JAPAN MATERIAL Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥25.67B
• Operating Income: ¥6.08B
• Net Income: ¥2.98B
• EPS: ¥41.79

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 Material Co., Ltd. (consolidated, JGAAP) delivered a strong FY2026 Q2 result with clear operating leverage and robust cash generation. Revenue rose 11.4% YoY to ¥25.674bn, while operating income expanded 37.3% YoY to ¥6.079bn, lifting the operating margin to a very solid 23.7%. Net income advanced 46.8% YoY to ¥4.294bn, implying a net margin of 16.7% and reflecting both improved core profitability and limited non-operating drag. Gross profit of ¥6.832bn translates to a gross margin of 26.6%, indicating disciplined cost control amid top-line growth. EBITDA was ¥6.637bn (25.9% margin), supported by modest D&A of ¥0.558bn, underscoring a relatively asset-light earnings profile at least in this period. Ordinary income was ¥6.211bn; the gap versus implied pretax income (≈¥5.592bn = net income + income tax) suggests net extraordinary or other below-ordinary items of roughly ¥0.62bn. Using income tax of ¥1.298bn, the implied effective tax rate is approximately 23.2%, which is within a normal range for a domestic taxpayer. The DuPont breakdown shows ROE at 7.63% = 16.7% net margin × 0.384x asset turnover × 1.19x leverage, implying that profitability rather than leverage is the primary driver of returns. The balance sheet is very conservative: total assets of ¥66.825bn against equity of ¥56.264bn implies an equity ratio around 84.2% (despite the reported “0.0%” placeholder) and low financial risk. Liquidity is exceptionally strong with a current ratio of 484.7% and a quick ratio of 466.7%, aided by low inventories (¥1.744bn). Cash conversion is excellent: operating cash flow of ¥7.65bn is 1.78x net income, signaling high earnings quality and favorable working capital dynamics. Interest expense is negligible at ¥3m, giving an EBIT-based interest coverage of over 2,000x, further confirming low balance sheet risk. Investing cash flow and cash balances were not disclosed in this dataset (zeros indicate unreported), which limits free cash flow precision and capital intensity assessment this period. Dividend data are also unreported (DPS and payout show as zero), so distribution policy can’t be evaluated from this extract; however, the strong OCF suggests ample capacity for shareholder returns if management prioritizes them. Overall, the company demonstrates healthy growth, expanding margins, and conservative leverage, with the primary analytical gaps being cash/investing details and dividend policy disclosure in this snapshot.

Profitability Analysis

ROE is 7.63%, driven by a high net margin of 16.7%, moderate asset turnover of 0.384x, and low financial leverage of 1.19x. Operating margin stands at 23.7% (¥6.079bn / ¥25.674bn), expanding faster than revenue (+37.3% OI vs +11.4% sales), indicating meaningful operating leverage from fixed-cost absorption and disciplined SG&A. Gross margin is 26.6%, so the OPM–GPM gap (~3.0ppt) implies lean overheads and/or positive mix. EBITDA margin of 25.9% suggests strong underlying cash profitability with D&A at ~2.2% of sales. Ordinary income margin is ~24.2% (¥6.211bn / ¥25.674bn); the difference to implied pretax (≈¥5.592bn) suggests extraordinary or below-ordinary charges in the period. Interest burden is de minimis (¥3m), so financial structure does not dilute operating performance. Overall margin quality appears high, with improvements likely stemming from mix, pricing, and scale benefits rather than leverage. Sustaining this profitability will depend on volume stability, ability to pass through costs, and maintaining utilization.

Growth Assessment

Top-line growth of 11.4% YoY (to ¥25.674bn) appears healthy and likely volume-led or mix-enhanced. Profit growth outpaced sales: operating income +37.3% and net income +46.8% YoY, confirming strong operating leverage and possibly improved product/service mix. The high OCF-to-net-income ratio (1.78x) supports the quality of earnings growth, suggesting minimal reliance on working capital release or one-offs for cash generation. Given the implied extraordinary items (~¥0.62bn), underlying ordinary profitability was even stronger before below-ordinary adjustments. Sustainability hinges on end-market demand normalization, customer investment cycles, and the ability to hold margins as growth moderates. Without segment detail, we cannot pinpoint growth drivers; however, the margin profile suggests higher-value-added offerings or efficiency gains. Near-term outlook appears constructive on current run-rate margins, but visibility on capex, order pipeline, and customer concentration is needed to assess medium-term growth durability.

