KIMURA KOHKI Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.02B
• Operating Income: ¥2.07B
• Net Income: ¥1.41B
• EPS: ¥396.76

Income Statement

Balance Sheet

Cash Flow Statement

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

Verdict: A strong FY2026 Q2 with robust top-line growth and outsized operating leverage, translating into double-digit ROE and healthy cash generation. Revenue rose 14.2% YoY to 80.19, while operating income surged 48.6% to 20.73, evidencing strong margin execution. Gross profit reached 31.45, implying a gross margin of 39.2%, and operating margin climbed to 25.9% (20.73/80.19). Ordinary income came in at 20.59 (+48.5% YoY), and net income increased 52.0% YoY to 14.13, equating to a net margin of 17.6%. Based on implied prior-period values, operating margin expanded by roughly 600 bps (from ~19.9% to 25.9%), and net margin expanded by about 440 bps (from ~13.2% to 17.6%). DuPont-calculated ROE is 11.1%, driven by a 17.6% net margin, 0.345x asset turnover, and 1.82x financial leverage. Operating cash flow was 11.63 versus net income of 14.13 (OCF/NI 0.82x), indicating acceptable but not perfect cash conversion. Capex was 5.92, leaving positive implied FCF of about 5.71, suggesting reinvestment needs are covered by internal cash. Liquidity is strong with a current ratio of 267% and working capital of 66.86, and solvency is comfortable with a reported D/E of 0.82x and interest coverage of 88.95x. ROIC is reported at 9.4%, above typical cost of capital benchmarks and ahead of the 7–8% target range seen in capital-efficient industrials. Non-operating contributions are modest (non-operating income ratio 1.2%), pointing to earnings largely supported by the core business. Note that the relationship among ordinary income, profit before tax, and reported tax/NI suggests the presence of extraordinary items or timing/tax effects not fully disclosed in the provided line items. Dividend affordability appears sound with a calculated payout ratio of 32.7% and positive FCF coverage, though actual dividends paid are unreported. Overall, the quarter demonstrates strong operating momentum, prudent balance sheet management, and adequate cash conversion, positioning the company well for disciplined growth. Key forward-looking watchpoints are the sustainability of elevated operating margins, working capital intensity (given OCF/NI < 1), and capex pacing versus order visibility. With limited disclosure on inventories, investing cash flows, and extraordinary items, some uncertainty remains around the durability and quality of earnings mix.

Profitability Analysis

ROE decomposition (DuPont): ROE 11.1% = Net Profit Margin 17.6% × Asset Turnover 0.345 × Financial Leverage 1.82x. The largest driver of the YoY improvement is the net margin expansion, as operating income grew +48.6% versus revenue +14.2%, implying stronger pricing/mix or cost efficiencies. Operating margin expanded by roughly 600 bps (from ~19.9% to 25.9%), confirming meaningful operating leverage and SG&A discipline. Business reasons likely include: improved gross spread (39.2% GM), better project execution, and a favorable sales mix toward higher-margin offerings; non-operating impact was minimal (0.17 income vs 0.25 expense). The improvement appears partly sustainable if mix and pricing hold and fixed-cost absorption remains favorable; however, some elements may be cyclical (order timing) and could normalize. Asset turnover at 0.345x is modest, reflecting a balance-sheet-heavy profile; further utilization gains could lift ROE but may be constrained by working capital needs. Financial leverage (1.82x) is stable and not the key driver. No clear evidence that SG&A growth outpaced revenue; rather, operating leverage implies SG&A and/or COGS were controlled better than sales growth.

Growth Assessment

Revenue growth of 14.2% YoY indicates solid demand. Operating income growth of 48.6% YoY far outpaced revenue, reflecting strong margin gains, potentially from mix, pricing, or cost-down effects. Net income growth of 52.0% underscores earnings momentum and limited reliance on non-operating items (non-operating income ratio 1.2%). ROIC of 9.4% suggests growth is value-accretive. Sustainability depends on backlog quality, project timing stability, and the ability to maintain gross margin near 39% while keeping SG&A disciplined. Given OCF/NI at 0.82x, growth likely consumed working capital; continued expansion will hinge on conversion of receivables to cash and inventory control (inventory data unreported). Outlook is cautiously positive provided end-market demand for HVAC/industrial equipment remains firm and cost inflation remains manageable.

