DIJET INDUSTRIAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.34B
• Operating Income: ¥145M
• Net Income: ¥164M
• Earnings per Unit (EPU): ¥55.10

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 solid rebound quarter, with meaningful profit recovery on modest sales growth and strong cash conversion, albeit off a low base and with capital efficiency still subdued. Revenue rose 2.3% YoY to 43.43, while operating income surged 136.7% YoY to 1.45, ordinary income jumped 511.6% YoY to 1.89, and net income increased 70.4% YoY to 1.63. Gross profit reached 15.12 (gross margin 34.8%), and operating margin improved to 3.3%. Ordinary margin reached 4.3%, supported by net non-operating income of 0.44 (non-op income 1.02 minus non-op expenses 0.58), including dividend income of 0.25 and interest income of 0.04. Net margin was 3.8% on our calculation, consistent with the DuPont net profit margin of 3.8%. Operating margin expanded approximately 190 bps YoY (from ~1.4% to ~3.3%), and net margin expanded roughly 150 bps (from ~2.3% to ~3.8%). Ordinary margin expanded by about 362 bps (from ~0.7% to ~4.3%), highlighting the outsized contribution from non-operating items. Earnings quality was strong: operating cash flow of 6.15 was 3.77x net income, indicating robust cash conversion and limited accrual risk this quarter. Capex was restrained at 1.59, implying a proxy free cash flow of about 4.56, comfortably positive even after financing outflows of -0.60. Liquidity was ample with a current ratio of 238.6% and quick ratio of 180.5%, while leverage was moderate (D/E 0.99x) and interest coverage modest at 2.76x. ROE was low at 2.0% and ROIC at 1.1%, signaling that despite the income rebound, capital efficiency remains a key challenge. The balance sheet shows healthy working capital (50.19) and cash (16.20) relative to short-term loans (15.64), reducing refinancing risk. Effective tax rate was 13.3%, supportive to net profit but likely to normalize. While many detailed SG&A and investment cash flow items were unreported, the available data point to improving fundamentals and cash flow discipline. Looking ahead, sustaining margin gains will depend on maintaining operating leverage, controlling SG&A, and reducing reliance on non-operating income. Given cyclical exposure to cutting tools and industrial demand, execution on productivity, pricing, and mix will be crucial to lift ROIC toward acceptable levels.

Profitability Analysis

ROE (2.0%) via DuPont = Net Profit Margin (3.8%) × Asset Turnover (0.267) × Financial Leverage (1.99x). The largest driver of YoY improvement is the net profit margin, as net income grew 70.4% on only 2.3% revenue growth, implying substantial margin expansion. Operating margin rose to ~3.3% (up ~190 bps YoY) on improved gross-to-SG&A spread and better operating leverage, while ordinary margin benefited further from net non-operating gains (notably dividend and interest income exceeding non-operating expenses). Asset turnover at 0.267 remains low for a capital-intensive manufacturer, reflecting slow asset productivity; this likely limited the ROE uplift. Financial leverage at ~2.0x equity multiplier is moderate and appears broadly stable; leverage was not the main driver of ROE change. Business reason for margin change: mix/pricing and tighter cost control improved operating income, and higher financial and investment-related income boosted ordinary profit. Sustainability: operating margin gains are more sustainable if SG&A growth remains below sales; however, the sizable contribution from non-operating items can be volatile and should be treated as partially non-recurring. Watchpoints: any acceleration in SG&A relative to revenue would compress operating leverage, and interest expense (0.52) already meaningfully offsets operating gains at current coverage (2.76x).

Growth Assessment

Top-line growth was modest at +2.3% YoY to 43.43, consistent with a steady but not booming demand environment for industrial cutting tools. Profit growth was outsized (OP +136.7%, OI +511.6%, NI +70.4%) due to improved cost absorption and higher non-operating income, indicating margin-led rather than volume-led earnings recovery. Gross margin of 34.8% provides room for operating leverage if SG&A discipline holds; current operating margin of ~3.3% suggests ongoing potential from cost initiatives and mix. Ordinary income benefited from dividends and interest; reliance on such income introduces variability and reduces visibility of recurring profits. EBITDA of 5.89 (13.6% margin) versus depreciation of 4.44 indicates modest underlying cash earnings capacity; sustained growth likely requires incremental volume, pricing power, and productivity gains. Outlook: near-term earnings momentum should remain positive if demand holds and non-operating gains persist, but the trajectory will hinge on improving core operating profitability given low ROIC (1.1%).

