Ishikawa Seisakusho,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.45B
• Operating Income: ¥468M
• Net Income: ¥215M
• 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

Ishikawa Seisakusho (TSE:6208) delivered strong top-line momentum in FY2026 Q2, with revenue up 22.8% YoY to ¥7.45bn, and operating income rising 46.6% YoY to ¥468m, indicating meaningful operating leverage and improved cost discipline. Gross profit of ¥1.09bn translated to a gross margin of 14.6%, which remains modest but appears to have supported the operating margin uptick to 6.3%. Ordinary income of ¥423m was below operating income due to net non-operating expenses, notably ¥33m in interest, partially offset by other items not disclosed. Despite stronger operations, net income fell 36.2% YoY to ¥137m, suggesting headwinds below the operating line (e.g., non-operating or extraordinary items, higher taxes or minority interests), and highlighting earnings volatility typical of project-centric businesses. The DuPont breakdown shows a low net margin of 1.84%, asset turnover of 0.315x, and financial leverage of 4.37x, together producing an ROE of 2.53%, which is subdued relative to the operating performance. Liquidity is adequate but inventory-reliant: current ratio is 121.7%, quick ratio 85.2%, and working capital ¥2.86bn; however, the quick ratio below 1.0 indicates dependence on inventory conversion to meet short-term obligations. Cash flow quality is a notable weak spot this half: operating cash flow was negative ¥1.78bn versus positive earnings, implying a large working capital build (likely inventories and receivables) to support growth. Financing cash inflows of ¥2.16bn appear to have funded this working capital absorption, raising reliance on external funding in the period. Total assets were ¥23.66bn with equity of ¥5.42bn, implying an equity ratio around 22.9% (notwithstanding the 0.0% placeholder) and liabilities-to-equity of 2.85x, consistent with a leveraged but not extreme balance sheet for a heavy-order business. Interest coverage is solid at 14.2x (EBIT/interest), indicating manageable debt-servicing capacity despite higher leverage. The company reported DPS of ¥0, which aligns with the need to preserve liquidity while working capital is elevated and cash generation is negative. Free cash flow cannot be reliably assessed because investing cash flows are unreported (0 indicates undisclosed, not zero). Overall, the quarter reflects improved core profitability and scale benefits but also heightened balance sheet intensity and cash conversion risk. Sustaining revenue growth while normalizing inventory and receivables will be key to improving cash flow and ROE. Data limitations (e.g., cash balance, investing CF, equity ratio disclosure) constrain precision, but available figures support cautious interpretation of earnings quality and financial flexibility.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 1.84% × asset turnover 0.315 × financial leverage 4.37 = ROE 2.53%. The weak net margin is the primary ROE drag despite decent operating leverage; asset intensity also moderates returns. Operating margin is 6.29% (¥468m/¥7,446m), up meaningfully YoY given operating income growth of +46.6% vs revenue +22.8%, evidencing operating leverage and improved SG&A efficiency and/or project mix. Gross margin at 14.6% remains relatively thin, typical of project/defense/mechanical manufacturing where materials content is high; nonetheless, the spread to operating margin suggests good overhead control. Ordinary margin stands at 5.68% (¥423m/¥7,446m), reflecting net non-operating costs (notably interest), partially diluting operating gains. Net margin at 1.84% is depressed versus operating margin, indicating pressure from below-the-line items (non-operating/extraordinary effects or tax/minority). EBITDA of ¥606m (8.1% margin) provides additional cushion, with D&A at ¥138m implying modest capital intensity relative to revenue. Interest coverage is strong at 14.2x (EBIT/interest), suggesting room to absorb rate or spread increases near term. Overall, profitability trends are improving at the operating level, but translation to bottom-line ROE remains constrained by low net margins and asset intensity.

Growth Assessment

Revenue expanded 22.8% YoY to ¥7.45bn, indicating healthy order execution and/or backlog conversion. The outperformance in operating income (+46.6% YoY) versus sales points to favorable operating leverage and possibly better project pricing or mix. However, the decline in net income (−36.2% YoY to ¥137m) signals volatility from non-operating/extraordinary factors or tax effects, tempering the quality of growth at the bottom line. With gross margin at 14.6% and operating margin at 6.3%, incremental margins appear positive, but sustainability will depend on maintaining backlog quality and managing input costs and delivery schedules. The low asset turnover (0.315x) suggests a capital- and working-capital-intensive model; scaling sales without proportional balance sheet expansion would be key to sustaining growth. Given the large negative OCF in the period, current growth is consuming cash, likely through inventory and receivable builds; a normalization in working capital in subsequent quarters would improve growth quality. Outlook hinges on the pace of order inflows (government or industrial), supply chain stability, and ability to pass through cost inflation. Without guidance data, we assume mid-teens to low-20s revenue growth is not guaranteed; execution risk remains elevated until cash conversion improves.

