Akasaka Diesels Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.88B
• Operating Income: ¥28M
• Net Income: ¥136M
• EPS: ¥102.01

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 mixed quarter with marginal operating improvement but a heavy reliance on non-operating income and weak cash generation. Revenue declined 1.0% YoY to 38.77, while operating income increased 52.7% YoY to 0.28, lifting the operating margin to roughly 0.7%. Ordinary income surged to 1.98 (+439.2% YoY), implying a 5.1% ordinary income margin, but profit before tax was only 0.37, pointing to sizable non-recurring items between ordinary income and pre-tax lines. Net income reached 1.36 (+530.9% YoY), translating to EPS of 102.01 JPY on an average share count of 1.339 million. Gross margin was 20.0%, and EBITDA margin was 6.0%, indicating operating leverage remains limited. We estimate operating margin expanded by about 25 bps YoY (from ~0.47% to ~0.72%) despite slightly lower sales. Ordinary income margin expanded by roughly 418 bps YoY (from ~0.94% to ~5.1%), driven largely by non-operating contributions including dividends (0.34) and interest income (0.02). Earnings quality is a key concern: operating cash flow was -2.05 versus net income of 1.36 (OCF/NI -1.50x), indicating earnings did not convert to cash and likely reflect working capital build and/or non-cash items. Liquidity is ample with a current ratio of 217% and working capital of 36.36, and the balance sheet is conservative with D/E at 0.48x and debt/EBITDA at 4.96x. However, ROE remains low at 1.3% and ROIC is only 0.2%, highlighting subdued capital efficiency. The gap between ordinary income (1.98) and profit before tax (0.37) suggests material extraordinary adjustments that dampened pre-tax profit; the detailed breakdown is not disclosed. Non-operating income accounted for about 31% of total profit formation, underscoring dependence on financial income rather than core operations. The interest coverage ratio at 3.6x is adequate but not robust, and below a 5x comfort threshold. Dividend sustainability looks acceptable on an accrual basis given a 34% payout ratio, but near-term FCF coverage is uncertain due to negative OCF. Forward-looking, backlog conversion and working capital normalization are essential to restore cash flow quality and support dividends and capex. Overall, the quarter shows incremental operating recovery, but sustainability hinges on improving core margins and turning earnings into cash.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.3% = Net Profit Margin 3.5% × Asset Turnover 0.233 × Financial Leverage 1.58x. The component that changed the most appears to be net profit margin, given the large jump in ordinary income and net income versus flat-to-down sales. Business context: margin uplift was driven more by non-operating items (notably dividend income of 0.34 and other financial items) than by core operating profitability (operating margin ~0.7%). Operating margin likely expanded by ~25 bps YoY as operating income rose 52.7% on a 1% revenue decline, but absolute levels remain low. Asset turnover at 0.233 is modest, consistent with an asset-heavy manufacturing base and likely long production cycles. Financial leverage at 1.58x is conservative and not a major driver of ROE. Sustainability: the margin boost stemming from non-operating income is inherently less stable; unless operating margins improve materially, ROE will remain subdued. Watch for any trend where SG&A growth outpaces revenue; SG&A detail was unreported this quarter, so we cannot verify operating discipline. Key flag: ROIC at 0.2% is well below the 5% warning line, reinforcing that capital is under-earning.

Growth Assessment

Top-line momentum is soft with revenue down 1.0% YoY to 38.77. Operating profit grew 52.7% to 0.28, indicating some efficiency gains or mix/pricing benefits, but the absolute operating margin (~0.7%) is still thin. Ordinary income strength (1.98) highlights reliance on non-operating streams (dividends, interest), which are less controllable and potentially volatile. Net income of 1.36 suggests improved bottom-line performance, but cash conversion was weak, with OCF negative at -2.05. Sustainability of growth depends on core engine/order backlog execution and margin expansion in manufacturing and after-sales service. Given the negative OCF, working capital unwinding and delivery timing will be critical for 2H. Outlook hinges on: stabilization of input costs, pricing discipline, and cadence of completions for large projects. Without improvement in operating margin and asset turnover, ROE and ROIC will remain below acceptable thresholds.

