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

Financial Highlights

• Net Sales: ¥23.18B
• Operating Income: ¥1.02B
• Net Income: ¥1.78B
• 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

Koike Sanso Kogyo (6137) reported FY2026 Q2 consolidated results under JGAAP showing clear cyclical pressure on top-line and margin. Revenue declined 8.7% YoY to ¥23.18bn, while operating income fell 55.7% to ¥1.02bn, indicating pronounced negative operating leverage. Net income decreased 62.6% YoY to ¥0.58bn (EPS ¥27.72), compressing net margin to 2.52%. Despite the profit contraction, gross profit was reported at ¥8.24bn, supporting a gross margin of 35.6%, which remains comparatively healthy for capital goods with a mix of equipment, consumables, and service. EBITDA came in at ¥1.76bn (7.6% margin), helped by ¥0.74bn in D&A, implying manageable cash earnings despite profit pressure. Ordinary income (¥1.26bn) exceeded operating income, suggesting meaningful non-operating gains offsetting financing costs (interest expense ¥65m), and supporting a robust interest coverage of 15.7x. ROE stood at 1.29% per DuPont (net margin 2.52%, asset turnover 0.319x, financial leverage 1.60x), reflecting subdued profitability rather than balance sheet stress. Liquidity is solid with a current ratio of 184.7% and a quick ratio of 163.3%, underpinned by current assets of ¥41.69bn against current liabilities of ¥22.57bn and working capital of ¥19.12bn. The balance sheet is conservative, with liabilities of ¥29.16bn versus equity of ¥45.41bn (implied equity ratio ~62.6%), consistent with modest leverage (debt-to-equity proxy at 0.64x using total liabilities). Operating cash flow was positive at ¥1.30bn and exceeded net income (OCF/NI 2.23x), indicating decent earnings-to-cash conversion this period. Financing cash outflow of ¥1.67bn suggests net repayment and/or shareholder returns; however, DPS is shown as ¥0 with a 0% payout, so the outflow likely skews to debt repayments or other financing uses. Reported calculated metrics show a 0.0% effective tax rate, but using non-zero inputs (income taxes of ¥0.83bn vs ordinary income of ¥1.26bn) implies a high effective tax burden (~66%), possibly due to discrete items or differences between ordinary and taxable income. Inventory is moderate at ¥4.83bn, supporting the strong quick ratio and providing flexibility to adjust to demand. Several items are unreported (e.g., cash & equivalents, investing cash flows, shares outstanding), which limits full precision on free cash flow and per-share metrics beyond EPS. Overall, the quarter reflects cyclical softness and mix headwinds driving margin compression, but the company retains strong liquidity, manageable leverage, and acceptable cash generation to navigate the downturn. The outlook hinges on the pace of capex recovery in end-markets such as shipbuilding, steel fabrication, and general machinery, and on the company’s ability to defend price/mix and control fixed costs.

Profitability Analysis

ROE_decomposition: DuPont indicates ROE of 1.29% = Net margin 2.52% × Asset turnover 0.319× × Financial leverage 1.60×. The weak net margin is the primary drag; asset turnover is low for the period and leverage is modest. margin_quality: Gross margin of 35.6% is resilient relative to historical levels for an equipment-and-consumables mix, but operating margin compressed sharply (operating income ¥1.02bn vs revenue ¥23.18bn) due to higher SG&A burden on lower sales and likely less favorable mix. EBITDA margin at 7.6% underscores still-positive cash earnings. operating_leverage: Revenue declined 8.7% YoY while operating income fell 55.7% YoY, evidencing significant negative operating leverage as fixed costs and mix amplified the top-line contraction. Ordinary income outperformed operating income, cushioned by non-operating gains, but this is not a structural fix to operating leverage.

