Japan Engine Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.29B
• Operating Income: ¥3.25B
• Net Income: ¥2.67B
• EPS: ¥318.05

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was solid operationally with clear top-line growth and margin resilience, but net profit dipped slightly due to below-the-line items. Revenue rose 6.7% YoY to 152.9, supported by a healthy gross profit of 45.72 and operating income of 32.53 (+8.3% YoY). Operating margin printed at roughly 21.3%, while gross margin stood at 29.9%. Ordinary income increased to 35.39 (+9.2% YoY), indicating supportive non-operating contributions (net +2.40). Profit before tax, however, was 32.33, below ordinary income, implying the presence of extraordinary losses not itemized in the disclosure. Net income came in at 26.66, down 1.7% YoY, with an effective tax rate of 16.1%. Cash generation was a bright spot: operating cash flow reached 47.40, yielding an OCF/NI of 1.78x, signaling high earnings quality. Liquidity remains comfortable with a current ratio of 151% and ample cash and receivables (cash 74.12; AR 50.84) relative to near-term obligations. Leverage is moderate (D/E 1.17x; equity ratio approximates 47%), and interest coverage is exceptionally strong at ~354x. DuPont shows a robust ROE of 16.3%, powered primarily by a strong net margin (17.4%) and moderate asset turnover (0.44), with balanced financial leverage (2.12x). On margins, operating margin expanded by roughly 30–35 bps YoY as operating income grew faster than revenue, but net margin compressed by about 150 bps, likely due to extraordinary losses. EBITDA was 35.31 (margin ~23.1%), comfortably covering modest depreciation (2.78) and minimal interest (0.09). Implied pre-M&A FCF (OCF less reported capex) was strong at about 39.7, providing room for dividends and reinvestment. The calculated payout ratio stands at 36.5%, suggesting a manageable distribution level given cash generation, though reported dividend details are not disclosed. Forward-looking, maintaining operating discipline while normalizing below-the-line items would support a recovery in net margin. Near-term priorities include monitoring extraordinary items, sustaining order intake and pricing in marine engines, and managing working capital as volumes grow.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (17.4%) × Asset Turnover (0.440) × Financial Leverage (2.12x) = 16.3%. Component changes: Operating margin improved modestly as operating income grew +8.3% vs revenue +6.7% (implied ~+30–35 bps), while net margin compressed ~150 bps due to extraordinary losses lowering PBT below ordinary income. Business drivers: Solid operating execution (pricing/mix and cost control) supported operating margin, but one-off or non-core losses (extraordinary) weighed on bottom line. Sustainability: Operating margin gains appear more repeatable given SG&A discipline (15.69 vs gross profit 45.72), while extraordinary losses are likely non-recurring; therefore, net margin has room to normalize if below-the-line impacts abate. Operating leverage: Positive, with opex growth contained relative to gross profit expansion; no indication of SG&A growth outpacing revenue in the disclosed period.

Growth Assessment

Revenue grew 6.7% YoY to 152.9, indicating steady demand and/or improved pricing in the marine engine business. Operating income outpaced sales (+8.3% YoY), evidencing operating leverage and cost control. Ordinary income rose 9.2% YoY, aided by positive non-operating contributions (net +2.40), but PBT fell below ordinary income due to unspecified extraordinary losses. Net income declined slightly (-1.7% YoY), driven by below-the-line headwinds rather than core operations. The operating margin expanded modestly, suggesting underlying competitiveness. EBITDA margin at 23.1% supports reinvestment capacity. Outlook: With OCF strong and leverage moderate, the company has room to fund capex and incremental growth; normalization of extraordinary items would be key to restoring net margin trajectory. Watch for order backlog, pricing power amid input cost dynamics, and progress on product mix aligned with decarbonization regulations in shipping.