Financial Health

Liquidity is strong: current ratio 217.2% (well above 1.5x benchmark) and quick ratio 217.2%, supported by 67.39 in current assets versus 31.03 in current liabilities. No warning on short-term liquidity (Current Ratio > 1.0). Working capital stands at 36.36, providing cushion against delivery timing volatility. Solvency is conservative with D/E at 0.48x (total liabilities/equity), short-term loans of 4.69 and long-term loans of 6.80. Debt/EBITDA is 4.96x, acceptable but leaves limited buffer if EBITDA softens. Interest coverage is 3.60x, adequate but below a strong >5x benchmark, so earnings sensitivity to interest costs warrants monitoring. Maturity mismatch risk is moderate: cash and deposits (7.24) plus receivables (27.70) cover short-term loans, but we lack inventory data; still, current assets comfortably exceed current liabilities. No off-balance sheet commitments are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is -1.50x (<0.8), signaling weak earnings quality this quarter. Negative OCF alongside positive net income implies working capital expansion and/or non-cash profit drivers (e.g., non-operating income, accruals). Free cash flow was not disclosed; given OCF is negative and capex is unreported, FCF sustainability is uncertain. Dividends and debt service in the near term may rely on balance sheet liquidity rather than internally generated cash. Potential manipulation signals: large swings in receivables or unreported inventory could be contributing; with inventories unreported, visibility is limited. Watch next quarter for reversal of working capital build and alignment between OCF and NI (>1.0x desired).

Dividend Sustainability

The calculated payout ratio is 34.0%, which is comfortably below the 60% benchmark and appears sustainable on an accrual basis. However, with OCF negative this half, near-term cash coverage of dividends is unclear (FCF not disclosed). Balance sheet strength (current ratio 2.17x, modest leverage) provides capacity to maintain dividends short term, but persistent negative OCF would pressure sustainability. Policy outlook likely emphasizes stability, but improvement in core operating cash flow is needed to fully underpin payouts. Monitor: OCF trajectory, capex cadence, and any guidance on annual DPS.

Risk Assessment

Business Risks:

• Thin operating margin (~0.7%) leaves limited buffer against cost inflation and project delays
• Dependence on non-operating income (non-operating income ratio ~31%) to support profits
• Potential working capital volatility tied to long production cycles and milestone billing
• Customer concentration and timing risk in large engineered products (typical in marine/industrial engines)
• Supply chain and input cost fluctuations affecting gross margin (20.0%)

Financial Risks:

• Earnings quality risk: OCF/NI at -1.50x indicates poor cash conversion
• Interest coverage at 3.6x below strong threshold (>5x), leaving sensitivity to profit dips
• Low ROIC (0.2%) and ROE (1.3%) indicate under-earning capital, potentially constraining valuation and funding flexibility
• Debt/EBITDA at ~5x reduces headroom if EBITDA weakens

Key Concerns:

• Large gap between ordinary income (1.98) and profit before tax (0.37) suggests material non-recurring items affecting earnings quality
• Negative OCF despite positive net income raises sustainability questions for dividends and capex
• Limited disclosure (e.g., SG&A breakdown, inventories, capex) reduces visibility on cost drivers and investment needs

Investment Implications

Key Takeaways:

• Core operations improved modestly but remain low margin; ordinary income strength is non-operating driven
• Cash conversion is weak and a primary watchpoint for 2H
• Balance sheet liquidity is solid, providing near-term flexibility
• Capital efficiency is poor (ROIC 0.2%, ROE 1.3%); structural improvements are needed to lift returns

Metrics to Watch:

• Operating margin progression and gross margin resilience
• OCF/NI and working capital movements (receivables, inventories, advances)
• Order backlog and delivery schedule conversion in 2H
• Interest coverage and debt/EBITDA trajectory
• Dividend guidance vs. cash generation

Relative Positioning: Within Japanese industrial machinery peers, liquidity is above average and leverage moderate, but profitability and capital efficiency lag given low operating margins and ROIC. Sustained improvement requires better core margin and asset turnover, not just non-operating support.

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