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

Japan Engine Corporation reported FY2026 Q2 standalone results under JGAAP showing steady top-line growth and solid profitability, alongside strong operating cash generation. Revenue was 15.29 billion yen, up 6.7% YoY, indicating resilient demand, likely supported by firm order execution and favorable mix/pricing. Gross profit was 4.57 billion yen, implying a gross margin of 29.9%, which is healthy for a heavy-engine/industrial manufacturer profile. Operating income of 3.25 billion yen grew 8.3% YoY, outpacing sales and signaling positive operating leverage. Ordinary income (3.54 billion yen) exceeded operating income, suggesting material non-operating gains or financial income beyond the modest interest expense of 9 million yen. Net income was 2.67 billion yen, down 1.7% YoY despite higher operating/ordinary profits, implying headwinds below the ordinary line (e.g., tax normalization or special items). The reported net margin was 17.44%, and DuPont-derived ROE was a solid 16.31% on asset turnover of 0.44x and financial leverage of 2.12x. Using disclosed figures, the equity ratio can be inferred at approximately 47.1% (equity 16.35 billion yen / assets 34.72 billion yen), reflecting a balanced capital structure even though the reported “equity ratio 0.0%” is an unreported placeholder. Liquidity appears adequate with a current ratio of 151% and working capital of 7.73 billion yen, though inventories were not disclosed. Operating cash flow was strong at 4.74 billion yen (OCF/NI ~1.78x), indicating high earnings quality and favorable working capital timing. Interest coverage is extremely robust at ~354x, highlighting minimal financial risk from debt service. Depreciation of 278 million yen (about 1.8% of sales) suggests moderate capital intensity; however, investing cash flows were not disclosed, limiting free cash flow assessment. Dividend information shows DPS and payout at 0, which could reflect timing of interim distributions or policy conservatism; clarity on full-year policy is needed. Overall, the company demonstrates strong cost control, operating leverage, and cash conversion, tempered by data gaps (cash balance, inventories, investing cash flows, shares outstanding) that restrict full-cycle and capital allocation analysis. As a stand-alone entity (non-consolidated), these figures reflect the parent’s performance and may not capture group-level diversification, if any.

Profitability Analysis

ROE_decomposition: DuPont ROE = Net margin (17.44%) x Asset turnover (0.440x) x Financial leverage (2.12x) = ~16.31%. Net margin strength is the largest contributor, followed by moderate leverage; asset turnover remains typical for capital goods. margin_quality: Gross margin 29.9% and operating margin ~21.3% (3,253m / 15,290m) are strong, indicating good pricing/mix and cost discipline. Ordinary margin ~23.2% benefits from positive non-operating items, as interest expense is immaterial. Net margin 17.44% remains high despite YoY net profit decline, implying below-the-line headwinds rather than core weakness. operating_leverage: Revenue grew 6.7% YoY while operating income grew 8.3% YoY, evidencing positive operating leverage. Fixed-cost absorption appears favorable; depreciation is modest (278m), suggesting limited D&A drag on EBIT. Sustained leverage will depend on volume stability and product mix.

Growth Assessment

revenue_sustainability: Top-line growth of 6.7% YoY suggests solid execution, likely supported by order backlog conversion and possibly better pricing. As a marine/industrial engine player, growth sustainability hinges on shipbuilding demand, regulatory-driven engine upgrades, and FX-driven competitiveness. profit_quality: Operating profit outpaced revenue, indicating margin expansion from scale or mix. Ordinary income above operating income points to additional non-operating gains; durability of these gains should be monitored. Net income decline (-1.7% YoY) indicates normalization below ordinary income (e.g., taxes or non-recurring items). outlook: With strong OCF and robust margins, the company appears positioned to sustain earnings provided demand and backlog hold. Key sensitivities include commodity costs, FX, and regulatory shifts (emissions-compliant engines). Absent investing CF disclosure, capex plans and capacity investments are unclear, which tempers visibility on medium-term growth.

