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

For FY2026 Q2 (non-consolidated, JGAAP), Akasaka Diesels Ltd. posted revenue of ¥3,877 million, down 1.0% year over year, with gross profit of ¥774 million and a gross margin of approximately 20.0%. Operating income was ¥28 million, up 52.7% YoY from a low base, translating to a very thin operating margin of about 0.7%. Ordinary income reached ¥198 million, well above operating income, indicating sizable non-operating gains that supported bottom-line performance. Net income was ¥136 million, up 530.9% YoY, with a net margin of 3.51%. EBITDA totaled ¥232 million and the EBITDA margin was 6.0%, reflecting a capital-intensive model where depreciation (¥204 million) significantly exceeds operating profit. The DuPont breakdown yields an ROE of 1.30%, driven by a 3.51% net margin, asset turnover of 0.233x, and financial leverage of 1.58x. Despite modest profitability, the balance sheet appears strong: with total assets of ¥16,614 million and equity of ¥10,487 million, implied equity ratio is roughly 63% (even though a reported equity ratio is unavailable), and the debt-to-equity proxy of 0.48x suggests conservative leverage. Liquidity appears comfortable with current assets of ¥6,739 million versus current liabilities of ¥3,103 million for a current ratio of 217%, though cash and inventories were not disclosed in XBRL, limiting precision of quick liquidity assessment. Operating cash flow was negative at ¥205 million, implying weak cash conversion versus net income (OCF/NI of -1.50), likely driven by working capital build or milestone timing typical in project businesses. Interest expense was modest at ¥7.8 million and interest coverage stood at 3.6x on operating income, aided by non-operating gains at the ordinary income level. The company paid no dividend (DPS ¥0), resulting in a 0% payout ratio; with negative OCF and unreported investing cash flows, dividend resumption would require improved cash generation or available balance sheet capacity. Revenue decline alongside a sharp increase in operating income implies some cost control or mix tailwinds, but the magnitude of net profit growth relies heavily on non-operating items. Asset turnover remains low for an industrial machinery manufacturer, constraining ROE despite solid capitalization. Overall, profitability quality is mixed: operating margins are thin and cash conversion is weak, but the capital structure and liquidity provide resilience. Data limitations (e.g., undisclosed inventories, cash, equity ratio, investing CF) warrant cautious interpretation, yet the available figures support a view of a financially sound but operationally subdued quarter. The outlook hinges on converting the order pipeline into cash, limiting working capital drag, and sustaining margin improvements at the operating level.

Profitability Analysis

ROE of 1.30% is explained by DuPont as follows: net profit margin 3.51% × asset turnover 0.233 × financial leverage 1.58. The primary constraint is low asset turnover and a very thin operating margin (operating margin ~0.7%), while non-operating gains lift ordinary income above operating income. Gross margin of ~20.0% is reasonable for engineered equipment, but the spread between gross and operating margins suggests significant SG&A or R&D pressure. EBITDA margin (6.0%) indicates modest operating cash earnings relative to revenue, with depreciation (¥204 million) dwarfing operating income (¥28 million), underscoring limited operating leverage at current volumes. Interest coverage at the operating level is 3.6x, adequate but not robust given the low absolute operating profit; coverage would be stronger if ordinary income were used, highlighting reliance on non-operating items. The expansion of operating income despite a 1.0% revenue decline suggests some cost efficiencies or mix improvement; however, sustainability is uncertain absent clear drivers. Operating leverage appears low-to-moderate in the near term due to high fixed-cost absorption and low asset turnover. Margin quality is mixed: core operating margin remains thin and the step-up in net income is largely attributable to non-operating components rather than structural operating improvements.

Growth Assessment

Top-line contracted slightly by 1.0% YoY to ¥3,877 million, signaling a flat-to-soft demand backdrop or delivery timing effects. Operating income rose 52.7% YoY to ¥28 million from a depressed base, which is encouraging but still leaves the operating margin at ~0.7%. Net income surged 530.9% YoY to ¥136 million; the magnitude indicates one-off or cyclical support from non-operating items (ordinary income of ¥198 million vs operating income of ¥28 million). The revenue run-rate and asset turnover of 0.233x imply limited throughput on a sizeable asset base, a headwind for scalable ROE absent stronger sales growth. Profit quality is skewed toward non-operating contributions; without more detail, recurring vs. non-recurring elements of ordinary income cannot be fully assessed. Near-term outlook depends on order intake, project execution, and the normalization of non-operating gains. If revenue stabilizes and fixed costs are better absorbed, incremental operating margin gains are possible, but the current mix suggests that sustained profit growth requires both volume recovery and tighter SG&A control.

