Ishikawa Seisakusho,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.45B
• Operating Income: ¥468M
• Net Income: ¥137M
• EPS: ¥21.75

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

Verdict: Solid top-line and operating leverage, but bottom-line dragged by one-off losses and weak cash conversion. Revenue rose 22.8% YoY to 74.46, with operating income up 46.6% YoY to 4.68, indicating healthy operating momentum. Gross profit reached 13.17, implying a gross margin of 17.7%. Operating margin improved to 6.3% (4.68/74.46), up roughly 102 bps from an estimated 5.3% a year ago given the higher growth in operating income relative to sales. Ordinary income grew 36.8% YoY to 4.23, despite net non-operating loss of roughly 0.45 (0.23 income vs 0.68 expense), reflecting rising interest burden. Profit before tax dropped to 2.68, signaling approximately 1.55 in extraordinary losses under JGAAP between ordinary and pre-tax lines. Net income fell 36.2% YoY to 1.37, pressured by both the extraordinary loss and a high effective tax rate of 48.5%. Earnings quality is weak this quarter: operating cash flow was -31.78 versus net income of 1.37 (OCF/NI of -23.2x), indicative of heavy working capital outflows. Financing cash inflow of 31.79 suggests reliance on debt to bridge operating cash deficits; short-term loans stand high at 111.70. Liquidity is adequate but tight: current ratio 117% and quick ratio 80%, both below comfortable benchmarks (>150% and >100% respectively). Leverage is elevated with D/E at 3.37x, though interest coverage remains acceptable at 7.2x. ROE is modest at 2.5%, with weak ROIC of 1.4%, pointing to subdued capital efficiency despite the revenue ramp. Balance sheet shows significant accounts receivable (117.32) and inventories (57.83), consistent with long-cycle project deliveries and working capital intensity. Forward-looking, operating momentum appears intact, but sustainability hinges on normalizing extraordinary losses, improving cash conversion, and deleveraging. If working capital unwinds in H2 and extraordinary impacts abate, bottom-line and cash flow could converge; otherwise, refinancing and liquidity risks may rise.

Profitability Analysis

DuPont decomposition: ROE 2.5% = Net Profit Margin 1.8% × Asset Turnover 0.315 × Financial Leverage 4.37x. The weakest component is net margin (1.8%), suppressed by an estimated 1.55 in extraordinary losses and a high 48.5% effective tax rate, despite improved operating margin. Asset turnover at 0.315 indicates slow capital turns typical of project/defense machinery, and is a structural headwind to ROE. Financial leverage at 4.37x is high, boosting ROE arithmetically but increasing risk. The largest YoY change within profitability drivers appears to be operating margin expansion (estimated +102 bps) as operating income growth (+46.6%) outpaced revenue (+22.8%), likely due to scale benefits and mix. Business reason: higher volumes and potentially better absorption of fixed costs drove operating leverage, partly offset by higher interest expense in non-operating items. Sustainability: operating margin gains could be partly sustainable if mix and pricing hold, but the net margin is temporarily depressed by extraordinary loss and elevated tax; normalization would lift net margin. Watch that SG&A discipline is maintained; lack of SG&A breakdown limits deeper diagnosis, but the strong OI vs sales suggests SG&A did not outgrow revenue this quarter. Key concern: rising interest costs (0.65) against EBITDA of 5.90 compresses ordinary margin and could erode gains if rates rise or debt increases further.

Growth Assessment

Revenue growth of +22.8% YoY to 74.46 is robust and accompanied by operating income growth of +46.6%, indicating positive operating leverage and improved unit economics. Ordinary income rose +36.8%, confirming core profitability improvement excluding one-off items. However, net income declined -36.2% due to an estimated 1.55 in extraordinary losses and a high effective tax rate, masking underlying operating progress. Gross margin prints at 17.7%; without YoY comparables, the OI vs sales outperformance implies some margin expansion. Growth quality is mixed: profit growth at the operating level is strong, but cash conversion is poor (OCF -31.78), driven by working capital build (AR 117.32, inventories 57.83). Outlook: if project deliveries and collections convert AR/inventory to cash in H2, growth could translate to free cash flow; otherwise, growth may remain balance-sheet intensive. Non-operating drag from interest expense is notable; absent deleveraging, ordinary income may face headwinds. Extraordinary losses appear one-time in nature; normalization would mechanically improve net profit YoY. Near-term visibility hinges on order backlog execution and billing milestones, which are not disclosed here.