Financial Health

Liquidity is strong: current ratio 238.6% and quick ratio 180.5% exceed healthy benchmarks. No warning on current ratio (<1.0) or excessive leverage (D/E >2.0); reported D/E is 0.99x, within conservative range. Working capital of 50.19 and cash of 16.20 comfortably cover short-term loans of 15.64, indicating low maturity mismatch risk. Long-term loans of 28.92 suggest a balanced tenor profile relative to noncurrent assets of 76.15. Interest coverage at 2.76x is below the strong benchmark (5x) but above the warning threshold (2x), warranting monitoring if rates rise or operating profit softens. No off-balance sheet obligations were reported in the provided data. Equity of 81.55 against total assets of 162.56 implies an equity ratio of roughly 50% (approximate), consistent with a sound solvency position.

Cash Flow Quality

OCF/Net income of 3.77x indicates high earnings quality and strong cash realization this quarter. With capex at 1.59, a proxy free cash flow of ~4.56 (OCF - Capex) suggests ample capacity to fund maintenance investments and shareholder returns; full investing CF was unreported, so this is a simplified proxy. There are no clear signs of working capital manipulation based on a single period; cash and receivables (34.03) vs payables (3.48) indicate conservative terms, but trend data are not available. Financing CF was -0.60, implying modest net debt reduction or dividends/interest paid within cash generation capacity. Overall, cash flow quality is solid, but sustainability depends on maintaining operating cash generation as non-operating items may fluctuate.

Dividend Sustainability

Calculated payout ratio is 45.9%, within the <60% benchmark for sustainability. With proxy FCF of ~4.56 against net income of 1.63, dividends appear covered by internally generated cash, though total dividends paid were unreported. Interest coverage is adequate but not strong; maintaining dividend capacity will benefit from continued deleveraging or higher operating margins. Policy visibility is limited due to unreported DPS and dividend amounts; absent guidance, we assume a stable-to-cautious stance aligned with cash generation.

Risk Assessment

Business Risks:

• Cyclical demand in industrial tooling tied to automotive, machinery, and capital goods cycles
• Raw material cost volatility (e.g., tungsten carbide) impacting gross margins
• Competitive pricing pressure in cutting tools affecting operating margin sustainability
• Potential reliance on non-operating income (dividends/interest) to support ordinary profit

Financial Risks:

• Interest rate risk given interest expense of 0.52 and moderate coverage (2.76x)
• Execution risk on SG&A control; margin sensitive to cost creep at low operating margin levels
• Asset efficiency risk with low asset turnover (0.267) and low ROIC (1.1%)

Key Concerns:

• Low capital efficiency (ROIC 1.1%) materially below 5% warning threshold
• Profitability recovery partly driven by non-operating items, which are inherently volatile
• Earnings leverage to small revenue changes given thin operating margin (~3.3%)

Investment Implications

Key Takeaways:

• Earnings recovery is real, driven by margin expansion and non-operating tailwinds
• Cash conversion is strong (OCF 6.15; OCF/NI 3.77x), supporting balance sheet resilience
• Capital efficiency remains weak (ROE 2.0%, ROIC 1.1%), limiting valuation uplift without further operating improvements
• Leverage and liquidity are acceptable; interest coverage should be watched
• Sustainability hinges on core operating profit growth rather than non-operating income

Metrics to Watch:

• Operating margin progression and SG&A growth vs revenue
• Gross margin stability amid raw material price movements
• Interest coverage and net debt/EBITDA trajectory
• Working capital turns (inventory and receivables) to lift asset turnover
• Composition of ordinary income (recurring vs non-recurring)

Relative Positioning: Within Japanese precision tooling peers, profitability has rebounded but remains below best-in-class operators on operating margin and ROIC; liquidity is stronger-than-average, while capital efficiency and reliance on non-operating income are weaker points.

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