KOIKE SANSO KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥23.18B
• Operating Income: ¥1.02B
• Net Income: ¥708M
• EPS: ¥27.72

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

FY2026 Q2 was a weak quarter with sharp profit compression despite a still-solid balance sheet. Revenue declined 8.7% YoY to 231.8, reflecting softer demand and/or slower project deliveries. Gross profit was 72.9 with a gross margin of 31.5%, but operating income fell 55.7% YoY to 10.2 as operating margin contracted to 4.4%. Ordinary income dropped 51.6% YoY to 12.6, cushioned by non-operating gains of 4.6 (notably 1.07 in dividends and 0.72 in interest), partially offset by 2.16 in non-operating expenses. Net income declined 62.6% YoY to 5.84, yielding a net margin of 2.5%. Operating margin compressed by roughly 468 bps versus an implied prior margin of about 9.1%. Net margin contracted by about 363 bps versus an implied prior margin near 6.2%. Earnings quality was poor: operating cash flow was -0.94, translating to an OCF/NI ratio of -0.16x, well below the >1.0x benchmark. Free cash flow was negative at approximately -9.2 (OCF -0.94 minus capex 8.26), indicating cash outflow during the half. Liquidity remains strong with a current ratio of 188% and cash/deposits of 140.4 against short-term loans of 51.4. Leverage is conservative with D/E of 0.60x and interest coverage of 15.7x, limiting solvency risk despite weaker earnings. ROE printed at 1.3% on DuPont metrics: net margin 2.5%, asset turnover 0.319x, and financial leverage 1.60x, highlighting margin pressure and low capital efficiency. ROIC is 1.5%, well below the 5% warning threshold, indicating subpar returns on invested capital in the period. The effective tax rate was elevated at 45.1%, further depressing bottom-line profitability. Forward-looking, stabilization requires margin rebuild (pricing and mix), normalization of working capital to restore OCF, and disciplined capex; near-term visibility is limited given the demand softness embedded in the YoY decline.

Profitability Analysis

ROE (1.3%) = Net Profit Margin (2.5%) × Asset Turnover (0.319x) × Financial Leverage (1.60x). The largest change vs last year is the net profit margin, evidenced by operating income dropping 55.7% on an 8.7% revenue decline and net income falling 62.6%. Business drivers likely include weaker volumes in core equipment/solutions, pricing pressure, and operating deleverage (SG&A at ~27.1% of sales) magnifying the revenue decline; a high effective tax rate (45.1%) further compressed net margin. Non-operating income (dividends and interest) helped ordinary income but could not offset the operating shortfall. The margin compression appears cyclical rather than purely one-off, tied to soft demand and cost passthrough lag; some normalization is plausible if volumes recover and pricing stabilizes, but the rebound is not yet evidenced in cash flow. Asset turnover of 0.319x is low for an industrial, reflecting a relatively heavy asset and working capital base; this will not improve without higher throughput or tighter inventory/receivables management. Financial leverage at 1.60x is modest and not the ROE driver. Concerning trend: the rate of SG&A absorption was unfavorable (sales -8.7% vs. fixed-cost base), indicating negative operating leverage; continued revenue pressure would keep margins subdued.

Growth Assessment

Revenue contracted 8.7% YoY to 231.8, suggesting cyclical softness in end markets (cutting/welding equipment and related solutions) or delays in customer capex. Operating income fell more steeply (-55.7% YoY), evidencing negative operating leverage and/or weaker mix. Ordinary income benefited from 4.56 in non-operating gains, but this is not a substitute for operating improvement. Net income declined 62.6% YoY to 5.84, compounded by a high 45.1% effective tax rate. Current EBITDA is 19.37 (8.4% margin), providing some buffer for debt service but not enough to fund capex and dividends given negative OCF. Outlook hinges on demand recovery in domestic/overseas industrial activity, realization of pricing power, and project execution; absent these, margin recovery will be gradual. Near-term growth quality is weak due to the OCF shortfall and dependence on non-operating items to support ordinary income.

