Yokota Manufacturing Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥863M
• Operating Income: ¥124M
• Net Income: ¥82M
• EPS: ¥44.47

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 mixed FY2026 Q2 with resilient margins but weaker earnings quality and softer top-line, underpinned by a very strong balance sheet. Revenue was 8.63 (−3.4% YoY), with gross profit of 4.04 and operating income of 1.24 (−3.6% YoY), showing limited operating leverage as sales declined. Net income fell to 0.82 (−9.1% YoY), implying a steeper drop at the bottom line than at the operating line. Operating margin was roughly stable at 14.4%, down by an immaterial ~1 bp YoY based on reconstructed prior-period figures. Net margin compressed by ~59 bps to 9.5% as non-operating and tax effects weighed on after-tax profitability. Gross margin printed at a solid 46.8%, indicating pricing/production cost control despite a softer demand backdrop. ROE was 2.8%, held back by very low asset turnover (0.261) and minimal leverage (1.14x) despite a decent net margin. ROIC was reported at 10.6%, comfortably above a typical 7–8% hurdle, suggesting efficient deployment on the invested capital base even if reported ROE is muted by excess equity/cash. Cash flow quality is the key concern: operating cash flow was −0.98 versus positive net income of 0.82 (OCF/NI −1.19x), signaling working capital or collection pressure. Financing cash outflow of −0.93 and a calculated payout ratio of 125.7% suggest distributions are outpacing earnings and cash generation this period. Liquidity is exceptionally strong (current ratio ~475%, cash 20.89), and leverage is conservative (D/E 0.24x; equity ratio ~87.6%), materially mitigating solvency risk. Capex was modest at 0.59, implying room to preserve cash if needed, but negative OCF plus dividends point to possible near-term cash draw absent improvement in collections or demand. Looking ahead, sustaining margins while normalizing cash conversion will be the swing factor for earnings quality and dividend headroom. Without segment or order information disclosed, near-term growth visibility is limited; monitoring receivables trends and order intake will be critical. Overall, a defensible operating profile and fortress balance sheet offset current cash flow strain, but bottom-line momentum and dividend sustainability are pressured until OCF improves.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.8% = Net Profit Margin 9.5% × Asset Turnover 0.261 × Financial Leverage 1.14x. The weakest link is asset turnover at 0.261, reflecting a large asset (cash-heavy) base relative to sales. Net margin edged down by ~59 bps YoY to 9.5%, while operating margin was effectively flat (−1 bp YoY to ~14.4%), indicating operating discipline offset softer sales. Financial leverage is low (1.14x), deliberately dampening ROE but reducing risk. The component that changed most appears to be the net margin (compression) versus essentially flat operating margin; bottom-line pressure likely came from a higher effective tax rate (31.0%) and/or minor non-operating headwinds (non-op expenses of 0.01 vs income of 0.04). Business drivers: modest demand softness (−3.4% sales) limited operating leverage benefits; SG&A of 2.75 seems well-contained in absolute terms, but with revenue down, ratio to sales likely ticked up slightly, capping margin expansion. Sustainability: operating margin stability looks sustainable near term if pricing and cost controls persist; however, net margin depends on tax/non-operating items and could remain under slight pressure. Watch for concerning trends: sales decline outpacing cost reductions and OCF/NI divergence suggest potential receivables stretch; no explicit SG&A breakdown was disclosed to confirm efficiency granularity.

Growth Assessment

Top-line declined 3.4% YoY to 8.63, signaling softer demand. Operating income decreased 3.6% to 1.24, roughly tracking revenue, indicating limited positive/negative operating leverage. Net income fell 9.1% to 0.82, reflecting margin compression at the bottom line due to non-operating and tax effects. Gross margin at 46.8% and operating margin ~14.4% demonstrate resilient unit economics despite revenue pressure. Non-operating contribution was small (net +0.03), so earnings remain primarily driven by the core business. With limited disclosure on order backlog or segments, near-term growth visibility is low; assuming stable pricing, incremental growth recovery likely hinges on demand normalization and improved working capital conversion. ROIC at 10.6% indicates healthy project/asset returns, supportive of medium-term value creation if reinvestment opportunities persist. However, near-term EPS trajectory is constrained unless sales re-accelerate or SG&A ratios are further optimized. Outlook bias: cautious near term on growth, constructive on margin resilience; watch order trends and receivables for confirmation.

