THE HANSHIN DIESEL WORKS,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.71B
• Operating Income: ¥309M
• Net Income: ¥255M
• EPS: ¥78.80

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

Verdict: A solid Q2 with strong profit rebound and healthy cash generation, offset by persistently low capital efficiency (ROIC 2.4%). Revenue rose 20.4% YoY to 67.09, reflecting robust demand or improved deliveries in the period. Operating income surged 191.6% YoY to 3.09, lifting the operating margin to about 4.6%. Net income increased 131.7% YoY to 2.55, driving the net margin to 3.8%. Based on revenue growth (+20.4%) vs operating income growth (+191.6%), operating margin likely expanded by roughly +270 bps YoY to ~4.6% (from ~1.9%). Net margin likely expanded by about +180 bps YoY to ~3.8% (from ~2.0%), implying better pricing/mix or improved cost control. Gross margin stands at 13.9%; SG&A was 8.27, and EBITDA margin 8.2%, indicating modest operating leverage. Ordinary income was 3.62 and non-operating income was 0.33 (mainly dividends 0.21), showing limited reliance on financial income. Atypical line items are noted: operating income (3.09) exceeds the simple GP–SG&A arithmetic and net income (2.55) exceeds profit before tax (1.47), suggesting undisclosed other operating items and/or extraordinary items/tax adjustments in the JGAAP presentation. Cash conversion was strong: operating cash flow (OCF) of 8.49 was 3.33x net income, aided likely by favorable working capital. Liquidity is comfortable (current ratio 186.6%) with sizeable cash (54.69) and minimal interest burden (interest expense effectively zero; coverage >2,000x). Leverage is moderate (reported D/E 0.68x) and solvency appears sound. However, capital efficiency remains weak: ROE is 1.7% and ROIC 2.4% (below the 5% warning threshold), reflecting a heavy asset base relative to revenue and profitability. Dividend payout ratio is high at 89.2%, but appears covered by proxy free cash flow this period. Forward-looking, sustaining margin gains and improving asset turnover are key to lifting ROE/ROIC; the strong OCF provides flexibility for capex and shareholder returns if order momentum holds. Data limitations (e.g., missing inventories, item breakdowns, and extraordinary items) constrain precision, but the direction of travel is positive with improving profitability and cash flows.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.7% = Net Profit Margin (3.8%) × Asset Turnover (0.267) × Financial Leverage (1.68x). The weakest link is asset turnover at 0.267, indicating low revenue generation per asset. The largest driver of year-on-year improvement appears to be net profit margin, given revenue grew +20.4% while operating income rose +191.6%, implying significant operating margin expansion (~+270 bps YoY). Business explanation: likely a combination of pricing/mix, throughput normalization, and better fixed-cost absorption; non-operating support (dividend income 0.21) helped ordinary income but was not the main driver. Sustainability: some margin gains may be sustainable if pricing and utilization improvements persist; however, outsized expansion over revenue growth suggests one-off operating efficiencies or favorable project timing that may normalize. Asset turnover remains structurally low (heavy asset base vs. H1 revenue), limiting ROE unless growth accelerates or assets are optimized. Flags: implied SG&A growth appears controlled relative to gross profit improvement given the sharp rise in operating income; nonetheless, the GP–SG&A–OI reconciliation indicates other operating items, so monitoring SG&A trajectory vs revenue is important.

Growth Assessment

Top-line growth of +20.4% YoY to 67.09 indicates healthy demand or improved delivery schedules in the first half. Operating leverage is evident: OI +191.6% vs revenue +20.4% drove operating margin to ~4.6%. Non-operating income (0.33), chiefly dividends (0.21), contributed ~13% of ordinary income, but the profit rebound is primarily operating. Net margin improved to 3.8% with an effective tax rate of ~25%, consistent with normalized taxation. Given the asset base (251.46), revenue productivity remains modest; sustained growth will be needed to improve ROIC beyond the current 2.4%. Order backlog visibility and execution pace (not disclosed) will determine the durability of revenue growth into H2. With depreciation/amortization at 2.43 and capex at 1.89, capacity additions appear measured, suggesting growth is more utilization- than investment-driven in the period. Outlook hinges on mix/pricing, supply chain stability, and currency impacts on export competitiveness and input costs; absent new data, we assume mid-teens growth normalization after the strong first half.