Financial Health

Liquidity is sound: current ratio 188.2% and quick ratio 162.5%, well above benchmarks; no warning on current ratio (<1.0) or D/E (>2.0). Cash and deposits of 140.4 comfortably exceed short-term loans of 51.4, reducing near-term refinancing risk. Total liabilities are 272.1 against total equity of 454.1, yielding a D/E of 0.60x (conservative). Interest coverage is strong at 15.74x, indicating ample headroom. Maturity mismatch risk appears low given current assets (377.3) substantially exceed current liabilities (200.4). No off-balance sheet obligations were disclosed in the provided data. Overall solvency is robust despite earnings pressure.

Cash Flow Quality

OCF was -0.94 versus net income of 5.84, yielding an OCF/NI ratio of -0.16x, a clear earnings quality flag. The negative OCF likely reflects working capital build (receivables and/or inventory) or lower customer advances; exact drivers are not disclosed. Capex was 8.26, resulting in estimated FCF of about -9.20, insufficient to fund dividends or deleveraging in the period. With EBITDA at 19.37 and interest expense at 0.65, coverage is adequate, but cash generation needs to normalize via tighter working capital management. No clear signs of deliberate working capital manipulation can be confirmed from the limited dataset, but the OCF-earnings divergence warrants close monitoring.

Dividend Sustainability

Dividend disclosures are limited, but the calculated payout ratio of 1006.8% indicates distributions exceeded earnings materially in the period (or are based on a policy that outpaced depressed profits). With FCF approximately -9.2, dividends were not covered by internally generated cash. Sustainability depends on a rebound in operating cash flow and earnings; absent improvement, the company may need to adjust payout, utilize cash on hand, or scale back capex to maintain distributions. Policy guidance is not provided; until OCF turns positive and stabilizes, dividend capacity is constrained.

Risk Assessment

Business Risks:

• Demand cyclicality in cutting/welding equipment and related industrial markets affecting volumes and pricing
• Negative operating leverage when sales decline, pressuring margins due to fixed SG&A
• Commodity and input cost inflation risk impacting gross margins if passthrough lags
• Execution risk on projects and product mix shifting to lower-margin offerings

Financial Risks:

• Earnings quality risk with OCF/NI at -0.16x and negative FCF
• High effective tax rate (45.1%) depressing net income and cash tax burden
• Potential working capital build (AR/inventory) constraining cash conversion
• Ordinary income partly reliant on non-operating gains (dividends/interest), which may be volatile

Key Concerns:

• ROIC at 1.5% well below the 5% warning threshold indicates poor capital efficiency
• Operating margin compressed ~468 bps YoY to 4.4%, signaling weak pricing power or cost absorptive pressure
• Dividend sustainability at risk given negative FCF and extremely high calculated payout ratio
• Visibility limited due to multiple unreported items (investing/financing detail, segment data, DPS)

Investment Implications

Key Takeaways:

• Profitability deteriorated sharply; margin compression and high taxes drove ROE down to 1.3%
• Cash conversion is the main issue: OCF negative despite positive earnings
• Balance sheet strength (net cash position versus short-term debt) provides a buffer
• ROIC at 1.5% underscores the need for better utilization and margin recovery
• Non-operating income supported ordinary profit but is not a stable growth engine

Metrics to Watch:

• Order trends and book-to-bill for equipment businesses
• Gross margin trajectory and price/mix actions
• OCF and working capital (DSO/DIO) normalization
• SG&A growth versus revenue to gauge operating leverage
• Tax rate normalization toward historical averages
• Capex intensity and its linkage to ROIC improvement

Relative Positioning: Within Japanese mid-cap industrial equipment/solutions peers, the company maintains conservative leverage and ample liquidity but currently lags on capital efficiency and cash conversion; recovery depends on demand stabilization and execution on pricing and cost control.

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