Advanex Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.54B
• Operating Income: ¥626M
• Net Income: ¥386M
• EPS: ¥94.08

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 top-line and strong operating rebound in FY2026 Q2, but leverage remains elevated and free cash flow turned negative due to heavy capex. Revenue grew 5.1% YoY to 145.37, while operating income surged 86.4% YoY to 6.26, demonstrating improved cost control and operating leverage. Ordinary income jumped 310.2% YoY to 5.65, underscoring broad-based profit recovery despite higher non-operating expenses than income. Net income reached 3.86 with an effective tax rate of 11.8%, supporting basic EPS of 94.08 yen. Gross profit was 35.77, yielding a gross margin of 24.6%. Operating margin expanded materially to about 4.3% (from roughly 2.4% a year ago), implying expansion of around 190 bps. EBITDA was 13.78 (margin 9.5%), and interest coverage improved to 3.41x, but still below a strong threshold. Cash generation quality was good with OCF of 8.43, 2.18x net income, indicating earnings backed by cash. However, capex of 13.07 led to implied negative FCF of about -4.64 (OCF minus capex), necessitating external financing. Financing cash flow of 19.80 and increased borrowings are visible in short-term loans of 56.51 and long-term loans of 66.90. Balance sheet leverage is high: debt-to-equity stands at 2.76x and Debt/EBITDA at 8.95x, elevating financial risk. Liquidity is adequate but thin with a current ratio of 118% and quick ratio of 103%. ROE is modest at 4.5% on low net margin (2.7%) and high financial leverage (3.76x), while ROIC at 3.8% trails a 5% warning threshold, implying value creation is not yet above cost of capital. Non-operating line is a net drag this quarter (income 1.38 vs expenses 1.99), and profit before tax of 4.38 suggests extraordinary losses not detailed in the report. Forward-looking, improved operating margins are encouraging, but sustainability hinges on continued demand, disciplined SG&A, and execution on capex to lift ROIC above 5–7% while deleveraging. The key to rerating will be converting the capex cycle into higher asset turnover and margin gains without further stretching the balance sheet.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.5% = Net Profit Margin 2.7% × Asset Turnover 0.454 × Financial Leverage 3.76x. The largest change driver vs last year appears to be margin improvement, as operating income rose 86.4% on 5.1% sales growth and implied operating margin expanded by ~190 bps. Business drivers likely include better mix/pricing and SG&A discipline, as SG&A growth was contained versus revenue (absolute SG&A 29.51 while GP reached 35.77), yielding higher operating leverage. Asset turnover remains subdued at 0.454, reflecting sizable asset base after recent investments; leverage remains high (3.76x), amplifying modest margins into a mid-single-digit ROE. Sustainability: margin gains should be partly sustainable if driven by structural cost improvements and mix, but non-operating drag and potential extraordinary losses introduce volatility. Watch for any re-acceleration of SG&A outpacing revenue; at present, operating efficiency appears improved, but ROIC at 3.8% signals profits do not yet fully cover the cost of capital.

Growth Assessment

Top-line growth of 5.1% YoY indicates stable demand. Operating profit growth of 86.4% YoY demonstrates strong operating leverage from cost control and mix, with ordinary income up 310.2% YoY reinforcing breadth of recovery. EBITDA margin at 9.5% provides some cushion, but absolute margin levels remain modest, leaving earnings exposed to demand or cost shocks. The profit mix is predominantly operating; non-operating was a net negative (1.38 income vs 1.99 expenses), and profit before tax of 4.38 implies extraordinary losses not disclosed, a headwind to normalized growth. With OCF at 8.43 and capex of 13.07, the company is in an investment phase; growth sustainability depends on converting these investments into higher asset turnover and margins. Outlook hinges on end-market conditions (e.g., precision components, automotive/industrial), FX, and input costs. Near-term, momentum is positive on margins; medium-term, growth quality will be judged by ROIC improvement above 5–7% and deleveraging.

