IWAKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.69B
• Operating Income: ¥2.73B
• Net Income: ¥2.35B
• EPS: ¥103.82

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

Verdict: Solid profitability with slight operating margin compression, but higher ordinary and net profits supported by non-operating gains; balance sheet remains very strong. Revenue grew 0.7% YoY to 226.93, while operating income slipped 1.6% YoY to 27.26. Ordinary income rose 4.1% YoY to 32.31, and net income increased 5.8% YoY to 22.99. Gross profit was 91.11, implying a gross margin of 40.2%. Operating margin was 12.0% (27.26/226.93), ordinary margin 14.2%, and net margin 10.1%. Using the provided YoY rates, operating margin compressed by about 29 bps YoY, while ordinary margin expanded roughly 45 bps and net margin expanded about 49 bps on higher non-operating contributions. Non-operating income of 5.51 (interest income 0.42, dividends 0.33) more than offset non-operating expenses of 0.45, supporting ordinary profit. Interest expense was only 0.40, yielding a very strong interest coverage of about 68.6x. ROE is 6.0% via DuPont (NPM 10.1% × asset turnover 0.425 × leverage 1.40x), in line with the reported figure and indicating modest capital efficiency. Liquidity is robust: current ratio 354.8%, quick ratio 292.3%, and working capital of 257.85. The balance sheet is conservative with debt-to-equity at 0.40x and an equity ratio around 71.6% (382.26/534.02). Cash and deposits of 90.29 exceed short-term loans of 10.80, limiting maturity risk. Earnings quality cannot be confirmed due to unreported operating cash flow; OCF/NI is not calculable, which is a key limitation. The reported payout ratio is 68.5%, slightly above the typical sustainability benchmark, so dividend cover from FCF needs monitoring given missing cash flow data. Forward-looking, modest revenue growth and operating margin pressure suggest reliance on cost control and mix improvement, while the healthy balance sheet provides resilience. Overall, the quarter shows stable demand with slight operating-level softness but supported by financial income, and the company appears well-positioned to navigate near-term uncertainties.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.0% = Net Profit Margin (10.1%) × Asset Turnover (0.425) × Financial Leverage (1.40x). The most notable change YoY appears in the margin layer: operating margin compressed by about 29 bps to 12.0%, but net margin expanded by roughly 49 bps as non-operating income lifted ordinary profit. Asset turnover likely softened modestly given limited top-line growth (+0.7% YoY) versus a relatively large asset base (total assets 534.02), though lack of prior-period assets limits precision. The operating margin compression likely reflects slightly higher cost pressures or SG&A rigidity (SG&A at 63.85 with limited revenue growth), while the improvement in ordinary and net margins stems from higher non-operating income (interest/dividends and other). Sustainability: operating margin softness could persist if demand remains tepid; the non-operating boost is partly financial-income driven and may not be fully repeatable if interest rates or investment income normalize. Concerning trend to flag: with revenue up 0.7% and operating income down 1.6%, implied operating leverage was negative this quarter; SG&A growth vs revenue cannot be confirmed due to missing YoY SG&A detail, but fixed cost absorption looks less favorable.

Growth Assessment

Top-line growth was modest at +0.7% YoY to 226.93, suggesting stable but not accelerating demand. Operating income declined 1.6% YoY to 27.26, indicating mild operating margin pressure despite a solid gross margin of 40.2%. Ordinary and net income growth (+4.1% and +5.8% YoY, respectively) were supported by non-operating income (5.51), which provided a buffer to operating softness. Revenue sustainability appears steady rather than strong; catalysts would likely include new product ramps, pricing, or improved end-market demand in core segments (e.g., industrial/chemical/water treatment). Profit quality is mixed: core operations weakened slightly, while bottom-line growth leaned on financial income. Outlook hinges on cost control and mix improvement to stabilize operating margin, while non-operating contributions are opportunistic rather than structural.

Financial Health

Liquidity is very strong: current ratio 354.8% and quick ratio 292.3% indicate ample short-term coverage. There is no warning on Current Ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.40x. Maturity mismatch risk is low: cash and deposits (90.29) and current assets (359.04) comfortably exceed current liabilities (101.18), including short-term loans of 10.80. Long-term loans are modest at 22.34 relative to total equity of 382.26, and interest coverage is strong at 68.57x. Equity ratio, calculated from provided figures, is about 71.6%, underscoring balance sheet resilience. Off-balance sheet obligations are not reported; no specific contingent liabilities were disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; earnings quality is therefore indeterminate from a cash perspective. Free cash flow and capital expenditures are also unreported, preventing a view on reinvestment needs and cash generation. With inventories at 63.27 and receivables at 76.80, working capital is significant, but without period changes we cannot judge WC drag or benefit; no manipulation signs can be inferred from static data. Given the reliance on non-operating income this quarter, corroborating cash conversion in subsequent filings will be important to validate earnings quality.

Dividend Sustainability

The calculated payout ratio is 68.5%, slightly above the <60% benchmark for comfort. With OCF and FCF unreported, coverage cannot be confirmed; on current information, dividends may be sustainable given strong liquidity and low leverage, but sensitivity to operating cash generation remains. Policy outlook cannot be assessed from disclosures provided; monitoring future guidance and any announced DPS will be key. Balance sheet strength (cash 90.29 and equity ratio ~71.6%) provides flexibility even if cash flows soften temporarily.

Risk Assessment

Business Risks:

• Modest revenue growth (+0.7% YoY) suggests limited demand momentum and potential sensitivity to macro softness.
• Operating margin compression (~29 bps YoY) indicates cost absorption risk if volumes do not improve.
• Dependence on non-operating income (non-operating income ratio ~24%) to support bottom line may mask core weakness.
• Potential raw material and logistics cost fluctuations that could pressure gross and operating margins.
• Industry end-market exposure (industrial/chemical/water treatment) subject to capex cycles and project timing.

Financial Risks:

• Cash flow visibility is low due to unreported OCF/FCF; dividend coverage from cash cannot be confirmed.
• Intangible assets (goodwill 18.79; other intangibles 25.75) create impairment risk if growth underperforms.
• Interest rate risk on financial income: lower rates would reduce non-operating support; conversely, financing costs are currently low but could rise.
• Currency fluctuation risk if procurement or sales are exposed to FX (not disclosed here).

Key Concerns:

• Earnings quality uncertainty without OCF data (OCF/NI not calculable).
• Payout ratio at 68.5% exceeds the conservative benchmark, increasing reliance on stable cash generation.
• Negative operating leverage this quarter (OI -1.6% vs revenue +0.7%).

Investment Implications

Key Takeaways:

• Core operating performance softened slightly despite stable revenue; ordinary and net profits benefited from non-operating income.
• Balance sheet is robust with high liquidity and low leverage, providing downside protection.
• ROE at 6.0% reflects modest capital efficiency; scope exists to improve via higher asset turnover and operating margin.
• Dividend affordability is acceptable but should be validated against future cash flow disclosures given the 68.5% payout ratio.

Metrics to Watch:

• Operating cash flow and free cash flow (to validate earnings quality and dividend cover).
• Operating margin trajectory and SG&A efficiency versus revenue growth.
• Non-operating income components (interest/dividend income and other), and their volatility.
• Working capital trends (receivables and inventories) and cash conversion cycle.
• ROE drivers: asset turnover improvement and leverage discipline.

Relative Positioning: Versus domestic industrial machinery peers, the company exhibits stronger-than-average liquidity and conservative leverage, mid-teens ordinary margin, but a lower ROE profile (~6%) and slower growth; improving operating leverage and cash conversion would enhance competitiveness.

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