HIRATA Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥45.65B
• Operating Income: ¥4.82B
• Net Income: ¥3.43B
• Earnings per Unit (EPU): ¥112.35

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

Hirata’s FY2026 Q2 was a clear beat on profitability with strong operating leverage driving outsized earnings growth versus revenue. Revenue rose 13.1% YoY to 456.48, while operating income surged 74.4% YoY to 48.22 and ordinary income rose 85.0% to 50.11, culminating in net income up 90.5% to 34.37. Gross profit reached 105.22 with a gross margin of 23.1%, and operating margin expanded to 10.6%. Based on prior-period back-calculation, operating margin improved by approximately 372 bps YoY (from ~6.85% to ~10.57%), and net margin expanded by roughly 306 bps YoY (from ~4.47% to ~7.53%). EBITDA was 57.63 with a 12.6% margin, evidencing better fixed-cost absorption and mix. Non-operating items were modestly positive (income 3.44, expenses 1.55), adding a net ~1.9 to ordinary income; the core driver was operating profit. The tax rate was 31.6%, broadly in line with domestic norms. On balance sheet strength, equity is 707.47, implying an equity ratio of about 52.3%, and liquidity is solid with a current ratio of 197% and quick ratio of 158%. Leverage appears manageable with D/E at 0.91x and interest coverage very strong at 33.6x. Cash flow quality, however, is a watch-point: operating cash flow of 23.52 trails net income of 34.37 (OCF/NI 0.68x), likely reflecting working capital build as receivables (507.87) and inventories (180.84) remain elevated versus payables (54.52). Free cash flow after capex (7.43) is positive at ~16.1, but not enough to comfortably support a payout ratio implied at 112.7% if that level is maintained. ROE calculated at 4.9% remains modest, constrained by low asset turnover (0.338) despite healthier margins. ROIC at 4.2% is below the 5% warning threshold, indicating capital efficiency improvement remains a key task. The forward look hinges on sustaining the improved operating margin while converting earnings to cash via tighter working capital management. Without disclosed order backlog or segment details, sustainability of the revenue and margin uplift cannot be fully validated, but the cost base discipline and favorable operating leverage signal improving fundamentals if demand holds.

Profitability Analysis

ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 7.5% × 0.338 × 1.91 ≈ 4.9%. The largest positive change YoY stems from margin expansion: operating income grew 74.4% on 13.1% revenue growth, lifting operating margin from ~6.85% to ~10.57% (+372 bps) and net margin from ~4.47% to ~7.53% (+306 bps). Business drivers likely include improved project execution, better mix/pricing in factory automation systems, and fixed-cost dilution as volumes recovered. Asset turnover remains low at 0.338, reflecting project-based billing and a heavy working capital profile, which muted ROE despite margin gains. Leverage at 1.91x is moderate; ROE uplift is not leverage-driven. The sustainability of the margin uplift will depend on order quality, delivery timing, and continued SG&A discipline (SG&A ratio 12.5% this period; prior-year SG&A not disclosed to compare). A potential concern is if SG&A growth were to re-accelerate faster than revenue; for now, operating leverage appears favorable, but the weak OCF/NI (0.68x) signals conversion risk that could cap profitability quality.

Growth Assessment

Top-line growth was solid at +13.1% YoY (456.48), but profit growth was exceptional with operating income +74.4% and net income +90.5%, reflecting strong operating leverage. Operating margin improved to 10.6% and EBITDA margin to 12.6%, suggesting better cost absorption and/or mix. Non-operating items were a modest tailwind (net +1.89), not the core driver. Without disclosed backlog or segment split, the durability of growth is uncertain; however, the widening spread between revenue and operating income indicates internal efficiency gains that could persist if volumes remain healthy. Effective tax rate at 31.6% is normal and unlikely to be a swing factor. Near-term outlook sensitivity will hinge on demand from key end markets (e.g., auto/EV and semiconductor equipment customers), where capex cycles can be volatile. Continued focus on working capital discipline is essential to translate earnings growth into sustainable free cash flow.