Financial Health

Liquidity: Current ratio 121.7% (¥15,992m/¥13,136m) indicates adequate short-term coverage; quick ratio 85.2% implies reliance on inventory conversion to meet obligations. Working capital stands at ¥2,856m, offering a buffer but tied up in operations (inventories ¥4,806m). Solvency: Total liabilities ¥15,453m vs equity ¥5,418m yields a debt-to-equity proxy of 2.85x; equity ratio is approximately 22.9% (calculated) despite the reported 0.0% placeholder. Interest coverage is robust at 14.2x, suggesting manageable debt service. Capital structure: Financial leverage at 4.37x (assets/equity) is elevated for a low-margin business, increasing sensitivity to earnings volatility. The period’s positive financing CF (¥2,164m) indicates reliance on external funding, likely for working capital; this is acceptable short term but should moderate as OCF normalizes. Cash and equivalents are undisclosed (0 indicates unreported), limiting assessment of immediate liquidity headroom.

Cash Flow Quality

Earnings quality is weak this half given the OCF/Net income ratio of −13.01, driven by a sizable working capital outflow (likely inventories and receivables aligned with growth). Operating CF of −¥1,783m contrasts with positive operating income and EBITDA, underscoring timing/cash conversion issues. Free cash flow cannot be reliably computed because investing CF is undisclosed (reported as 0), so any FCF figure would be speculative; the presented 'FCF: 0' should not be interpreted as actual zero. The reliance on financing CF (+¥2,164m) to bridge negative OCF points to temporary strain; continued dependence would be a red flag if not reversed as projects bill and deliver. Inventory intensity appears high: using period-end inventory ¥4,806m and half-year COGS ¥4,978m implies a rough half-year turnover of ~1.0x (annualized ~2.1x), or ~170–180 days on hand, highlighting the need for conversion. Working capital discipline (billing milestones, advance payments, supplier terms) will be pivotal to improving cash flow quality in coming quarters.

Dividend Sustainability

The company reported DPS of ¥0.00 with a payout ratio of 0.0%. Given negative operating cash flow this half and a need to fund working capital, a conservative dividend stance aligns with liquidity preservation. FCF coverage is unassessable (investing CF undisclosed), so formal dividend capacity metrics cannot be computed; the displayed 'FCF coverage 0.00x' should be treated as non-disclosed. With ROE at 2.53% and leverage elevated, retaining earnings to strengthen the balance sheet and support growth appears prudent. Future dividends will depend on normalization of OCF, backlog visibility, and capital expenditure needs; absent clearer cash generation, sustained or higher payouts would be difficult to justify.

Risk Assessment

Business Risks:

• Project/order volatility leading to lumpy revenue and margin recognition
• Inventory and receivables build increasing execution and obsolescence risk
• Input cost inflation and supply chain disruption affecting gross margins
• Customer concentration and potential exposure to government procurement cycles
• Timing mismatch between production and billing impacting cash conversion

Financial Risks:

• Negative operating cash flow funded by increased borrowings in the period
• Elevated financial leverage (assets/equity 4.37x; liabilities/equity 2.85x)
• Quick ratio below 1.0 indicating reliance on inventory conversion for liquidity
• Potential interest rate/reset risk despite current 14.2x interest coverage
• Low ROE (2.53%) limiting internal capital generation

Key Concerns:

• Sustained negative OCF would pressure liquidity and increase financing dependence
• Net income decline YoY despite higher operating income suggests non-operating/extraordinary headwinds
• High inventory days (~170–180 using end-balance proxy) expose the firm to working capital risk
• Data gaps (cash balance, investing CF, equity ratio disclosure) constrain transparency

Investment Implications

Key Takeaways:

• Core operations improved with strong operating leverage (OP margin 6.3%) on 22.8% sales growth
• Bottom-line softness (net margin 1.84%, NI −36.2% YoY) driven by non-operating/extraordinary factors
• Cash conversion is weak (OCF −¥1.78bn), with growth currently balance-sheet intensive
• Leverage is elevated but serviceable; interest coverage remains strong at 14.2x
• Near-term priority should be working capital normalization to support ROE and reduce financing reliance

Metrics to Watch:

• Order backlog and book-to-bill ratio
• Operating cash flow and working capital changes (inventories/receivables)
• Gross and operating margin trajectory by project mix
• Interest-bearing debt levels and interest coverage
• Equity ratio (calculated) and net debt once cash is disclosed

Relative Positioning: Within Japanese mid-cap machinery/project manufacturers, Ishikawa shows improving operating leverage but lags on ROE and cash conversion, with a more working-capital-intensive profile and higher leverage than peers that sustain stronger free cash flow.

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