Financial Health

Liquidity is strong: Current ratio 267%, quick ratio 267%, and working capital 66.86; no warning flags (CR well above 1.0). Cash and deposits of 15.98 plus accounts receivable of 31.12 comfortably cover current liabilities of 40.03, and short-term loans are only 3.15, indicating low maturity mismatch risk. Solvency is sound: reported D/E 0.82x is conservative for an industrial; long-term loans stand at 37.23 against total equity of 127.55. Interest coverage is 88.95x, signaling ample headroom. No off-balance sheet obligations are disclosed in the provided data. Overall balance sheet quality is solid with manageable leverage and strong liquidity.

Cash Flow Quality

OCF/Net Income is 0.82x, slightly below the >1.0 high-quality benchmark, implying some working capital absorption (likely higher receivables or WIP; inventories unreported). Operating cash flow of 11.63 covered capex of 5.92, yielding positive implied FCF of ~5.71, which supports internal funding of growth and shareholder returns. Financing cash flow was -3.87, consistent with net debt repayment and/or dividends, though dividends paid are unreported. No clear signs of aggressive working capital manipulation are visible, but limited disclosure (no inventory and investing CF breakdown) constrains diagnostics. Cash conversion should be monitored, especially if sales continue to scale.

Dividend Sustainability

The calculated payout ratio is 32.7%, comfortably below the 60% benchmark, indicating headroom. With OCF of 11.63 and capex of 5.92, implied FCF is positive (~5.71), suggesting basic coverage for dividends; exact FCF coverage cannot be confirmed due to unreported dividend cash amounts. Balance sheet capacity is adequate given strong liquidity and conservative leverage. Policy outlook appears sustainable if earnings and OCF remain at current levels, but watch OCF/NI, which is slightly below 1.0, and any step-up in capex.

Risk Assessment

Business Risks:

• Margin normalization risk after an exceptionally strong operating margin quarter (~25.9%).
• Project timing and mix volatility impacting gross margin and OCF (working capital swings).
• Supply chain and component cost inflation potentially compressing gross margin.
• End-market cyclicality in HVAC/industrial equipment affecting order intake.
• Regulatory/energy-efficiency standards changes altering product demand and cost structure.

Financial Risks:

• OCF/NI at 0.82x indicates reliance on future cash conversion to sustain growth and returns.
• Debt presence (LT loans 37.23) exposes the company to interest rate and refinancing risk, albeit mitigated by strong coverage.
• Potential maturity mismatch if receivables extend or inventory builds (inventory data unreported).

Key Concerns:

• Inconsistency between ordinary income (20.59), profit before tax (13.54), and tax/NI suggests undisclosed extraordinary items or classification differences.
• Limited disclosure on inventories and investing cash flows constrains assessment of working capital and capital allocation.
• Sustainability of elevated operating margins without clear segment/mix detail.

Investment Implications

Key Takeaways:

• Strong quarter with revenue +14.2% and operating income +48.6%, driving significant margin expansion (~600 bps).
• ROE 11.1% and ROIC 9.4% indicate value-accretive growth with disciplined capital use.
• Cash generation is adequate (OCF 11.63; implied FCF ~5.71) to fund capex and likely dividends.
• Balance sheet is robust (current ratio 267%, interest coverage 88.95x), reducing downside financial risk.
• Earnings quality is good but not flawless (OCF/NI 0.82x), warranting monitoring of working capital.

Metrics to Watch:

• Order backlog and book-to-bill for demand visibility.
• Gross margin trajectory and cost inflation pass-through.
• OCF/NI ratio and receivables days; inventory levels once disclosed.
• Capex pipeline vs. ROIC maintenance (>8% target).
• Operating margin sustainability around mid-20% range.
• Debt trend and interest coverage amid rate environment.

Relative Positioning: Versus small-cap Japanese industrial/HVAC peers, the company currently exhibits above-average profitability (OM ~26%, ROE 11%, ROIC 9.4%), conservative leverage, and strong liquidity; the main differentiator is margin execution, while cash conversion lags best-in-class names that consistently deliver OCF/NI >1.0.

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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