Financial Health

Total assets of ¥16,614 million and equity of ¥10,487 million imply an equity ratio around 63% (based on available figures; the reported equity ratio was not disclosed), reflecting a strong capitalization. Total liabilities are ¥5,076 million, implying a debt-to-equity proxy of 0.48x (using total liabilities as a proxy due to unavailable interest-bearing debt detail). Liquidity is comfortable: current assets of ¥6,739 million versus current liabilities of ¥3,103 million yield a current ratio of 217%. The quick ratio shown equals the current ratio because inventories were not disclosed; true quick liquidity cannot be precisely determined without cash and inventories detail. Working capital stands at ¥3,636 million, providing an operational buffer but potentially tying up cash if receivables and work-in-process are elevated. Interest expense is small at ¥7.8 million and appears manageable given ordinary income, though coverage on operating income is tighter. Overall solvency risk is low given equity heft, but cash flow volatility from working capital can stress near-term liquidity if not managed.

Cash Flow Quality

Operating cash flow was -¥204.7 million versus net income of ¥136.0 million, yielding an OCF/NI ratio of -1.50, which indicates weak cash conversion for the period. With EBITDA at ¥231.6 million, the negative OCF points to material working capital outflows (e.g., higher receivables, contract assets, or progress inventory) or timing of collections typical in project-based businesses. Investing cash flow was undisclosed; therefore, free cash flow cannot be fully assessed, though negative OCF suggests FCF pressure absent asset sales or minimal capex. Earnings quality is mixed: net income benefited from non-operating gains (ordinary income >> operating income) and did not translate into positive operating cash in the period. Depreciation is sizable relative to operating income, which can support cash earnings over time, but current cash conversion is the primary issue. Monitoring the reversal of working capital outflows and collection of receivables will be key to validating earnings quality.

Dividend Sustainability

The company did not pay a dividend (DPS ¥0; payout ratio 0%). With OCF negative and investing CF undisclosed, free cash flow coverage cannot be confirmed, but near-term distributable capacity appears constrained by cash generation rather than earnings. The strong equity base provides balance sheet flexibility, yet sustainable dividend initiation would likely require consistent positive OCF and clearer visibility on capex and working capital needs. Policy outlook is unclear from the data; given thin operating margins and reliance on non-operating income this quarter, a conservative stance on distributions is prudent until operating cash flow normalizes.

Risk Assessment

Business Risks:

• Order and delivery timing risk leading to revenue volatility
• Project execution risk and potential cost overruns affecting thin operating margins
• Raw material and component price fluctuations impacting gross margin
• Customer concentration or cyclical end-markets (marine/industrial machinery) impacting demand
• FX exposure on imports/exports potentially affecting ordinary income and costs
• Capacity utilization risk given low asset turnover

Financial Risks:

• Negative operating cash flow driven by working capital expansion
• Dependence on non-operating gains to support net income
• Tight interest coverage at the operating income level
• Potential capex cycle requirements not visible due to undisclosed investing cash flows
• Liquidity assessment uncertainty due to undisclosed cash and inventories

Key Concerns:

• Sustainability of ordinary income contributions vs. core operating profit
• Improving cash conversion from receivables and contract assets
• Stabilizing operating margin above 1% through cost control and mix
• Restoring positive free cash flow to enable distributions and growth investments

Investment Implications

Key Takeaways:

• Revenue declined 1.0% YoY while operating income rose 52.7% YoY from a low base, leaving operating margin at ~0.7%.
• Net income growth (+530.9% YoY) was driven largely by non-operating gains, with ordinary income far exceeding operating income.
• OCF was -¥205 million versus net income of ¥136 million (OCF/NI -1.50), signaling weak cash conversion.
• Balance sheet is strong with implied equity ratio around 63% and a debt-to-equity proxy of 0.48x.
• EBITDA margin of 6.0% and high depreciation highlight capital intensity and limited operating leverage at current volume.
• Interest coverage is 3.6x on operating income; manageable but dependent on sustaining at least current operating profit levels.

Metrics to Watch:

• Order intake/backlog and book-to-bill ratio
• Operating margin progression (targeting >1% near-term) and SG&A efficiency
• Working capital metrics: days sales outstanding, contract assets/WIP, and collections
• OCF and FCF trend, including disclosure on capex
• Composition of non-operating income (recurring vs. one-off, FX sensitivity)
• Asset turnover improvements as a driver of ROE

Relative Positioning: Within Japanese small-cap industrial machinery peers, the company exhibits a stronger-than-average capitalization and liquidity buffer but lags on operating margin and asset turnover; current profitability relies more on non-operating gains, positioning it defensively on balance sheet strength but offensively challenged on core earnings quality.

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