Financial Health

Liquidity is very strong: current ratio 475.1% and quick ratio 473.0%, with cash and deposits of 20.89 versus current liabilities of 5.93. No warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.24x. Equity/asset ratio is approximately 87.6% (28.99/33.08), implying substantial solvency buffer. Maturity mismatch risk is low: current assets 28.17 comfortably cover current liabilities 5.93; accounts receivable of 4.64 plus cash more than cover payables of 0.40. Interest-bearing debt details were unreported, but overall liabilities are modest relative to equity. No off-balance sheet obligations were disclosed. Overall, the balance sheet can absorb temporary cash flow volatility.

Cash Flow Quality

OCF was −0.98 against net income of 0.82, yielding OCF/NI of −1.19x, a clear quality red flag for the period. The divergence likely stems from working capital outflows (e.g., receivables build or timing effects), though detailed CF drivers were not disclosed. Capex was 0.59, and a proxy FCF (OCF − Capex) is approximately −1.57, implying distributions and investments exceeded internal cash generation this half. Financing CF of −0.93 suggests outflows for dividends (share repurchases were negligible), effectively funded by cash on hand. Sustainability: absent a rebound in OCF via collection normalization or inventory reduction, negative FCF would pressure future distributions. No obvious signs of intentional working capital manipulation can be confirmed from disclosed data, but the scale of OCF shortfall relative to NI warrants close monitoring of receivables turnover and billing/collection timing.

Dividend Sustainability

The calculated payout ratio is 125.7%, indicating distributions exceed earnings for the period. With OCF negative (−0.98) and proxy FCF at roughly −1.57 (OCF − Capex), dividend coverage from internal cash generation is weak this half. Financing CF outflow of −0.93 is consistent with dividend payments being funded from the large cash balance rather than current-period cash flow. Policy outlook: the substantial cash cushion provides near-term flexibility to maintain dividends, but sustained over-distribution would be unsound unless OCF normalizes. Key watchpoints: OCF recovery, full-year payout versus policy targets, and any guidance on maintaining or recalibrating shareholder returns.

Risk Assessment

Business Risks:

• Demand softness evidenced by −3.4% YoY revenue decline
• Potential pricing pressure or mix shift risk despite current gross margin resilience
• Execution risk on cost control if sales decelerate further
• Industry capex cycle sensitivity if end-markets are capital goods/industrial

Financial Risks:

• Earnings quality risk: OCF/NI at −1.19x indicates cash conversion stress
• Dividend sustainability risk: payout ratio 125.7% and negative proxy FCF
• Receivables collection risk given negative OCF and sizable AR (4.64)
• Concentration risk not disclosed; small scale (assets 33.08) could amplify shocks

Key Concerns:

• Near-term cash generation insufficient to fund dividends and capex concurrently
• ROE at 2.8% below small-cap Japan peers (typically mid- to high-single digits)
• Limited disclosure (SG&A breakdown, investing CF) reduces visibility into drivers
• Tax rate at 31% keeps pressure on net margin if pre-tax profits soften

Investment Implications

Key Takeaways:

• Margins resilient; operating margin ~14.4% essentially flat YoY
• Bottom-line compressed modestly; net margin −59 bps YoY to 9.5%
• ROE low at 2.8% due to low asset turnover and minimal leverage
• Balance sheet extremely strong (equity ratio ~88%, net cash rich)
• Cash flow quality weak this period (OCF negative), pressuring dividend coverage
• ROIC at 10.6% suggests efficient invested capital despite subdued ROE

Metrics to Watch:

• OCF/Net Income ratio (target >1.0)
• Receivables turnover and DSO
• Order backlog and shipment trends
• Operating margin and SG&A-to-sales ratio
• Dividend payout versus full-year earnings and FCF
• Capex intensity and returns (ROIC maintenance)

Relative Positioning: Versus Japan small-cap industrial peers, the company exhibits stronger-than-average liquidity and solvency, comparable operating margins, but lower ROE due to a cash-heavy, under-levered balance sheet and low asset turnover; current-period cash conversion is weaker than peers with positive OCF.

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