TOWA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥23.45B
• Operating Income: ¥2.49B
• Net Income: ¥1.85B
• EPS: ¥24.66

Income Statement

Balance Sheet

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: Soft quarter with significant profit compression amid a semiconductor capex downcycle, though liquidity remains robust. Revenue fell 14.4% YoY to 234.49, while operating income declined 52.6% YoY to 24.93 and net income contracted 51.7% YoY to 18.49. Operating margin compressed to 10.6% from roughly 19.2% a year ago (approximately -856 bps), reflecting weaker volumes and deleveraging on SG&A. Net margin fell to 7.9% from about 14.0% (approximately -609 bps). Gross margin printed at 33.9%, indicating cost absorption pressure relative to the prior cycle peak (prior-year gross margin not disclosed). SG&A reached 54.55 (23.3% of sales), limiting operating leverage as revenue declined. Ordinary income was 23.94 with a small net non-operating loss (~1.0), partly offset by dividend and interest income. Comprehensive income of 39.12 exceeded net income by ~20.6, suggesting sizable OCI gains (likely FX or securities valuation), which are non-cash and volatile. ROE calculated at 2.9% remains subdued; ROIC at 3.6% is below the 5% warning threshold, underscoring capital efficiency challenges in the current trough. Liquidity is strong with a current ratio of 239% and cash of 245.26 exceeding total interest-bearing debt (~128.1), implying a net cash footing. Interest coverage remains solid at ~39.9x, so near-term solvency risk is low despite profit compression. Earnings quality assessment is limited as operating cash flow was not disclosed this quarter. The calculated payout ratio of 81.3% appears elevated versus typical sustainability benchmarks, and with profits down, dividend cover rests more on the balance sheet than cash generation near term. Forward-looking, results are consistent with the semiconductor equipment cycle downturn; recovery timing hinges on order intake normalization and utilization at packaging/assembly customers. Monitoring order backlog, book-to-bill, and gross margin trajectory will be critical to gauge inflection. Overall, the company is navigating the downcycle from a position of balance-sheet strength but with reduced profitability and capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.9% = Net Profit Margin (7.9%) × Asset Turnover (0.258) × Financial Leverage (1.43x). The largest change YoY is in Net Profit Margin, which dropped from 14.0% to 7.9% (-609 bps), while leverage remains conservative and asset turnover (0.258) is indicative of slower revenue against the asset base. Business drivers: revenue decline (-14.4% YoY) reduced scale economies, SG&A ratio rose to 23.3%, and gross profit pressure limited operating leverage, compressing operating margin from 19.2% to 10.6% (-856 bps). Non-operating balance was a modest drag (net -1.0), slightly worsening ordinary income versus operating income. Sustainability: Margin compression is largely cyclical for semiconductor back-end/process equipment; partial recovery is plausible with order resumption, but timing is uncertain. Concerning trends: SG&A did not flex down with sales (SG&A ratio increased), suggesting negative operating leverage; vigilance is warranted if SG&A growth continues to outpace revenue in a recovery. Capital efficiency: ROIC at 3.6% (below 5%) flags subpar returns on the invested base in the current trough.

Growth Assessment

Top-line declined 14.4% YoY to 234.49, consistent with a soft CAPEX environment at semiconductor assembly/packaging customers. Operating income fell 52.6% YoY to 24.93, materially underperforming revenue due to deleveraging and margin pressure. Net income dropped 51.7% to 18.49; effective tax rate is stable at 25.4%, implying earnings decline is operational, not tax-driven. Non-operating income (3.05) and interest income (0.76) provided limited cushion, offset by non-operating expenses (4.05). Comprehensive income surged vs NI due to OCI gains (~20.6), which are non-recurring and volatile; they do not improve operating fundamentals. Revenue sustainability near term depends on order intake and shipment timing; absent order/book-to-bill data, visibility is limited. Profit quality hinges on restoring gross margin and managing SG&A as volumes recover. Outlook: Expect continued near-term softness with potential sequential stabilization if industry utilization improves; upside requires evidence of backlog rebuild and improved cost absorption.

