KITAGAWA SEIKI CO.,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.15B
• Operating Income: ¥203M
• Net Income: ¥-116M
• EPS: ¥19.02

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: Despite a sharp revenue rebound, profitability quality is mixed with notable non-operating swings and data inconsistencies that cloud the true margin picture. Revenue surged to 11.51 (100M JPY), up 237.2% YoY, while operating income was 2.03 (100M JPY), down 18.0% YoY, and net income was 1.54 (100M JPY), down 19.5% YoY. The implied net margin is 13.4% (1.54/11.51), and the operating margin is 17.6% (2.03/11.51). The reported gross margin of 5.2% is inconsistent with operating income and SG&A (GP 0.60 vs SG&A 1.74 vs OI 2.03), indicating possible misclassification or reporting noise; we rely on operating income as the more stable profitability anchor this quarter. Ordinary income was positive at 2.25 (100M JPY), yet profit before tax was reported at -1.64 (100M JPY), implying a large extraordinary loss or classification item not disclosed; even so, net income remained positive with a tax benefit (-0.48), suggesting non-recurring items likely affected below-ordinary lines. Leverage is modest (assets/equity 1.67x), and liquidity is strong (current ratio 231%), providing balance sheet support through volatility. Interest coverage appears robust at ~60x, with interest expense only 0.03 versus operating/ordinary income over 2.0. Working capital is ample (36.86), underpinned by cash of 35.35 and low inventories (0.29), mitigating near-term financing risk despite 10.00 of short-term loans. DuPont shows ROE around 3.0% driven more by net margin than asset turnover (0.134) given a cash-heavy balance sheet. ROIC is estimated at 5.1%, below the 7–8% benchmark, suggesting value-creation is currently marginal and dependent on improving operating efficiency or asset deployment. Cash flow disclosure is absent (OCF/FCF N/A), preventing reconciliation of earnings quality versus cash generation; this is a key limitation. The payout ratio is calculated at 65.8%, slightly above our sustainable benchmark (<60%), which may be acceptable near term given net cash, but not yet validated by FCF. Forward look: the sharp revenue recovery needs to translate into stable, cash-backed margins to lift ROIC above cost of capital; eliminating extraordinary volatility and improving asset turnover will be crucial. Overall, we view the quarter as a top-line comeback with cautious earnings quality, and we flag the unexplained gap between ordinary income, PBT, and the reported gross margin as areas requiring management clarification.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (13.4%) × Asset Turnover (0.134) × Financial Leverage (1.67x) = ~3.0%. Biggest change driver: Net profit margin, given large YoY revenue growth alongside YoY declines in operating and net income, implies margin compression dominated ROE dynamics versus asset turnover (which remains low due to a cash-rich balance sheet). Business reason: revenue rebounded strongly (likely delivery timing/project mix), but cost absorption and/or higher non-operating/extraordinary losses weighed on bottom-line profitability; SG&A of 1.74 also appears heavy relative to the reported (inconsistent) gross profit. Sustainability: near-term margins look sensitive to mix and extraordinary items; recurring operating margin around ~18% (current) may be more stable than net margin given below-ordinary volatility. Concerning trends: operating income declined 18% YoY while revenue rose 237% YoY, implying negative operating leverage this quarter; however, YoY base effects could distort comparisons. Also, the mismatch among gross profit, SG&A, and operating income suggests classification or disclosure issues, limiting precision of margin analysis.

Growth Assessment

Revenue growth of +237.2% YoY indicates a strong rebound, likely driven by backlog delivery timing or a recovery in order intake; however, operating income fell 18% YoY and net income fell 19.5% YoY, signaling margin pressure and/or non-operating headwinds. Current operating margin is 17.6% and net margin is 13.4%. Given the inconsistencies in gross profit, we cannot accurately quantify gross margin dynamics or bps changes YoY; any computed YoY operating margin (implied prior year) appears unrealistically high and likely distorted by a small base. Profit quality is mixed: ordinary income remained positive, but the shift to a negative profit before tax indicates material extraordinary effects; such items reduce earnings visibility. Outlook hinges on normalizing below-ordinary items and converting the revenue rebound into sustained operating leverage. With ROIC at 5.1%, improvements in asset utilization and margin discipline are required to meet typical 7–8% targets. Near term, watch order trends, delivery schedules, and product mix to gauge sustainability of the top line.

