TOYO KANETSU K.K. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥27.48B
• Operating Income: ¥2.31B
• Net Income: ¥1.62B
• EPS: ¥213.23

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

Toyo Kanetsu (6369) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability despite a modest revenue contraction. Revenue declined 3.5% YoY to ¥27.48bn, but operating income rose 20.3% YoY to ¥2.31bn, indicating meaningful operating leverage and/or favorable mix. Gross profit of ¥6.35bn implies a 23.1% gross margin, supporting an 8.4% operating margin, both solid for a project- and equipment-centric business. Ordinary income was ¥2.46bn and net income ¥1.65bn, yielding a 6.0% net margin. DuPont analysis points to ROE of 4.2% (net margin 6.02% × asset turnover 0.401 × leverage 1.74), reflecting enhanced margins but still modest equity efficiency, likely below the company’s implied cost of equity. Operating cash flow was robust at ¥6.07bn, translating to an OCF/Net Income ratio of 3.67x, which is supportive of earnings quality and indicates favorable working capital inflows or milestone cash collections. The balance sheet appears conservative with total assets of ¥68.46bn and equity of ¥39.39bn (assets/equity 1.74x), while working capital is ample at ¥19.75bn. Liquidity is strong with a current ratio of 196.8% and a quick ratio effectively the same given minimal reported inventories. Interest expense remains low at ¥55m, consistent with a very high reported interest coverage, and suggests limited debt service burden. The effective tax burden, inferred from ordinary income and income tax, appears in the mid-30% range, though the reported “effective tax rate” metric is not informative due to data limitations. Financing cash flow of -¥6.63bn indicates notable outflows (likely debt repayment or shareholder returns), but cash and investment cash flows were not disclosed, limiting full cash bridge analysis. Dividend data were not provided (DPS 0.00, payout 0.0% likely indicates nondisclosure rather than actual zero), so capital return policy cannot be assessed from this dataset. Overall, the quarter demonstrates improved profitability and strong operating cash conversion despite top-line softness. Sustainability of the margin gains will depend on project mix, pricing discipline, and cost management amid input cost and FX dynamics. With ROE at 4.2%, additional efficiency gains or capital optimization would be needed to enhance shareholder returns. Data gaps (cash, investing cash flows, shares outstanding, dividends) constrain precision in FCF and per-share analyses, but the available figures point to healthy operations and a solid financial base.

Profitability Analysis

ROE of 4.20% decomposes into a 6.02% net margin, 0.401x asset turnover, and 1.74x financial leverage. The YoY decline in revenue (-3.5%) alongside a +20.3% increase in operating income indicates positive operating leverage, likely from improved cost structure, better project execution, or higher-margin mix. Gross margin stands at 23.1% (¥6.35bn/¥27.48bn), and operating margin at 8.4% (¥2.31bn/¥27.48bn), both indicative of disciplined cost control. EBITDA is ¥2.71bn, implying a 9.9% EBITDA margin and modest non-cash charges (D&A ¥0.40bn). Ordinary income exceeds operating income, suggesting a net positive non-operating balance (e.g., interest income or other non-operating gains) offsetting ¥55m interest expense. The inferred effective tax rate (using ordinary income as a proxy for pre-tax) is approximately 34% (¥0.84bn/¥2.46bn), consistent with a normalized Japan tax load. Net margin of 6.0% is respectable for an engineering/equipment supplier but still results in moderate ROE given relatively low asset turnover. Profit quality appears solid, with limited financial expense drag and a healthy operating cash conversion. Sustaining these margins will depend on backlog quality and input cost environment. Absent segment detail, we attribute the margin expansion to execution and mix rather than broad pricing power.

Growth Assessment

Revenue contracted 3.5% YoY to ¥27.48bn, indicating softer demand or project timing effects. Despite the top-line decline, operating income rose 20.3% YoY to ¥2.31bn, signaling improved efficiency and/or a shift toward higher-margin orders. Net income grew 2.3% YoY to ¥1.65bn, lagging the operating line due in part to normal taxation and a smaller non-operating tailwind. The ability to expand margins in a down revenue environment suggests a resilient order portfolio and disciplined cost control, but sustainability depends on future order intake and backlog replenishment (not disclosed). With asset turnover at 0.401x, further growth in returns will likely require either revenue acceleration or continued capital efficiency improvements. The strong OCF hints at favorable milestone payments and collection cycles, which could support execution of ongoing projects. Near-term outlook hinges on macro/infrastructure capex, airport/logistics systems demand, and energy-related tank solutions—end-markets that can be cyclical and project-driven. Absent guidance and backlog data, we view profit growth momentum as positive but sensitive to project timing and mix in subsequent quarters.