Financial Health

Liquidity is strong: current ratio 238.9% and quick ratio 218.0% indicate ample short-term coverage. No warning triggers (current ratio well above 1.0; D/E 0.43x below the 2.0 threshold). Balance sheet shows cash and deposits of 245.26 versus short-term loans of 120.00 and long-term loans of 8.10, implying a net cash position (~117). Working capital stands at 326.80, supported by receivables (127.78) and inventories (48.96). Maturity mismatch risk is low as cash and receivables exceed short-term borrowings and payables (35.59). Interest coverage is robust at 39.85x, cushioning against earnings volatility. No off-balance sheet obligations were disclosed in the provided data. Equity totals 638.32 versus assets of 910.13, yielding moderate leverage (assets/equity ~1.43x).

Cash Flow Quality

Operating cash flow was not reported; thus OCF/Net Income and FCF cannot be assessed this quarter. Given the profit decline and higher SG&A ratio, cash conversion risk rises if receivables stretch or inventory builds, but current metrics show inventories at 48.96 and receivables at 127.78, which appear manageable relative to cash. Without capex data, FCF sustainability for dividends and strategic investments is indeterminate. No explicit signs of working capital manipulation can be inferred from the limited snapshot; however, monitoring DSO/DIO trends and advance payments is recommended once cash flow statements are available.

Dividend Sustainability

The calculated payout ratio is 81.3%, above the <60% benchmark for comfort. With net income down 51.7% YoY and ROIC at 3.6%, dividend cover relies more on the strong balance sheet (net cash) than on current earnings momentum. FCF coverage cannot be evaluated due to missing OCF and capex; thus visibility is limited. If earnings remain at trough levels, an 80%+ payout may constrain reinvestment unless supported by cash reserves. Policy outlook will likely balance shareholder returns with cyclical investment needs; confirmation awaits management guidance and cash flow disclosure.

Risk Assessment

Business Risks:

• Semiconductor equipment cycle risk: prolonged capex softness at packaging/assembly customers could suppress orders and margins.
• Gross margin pressure from lower utilization and potential pricing competition.
• Customer concentration risk typical for semi-cap equipment suppliers (top customers can materially affect orders).
• Project timing risk: shipment/acceptance timing can swing quarterly results.
• Supply chain and component cost fluctuations affecting COGS and lead times.

Financial Risks:

• High payout ratio (81.3%) amid earnings trough may pressure internal funding if downturn persists.
• Potential working capital expansion (receivables/inventory) during weak demand could consume cash.
• FX volatility affecting non-operating items and OCI, causing earnings and equity swings.
• Interest rate risk limited but present given short-term borrowings (120.00), albeit net cash overall.

Key Concerns:

• ROIC at 3.6% below the 5% threshold signals weak capital efficiency.
• Operating margin compression of ~856 bps YoY to 10.6%.
• Net margin compression of ~609 bps YoY to 7.9%.
• Limited disclosure on cash flows, capex, and SG&A breakdown reduces visibility.
• Reliance on OCI gains (comprehensive income > net income) highlights non-operating volatility.

Investment Implications

Key Takeaways:

• Revenue down 14.4% YoY to 234.49 with outsized operating profit decline (-52.6%).
• Operating margin fell to 10.6% from 19.2% (-856 bps), indicating negative operating leverage.
• Net margin at 7.9% vs 14.0% YoY (-609 bps).
• Strong liquidity and net cash (~117) mitigate near-term balance sheet risk.
• ROIC at 3.6% flags subpar returns; improvement needs margin recovery and higher asset turnover.
• Payout ratio at 81.3% appears elevated relative to cyclically depressed earnings.

Metrics to Watch:

• Order intake and book-to-bill ratio; backlog level and mix.
• Gross margin trajectory and SG&A ratio as volumes normalize.
• Operating cash flow, FCF, and capex once disclosed; OCF/NI ratio.
• Inventory and receivables turnover (DIO/DSO) to gauge cash conversion.
• ROIC and asset turnover improvements through the cycle.
• FX impacts on non-operating items and OCI.

Relative Positioning: Within Japan’s semiconductor production equipment space, the company enters the mid-cycle downturn with a strong balance sheet (net cash, ample liquidity) but weaker profitability and capital efficiency than desirable; recovery potential hinges on order resumption in back-end/packaging, cost absorption improvement, and disciplined SG&A control.

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