Financial Health

Liquidity is solid: current ratio 186.6% and quick ratio 186.6%, supported by cash and deposits of 54.69 and receivables of 29.35. No warning: Current Ratio is well above 1.0. Solvency appears conservative to moderate: total liabilities 102.04 vs equity 149.89 implies a reported D/E of 0.68x, below the 1.5x benchmark. Interest expense is de minimis (0.00), and interest coverage is >2,000x, indicating negligible interest burden. Maturity mismatch risk: with current liabilities 69.82 versus current assets 130.26, short-term obligations are covered; lack of disclosed short-term loans suggests limited refinancing pressure. Off-balance sheet obligations: not disclosed; no information on guarantees or operating lease commitments beyond what may be embedded in SG&A. Equity base is strong (owners’ equity 149.65) with retained earnings of 98.87, providing a buffer for volatility.

Cash Flow Quality

Earnings quality is high this quarter: OCF/Net Income = 3.33x (>1.0), indicating robust cash realization. Working capital dynamics likely aided OCF given the magnitude versus NI; detailed drivers (inventories/payables) are not disclosed. Proxy free cash flow (OCF – Capex) is approximately 6.60, comfortably positive. This level of FCF appears sufficient to cover maintenance capex and the indicated dividend burden (payout ratio 89.2%) in the period. No clear signs of working-capital management aggressiveness (e.g., stretching payables) can be confirmed due to missing inventories and WC details; however, strong cash generation alongside profit growth is a constructive signal. Financing CF was -1.97, likely reflecting dividends and/or debt repayment, consistent with disciplined capital allocation. Sustainability will depend on maintaining margins and avoiding working capital rebuild in H2.

Dividend Sustainability

The reported payout ratio is 89.2%, which is high relative to the <60% benchmark, but cash coverage looks adequate this half. Using NI of 2.55, implied dividends are ~2.27; proxy FCF of ~6.60 covers this by ~2.9x, suggesting near-term affordability. Balance sheet strength (net cash position implied by low interest and large cash) adds resilience. For sustainability, the company must lift ROIC and maintain OCF, as a high payout against low ROE (1.7%) can constrain reinvestment over time. With DPS and total dividends unreported, we assume a stable-to-cautious stance; any increase should be paced with OCF and visibility on order intake. Policy outlook: absent disclosure of a formal capital policy, expect dividends to track earnings and cash generation, with limited scope for aggressive hikes until ROIC improves.

Risk Assessment

Business Risks:

• Demand cyclicality in core end-markets (marine/industrial engines) impacting order intake and utilization
• Pricing pressure and input cost volatility (steel and components) affecting margins
• Execution risk on large projects leading to cost overruns or delivery delays
• Supply chain constraints potentially disrupting production schedules

Financial Risks:

• Low capital efficiency (ROIC 2.4%) limiting value creation and cushion against downturns
• High payout ratio (89.2%) reducing retained earnings available for growth if cash flows normalize
• Potential working capital rebuild in H2 could compress OCF
• Exposure to currency fluctuations (JPY) affecting export competitiveness and imported material costs

Key Concerns:

• Inconsistent line-item reconciliation (OI vs GP–SG&A; NI > PBT) suggests undisclosed extraordinary/other operating items affecting period comparability
• Structural low asset turnover (0.267) weighing on ROE despite improving margins
• Limited disclosure on inventories, investing CF, and dividend cash outflow constrains assessment granularity

Investment Implications

Key Takeaways:

• Profits rebounded strongly with operating margin expansion to ~4.6% and net margin to 3.8%
• Cash conversion was very strong (OCF/NI 3.33x), yielding ample proxy FCF (~6.60)
• Balance sheet is liquid and conservatively leveraged (current ratio 186.6%, D/E 0.68x)
• Capital efficiency remains weak (ROIC 2.4%, ROE 1.7%), capping valuation uplift without further improvements
• Dividend appears covered by cash this period despite a high payout ratio

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Operating margin trajectory and SG&A growth vs revenue
• Asset turnover improvement (revenue per asset) and ROIC trend
• Working capital movements (receivables, inventories, payables) and OCF durability
• Any extraordinary gains/losses clarifying P/L reconciliation (PBT vs NI)
• FX sensitivity (USD/JPY) and input cost pass-through

Relative Positioning: Within domestic industrial engine/precision machinery peers, the company shows better-than-average short-term cash generation and conservative liquidity, but lags on capital efficiency (ROIC/ROE) and likely scale, suggesting a focus on execution quality and asset utilization to close the gap.

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