Financial Health

Liquidity is strong: Current Ratio 197.2% and Quick Ratio 158.5%, with working capital of 454.53. No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is 0.91x, within conservative bounds. Equity ratio is approximately 52.3% (707.47/1,351.26), indicating a solid capital base. Gross interest-bearing debt totals ~203.69 (short-term 91.00, long-term 112.69) versus cash of 118.78, implying net debt around 84.91 and gross Debt/EBITDA ~3.53x; interest coverage is very strong at 33.6x. Maturity mismatch risk appears manageable: current assets (922.38) comfortably exceed current liabilities (467.85), and cash plus receivables provide cushion against short-term loans. However, high receivables (507.87) and inventories (180.84) relative to payables (54.52) signal a working capital-intensive model, elevating cash conversion risk. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

OCF was 23.52 versus net income of 34.37, yielding OCF/NI of 0.68x, which is below the 0.8 threshold and flagged as a quality concern. The gap likely reflects working capital build: receivables are large relative to half-year sales, and inventories are elevated while payables are modest, consistent with project timing and milestone collection patterns. Free cash flow (OCF 23.52 minus capex 7.43) is positive at ~16.09, sufficient for modest deleveraging but potentially tight if dividends align with the calculated payout ratio. No clear signs of aggressive working capital manipulation emerge from the limited disclosure, but the magnitude of receivables warrants monitoring of DSO and collection. Sustainability of positive FCF will depend on normalizing working capital as projects reach billing milestones.

Dividend Sustainability

The calculated payout ratio is 112.7%, which exceeds the <60% benchmark and appears unsustainably high if maintained; however, dividend amounts were not disclosed, so this figure may reflect period effects or calculation assumptions. With OCF of 23.52 and capex of 7.43, FCF of ~16.1 would not fully cover dividends if payout exceeds net income; financing cash outflow (-20.80) suggests some cash usage for debt service and/or distributions, but dividend cash was unreported. Balance sheet strength (equity ratio ~52%) provides resilience, yet with ROIC at 4.2% (below 5%) and OCF/NI at 0.68x, management may prioritize reinvestment and cash conversion over elevated payouts. Dividend policy outlook should be reassessed once actual DPS and guidance are disclosed; near-term sustainability hinges on improving cash conversion and maintaining margin gains.

Risk Assessment

Business Risks:

• Cyclical demand in key end-markets (auto/EV and semiconductor/tech capex) could cause order volatility.
• Project execution risk on large automation systems can impact margins and cash collection timing.
• Customer concentration risk typical in factory automation could magnify downturn effects.
• Supply chain disruptions or component shortages could elongate lead times and raise costs.
• Pricing/mix risk if competitive intensity increases and squeezes gross margins.

Financial Risks:

• Cash conversion risk with OCF/NI at 0.68x and high receivables/inventories vs payables.
• Refinancing/interest rate risk on 203.69 of interest-bearing debt despite strong coverage.
• Potential dividend strain if payout remains >100% of net income.
• ROIC at 4.2% below warning threshold indicates capital efficiency headroom; underperformance could persist if asset turns remain low.

Key Concerns:

• EARNINGS_QUALITY: OCF/Net Income below 0.8 signals working capital drag.
• CAPITAL_EFFICIENCY: ROIC at 4.2% below 5% benchmark.
• Receivables (507.87) and inventories (180.84) heavy relative to revenue and payables, elevating DSO/turnover risk.

Investment Implications

Key Takeaways:

• Strong margin-driven beat: operating margin up ~372 bps YoY to 10.6%, with net margin up ~306 bps to 7.5%.
• Revenue growth +13.1% YoY with outsized operating income growth +74.4%, demonstrating operating leverage.
• Balance sheet solid (equity ratio ~52%, current ratio ~197%), leverage moderate (D/E 0.91x) and interest coverage strong (33.6x).
• Cash conversion is the weak link (OCF/NI 0.68x) due to working capital intensity.
• ROIC at 4.2% underscores the need to lift asset turns and capital efficiency.

Metrics to Watch:

• Order backlog and book-to-bill for demand visibility.
• DSO, inventory turns, and working capital to sales ratio for cash conversion.
• Operating margin sustainability and SG&A ratio discipline.
• ROIC progression toward >7–8% and asset turnover improvement.
• Net debt/EBITDA and interest coverage under varying rate scenarios.
• Actual DPS and payout guidance vs FCF.

Relative Positioning: Within Japanese factory automation peers, Hirata’s Q2 shows improving profitability and cost discipline, but capital efficiency and cash conversion lag best-in-class names; balance sheet strength provides flexibility while execution on working capital and ROIC improvement remains the main catch-up area.

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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