KANEFUSA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.78B
• Operating Income: ¥435M
• Net Income: ¥300M
• EPS: ¥21.57

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

Verdict: Solid profitability resilience in FY2026 Q2 with margin expansion and strong cash conversion, offset by very weak capital efficiency (ROIC 1.3%) and a large OCI-driven comprehensive loss. Revenue declined 2.9% YoY to 97.77, but operating income rose 10.3% YoY to 4.35, demonstrating effective cost control and/or improved mix. Gross profit was 29.38, implying a gross margin of 30.0%, while SG&A was held to 25.03, yielding an operating margin of 4.45%. We estimate operating margin expanded about 53 bps YoY (from roughly 3.92% to 4.45%), reflecting better operating leverage despite top-line softness. Ordinary income was 4.14 (+181.4% YoY), driven mainly by stronger operating profit as net non-operating items were a small drag (income 0.59 vs expenses 0.80). Net income surged to 2.99 (+659.6% YoY) on a normalized tax rate (26.3%) and low base last year. Despite positive net income, total comprehensive income posted a substantial loss of -8.53, indicating significant unrealized valuation losses (likely securities/FX-related) in other comprehensive income. Cash generation quality was high: operating cash flow of 9.71 was 3.25x net income, supported by sizeable depreciation (8.39) and limited working-capital pressure. Liquidity is exceptionally strong with a current ratio of 588% and net cash position (cash 78.81 vs long-term loans 28.93). Leverage remains conservative (D/E 0.25x) and interest coverage robust at 13.05x. However, capital efficiency is weak: ROE is only 1.0% and ROIC 1.3% (well below the 5% warning threshold), implying returns are not meeting reasonable hurdle rates. The EBITDA margin of 13.0% suggests an adequate underlying earnings capacity, but heavy asset intensity and modest asset turnover (0.266) are constraining ROIC. Dividend sustainability is uncertain: the calculated payout ratio of 119.6% flags potential overdistribution relative to earnings, though reported dividend cash flows are unreported, limiting precision. Looking forward, maintaining cost discipline and mix/pricing gains will be key to protecting margins against a soft demand backdrop. The large negative OCI reveals market-related volatility risk that could continue to obscure bottom-line value creation in the near term.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (3.1%) × Asset Turnover (0.266) × Financial Leverage (1.25x) = ~1.0%, matching reported. The biggest drag is low asset turnover (0.266), followed by modest net margin; financial leverage is low by design, limiting ROE lift. Business drivers: revenue contracted 2.9% YoY, yet operating income rose 10.3%, indicating fixed-cost containment and/or improved pricing/mix in cutting tools and related products. Operating margin expanded ~53 bps to 4.45%, but the absolute level remains modest, and depreciation (8.39) is sizable, compressing operating returns on a large asset base. Sustainability: margin gains stem from execution (cost controls and mix) and appear structurally achievable barring a sharp demand downturn; however, without a recovery in asset turnover (higher sales or asset rationalization), ROE will likely remain subdued. Concerning trends: ROIC is only 1.3% (<5% warning), signaling capital efficiency issues despite positive OCF. SG&A ratio is 25.6% of sales; YoY SG&A dynamics are not disclosed, but with revenue declining, sustained OPM expansion suggests disciplined overhead management; we would monitor for any SG&A growth outpacing revenue as demand stabilizes.

Growth Assessment

Top-line contracted 2.9% YoY to 97.77, indicating a soft demand environment. Profit growth was quality-led: operating income +10.3% YoY and ordinary income +181.4% YoY from a depressed base, with net income +659.6% YoY. Margin improvements (OPM +~53 bps YoY to 4.45%) offset revenue pressure, suggesting pricing/mix and cost control benefits. Non-operating contribution was net negative this period (0.59 income vs 0.80 expenses), so the earnings recovery is primarily operational. Comprehensive income was negative (-8.53), reflecting large valuation losses in OCI, which could dampen equity and book-based metrics despite positive P&L. Outlook: near-term growth hinges on recovery in end-markets (industrial/cutting tools), ability to sustain pricing, and normalization of inventory levels. With EBITDA margin at 13.0% and strong cash, the company has capacity to invest; capex of 6.15 indicates ongoing productivity/expansion projects, but returns must improve to lift ROIC toward acceptable levels. We expect mid-single digit margin outcomes if cost discipline holds; revenue visibility remains modest given macro exposure.

