Harmonic Drive Systems Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥27.84B
• Operating Income: ¥465M
• Net Income: ¥-850M
• EPS: ¥3.35

Income Statement

Balance Sheet

Cash Flow Statement

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

Harmonic Drive Systems reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but significantly compressed bottom-line profitability. Revenue rose 4.8% year over year to ¥27.84 billion, while operating income was essentially flat at ¥0.47 billion, implying operating deleverage in the quarter. Gross margin stood at 24.2%, which, combined with an operating margin of 1.7%, suggests elevated fixed-cost burden and/or pricing pressure despite slight sales growth. Ordinary income of ¥0.50 billion exceeded operating income, indicating a small net non-operating gain that partially offset weak core profit. Net income declined 62.6% YoY to ¥0.32 billion, bringing net margin to 1.14%; this reflects weak operating performance and a near-zero reported effective tax rate driven by a tax credit/benefit (negative tax). DuPont analysis highlights a low ROE of 0.41%, driven predominantly by thin net margin and slow asset turnover of 0.26x, with only moderate financial leverage of 1.40x. EBITDA was ¥4.40 billion and EBITDA margin 15.8%, underscoring a substantial gap between EBITDA and operating income due to high depreciation (¥3.94 billion), which is consistent with a capital-intensive manufacturing footprint. Operating cash flow was solid at ¥3.16 billion, equating to an OCF/Net Income multiple of 9.97x, pointing to strong cash conversion this period due to non-cash charges and potential working-capital release. The balance sheet appears strong with a current ratio of 382.6%, quick ratio of 368.0%, and working capital of ¥39.27 billion, supporting ample liquidity. Leverage remains conservative with a debt-to-equity ratio of 0.45x and total liabilities of ¥34.68 billion against equity of ¥76.82 billion. Financing cash outflow of ¥2.60 billion suggests debt repayment and/or other financing activities, while dividends were not reported for the period (annual DPS 0.00 indicated as undisclosed). Several items, such as equity ratio, cash balance, investing cash flow, and share count, were unreported in the XBRL feed; these zeros should not be interpreted as actual zeros and limit certain analyses (e.g., FCF and per-share metrics). Overall, the company maintains liquidity and balance-sheet resilience, but profitability is subdued given cost absorption and depreciation burden. The near-term outlook hinges on demand recovery in robotics/FA end markets, utilization improvement, and price/cost management. Investors should monitor order trends, backlog, and capex/investment cadence as profitability normalization will likely be driven by operating leverage and mix. FX and tax normalization are additional variables that could impact reported earnings in subsequent quarters.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 1.14%
• asset_turnover: 0.260x
• financial_leverage: 1.40x (Assets/Equity ≈ 107.19/76.82)
• calculated_ROE: 0.41%
• drivers_commentary: ROE is constrained primarily by thin net margins and low asset turnover; leverage is moderate and not a key amplifier. margin_quality: Gross margin at 24.2% supports value-add, but operating margin of 1.7% indicates significant overhead absorption and/or pricing pressure. EBITDA margin of 15.8% vs operating margin of 1.7% highlights heavy depreciation (¥3.94b) and capital intensity. Ordinary income slightly above operating income points to minor support from non-operating items. operating_leverage: Flat YoY operating income on +4.8% revenue suggests negative operating leverage this period, likely due to utilization, fixed-cost base, and product mix. Interest coverage of ~4.4x on EBIT basis indicates adequate, though not expansive, coverage.

Growth Assessment

revenue_sustainability: Revenue grew 4.8% YoY to ¥27.84b, a modest recovery consistent with gradual normalization in robotics/FA demand. Sustainability depends on order intake, backlog conversion, and industrial cycle recovery. profit_quality: Net margin (1.14%) lags operating margin (1.7%) only modestly, implying typical non-operating and tax effects; negative tax drove a near-zero effective tax rate, temporarily supporting net income. EBITDA to operating income gap is structural (depreciation), not a one-off. outlook: With utilization normalization and mix improvement, margins could recover, aided by price optimization and cost control. However, macro/FX and capital spending cycles in automation end markets remain pivotal. Tax rate may normalize upward, which could dampen EPS even if operating profit improves.