Financial Health

Total assets are ¥68.46bn, liabilities ¥28.53bn, and equity ¥39.39bn, implying leverage of 1.74x assets/equity and a reported debt-to-equity ratio of 0.72x (likely using interest-bearing debt; underlying composition not disclosed). Liquidity is strong: current assets ¥40.14bn vs current liabilities ¥20.39bn yield a 196.8% current ratio. Working capital is substantial at ¥19.75bn, providing cushion for project execution. Reported inventories are minimal at ¥35m, which, together with current assets mix, drives a quick ratio in line with the current ratio; actual inventory levels may reflect classification differences, but we analyze only reported figures. Interest expense is modest at ¥55m, aligning with a very high reported interest coverage (41.9x) and indicating low financial risk from debt servicing. Equity ratio was not disclosed (reported 0.0%), but the balance sheet mix implies a solid capital base with equity at 58% of assets (39.39/68.46). No cash balance was disclosed in the cash flow section (Cash & Equivalents shown as 0 indicates nondisclosure), so we cannot comment on gross vs net cash. Overall solvency and liquidity appear robust based on available non-zero data.

Cash Flow Quality

Operating cash flow of ¥6.07bn is 3.67x net income (¥1.65bn), indicating strong earnings-to-cash conversion and likely favorable working capital movements (e.g., collections, advances, or milestone payments). Investing cash flow was not disclosed (reported as 0), preventing a full free cash flow calculation and capex assessment. The reported FCF of 0 should be interpreted as unavailable, not zero; consequently, we cannot confirm cash coverage of growth or maintenance investment. Financing cash flow was -¥6.63bn, suggesting significant outflows (debt repayment, dividends, or share buybacks), though the exact mix is not provided. Depreciation & amortization of ¥0.40bn vs EBITDA of ¥2.71bn indicates a capital-light or fully depreciated asset base relative to earnings, but capex data are needed to judge reinvestment intensity. Working capital appears to have been a source of cash in the period, consistent with the high OCF/NI ratio. Overall, cash flow quality looks strong on the operating line, but incomplete disclosure of investing and cash balances limits a comprehensive cash bridge and FCF sustainability review.

Dividend Sustainability

Dividend data are not disclosed in this dataset (Annual DPS reported 0.00 and payout ratio 0.0% should be read as nondisclosed rather than literal zero). Withholding judgment on actual distributions, we note that net income was ¥1.65bn and OCF ¥6.07bn, which, if dividends were paid, would generally support coverage. However, absent investing cash flows and capex, we cannot assess free cash flow coverage or alignment with any stated payout policy. Financing cash outflow of -¥6.63bn could include dividends or buybacks, but the breakdown is not available. Given the strong balance sheet and OCF, capacity for distributions appears adequate, yet sustainability and policy direction remain unknown from the provided data. We therefore refrain from drawing conclusions on payout ratios or FCF coverage beyond acknowledging data limitations.

Risk Assessment

Business Risks:

• Project timing and lumpiness affecting quarterly revenue and margins
• Fixed-price contract execution risk and potential cost overruns
• Input cost volatility (e.g., steel and other materials) impacting gross margin
• Foreign exchange exposure on imports/exports and overseas projects
• Supply chain disruptions delaying deliveries and milestone recognition
• Customer concentration in infrastructure, logistics systems, or energy storage end-markets
• After-sales, warranty, and performance guarantee obligations
• Labor availability and specialized engineering talent retention

Financial Risks:

• Order backlog visibility not disclosed, limiting forward revenue predictability
• Interest rate and refinancing risk, albeit mitigated by low interest expense
• Working capital swings inherent in project businesses impacting OCF
• Tax rate variability relative to ordinary income due to non-operating items
• Potential contingent liabilities not visible in summary data

Key Concerns:

• Revenue decline (-3.5% YoY) despite profit growth; need to confirm demand health
• ROE at 4.2% remains modest; requires higher turnover or margin expansion
• Incomplete disclosure of investing CF, cash balance, and dividends limits FCF and capital return analysis

Investment Implications

Key Takeaways:

• Margin expansion delivered operating income growth (+20.3% YoY) on lower sales (-3.5% YoY)
• Strong operating cash conversion (OCF/NI 3.67x) supports earnings quality
• Solid liquidity and working capital (current ratio 196.8%, WC ¥19.75bn)
• Low interest burden (¥55m) and high coverage underpin low financial risk
• ROE of 4.2% remains modest; capital efficiency improvement is a lever
• Ordinary income exceeds operating income, indicating supportive non-operating items
• Tax burden appears normalized (~34% of ordinary income)
• Data gaps (cash, investing CF, DPS, shares) constrain valuation and payout analysis

Metrics to Watch:

• Order intake and backlog trajectory to gauge revenue sustainability
• Gross and operating margin progression versus input costs and mix
• Working capital metrics (DSO/DPO/milestone advances) and OCF sustainability
• Capex and investing cash flows to assess FCF and reinvestment needs
• Interest-bearing debt levels and net cash position
• ROE and asset turnover trends as indicators of capital efficiency
• Dividend/buyback disclosures and payout policy clarity

Relative Positioning: Within Japanese engineering and logistics equipment peers, the company exhibits solid operating margins and strong operating cash conversion, coupled with a conservative balance sheet. However, asset turnover and ROE remain on the lower side, suggesting room for capital efficiency improvements to enhance competitiveness in returns.

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