Financial Health

Liquidity: very strong. Current ratio 587.9% and quick ratio 480.7% indicate ample near-term coverage; no warning (both >1.0). Working capital stands at 162.41, and cash of 78.81 comfortably exceeds current liabilities of 33.29. Solvency: conservative. D/E 0.25x and interest coverage 13.05x are strong; no red flags (D/E well below 2.0). Debt structure: long-term loans 28.93 vs minimal disclosed short-term debt; maturity mismatch risk is low given the sizable current assets (195.70) versus current liabilities (33.29). Balance sheet quality: asset base is sizable (367.17) with inventories of 35.69 and intangibles 8.80; the negative OCI this period implies equity sensitivity to market valuations. Off-balance sheet obligations: none reported in provided data.

Cash Flow Quality

Earnings quality is high with OCF/Net Income at 3.25x, supported by substantial depreciation (8.39). Free cash flow (proxy) appears positive: OCF 9.71 less capex 6.15 ≈ 3.56, although full investing cash flows were not disclosed. OCF below EBITDA (12.74) suggests some working-capital absorption or timing effects, but still robust conversion relative to net income. No signs of aggressive working-capital management are evident from the limited disclosures; receivables (29.61) and inventories (35.69) look proportionate to scale. Financing CF was -3.65, consistent with debt service and/or shareholder returns; details on dividends paid are unreported. Overall, cash generation is sufficient to fund capex and maintain a net cash posture.

Dividend Sustainability

The calculated payout ratio of 119.6% indicates potential overdistribution versus earnings for the period; however, dividend amounts and cadence are unreported, and the ratio may reflect interim timing vs annualized profits. On a cash basis, proxy FCF (~3.56) is positive and could support moderate dividends, but sustaining elevated payout above 100% would be risky given low ROE/ROIC and macro uncertainty. Policy outlook likely favors stability, but prudent coverage would require either higher earnings or recalibrated payouts. With strong net cash, the balance sheet can back dividends in the short term, yet long-term sustainability rests on improving capital returns.

Risk Assessment

Business Risks:

• Demand softness in industrial/cutting tools end-markets leading to revenue pressure (-2.9% YoY).
• Pricing/mix sustainability risk if competitive intensity increases and customers push back on pricing.
• Inventory risk (35.69) including potential write-downs if demand slows further.
• Supply chain and raw material cost volatility affecting gross margin (30.0%).
• Export exposure and FX volatility affecting competitiveness and margins.

Financial Risks:

• Capital efficiency risk: ROIC 1.3% and ROE 1.0% are well below cost of capital.
• Market valuation risk evidenced by large negative OCI (-8.53) impacting equity.
• Potential dividend coverage risk given calculated payout ratio of 119.6% amid low profitability.
• Concentration risk if cash (78.81) is partially invested in instruments sensitive to interest rate/FX moves (implied by OCI swing).

Key Concerns:

• Sustained low asset turnover (0.266) limiting returns despite margin improvements.
• Ability to maintain OPM gains (4.45%) if revenue declines persist.
• Visibility on investing cash flows and dividend cash out is limited due to unreported items.

Investment Implications

Key Takeaways:

• Operational resilience: OPM expanded ~53 bps YoY despite a 2.9% sales decline.
• High cash conversion: OCF/NI at 3.25x with positive proxy FCF after capex.
• Balance sheet strength: net cash position and D/E 0.25x mitigate financial risk.
• Capital efficiency weak: ROIC 1.3% highlights need for better asset utilization or portfolio optimization.
• Large OCI loss (-8.53) introduces volatility to equity and book-based metrics.
• Dividend sustainability questionable if payout remains near 120% without earnings uplift.

Metrics to Watch:

• Order trends and backlog in key end-markets (quarterly sales momentum).
• Gross margin trajectory and SG&A discipline (OPM sustainability).
• Asset turnover improvement initiatives (inventory turns, capacity utilization).
• OCI components (securities/FX valuation) and their impact on equity.
• Capex-to-sales and ROIC progression toward >5% (minimum) and ideally 7-8%.
• Dividend declarations vs FCF to assess coverage.

Relative Positioning: Within precision tooling/industrial components peers, Kanefusa exhibits above-average balance sheet strength and cash conversion but below-peer capital efficiency and growth momentum; near-term defensiveness is supported by net cash, while medium-term rerating would require tangible ROIC and asset-turnover improvement.

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