Financial Health

Liquidity: Current ratio 117% (above 1.0 but below healthy >150%); quick ratio 80% (below 100%), indicating reliance on inventory conversion and receivable collections. Working capital stands at 26.91, with large AR (117.32) relative to AP (22.48), exposing the company to collection timing risk. Solvency: Debt-to-equity 3.37x is high (warning >2.0), and short-term loans of 111.70 dominate the liability structure, heightening refinancing and maturity mismatch risks versus cash (6.58). However, current assets (184.76) exceed current liabilities (157.85), partially mitigating near-term liquidity stress. Interest coverage is 7.2x (above 5x benchmark), suggesting current debt service capacity at the income level, but this may not translate to cash given negative OCF. No off-balance sheet obligations are reported in the provided data; absence of disclosure limits assessment.

Cash Flow Quality

OCF of -31.78 versus net income of 1.37 yields an OCF/NI ratio of -23.2x, a significant quality concern. The likely driver is working capital absorption (AR and inventories increased or remained elevated), typical in long-cycle/project businesses but risky if collections slip. Free cash flow cannot be computed due to missing capex data; qualitatively, FCF was likely negative given the large OCF deficit. Financing CF of +31.79 suggests operating cash shortfalls were funded via additional borrowings or rollover of short-term loans. Potential manipulation signals: none explicit, but the scale of working capital swing warrants monitoring of days sales outstanding and inventory days. Sustainability: without a H2 reversal in working capital, cash burn would persist and pressure the balance sheet; conversely, milestone collections could normalize OCF.

Dividend Sustainability

Reported payout ratio is 46.6%, nominally within a sustainable <60% range; however, negative operating cash flow implies dividends (if paid) are not covered by internal cash generation this period. FCF coverage is not calculable due to missing capex, but qualitative coverage appears weak. With D/E at 3.37x and reliance on financing cash inflows, maintaining dividends at current implied payout may constrain deleveraging unless OCF normalizes in H2. No DPS or total dividend paid data were provided; assessment is based on the payout ratio input and earnings profile. Policy outlook: a stable-to-cautious stance is prudent until cash conversion improves; extraordinary losses normalization would help reported coverage but not substitute for positive OCF.

Risk Assessment

Business Risks:

• Project and milestone collection risk leading to elevated receivables and cash flow volatility
• Fixed-price contract margin risk amid input cost fluctuations
• Supply chain and lead-time disruptions impacting deliveries and inventory levels
• Industry-specific: defense/procurement cycle volatility and approval timing (typical for specialized machinery/defense-related manufacturers)

Financial Risks:

• High leverage (D/E 3.37x) and concentration in short-term loans (111.70)
• Refinancing and interest rate risk affecting non-operating expenses
• Liquidity tightness with quick ratio at 0.80 and negative OCF
• Potential covenant constraints if profitability or cash flow softens

Key Concerns:

• Extraordinary loss (~1.55) depressed PBT; recurrence would keep net margin subdued
• High effective tax rate (48.5%) reduces net profitability
• Working capital absorption (AR 117.32, inventories 57.83) driving OCF shortfall
• Dependence on financing cash inflows (+31.79) to offset operating deficits

Investment Implications

Key Takeaways:

• Strong operating performance (OI +46.6% YoY) with estimated ~102 bps operating margin expansion
• Bottom-line decline (-36.2% NI) driven by one-off extraordinary loss and high tax
• Cash conversion is the primary weak point (OCF/NI -23x) with elevated AR/inventory
• Balance sheet risk skewed to short-term debt; D/E 3.37x
• ROE 2.5% and ROIC 1.4% indicate low capital efficiency despite leverage

Metrics to Watch:

• OCF trajectory and working capital metrics (DSO, inventory days, advance receipts)
• Extraordinary gains/losses normalization and tax rate trend
• Interest expense run-rate vs borrowing levels and rates
• Order backlog and delivery schedule (for revenue visibility)
• Leverage and debt maturity profile, especially short-term rollover

Relative Positioning: Versus Japan machinery small/mid-cap peers, profitability at the operating level improved, but overall capital efficiency (ROIC 1.4%) is weak and leverage is high; liquidity is tighter than peers with lower quick ratio and greater dependence on short-term funding.

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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