Financial Health

Liquidity is strong: current ratio 231.4% and quick ratio 230.4%, both above benchmarks. No warning for current ratio (<1.0) or D/E (>2.0); total liabilities-to-equity at 0.67x is conservative. Maturity profile: short-term loans of 10.00 are well covered by cash and deposits of 35.35 and current assets of 64.92, indicating low maturity mismatch risk. Long-term loans are modest at 1.69. Equity totals 51.73, supporting a moderate leverage posture (financial leverage 1.67x). No off-balance sheet obligations are reported in the data provided; absence of disclosure limits our ability to assess guarantees or leases. Overall solvency and liquidity appear sound.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be calculated. This prevents reconciliation of earnings with cash generation; by benchmark, we would flag OCF/NI < 0.8 as a quality issue, but data is unavailable. Working capital appears ample (WC 36.86) and cash is high (35.35), which supports near-term liquidity, yet we cannot assess whether the revenue rebound consumed or released working capital. No signs of working capital manipulation can be identified without cash flow and detailed receivable/payable turnover; receivables of 15.89 are notable versus revenue scale, but insufficient to judge collection trends.

Dividend Sustainability

The calculated payout ratio is 65.8%, modestly above the <60% benchmark. DPS is not disclosed, and FCF coverage is N/A due to missing cash flow data. Balance sheet cash (35.35) and conservative leverage provide a buffer for near-term dividends, but sustainability ultimately depends on recurring OCF exceeding dividends plus maintenance capex, which we cannot verify. Policy outlook cannot be inferred from the data; monitor guidance and cash flow statements in subsequent quarters.

Risk Assessment

Business Risks:

• Demand cyclicality and project timing risk leading to volatile quarterly revenue and margins
• Product mix risk affecting gross and operating margins
• Potential extraordinary items impacting below-ordinary profitability (evidenced by positive ordinary income but negative PBT)

Financial Risks:

• Disclosure gaps in cash flows and segment details hinder assessment of earnings quality
• Short-term debt (10.00) requires ongoing rollover discipline, though currently covered by cash
• Payout ratio above benchmark without FCF visibility could pressure cash if profitability softens

Key Concerns:

• Inconsistency between gross profit, SG&A, and operating income suggests classification or data issues
• Unexplained swing from positive ordinary income to negative profit before tax indicates material, undisclosed extraordinary items
• ROIC at 5.1% below target range, implying limited value creation unless margins and asset turnover improve

Investment Implications

Key Takeaways:

• Top-line recovery is clear (+237% YoY), but operating leverage did not materialize this quarter
• Earnings quality is uncertain due to extraordinary items and disclosure inconsistencies
• Balance sheet strength and liquidity provide downside protection
• ROE at ~3% and ROIC at 5.1% highlight the need for efficiency gains
• Dividend payout looks slightly elevated vs benchmark; sustainability unverified without FCF

Metrics to Watch:

• OCF and FCF in the next quarter to validate earnings quality
• Order backlog and new orders to assess revenue sustainability
• Gross margin reconciliation and segment/mix disclosures
• Extraordinary gains/losses details to explain PBT vs ordinary income gap
• Working capital turnover (AR days, inventory turns) to track asset efficiency
• ROIC trajectory toward the 7–8% range

Relative Positioning: Within small-cap industrial machinery peers, the company shows stronger liquidity and lower leverage than average, but profitability quality and ROIC trail best-in-class due to margin volatility and limited asset turnover; improved disclosure and stabilization of below-ordinary items are needed to close the gap.

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