Financial Health

The company exhibits a very strong balance sheet with total assets of ¥66.825bn and equity of ¥56.264bn, implying an equity ratio of roughly 84.2% (reported 0.0% is an unreported placeholder). Total liabilities are ¥11.118bn; debt-to-equity is about 0.20x when using total liabilities as a proxy for debt, reflecting low solvency risk. Liquidity is ample: current assets of ¥46.99bn vs current liabilities of ¥9.694bn yields a current ratio of 484.7% and quick ratio of 466.7%, with inventory a small component (¥1.744bn). Working capital is ¥37.296bn, providing a large buffer for operations and investment. Interest expense is only ¥3m, and interest coverage exceeds 2,000x, implying negligible financial strain. Overall capital structure is conservative; absent detailed breakdown of interest-bearing debt and cash, we infer low net leverage but cannot quantify net cash.

Cash Flow Quality

Operating cash flow of ¥7.65bn is 1.78x net income (¥4.294bn), indicating strong cash conversion and high earnings quality. This suggests limited accrual build or potentially favorable working capital movements; however, the lack of working capital component detail limits precision. Investing cash flow was not disclosed in this dataset (shown as zero), so we cannot compute free cash flow or assess capital intensity and capex discipline for the period. Financing cash flow was an outflow of ¥2.099bn, likely reflecting dividends, buybacks, or debt movements, but details are not provided. EBITDA of ¥6.637bn supports the cash generation observed, and D&A of ¥0.558bn indicates modest non-cash charges. Overall, cash flow quality appears strong, but full FCF assessment is constrained by missing investing CF and cash balance data.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero due to non-disclosure in this extract; thus, we cannot assess the actual distribution or policy from the provided data. On a capacity basis, net income of ¥4.294bn and OCF of ¥7.65bn suggest ample headroom to support dividends if management chooses, but free cash flow is unobservable without investing CF. Financing outflows of ¥2.099bn could include shareholder returns, but attribution is unknown. Absent an explicit payout policy, we cannot evaluate sustainability, coverage, or alignment with earnings cyclicality. We therefore view dividend visibility as limited in this dataset, pending disclosure of DPS, capex/FCF, and capital allocation priorities.

Risk Assessment

Business Risks:

• End-market cyclicality and potential demand volatility affecting volumes and utilization
• Customer concentration risk common in B2B technical services and materials-related supply chains
• Pricing and cost pass-through risk if input costs rise or competitive intensity increases
• Project timing and capex cycle sensitivity among key customers, influencing revenue timing
• Operational execution risk in maintaining high margins as scale increases
• Potential extraordinary items impacting period-to-period comparability

Financial Risks:

• Limited visibility on cash and investing cash flows inhibits assessment of net cash and FCF
• Potential hidden leverage if some liabilities are non-interest-bearing versus true debt not disclosed
• Currency exposure if revenues or inputs are linked to FX (not disclosed here)
• Working capital swings that could temporarily compress OCF despite strong earnings

Key Concerns:

• Lack of disclosed investing cash flow and cash balance restricts FCF and liquidity analysis precision
• Dividend policy and actual payouts unreported, limiting return-of-capital visibility
• Gap between ordinary income and implied pretax income indicates extraordinary items affecting comparability

Investment Implications

Key Takeaways:

• Strong operating leverage: revenue +11.4% YoY but operating income +37.3% and net income +46.8%
• High profitability with OPM 23.7%, EBITDA margin 25.9%, and net margin 16.7%
• Exceptional liquidity (current ratio 485%, quick ratio 467%) and low leverage (~0.20x liabilities-to-equity)
• ROE of 7.63% primarily margin-driven rather than leverage-driven
• OCF robustness (¥7.65bn; 1.78x net income) supports earnings quality

Metrics to Watch:

• Investing cash flow and capex to establish true free cash flow and capital intensity
• Segment mix, pricing, and utilization to gauge sustainability of elevated margins
• Order pipeline/backlog and customer capex trends for forward revenue visibility
• Extraordinary items and non-operating gains/losses affecting ordinary-to-pretax bridge
• Working capital movements (AR/AP/inventory turns) to validate cash conversion
• Actual DPS/payout policy disclosures and any buyback activity in financing CF

Relative Positioning: Relative to small/mid-cap TSE industrial and technical service peers, the company exhibits above-average margins, very strong liquidity, and low leverage, positioning it as a quality operator with conservative balance sheet risk; visibility on FCF and capital allocation would further clarify its standing.

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