Financial Health

Liquidity is adequate but tight: current ratio 118% and quick ratio 103% (above 1.0 but below a >1.5 comfort level). No explicit warning for current ratio (<1.0) is triggered, but the buffer is thin. Short-term loans of 56.51 are sizeable relative to current assets; however, cash and deposits of 62.61 plus receivables of 53.25 provide coverage of near-term obligations, mitigating maturity mismatch. Solvency risk is elevated: debt-to-equity is 2.76x (warning: >2.0) and Debt/EBITDA is 8.95x (high). Interest coverage at 3.41x is moderate, leaving limited room if rates rise or profits soften. Total assets are 320.50 with equity of 85.19, implying leverage embedded in the capital structure. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF/Net Income of 2.18x indicates high-quality earnings with strong cash conversion. Working capital appears managed prudently given OCF strength despite modest revenue growth; no clear signs of manipulation are evident from the available data. Capex of 13.07 exceeded OCF (8.43), implying negative free cash flow of approximately -4.64 this period (not officially reported but directly implied by OCF minus capex). Financing CF of 19.80 suggests reliance on external funding to support investments and potentially dividends. Sustainability: near-term dividends and capex cannot be fully funded by internally generated cash unless profitability and OCF expand; deleveraging will be challenging without improved FCF.

Dividend Sustainability

The calculated payout ratio is 21.5%, which appears conservative relative to earnings capacity. However, implied free cash flow was negative this period (OCF 8.43 vs capex 13.07), so dividend coverage by FCF is weak, and dividends would rely on the balance sheet or financing. With D/E at 2.76x and Debt/EBITDA at 8.95x, balance sheet flexibility is limited; sustaining or growing dividends prudently requires turning FCF positive. Policy outlook: if the investment cycle yields higher margins and asset turnover, FCF should improve, supporting stable payouts; otherwise, management may prioritize deleveraging over dividend growth.

Risk Assessment

Business Risks:

• End-market sensitivity in precision components (e.g., automotive/industrial) could pressure volumes and pricing.
• Input cost volatility (materials, energy) could erode margins given modest operating margin levels.
• Execution risk on capex: delayed ramp or lower-than-expected returns would depress ROIC and cash flows.
• Potential extraordinary losses (implied by PBT below ordinary income) add earnings volatility.
• FX fluctuations if overseas exposure is material (not disclosed here).

Financial Risks:

• High leverage: D/E 2.76x and Debt/EBITDA 8.95x increase refinancing and interest burden risks.
• Interest rate risk: interest coverage 3.41x leaves limited cushion if rates rise or earnings soften.
• Negative implied FCF requiring external financing could persist if capex remains elevated.
• Liquidity buffer is thin (current ratio 118%, quick ratio 103%), raising near-term cash management risk.

Key Concerns:

• ROIC at 3.8% (<5% threshold) indicates insufficient returns on invested capital.
• Non-operating account is a net drag (expenses > income), and extraordinary items may be pressuring PBT.
• Sustainability of margin gains needs validation over subsequent quarters.
• Data gaps (e.g., dividends paid, investing cash flow details) limit full assessment of capital allocation.

Investment Implications

Key Takeaways:

• Clear operating leverage: +86.4% YoY in operating income on +5.1% sales supports margin recovery.
• Operating margin expanded to ~4.3%, up ~190 bps YoY by implication.
• Cash earnings quality is strong (OCF/NI 2.18x), but FCF was negative due to elevated capex.
• Leverage is high (D/E 2.76x; Debt/EBITDA 8.95x), constraining financial flexibility.
• ROE is modest at 4.5% and driven by leverage; ROIC 3.8% signals value-creation gap.
• Non-operating/extraordinary items are headwinds to translating operating gains into bottom-line.

Metrics to Watch:

• Operating margin and SG&A-to-sales trend for evidence of sustained cost discipline.
• ROIC progression versus cost of capital (target >5–7%).
• Free cash flow turning positive as capex projects ramp.
• Net debt and interest coverage trends amid rate environment.
• Working capital turns (receivables and inventory) to improve asset turnover.
• Any disclosures on extraordinary items and dividend policy.

Relative Positioning: Within small-cap precision component peers, the company shows improving operating execution but lags on capital efficiency and carries higher-than-ideal leverage; near-term upside depends on converting the current investment cycle into durable ROIC and FCF improvements.

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