44.04, keeping the operating margin thin at 1.9%. We estimate operating margin compressed by about 100 bps YoY (from ~2.94% to 1.94%) and net margin compressed by ~37 bps (from ~2.12% to 1.75%). Ordinary margin also compressed ~64 bps YoY (from ~3.98% to 3.34%). The interest coverage ratio remains solid at 10.9x (OI 5.12 vs interest expense 0.47). Balance sheet strength is a key positive: current ratio 326%, quick ratio 316%, and low reported D/E of 0.29x; cash and deposits total 154.33. However, total comprehensive income was slightly negative at -0.13, implying an OCI loss of roughly -4.75, likely valuation losses on investment securities or FX effects. ROIC is weak at 0.7% (below the 5% warning threshold), reflecting low margins and modest asset turnover (0.319). Non-operating income played an outsized role relative to operating income, indicating reliance on financial income to support ordinary profit. Cash flow statements were not disclosed, so earnings quality (OCF support) cannot be verified, increasing uncertainty around cash conversion. The calculated payout ratio is an elevated 380.8%, but dividends were not disclosed; this requires caution and verification against company guidance. Forward-looking, cost normalization, demand recovery in key end markets (autos, machinery), and stabilization of investment securities valuations will be pivotal for margin repair. With liquidity ample and leverage low, the company has time to execute, but sustained ROIC uplift will require either pricing power, mix improvement, or utilization gains.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) ~1.75% × Asset Turnover (ATO) 0.319 × Financial Leverage 1.29x = ROE ~0.7% (matches reported). The most material change is the decline in NPM, given operating income fell 40.1% vs revenue -9.1%, implying negative operating leverage. Business drivers likely include weaker volumes, stickier cost base (SG&A 44.04 remained heavy relative to gross profit), and energy/labor cost pressure typical in heat treatment. Non-operating income (dividends and interest) partially offset operating weakness at the ordinary income level but does not improve ROE quality. Sustainability: the margin pressure looks cyclical but will persist absent pricing/utilization improvement; non-operating gains are not a dependable lever for structural ROE enhancement. Concerning trend flags: operating income contraction outpaced revenue (-40.1% vs -9.1%); implied SG&A intensity elevated; and reliance on non-operating income (4.48 nearly equivalent to operating income 5.12).

Growth Assessment

Top-line contracted 9.1% YoY to 263.74, indicating demand softness in core verticals (likely autos/construction machinery). Operating profit declined 40.1% YoY to 5.12 due to margin squeeze, implying negative operating leverage. Ordinary income fell 23.8% to 8.80 but benefited from dividends (1.35) and interest (0.74). Net income decreased 24.8% to 4.62; effective tax rate is stable at 26.0%. Margin trends: operating margin compressed by ~100 bps YoY to ~1.94%; net margin compressed by ~37 bps to ~1.75%. Comprehensive income flipped negative (-0.13) due to ~-4.75 in OCI, suggesting valuation headwinds on investment securities. With ROIC at 0.7%, current returns are below cost of capital. Near-term outlook hinges on volume recovery, better capacity utilization, and potential pass-through of energy and labor costs; stabilization of financial markets would also help reduce OCI volatility. No segment or order data provided; sustainability of growth cannot be robustly assessed from available disclosures.

Financial Health

Liquidity is strong: current ratio 325.9% (402.83 CA vs 123.62 CL) and quick ratio 315.7%, with inventories low at 12.51. Solvency is conservative: reported D/E 0.29x; interest-bearing loans total 65.59 (short-term 21.49, long-term 44.10) against equity of 641.95 and cash of 154.33, implying net cash position. Interest coverage is comfortable at 10.89x. Maturity mismatch risk is low: short-term loans (21.49) are well covered by cash (154.33) and receivables (115.92). No off-balance sheet obligations were disclosed in the provided data. Equity base is solid at 641.95, and goodwill/intangibles (12.84/22.96) are modest versus equity.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed, so OCF/Net Income and FCF cannot be calculated. Consequently, we cannot validate earnings quality via cash conversion (benchmark OCF/NI > 1.0) or assess sustainability of capex plus dividends. Working capital snapshot appears healthy (AR 115.92, inventories 12.51, AP 42.43), but without period flows we cannot detect potential timing effects or working capital-driven profit support. The negative OCI (~-4.75) indicates market valuation losses that do not affect OCF but do reduce comprehensive equity.

Dividend Sustainability

Dividend data were not reported. A calculated payout ratio of 380.8% is indicated but cannot be reconciled to disclosed DPS; this may reflect a full-year dividend assumption against a half-year EPS base—interpret with caution. With strong liquidity (cash 154.33) and low leverage, near-term dividend capacity is supported by the balance sheet, but current earnings power is weak (net margin ~1.75%, ROIC 0.7%). Without OCF and capex data, FCF coverage of dividends is not assessable. Policy outlook likely hinges on maintaining stable dividends, but if earnings softness persists, long-term payout sustainability could be pressured absent cash flow improvement.

Risk Assessment

Business Risks:

• Demand softness in core end-markets (auto, machinery) driving -9.1% YoY revenue and negative operating leverage
• Energy and labor cost inflation compressing margins in heat treatment operations
• Pricing power limitations in contract processing potentially constraining margin recovery
• Customer concentration risk typical in automotive supply chains (not disclosed but industry-common)

Financial Risks:

• High reliance on non-operating income (dividends/interest) to support ordinary profit (4.48 vs OI 5.12)
• OCI volatility from investment securities leading to negative comprehensive income (-0.13)
• Limited ROIC (0.7%) well below cost of capital, risking value dilution without earnings recovery
• Information risk: absence of cash flow and capex disclosures limits assessment of cash conversion and FCF

Key Concerns:

• Operating margin compressed ~100 bps YoY to ~1.94%
• Net margin only ~1.75% with NI -24.8% YoY
• ROE ~0.7% driven by low NPM and muted asset turnover (0.319), not leverage
• Potential dividend strain if payout remains high versus earnings and cash flow

Investment Implications

Key Takeaways:

• Earnings under pressure: revenue -9.1% YoY, operating income -40.1% YoY, with margin compression
• Ordinary income cushioned by dividends and interest; quality of earnings tilted toward non-operating sources
• OCI losses turned total comprehensive income slightly negative
• Balance sheet remains a clear strength (net cash, high liquidity, low leverage)
• Capital efficiency is weak (ROIC 0.7%): structural improvement needed via utilization, mix, and pricing

Metrics to Watch:

• Order trends and utilization rates across key plants
• Pricing and cost pass-through to offset energy and wage inflation
• Non-operating income stability (dividend sources, interest income) and OCI movements
• OCF, capex, and FCF once disclosed; OCF/NI target > 1.0
• Working capital turns (AR days, inventory turns) and any build-up
• Interest coverage and debt mix as rates evolve

Relative Positioning: Versus domestic heat-treatment and metal processing peers, liquidity and leverage are stronger-than-average, but profitability is currently subpar with thin operating margins and low ROIC; earnings resilience appears more dependent on financial income than on core operations.

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