Kurita Water Industries Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥198.30B
• Operating Income: ¥24.90B
• Net Income: ¥17.39B
• EPS: ¥155.90

Income Statement

Balance Sheet

Cash Flow Statement

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

Kurita Water Industries (6370) reported FY2026 Q2 consolidated IFRS results showing modest topline growth with strong profit leverage and robust cash generation. Revenue grew 1.4% YoY to 1,982.96, while operating income rose 15.9% YoY to 249.00, indicating meaningful operating margin expansion. Gross profit was 701.95, implying a gross margin of 35.4%, while SG&A expenses of 489.75 represented 24.7% of sales, reflecting disciplined cost control. Operating margin improved to 12.6% (operating income/revenue), a notable step-up considering the subdued revenue growth. Profit before tax was 245.64, slightly below operating income, suggesting a small net non-operating loss (~3.4) in the period. Net income rose 15.0% YoY to 171.74, translating to a net margin of 8.7% and basic EPS of 155.90 yen on 110.16 million average shares. Comprehensive income of 205.47 exceeded net income by 33.73, likely driven by positive other comprehensive income (e.g., FX/valuation gains). DuPont analysis shows ROE at 5.1%, decomposed into an 8.7% net margin, 0.358x asset turnover, and 1.64x financial leverage; the low asset turnover and conservative leverage temper ROE despite improved margins. The balance sheet remains strong with total assets of 5,539.31 and equity of 3,387.12 (equity ratio 60.7%), and a reported debt-to-equity ratio of 0.62x, although detailed debt composition is unreported. Operating cash flow was robust at 406.11, with free cash flow of 129.33 after 264.08 of capex, indicating solid cash conversion (OCF/Net income 2.36x). Liquidity metrics such as current and quick ratios are not calculable due to missing current liabilities and cash detail, but cash and equivalents stood at 629.51 per the cash flow statement. Dividend data are limited; the calculated payout ratio is 62.2% and dividends paid in cash were 47.86, implying strong coverage based on period FCF, though the provided “FCF coverage 1.21x” appears to reflect a different basis or timeframe. Overall, Kurita delivered quality earnings with improved operating efficiency, strong cash flow, and a conservative capital structure. Data gaps (e.g., non-operating items, depreciation, current liabilities, interest expense) limit precision on certain ratios, but available indicators point to resilient profitability and sound financial health. Outlook-wise, sustained cost discipline and project execution are key to maintaining margin gains amid modest revenue growth. Working capital remains sizable, with accounts receivable at 1,264.13 and inventories at 207.18, underscoring the need for continued collection discipline. The company appears well-positioned to fund investments and dividends from internal cash generation.

Profitability Analysis

ROE_decomposition: ROE 5.1% = Net margin 8.7% × Asset turnover 0.358 × Financial leverage 1.64x. This reflects healthy profitability but a capital-efficient yet relatively low-turnover model and conservative leverage. margin_quality: Gross margin 35.4% (701.95/1,982.96) and operating margin 12.6% (249.00/1,982.96). Net margin 8.7% (171.74/1,982.96). The spread between gross and operating margin (22.8pp) is driven by SG&A ratio of 24.7%, which appears well-controlled given low topline growth. operating_leverage: Operating income grew 15.9% YoY on 1.4% revenue growth, evidencing positive operating leverage and cost discipline. Pretax margin of 12.4% is slightly below operating margin due to small net non-operating loss (~3.4). Effective tax rate is 25.5%, consistent with normalized levels under IFRS.

Growth Assessment

revenue_sustainability: Revenue +1.4% YoY to 1,982.96 suggests steady but modest growth, likely a mix of stable service/chemicals demand and lumpier project recognition in water treatment facilities. profit_quality: Operating profit +15.9% YoY with net profit +15.0% indicates improved mix and execution. Comprehensive income exceeded net income by 33.73, adding a cushion from OCI items (likely FX or FV of securities). outlook: Near-term growth likely hinges on backlog execution, recurring service chemistry demand, and inflation pass-through. Sustaining SG&A efficiency and project margin discipline should support continued margin resilience even if revenue remains subdued.