Financial Health

liquidity: Current ratio 151.3% and working capital 7.73 billion yen reflect comfortable near-term liquidity. Quick ratio equals current ratio due to undisclosed inventories; true quick liquidity may be lower once inventory is included. solvency: Debt-to-equity ~1.17x (liabilities/equity) and inferred equity ratio ~47.1% (16.349/34.72) indicate a balanced balance sheet. Interest coverage ~354x underscores very low interest burden and strong solvency. capital_structure: Financial leverage of 2.12x (assets/equity) supports ROE without indicating excessive risk. Cash and equivalents were not disclosed, limiting net debt assessment. Overall leverage appears moderate for the sector.

Cash Flow Quality

earnings_quality: OCF/Net income ~1.78x (4.740b / 2.666b) indicates high cash conversion and limited accrual risk in the period. EBITDA was 3.531 billion yen (23.1% margin), supporting strong operating cash generation. FCF_analysis: Investing CF was not disclosed; therefore, true free cash flow cannot be determined. The reported FCF of 0 reflects missing investment data, not zero capex. Given modest depreciation (278m), maintenance capex is likely below OCF, implying potential positive FCF, but confirmation requires capex detail. working_capital: Strong OCF suggests favorable working-capital dynamics (e.g., collections or advances). However, inventories and receivables/payables breakdown are unavailable, so sustainability of WC benefits cannot be fully assessed.

Dividend Sustainability

payout_ratio_assessment: Reported DPS 0 and payout 0% likely reflect timing or policy conservatism rather than capacity constraints, given robust OCF and profitability. EPS is 318.05 yen, indicating ample theoretical room for distributions if policy permits. FCF_coverage: FCF coverage cannot be assessed due to undisclosed investing CF. On cash earnings, OCF could have supported distributions in the period; however, capex and strategic investments must be considered. policy_outlook: Without a disclosed dividend policy and with non-consolidated data, visibility is limited. If management prioritizes growth capex (e.g., next-gen fuel engines) or balance-sheet reinforcement, dividends may remain conservative; policy clarity is a key watch item.

Risk Assessment

Business Risks:

• Cyclicality of global shipbuilding and marine transport demand impacting order intake and utilization
• Regulatory shifts (IMO emissions) requiring ongoing R&D and potential product transition risk
• Raw material and component cost inflation affecting margins if not fully passed through
• Execution risk on large, long-lead projects and potential warranty/quality liabilities
• Supply-chain constraints and lead-time volatility for critical engine components
• Customer concentration and credit risk in shipyards and shipping companies
• FX volatility (JPY) influencing export competitiveness and input costs

Financial Risks:

• Working-capital swings due to milestone billing and inventory cycles
• Limited disclosure of cash and investing CF impairs net cash/FCF visibility
• Potential non-operating income volatility that could affect ordinary income
• Single-entity reporting may mask group-level offsets or exposures if applicable

Key Concerns:

• Absence of cash, inventory, and investing cash flow disclosure limits assessment of liquidity depth and FCF
• Net income declined YoY despite stronger operating profit, indicating below-the-line headwinds
• Dependence on sustained backlog and pricing to maintain high margins and ROE

Investment Implications

Key Takeaways:

• Healthy growth with positive operating leverage: revenue +6.7% YoY, operating income +8.3% YoY
• High profitability: operating margin ~21.3%, net margin 17.4%, ROE 16.3%
• Strong cash conversion: OCF/NI ~1.78x and interest coverage ~354x
• Balanced balance sheet: inferred equity ratio ~47% and debt-to-equity ~1.17x
• Ordinary income above operating income suggests supportive non-operating items; sustainability to be monitored
• Data gaps (cash, inventories, capex/investing CF, shares) constrain full valuation and FCF analysis

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue visibility
• Operating margin and gross margin to track pricing and cost pass-through
• Composition of non-operating gains and effective tax rate normalization
• Capex and investing cash flows to derive true FCF and capital intensity
• Inventory levels and working-capital turnover metrics
• Dividend policy disclosures and year-end DPS guidance

Relative Positioning: Within Japanese industrial/marine engine peers, the company exhibits above-average operating margins and strong cash conversion with moderate leverage, positioning it favorably on profitability and solvency, albeit with limited transparency on capex and liquidity due to undisclosed items.

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