Asahi Diamond Industrial Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.48B
• Operating Income: ¥992M
• Net Income: ¥1.27B
• EPS: ¥30.44

Income Statement

Balance Sheet

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

Asahi Diamond Industrial Co., Ltd. (TSE: 6140) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line resilience but significant margin pressure at the operating level. Revenue declined 1.0% YoY to 20,479 million yen, indicating broadly stable demand in aggregate. Gross profit was 5,811 million yen, implying a gross margin of 28.4%, which remains healthy for a precision tooling/materials business but suggests some input cost or pricing pressure. Operating income fell 23.6% YoY to 992 million yen, compressing the operating margin to approximately 4.8%, evidencing elevated fixed-cost absorption and/or increased SG&A spend relative to sales. Ordinary income of 1,371 million yen exceeded operating income, indicating positive non-operating contributions (e.g., financial income, FX-related gains, or equity-method income), with interest expense of only 11 million yen posing a negligible drag. Net income rose 34.5% YoY to 1,519 million yen, outpacing ordinary income and signaling favorable below-the-line items (e.g., extraordinary gains) and/or tax effects in the quarter. EPS printed at 30.44, though outstanding shares were unreported, limiting per-share diagnostics such as payout capacity per share. DuPont metrics show a net margin of 7.42%, asset turnover of 0.274x, and financial leverage of 1.19x, yielding an ROE of 2.41% for the period; the low asset turnover and conservative leverage profile constrain equity returns despite decent profitability below the line. The balance sheet remains very strong, with total assets of 74,852 million yen against total equity of 63,044 million yen and total liabilities of 12,772 million yen, placing leverage at a conservative level (debt-to-equity 0.20x using total liabilities as a proxy for debt). Liquidity is ample: current assets of 34,456 million yen versus current liabilities of 6,640 million yen drive a current ratio of 519% and quick ratio of 464%, supported by working capital of 27,816 million yen. Inventory of 3,652 million yen appears manageable relative to current assets, limiting near-term cash conversion risk from stockpiles. Interest coverage is strong at 90.2x, consistent with minimal financial risk from borrowing costs. Cash flow statement items (operating, investing, financing) are unreported and appear as zeros; consequently, free cash flow and OCF/NI metrics cannot be assessed from this dataset. Dividend data (DPS and payout) are also unreported; hence, distribution policy and coverage cannot be evaluated quantitatively this period. Overall, the company exhibits resilient balance sheet strength and solid non-operating support, but weaker operating profitability in a slightly softer revenue environment implies elevated operating leverage and cost rigidity. The path forward hinges on restoring operating margin via pricing, mix, and cost control while sustaining non-operating tailwinds; absent that, ROE may remain subdued given low leverage and slow asset turnover. Data limitations, particularly around cash flows and share count, constrain assessment of earnings quality, capital efficiency per share, and dividend sustainability.

Profitability Analysis

ROE decomposition per DuPont shows 2.41% calculated ROE = 7.42% net margin × 0.274x asset turnover × 1.19x financial leverage. Net margin at 7.42% exceeds the operating margin (~4.8%), implying material non-operating and/or extraordinary contributions to bottom-line profitability. Gross margin of 28.4% supports value-add in manufacturing but the drop in operating income (-23.6% YoY) versus nearly flat revenue (-1.0% YoY) indicates negative operating leverage in the period. The spread between gross and operating margin narrowed, pointing to elevated SG&A or fixed manufacturing costs that did not flex down with sales. Ordinary income outpaced operating income (1,371m vs 992m), signaling favorable non-operating items that partially offset weak core margins; interest expense (11m) is immaterial. The increase in net income (+34.5% YoY) despite lower operating profit suggests extraordinary gains and/or tax effects, making headline profitability less reflective of core run-rate earnings quality. Asset turnover of 0.274x is low, consistent with a capital-intensive product base and inventory requirements; this constrains ROE alongside conservative leverage (1.19x). Overall profit quality is mixed: core operations softened, but below-the-line support lifted net margin and ROE.

Growth Assessment

Revenue declined 1.0% YoY to 20,479 million yen, indicating broadly stable end-market demand with mild softness. Operating income fell 23.6% YoY to 992 million yen, revealing that volume/mix and cost dynamics weighed disproportionally on profits relative to sales. Ordinary income (1,371 million yen) and net income (1,519 million yen, +34.5% YoY) benefited from non-operating and/or extraordinary factors; thus, growth at the net level is not purely operational. The current profile suggests revenue is relatively resilient, but profit sustainability depends on restoring operating efficiency and managing fixed costs. Without cash flow details, we cannot corroborate profit growth with cash conversion, tempering confidence in the durability of earnings growth. Near-term outlook hinges on pricing discipline, product mix (e.g., higher-margin tools/applications), and demand normalization in cyclical end-markets. If operating margins recover toward historical levels, earnings growth could re-synchronize with sales; absent that, net profit growth may be volatile if non-operating support fades.

