Neturen Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.37B
• Operating Income: ¥512M
• Net Income: ¥832M
• 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

Neturen (High Frequency Heat Treatment Co., Ltd.) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥26.374bn, down 9.1% YoY, indicating a soft demand environment and/or pricing pressure in core heat treatment and specialty steel wire businesses. Gross profit is stated at ¥5.189bn, implying a gross margin of 19.7%, but the disclosed cost of sales figure appears inconsistent with this margin; for analysis we rely on the provided gross profit/margin. Operating income declined 40.1% YoY to ¥0.512bn, signaling pronounced operating leverage and/or elevated fixed costs and input cost pass-through delays. Ordinary income reached ¥0.88bn, suggesting non-operating contributions (e.g., financial income, equity-method gains) partially offset weaker operations. Net income was ¥0.462bn, down 24.8% YoY, with an implied effective tax rate around the low-40% range given the reported income tax and net profit. DuPont metrics show a modest net margin of 1.75%, low asset turnover of 0.319x, and conservative leverage of 1.29x, yielding a reported ROE of 0.72%, which is subdued relative to Japanese industrial peers. The balance sheet is strong: total assets of ¥82.8bn, equity of ¥64.2bn (equity ratio estimated ~77.5%), and total liabilities of ¥17.4bn, evidencing a conservative capital structure. Liquidity appears ample with a current ratio of ~400% and quick ratio of ~386%, underpinned by sizeable current assets versus current liabilities. Interest expense is modest at ¥23m, and interest coverage is high at 22.3x based on operating income, mitigating near-term refinancing risk. Working capital stands at ¥33.58bn, providing a substantial buffer for cyclical swings and project execution. Cash flow statements are unreported in this dataset (zeros indicate non-disclosure), limiting the ability to validate earnings quality via OCF or FCF conversion. Dividend data are also not provided; we therefore assess capacity rather than policy, noting that current earnings and the fortress balance sheet could support distributions, albeit profit softness and visibility matter. Overall, profitability compression against a relatively stable and conservative balance sheet points to cyclical end-market headwinds and cost dynamics as primary drivers. The company’s low financial leverage and high liquidity provide resilience to navigate the downturn and invest selectively. Key watchpoints include revenue trajectory into 2H, gross margin recovery, cost pass-through efficacy, and sustainability of non-operating gains supporting ordinary income. Data limitations (notably cash flow and share-related metrics) constrain precision on cash conversion and per-share analysis, but the available figures support a cautious interpretation of near-term earnings momentum with strong financial safeguards.

Profitability Analysis

ROE decomposition indicates: Net Profit Margin 1.75% × Asset Turnover 0.319 × Financial Leverage 1.29 = ROE 0.72%. The low ROE is driven primarily by thin margins and slow asset turnover rather than leverage, consistent with a conservative balance sheet. Gross margin of 19.7% suggests room for improvement if pricing and mix normalize, but the sharp YoY decline in operating income (-40.1%) versus revenue (-9.1%) points to high operating leverage and cost stickiness. Operating margin is approximately 1.9% (¥0.512bn/¥26.374bn), well below gross margin, indicating sizable SG&A/overheads and possibly elevated energy/materials costs or pricing lags. Ordinary income at ¥0.88bn exceeds operating income by ¥0.368bn, implying supportive non-operating items (e.g., interest/dividend income, FX, or affiliates), which helped cushion core weakness. Interest coverage of 22.3x demonstrates that financing costs are not a constraint on profitability. Given D&A is unreported (0), EBITDA cannot be reliably assessed; under JGAAP for an asset-heavy process business, actual depreciation is likely material, so reported EBIT understates cash earnings power but also implies capital intensity. Margin quality hinges on the company’s ability to pass through costs to OEMs/industrial customers and optimize product mix (e.g., higher-value induction heat-treated components). With asset turnover at 0.319x for the half-year period context, capital productivity appears low; utilization improvements would enhance operating leverage as volumes recover. Overall profitability is cyclically depressed with evidence of fixed-cost drag; recovery requires gross margin expansion and tighter SG&A control.

Growth Assessment

Revenue declined 9.1% YoY to ¥26.374bn, signaling softer demand in key end markets (automotive components, construction machinery, industrial equipment) and/or adverse pricing/mix effects. The outsized decline in operating income (-40.1% YoY) versus revenue indicates negative operating leverage and possibly cost inflation effects not fully offset by price increases. Net income contracted 24.8% YoY to ¥0.462bn, partially cushioned by non-operating income that lifted ordinary income above operating profit. Sustainability of revenue depends on 2H order momentum, backlog conversion, and customer production schedules; any normalization in automotive/industrial production would be supportive. Profit quality currently leans on non-operating contributions; core earnings recovery hinges on restoring gross margin. With asset turnover at 0.319x, capacity utilization and order inflows are key to leverage the fixed asset base. Near-term outlook is cautious given the H1 softness, but the strong balance sheet provides flexibility to fund selective capex, process upgrades, and productivity initiatives that can support medium-term growth. Currency effects (not disclosed) could influence reported ordinary income and competitiveness. Absent cash flow data, we cannot assess growth funding via internal cash generation, but low leverage suggests ample debt capacity if needed. Monitoring price-cost dynamics, order wins in higher-margin segments, and customer programs for EV/next-gen applications will be critical for sustainable growth.