Financial Health

Liquidity is solid: current ratio 151.3% and quick ratio 151.3% exceed benchmarks, with cash (74.12) and AR (50.84) totaling ~125 against current liabilities of 150.58, supplemented by other current assets (total current assets 227.88). No warning on current ratio (<1.0) and no D/E red flag (>2.0); D/E is 1.17x. Solvency: Total equity 163.49 on assets 347.20 implies an equity ratio around 47%, indicating a balanced capital structure. Debt profile: Long-term loans 35.78; noncurrent liabilities 40.22; current liabilities 150.58, suggesting manageable maturity risk with ample current assets to cover near-term obligations. Interest burden is minimal (interest expense 0.09) with very high coverage (~354x). No off-balance sheet obligations are disclosed in the provided data. Overall, no immediate liquidity or solvency concerns.

Cash Flow Quality

Earnings quality is high: OCF/Net Income at 1.78x indicates robust cash conversion. Working capital appears well managed given strong OCF alongside growth, with no sign of aggressive working capital manipulation in the disclosed figures. Free cash flow sustainability: While total investing cash flow is unreported, implied core FCF (OCF 47.40 minus capex 7.68) is about 39.72, comfortably covering typical dividend needs and leaving room for debt service and reinvestment. Financing CF was -4.83, consistent with balanced capital returns and/or debt repayment. Conclusion: Cash generation supports ongoing operations, capex, and dividends; monitor for volatility tied to order timing and inventory (not disclosed) swings.

Dividend Sustainability

Reported DPS is unreported; calculated payout ratio is 36.5%, which is comfortably below the 60% benchmark and appears sustainable. With implied core FCF of ~39.7 and minimal interest burden, cash coverage for dividends looks ample even after capex. Based on EPS of 318.05 JPY and a 36.5% payout, indicative DPS would be around 116 JPY (estimate), implying total cash dividends of roughly 9.7 (in 100M JPY) given current share count; actual declared amounts are not disclosed. Policy outlook: With ROE at 16.3% and strong OCF, the company has capacity to maintain or modestly grow dividends, contingent on avoiding recurring extraordinary losses and sustaining operating margins.

Risk Assessment

Business Risks:

• Cyclical demand in marine engines tied to global shipbuilding and trade activity
• Regulatory transition risk (IMO emissions standards) potentially impacting product roadmap and costs
• Supply chain and component sourcing risks (steel, castings, precision parts) affecting delivery schedules and margins
• Execution risk on pricing and mix to offset input cost fluctuations

Financial Risks:

• Extraordinary loss risk impacting PBT and net margin, as implied by PBT below ordinary income
• Currency fluctuation risk affecting export competitiveness and margins
• Working capital swings given project-based deliveries (inventories not disclosed)
• Moderate leverage (D/E 1.17x) to be monitored if capex or investment increases

Key Concerns:

• Net margin compression (~150 bps YoY) despite stronger operating margin due to below-the-line items
• Lack of disclosure on extraordinary items, inventories, and full investing cash flows limiting visibility
• Dependence on continued order intake and pricing power to sustain operating margin improvements

Investment Implications

Key Takeaways:

• Core operations strengthened: operating income +8.3% vs revenue +6.7%; operating margin expanded ~30–35 bps
• High earnings quality: OCF/NI 1.78x and implied core FCF ~39.7
• Net income -1.7% YoY due to extraordinary losses; normalization would support net margin recovery
• Balance sheet resilient: equity ratio ~47%, current ratio 151%, interest coverage ~354x
• ROE robust at 16.3%, supported by 17.4% net margin and moderate leverage

Metrics to Watch:

• Extraordinary gains/losses and reconciliation from ordinary income to PBT
• Order backlog, book-to-bill, and pricing in marine engine segments
• Working capital components (especially inventories) as volume scales
• Capex trajectory and returns (ROIC versus >8% benchmark; reported ROIC 21.8%)
• Dividend policy disclosures (actual DPS and payout guidance)

Relative Positioning: Within Japanese industrial/machinery peers, the company shows above-average profitability (ROE 16%+, EBITDA margin ~23%), strong cash conversion, and moderate leverage; visibility on below-the-line items and inventory dynamics remains comparatively lower due to limited disclosures.

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