Financial Health

The balance sheet appears robust: total equity of 63,044 million yen against total liabilities of 12,772 million yen implies conservative leverage (debt-to-equity 0.20x using total liabilities). Liquidity is strong with current assets of 34,456 million yen and current liabilities of 6,640 million yen, yielding a current ratio of 518.9% and a quick ratio of 463.9%. Working capital of 27,816 million yen provides a substantial liquidity buffer for operations and investment needs. Interest expense is minimal at 11 million yen with interest coverage of 90.2x, indicating negligible refinancing or rate risk. The equity ratio field is unreported (0.0% shown), but the assets and equity figures imply a high equity ratio and low solvency risk. Overall, the company’s capital structure is conservative and well-positioned to absorb cyclical swings.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported (zeros) for the period, so we cannot evaluate OCF/Net Income or free cash flow; the displayed OCF/NI of 0.00 and FCF of 0 should be treated as missing, not actual zero. Earnings quality cannot be corroborated through cash conversion metrics, and working capital dynamics (receivables, payables) are not detailed beyond inventories. Inventories total 3,652 million yen, which appears modest relative to current assets, but without OCF we cannot assess inventory turns or cash tied up. Given net income strength amid weaker operating profit, validating cash realization is a key open point. In the absence of cash flow data, we rely on balance sheet strength as a proxy for financial flexibility rather than near-term cash generation.

Dividend Sustainability

Dividend per share and payout ratio are unreported for the period (zeros indicate missing data). As such, we cannot directly assess payout ratios or free cash flow coverage. Capacity for distributions appears supported by a strong balance sheet (low leverage, high liquidity), but sustainability should be judged on recurring operating cash flow, which is unavailable. With EPS at 30.44 and net income of 1,519 million yen, the company has earnings capacity; however, absent OCF/FCF data and share count, we cannot translate this into coverage metrics. Policy outlook is therefore uncertain from this dataset; visibility would improve with disclosure on dividend policy, cash generation, and capital allocation priorities.

Risk Assessment

Business Risks:

• Operating leverage: operating income fell 23.6% on a 1.0% revenue decline, indicating cost rigidity and margin sensitivity to volume.
• End-market cyclicality: precision tools/materials demand can fluctuate with semiconductor, automotive, and industrial capex cycles.
• Pricing and mix risk: maintaining a 28.4% gross margin may be challenging amid competitive pricing and input cost pressures.
• Dependence on non-operating gains: ordinary and net income exceeded operating income, suggesting reliance on items that may not recur.
• Supply chain and input cost volatility affecting gross margin stability.

Financial Risks:

• Limited cash flow visibility: OCF, FCF, and cash balances are unreported, hindering assessment of earnings-to-cash conversion.
• Potential FX exposure affecting non-operating income and margins (implied by gap between operating and ordinary income).
• Asset intensity and low asset turnover (0.274x) constraining ROE and requiring disciplined capital allocation.

Key Concerns:

• Core operating margin compression despite stable sales.
• Net profit growth driven by below-the-line items rather than operations.
• Inability to verify cash generation and dividend coverage due to unreported cash flows.

Investment Implications

Key Takeaways:

• Revenue was stable (-1.0% YoY) but operating profit declined significantly (-23.6% YoY), highlighting negative operating leverage.
• Non-operating/extraordinary items lifted ordinary and net income above operating income; net income rose 34.5% YoY.
• Gross margin of 28.4% remains solid, but operating margin slipped to ~4.8%, indicating elevated SG&A or fixed-cost burden.
• Balance sheet is strong with low leverage (liabilities/equity ~0.20x) and high liquidity (current ratio ~519%).
• ROE is modest at 2.41% due to low asset turnover (0.274x) and conservative leverage (1.19x).
• Cash flow data are missing; earnings quality and dividend capacity cannot be confirmed this period.

Metrics to Watch:

• Operating margin trajectory and SG&A ratio versus sales.
• Gross margin resilience amid input cost and pricing dynamics.
• Ordinary-to-operating income gap as a gauge of reliance on non-operating items.
• Asset turnover and inventory levels/turns for capital efficiency.
• Disclosure of OCF and FCF to validate earnings quality and potential shareholder returns.
• FX impacts and other non-operating gains/losses that can swing net income.

Relative Positioning: Financially conservative with strong liquidity and low leverage, but currently facing weaker core operating profitability; net income strength appears supported by non-operating/extraordinary items, leaving the company well-capitalized yet operationally challenged versus periods of stronger margin execution.

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