Growth Assessment

revenue_sustainability: Revenue of ¥23.18bn declined 8.7% YoY, reflecting softer demand in capital goods end-markets and/or project timing. Sustainability will depend on backlog quality and recovery in fabrication-heavy industries. profit_quality: Net margin at 2.52% and operating income down 55.7% YoY point to margin pressure from volume deleverage and mix. Ordinary income surpassed operating income, indicating reliance on non-operating items this period; core profitability needs stabilization. outlook: Short-term outlook remains cautious given negative operating leverage. If demand stabilizes and pricing holds, margins can recover with volume. Watch for stabilization in order intake, regional mix, and service/consumables attachment rates to support margin durability.

Financial Health

liquidity: Current ratio 184.7% and quick ratio 163.3% indicate strong near-term liquidity. Working capital is ¥19.12bn, aided by relatively low inventories (¥4.83bn) versus current assets. solvency: Total liabilities of ¥29.16bn versus equity of ¥45.41bn imply an inferred equity ratio of ~62.6% and a liabilities-to-equity ratio of 0.64x, signaling a conservative balance sheet. capital_structure: Financial leverage (assets/equity) at 1.60× is modest. Interest expense is ¥65m with interest coverage of 15.7×, indicating ample cushion against higher rates or temporary earnings dips.

Cash Flow Quality

earnings_quality: OCF/Net income of 2.23× (¥1.30bn/¥0.58bn) indicates solid conversion and limited accrual build this period. FCF_analysis: Investing cash flow is unreported (0 shown), so free cash flow cannot be reliably determined; reported FCF as 0 should be treated as unavailable rather than zero. Nevertheless, positive OCF provides internal funding capacity. working_capital: With inventories at ¥4.83bn and strong quick ratio, working capital appears well-managed. Monitor receivables collection given sales decline to ensure OCF resilience.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is shown as ¥0.00 with a payout ratio of 0%. Given EPS of ¥27.72, there is capacity for dividends, but current stance appears conservative or unreported for the interim. FCF_coverage: FCF coverage cannot be assessed due to unreported investing cash flows; treating current FCF as 0 is not appropriate. OCF of ¥1.30bn suggests potential coverage if capex needs are moderate. policy_outlook: Given earnings softness and a focus on balance sheet strength, a cautious dividend posture is plausible near term. Visibility on capex and cash commitments will drive future payout decisions.

Risk Assessment

Business Risks:

• Cyclical demand in welding/cutting equipment across shipbuilding, steel, and machinery end-markets
• Negative operating leverage on volume declines and adverse product mix
• Pricing pressure from domestic and overseas competitors
• Project timing and backlog conversion risk impacting quarterly volatility
• Supply chain and component availability affecting deliveries and costs

Financial Risks:

• Potential for elevated effective tax burden due to discrete items or jurisdictional mix
• Currency fluctuations affecting non-operating income and imported components
• Working capital swings (receivables, inventories) impacting OCF in downturns
• Refinancing and interest rate risk, albeit mitigated by strong coverage

Key Concerns:

• Sharp YoY contraction in operating and net income despite modest revenue decline
• Dependence on non-operating gains to bridge operating shortfall
• Limited visibility on capex and FCF due to unreported investing cash flows

Investment Implications

Key Takeaways:

• Top-line down 8.7% YoY with outsized 55.7% drop in operating income, highlighting negative operating leverage
• Gross margin resilient at 35.6%, but operating margin compressed materially
• ROE at 1.29% reflects weak profitability, not excess leverage
• Liquidity and solvency are strong with implied equity ratio ~62.6% and interest coverage 15.7x
• OCF exceeded net income (2.23x), indicating decent cash conversion despite earnings pressure

Metrics to Watch:

• Order intake/backlog and book-to-bill
• Operating margin and EBITDA margin recovery trajectory
• Working capital turns (DSO/DIO) and OCF sustainability
• Product and regional mix; price realization vs input costs
• Capex and investing cash flows to assess true FCF
• Effective tax rate normalization versus this period’s implied ~66%

Relative Positioning: Within Japanese capital goods and welding/cutting peers, the company shows weaker near-term profitability but superior balance sheet conservatism and liquidity, positioning it to withstand cyclical softness and benefit from an eventual demand recovery.

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
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