Financial Health

liquidity: Current ratio and quick ratio are not calculable due to unreported current liabilities and cash details; however, cash and equivalents were 629.51 at period-end per the cash flow statement, and OCF was strong at 406.11. solvency: Equity ratio 60.7% and debt-to-equity 0.62x indicate a conservative balance sheet. Interest-bearing debt composition is unreported, preventing interest coverage analysis. capital_structure: Assets 5,539.31 and equity 3,387.12 imply financial leverage of 1.64x (assets/equity), consistent with DuPont input. The company maintains ample equity cushion while funding capex (264.08) primarily from internal cash flow.

Cash Flow Quality

earnings_quality: OCF/Net income is 2.36x, signaling strong cash conversion and low accrual risk in the period. Net income 171.74 compares favorably with OCF 406.11. FCF_analysis: FCF of 129.33 after 264.08 of capex demonstrates capacity to fund both investment and shareholder returns. Investing CF was -276.78, implying additional investments beyond PP&E (e.g., intangibles or financial assets). working_capital: Accounts receivable 1,264.13 and inventories 207.18 are sizable relative to revenue, consistent with project and service cycles. Working capital metrics such as days sales outstanding or current ratio cannot be fully assessed due to missing current liabilities.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is 62.2% (basis not fully disclosed; annual DPS unreported), suggesting a moderate-to-high earnings distribution relative to period profits. FCF_coverage: Based on reported FCF of 129.33 and dividends paid of 47.86, cash dividends appear covered ~2.7x in the period. The provided FCF coverage figure of 1.21x likely reflects a different timeframe or definition; this discrepancy should be monitored. policy_outlook: With strong OCF, conservative leverage, and manageable capex, the company appears capable of sustaining dividends within current policy parameters, subject to project cash flow timing and investment needs.

Risk Assessment

Business Risks:

• Project execution and margin risk in water treatment facilities and EPC-type contracts
• Demand cyclicality in industrial end-markets and semiconductor-related water investments
• Raw material and chemical input cost volatility affecting gross margins
• Foreign exchange impacts on overseas revenues and OCI
• Competitive pricing pressures in chemicals and services

Financial Risks:

• Working capital intensity, especially high receivables, could pressure cash if collections slow
• Limited visibility on interest-bearing debt and interest expense constrains full solvency assessment
• Potential capex step-ups for capacity/technology could compress FCF in some periods
• Non-operating gains/losses and OCI volatility may introduce earnings variability

Key Concerns:

• Low asset turnover (0.358x) and modest ROE (5.1%) relative to capital employed
• Data gaps: non-operating items, depreciation, current liabilities, and interest coverage unreported
• Discrepancy between stated FCF coverage (1.21x) and cash dividend coverage from period FCF (~2.7x)

Investment Implications

Key Takeaways:

• Margin expansion: operating margin improved to 12.6% as operating profit grew much faster than revenue
• Strong cash generation: OCF 406.11 with FCF 129.33 supports reinvestment and dividends
• Conservative balance sheet: equity ratio 60.7% and financial leverage 1.64x
• Net margin solid at 8.7% with effective tax rate at 25.5%
• Comprehensive income exceeded net income by 33.73, adding buffer to equity

Metrics to Watch:

• Order intake and backlog conversion to sustain revenue beyond +1.4% YoY
• SG&A ratio and project gross margins for continued operating leverage
• Receivables collection and working capital turns to preserve cash conversion
• Capex trajectory versus FCF to gauge future dividend headroom
• Disclosure of interest-bearing debt and interest expense for coverage analysis

Relative Positioning: Within Japan’s water treatment peers, Kurita exhibits above-peer margin resilience and a conservative capital structure, though ROE is moderated by low asset turnover and cautious leverage compared with more asset-light specialty chemical/service players.

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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