Financial Health

liquidity: Current ratio 382.6% and quick ratio 368.0% indicate ample near-term liquidity. Working capital stands at ¥39.27b (¥53.16b current assets vs ¥13.90b current liabilities). solvency: Debt-to-equity ratio at 0.45x and total liabilities ¥34.68b against equity ¥76.82b indicate conservative gearing. Interest coverage at ~4.4x is adequate. capital_structure: Assets ¥107.19b financed mainly by equity (assets/equity ~1.40x). Equity ratio was unreported in XBRL; based on totals, implied equity ratio would be roughly 71.6% if calculated conventionally, but we note the disclosure lists 0.0% as unreported.

Cash Flow Quality

earnings_quality: OCF/Net Income at 9.97x signals strong cash conversion due to high non-cash charges and likely working capital inflows. Negative tax also boosted reported net income; core cash earnings are better represented by OCF. FCF_analysis: Free cash flow cannot be reliably computed because investing cash flow was unreported (0 indicates non-disclosure). Given depreciation of ¥3.94b, underlying maintenance capex is likely significant, which could reduce true FCF versus OCF. working_capital: Working capital is robust at ¥39.27b. Inventory reported at ¥2.03b suggests low inventory intensity in the disclosed line items; however, classification differences may exist, so conclusions should be cautious.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio were listed as 0.00% (unreported). With net income of ¥0.32b and OCF of ¥3.16b, capacity exists to fund some distributions, but actual policy cannot be inferred from the period data. FCF_coverage: FCF coverage ratio is unreported due to missing investing cash flows; thus, we cannot assess dividend coverage from FCF. policy_outlook: Given the company’s historical emphasis on financial stability and current modest profitability, maintaining balance-sheet strength likely remains a priority. Any dividend trajectory will depend on sustained profit recovery and capex needs.

Risk Assessment

Business Risks:

• Cyclicality in robotics/FA demand impacting speed reducer volumes
• Customer concentration risk with major robot OEMs
• Pricing pressure from competitors and OEMs during downcycles
• Product mix shifts affecting gross margin
• Technological competition in precision gear mechanisms

Financial Risks:

• Operating leverage leading to earnings volatility at low utilization
• High depreciation burden suppressing operating margin
• Potential normalization of tax rate from current near-zero level
• FX fluctuations (JPY vs USD/EUR/CNY) affecting exports and margins
• Uncertain capex requirements affecting future FCF (investing CF undisclosed)

Key Concerns:

• Low ROE (0.41%) due to thin margins and slow asset turnover
• Operating income flat despite 4.8% revenue growth
• Interest coverage only moderate at ~4.4x
• Limited visibility on FCF and cash balances due to undisclosed investing CF and cash
• Potential margin headwinds from fixed-cost absorption

Investment Implications

Key Takeaways:

• Top-line growth returned but operating leverage was negative in the quarter
• Margins are constrained by depreciation and fixed-cost absorption
• Liquidity and balance sheet remain strong with low gearing
• Cash conversion was strong this period, though FCF is unclear
• ROE is low; margin and asset turnover improvements are required for recovery

Metrics to Watch:

• Order intake, backlog, and book-to-bill in robotics/FA
• Operating margin trajectory and utilization rates
• Capex and investing cash flows to gauge FCF sustainability
• FX sensitivity and pricing actions
• Working capital movements (receivables, inventories, payables)
• Tax rate normalization and its EPS impact

Relative Positioning: Within precision speed reducers, Harmonic Drive Systems maintains a quality franchise and conservative balance sheet, but current-cycle profitability trails its potential; recovery hinges on demand normalization and operating leverage compared with domestic and global peers.

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