ENSHU Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.44B
• Operating Income: ¥19M
• Net Income: ¥67M
• EPS: ¥10.75

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: FY2026 Q2 was weak operationally with thin operating profit and a negative ordinary result, but reported net profit was positive due to non-recurring factors and strong operating cash flow. Revenue declined 15.5% YoY to 94.35, compressing scale and straining fixed-cost absorption. Gross profit was 14.20 (GPM 15.1%), with SG&A at 14.00, leaving operating income of just 0.19 (operating margin ~0.2%). Non-operating income of 0.97 was outweighed by non-operating expenses of 1.43 (interest expense 0.87), yielding an ordinary loss of -0.26. Profit before tax of 0.63 implies roughly 0.89 in extraordinary gains, and a small tax credit (-0.04) lifted net income to 0.67 (net margin ~0.7%). Total comprehensive income was -2.87, indicating significant OCI losses (likely valuation/FX), which erode equity despite positive net income. ROE was a muted 0.7%, driven by razor-thin margins (0.7%), low asset turnover (0.337x), and elevated financial leverage (2.79x). Operating cash flow was strong at 9.60 (OCF/NI 14.3x), supported by depreciation (4.78) and likely working capital release; estimated FCF (OCF–Capex) was ~6.35 given capex of 3.25. Liquidity metrics are adequate (current ratio 158%, quick ratio 129%), but debt service capacity is very weak (interest coverage 0.22x; Debt/EBITDA 13.9x). Debt-to-equity stands at 1.79x, above a conservative threshold, heightening sensitivity to earnings volatility. The operating margin likely compressed (bps detail unavailable) as revenue fell and SG&A remained large relative to gross profit. Earnings quality is mixed: cash conversion is strong, but ordinary income is negative and net profit depends on non-recurring items. ROIC is extremely low at 0.1%, far below a 5% warning line, signaling poor capital efficiency. Forward-looking, near-term recovery requires revenue stabilization, improved gross margin, and interest burden reduction; otherwise, refinancing risk and dividend sustainability could become issues. Monitoring order intake, backlog, and inventory normalization is critical in this cyclical, capex-sensitive industry (machine tools/industrial equipment).

Profitability Analysis

ROE decomposition: ROE (0.7%) = Net Profit Margin (0.7%) × Asset Turnover (0.337x) × Financial Leverage (2.79x). The most binding constraint is the net profit margin at 0.7%, with asset turnover also low for a capital-intensive manufacturer; leverage is the only supportive component. Business driver: revenue contracted 15.5% YoY to 94.35, reducing scale benefits; gross margin sits at 15.1% while SG&A effectively consumed nearly all gross profit (14.0 vs 14.2), producing an operating margin of ~0.2%. Non-operating drag (interest 0.87) pushed ordinary income negative (-0.26); net profit was rescued by extraordinary gains (~0.89) and a tax credit. Sustainability: margin recovery hinges on volumes and gross margin mix; extraordinary gains are one-time, and cannot sustainably offset negative ordinary income. Asset turnover is unlikely to improve without a demand uptick and better inventory turns; leverage at 2.79x magnifies equity returns but also risk, and with interest coverage at 0.22x, leverage is not a constructive driver. Concerning trends: SG&A is nearly equal to gross profit, indicating inadequate operating leverage at current volumes; interest expense is high relative to EBITDA (coverage ~0.22x), and ordinary income is negative, signaling core profitability pressure.

Growth Assessment

Revenue declined 15.5% YoY to 94.35, reflecting a cyclical downturn and/or weaker order intake in core end-markets. Operating profit was marginal at 0.19, indicating limited pricing power and/or unfavorable mix against a largely fixed SG&A base. Ordinary loss (-0.26) underscores that core earnings are below the cost of capital and debt service. Net profit (0.67) was supported by extraordinary items (~0.89) and a tax credit; this is not a robust base for growth. EBITDA of 4.97 (margin 5.3%) suggests some room to maneuver but remains thin for deleveraging via earnings. Estimated FCF of ~6.35 (OCF 9.60 – capex 3.25) benefits from working capital release; this may not be repeatable if orders stabilize and inventories rebuild. Outlook: Recovery depends on order backlog, utilization rates, and margin improvement; priorities include cost control, pricing discipline, and reducing interest burden. Without a rebound in top line and gross margins, profit growth will likely lag and remain reliant on non-operating factors.