Financial Health

Liquidity is robust: current assets of ¥44.785bn versus current liabilities of ¥11.205bn yield a current ratio of ~399.7% and a quick ratio of ~385.9%. Working capital is sizable at ¥33.58bn, implying ample headroom to manage inventory and receivables cycles. Solvency is strong: total liabilities ¥17.431bn versus equity ¥64.195bn suggests an equity ratio of roughly 77.5% (assets/equity leverage ~1.29x). The reported debt-to-equity ratio of 0.27x indicates modest leverage; interest expense of ¥23m and coverage of 22.3x confirm low financial risk. Cash and cash equivalents are unreported in this dataset, so absolute liquidity cannot be verified, but the scale of current assets versus current liabilities is reassuring. No maturity profile is provided; however, given small interest costs, near-term refinancing risk appears limited. The balance sheet can support capex and working capital needs even in a softer demand environment.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported (zeros indicate non-disclosure), so OCF/NI and FCF cannot be validated despite the calculated OCF/NI ratio of 0.00 and FCF of 0 being placeholders. Earnings quality therefore cannot be cross-checked via cash conversion metrics. In an asset-intensive, process-driven business under JGAAP, depreciation is typically meaningful; the lack of D&A disclosure in this dataset limits EBITDA and maintenance capex inference. Working capital appears ample (¥33.58bn), but without period movement data we cannot determine whether H1 profit decline was exacerbated by inventory builds or receivables stretch. Given the strong current and quick ratios, liquidity management seems prudent; nevertheless, confirmation via cash flow statements is needed to assess the sustainability of dividends or capex programs from internal funds. Key focus should be on inventory turnover, receivables collection, and capex discipline once cash flow data become available.

Dividend Sustainability

Dividend data (DPS, payout, FCF coverage) are not disclosed in this dataset; the zeros are placeholders and should not be interpreted as actual values. Capacity-based assessment suggests that, despite weaker profitability (net income ¥0.462bn in H1), the company’s conservative balance sheet (equity ratio ~77.5%, modest D/E of 0.27x, strong liquidity) provides flexibility to maintain or cautiously grow dividends over the cycle if management prioritizes shareholder returns. However, absent OCF/FCF data, we cannot verify coverage from free cash flow, which is the key constraint for sustainable distributions. The decline in operating income (-40.1% YoY) argues for prudence until margins stabilize. Policy outlook should be guided by earnings visibility in 2H, capex requirements, and potential strategic investments; a payout aligned with mid-cycle cash generation would be more sustainable than one tied to a soft earnings base.

Risk Assessment

Business Risks:

• Cyclical exposure to automotive and industrial end markets driving volume volatility
• Cost inflation (energy, materials) and lagged price pass-through compressing margins
• High operating leverage due to fixed-cost base amplifying profit swings
• Customer concentration risk typical in Tier-1/2 industrial supply chains
• Technology transition in autos (EV/weight reduction) potentially affecting product mix and demand
• FX volatility impacting competitiveness and non-operating income

Financial Risks:

• Limited visibility on cash generation due to unreported cash flows
• Potential working capital swings affecting short-term liquidity despite high current ratio
• Ordinary income reliance on non-operating items that may be non-recurring
• Tax rate variability (implied high effective tax) affecting net profit

Key Concerns:

• Operating income down 40.1% YoY versus a 9.1% revenue decline, evidencing negative operating leverage
• Thin net margin (1.75%) and low ROE (0.72%) relative to capital employed
• Gross margin recovery uncertain amid input cost and pricing dynamics
• Insufficient disclosure of cash flow and D&A limiting assessment of earnings quality and FCF

Investment Implications

Key Takeaways:

• Revenue contracted 9.1% YoY to ¥26.374bn with significant profit compression at the operating level
• Gross margin stated at 19.7%; restoring margin is critical to earnings recovery
• ROE at 0.72% reflects thin margins and low asset turnover rather than leverage
• Balance sheet is very strong (estimated equity ratio ~77.5%, D/E ~0.27x) with ample liquidity
• Ordinary income above operating income indicates supportive non-operating gains
• Cash flow disclosure is absent; validation of earnings quality via OCF/FCF is pending

Metrics to Watch:

• Gross margin and operating margin trajectory in 2H
• Order backlog and book-to-bill in automotive/industrial segments
• Price-cost spread (materials/energy vs. realized pricing)
• Working capital turns (DSO/DIO) and any OCF recovery once disclosed
• Capex intensity and maintenance vs. growth split
• Composition and sustainability of non-operating income

Relative Positioning: Within Japanese industrial/process peers, Neturen appears conservatively capitalized with above-average balance sheet strength but currently exhibits weaker profitability momentum and low ROE due to margin compression and low asset turnover.

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