Financial Health

Liquidity is adequate: current ratio 158% and quick ratio 129% exceed healthy benchmarks. No explicit warning for current ratio (<1.0) is triggered. Capital structure is stretched: D/E 1.79x (above the 1.5x conservative benchmark but below the 2.0x warning threshold). Interest-bearing debt components disclosed include short-term loans 33.94 and long-term loans 35.05; total liabilities 179.39 versus cash 31.67 and current assets 127.60. Maturity mismatch risk: short-term loans (33.94) are sizeable but covered by cash (31.67) plus receivables (19.87); overall current assets comfortably exceed current liabilities (80.64), mitigating near-term liquidity risk. However, debt service capacity is weak: interest coverage 0.22x and Debt/EBITDA 13.9x indicate refinancing risk if earnings do not recover. Comprehensive income was negative (-2.87), implying equity erosion via OCI (valuation/FX), which can incrementally weaken solvency metrics. No off-balance sheet obligations were reported in the dataset.

Cash Flow Quality

OCF/Net Income is 14.33x, indicating strong cash conversion relative to earnings; drivers likely include depreciation (4.78) and working capital inflows (details not disclosed). Estimated FCF is ~6.35 (OCF 9.60 – capex 3.25), suggesting room to fund maintenance capex and some deleveraging, provided OCF remains resilient. Sustainability caveat: if working capital normalizes (e.g., inventory rebuild or receivables growth with revenue recovery), OCF could moderate. No obvious signs of working capital manipulation are visible from the limited data, but the gap between negative ordinary income and strong OCF warrants monitoring of payables/inventory dynamics. Financing cash flow was -18.12, suggesting net debt repayments and/or dividends; the large outflow temporarily improves leverage optics but heightens liquidity usage.

Dividend Sustainability

The calculated payout ratio is 94.8%, but dividends paid and DPS are unreported; this ratio likely reflects estimates and should be treated cautiously. With net income only 0.67 and ordinary income negative, dividend headroom from earnings is thin. On a cash basis, estimated FCF of ~6.35 could cover modest dividends, but priority may need to shift to deleveraging given interest coverage of 0.22x and Debt/EBITDA 13.9x. Without clear dividend policy disclosure for FY2026 and given earnings volatility, sustainability is uncertain and sensitive to core profit recovery. Policy outlook: a conservative stance (maintaining or trimming payouts) would be prudent until ordinary income turns positive and ROIC improves.

Risk Assessment

Business Risks:

• Cyclical demand in machine tools/industrial equipment leading to revenue volatility (-15.5% YoY this quarter).
• Margin pressure from weak capacity utilization and limited pricing power (GPM 15.1%, operating margin ~0.2%).
• Dependence on extraordinary gains to achieve positive net income (ordinary income -0.26).
• Potential exposure to FX and valuation swings reflected in negative comprehensive income (-2.87).
• Customer capex deferrals in automotive/general machinery end-markets.

Financial Risks:

• Debt service capacity risk: interest coverage 0.22x and Debt/EBITDA 13.9x.
• Leverage elevated: D/E 1.79x, increasing sensitivity to earnings shocks and interest rates.
• Refinancing risk due to sizable short-term loans (33.94) amid thin operating profits.
• Potential covenant pressure if metrics tied to EBITDA/interest deteriorate.
• Equity erosion via OCI losses could constrain financial flexibility.

Key Concerns:

• Core profitability is negative at the ordinary level; sustainability of net profit is questionable.
• ROIC at 0.1% indicates poor capital efficiency and value creation risk.
• SG&A nearly equals gross profit, leaving minimal buffer for shocks.
• Reliance on working capital release to drive OCF may not be repeatable.
• Unreported disclosures (dividends breakdown, segment details) limit visibility into recurring earnings.

Investment Implications

Key Takeaways:

• Operational softness: operating margin ~0.2% and ordinary loss signal core weakness.
• Positive net income driven by non-recurring items; comprehensive income negative.
• Cash flow is a bright spot (OCF 9.60), but may normalize if working capital reverses.
• Leverage and debt service are the key pressure points (coverage 0.22x; D/E 1.79x).
• ROIC 0.1% underscores the need for structural profit improvement.

Metrics to Watch:

• Order intake and book-to-bill ratio; backlog trends.
• Gross margin and SG&A ratio to sales.
• Interest coverage and Debt/EBITDA trajectory; refinancing schedule.
• Working capital metrics: inventory and receivables turnover.
• Ordinary income progression and presence/absence of extraordinary gains.

Relative Positioning: Versus domestic industrial/machine tool peers, profitability and capital efficiency appear weaker (operating margin ~0.2%, ROIC 0.1%), while leverage and interest burden are higher, though liquidity (current ratio 158%) is acceptable.

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