YUKEN KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.94B
• Operating Income: ¥883M
• Net Income: ¥564M
• EPS: ¥119.75

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

FY2026 Q2 was a mixed quarter: operating performance improved meaningfully, but below-the-line pressures and very low capital efficiency kept headline profitability subdued. Revenue grew 1.9% YoY to 159.44, while operating income rose 26.5% YoY to 8.83, demonstrating solid cost discipline. Gross profit was 41.76 with a gross margin of 26.2%, and SG&A was kept to 32.92, enabling operating leverage despite modest top-line growth. Ordinary income fell 4.7% YoY to 7.22 as non-operating expenses (3.39), notably interest expense (1.24), outweighed non-operating income (1.77). Net income declined 1.5% YoY to 4.49, implying that non-operating and tax effects more than offset the operating improvement. Operating margin expanded to 5.5% from an estimated 4.5% a year ago (+~108 bps), but ordinary income margin compressed to 4.5% (−~31 bps) and net margin dipped to 2.8% (−~10 bps). Cash flow quality was solid with OCF of 6.96 running at 1.55x net income, indicating earnings backed by cash. However, capex was 11.25, suggesting a negative proxy FCF (OCF − capex) of roughly −4.29 and reliance on financing cash inflows (13.39) to fund investment and shareholder returns. The balance sheet remains liquid and conservative on the short term with a current ratio of 246.6% and quick ratio of 214.3%, supported by 72.42 in cash and 111.40 in receivables. Leverage is moderate (D/E 0.76x; short-term loans 42.50 and long-term loans 43.18), and interest coverage is strong at 7.10x, though non-operating losses have weighed on ordinary profit. ROE is low at 1.7% by DuPont (NPM 2.8%, asset turnover 0.341x, leverage 1.76x), and ROIC sits at 2.5%—well below the 5% warning threshold—signaling subpar capital efficiency. Total comprehensive income was essentially flat (0.01), implying material other comprehensive losses that dampened equity growth despite positive net income. The calculated payout ratio of 150.7% looks unsustainably high relative to earnings and to a negative proxy FCF in the period. Segment detail is not provided, but the earnings pattern suggests the core operations are improving while financing costs or other non-operating items act as a headwind. Near term, sustaining operating margin gains while reducing non-operating drag (interest, FX, or other) will be key to converting operational strength into bottom-line and ROIC improvement. Forward-looking, balance sheet liquidity provides cushion, but low ROIC and elevated payout versus cash generation pose risks to shareholder return continuity if operating momentum stalls.

Profitability Analysis

ROE (1.7%) decomposes to Net Profit Margin (2.8%) × Asset Turnover (0.341) × Financial Leverage (1.76x). The largest change this quarter was at the margin level: operating margin expanded to 5.5% (from ~4.5% a year ago, +~108 bps) on tight SG&A, while ordinary and net margins compressed modestly due to higher non-operating expenses relative to non-operating income. Business drivers include: cost control in SG&A supporting operating profit despite only +1.9% revenue growth; higher interest expense (1.24) and other non-operating costs pressuring ordinary income; a 22.2% effective tax rate. Sustainability: operating margin gains look reasonably sustainable if the cost base remains disciplined, but the non-operating drag (interest and other) may persist unless leverage is reduced or financing costs normalize. Concerning trends: ROIC at 2.5% is well below typical WACC, signaling value-creation challenges; ordinary income declining despite stronger OP highlights sensitivity to below-the-line items; and revenue growth is modest, limiting scale benefits unless mix improves. No evidence here of SG&A growing faster than revenue this quarter; OP growth outpaced revenue growth.

Growth Assessment

Top-line growth was modest at +1.9% YoY, with stronger operating income (+26.5% YoY) indicating improved operating efficiency and potential favorable mix or pricing. Ordinary income declined (−4.7% YoY) as non-operating expenses outweighed non-operating income, limiting earnings translation. Net income fell slightly (−1.5% YoY), and net margin eased ~10 bps to 2.8%. EBITDA was 15.52 (EBITDA margin 9.7%), supporting the view of stable operational throughput. With comprehensive income nearly zero, external factors (e.g., valuation losses in OCI) offset accounting profit, muting equity growth. Given limited disclosure on segments or order backlog, sustainability of revenue growth is uncertain; the company’s ability to maintain cost control appears the near-term driver of profit. Outlook hinges on stabilizing non-operating items (interest/FX) and executing capex to lift asset turnover and ROIC; absent acceleration in growth or margin mix, earnings expansion may remain modest.

Financial Health

Liquidity is strong: current ratio 246.6% and quick ratio 214.3% comfortably exceed benchmarks. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.76x, within conservative bounds. Working capital of 177.70 and cash of 72.42 cover short-term loans of 42.50 and accounts payable of 43.67, suggesting low near-term refinancing stress. Maturity profile shows a balanced split between short-term (42.50) and long-term (43.18) debt; we see limited maturity mismatch risk given ample current assets (298.93) vs current liabilities (121.23). Interest coverage is solid at 7.10x, though non-operating expenses still depress ordinary income. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

OCF of 6.96 is 1.55x net income, indicating good earnings quality and cash conversion. Capex of 11.25 implies a negative proxy FCF (OCF − capex) of approximately −4.29 for the period; investing CF details are unreported, so this FCF is an estimate. Financing CF of 13.39 alongside a 2.50 share repurchase indicates reliance on external funding to cover investments and shareholder returns in the half. OCF/NI (>1.0) suggests limited accrual risk; however, without period-over-period working capital detail, we cannot conclusively assess inventory or receivables management beyond noting receivables (111.40) are sizable relative to half-year sales. No signs of aggressive working capital manipulation are evident from the limited data.

Dividend Sustainability

The calculated payout ratio of 150.7% exceeds the <60% benchmark and appears unsustainable against period earnings absent special factors. With proxy FCF negative (OCF 6.96 vs capex 11.25), internal cash generation does not fully cover both investment and shareholder returns; financing CF (13.39) likely bridged the gap. Dividends paid and DPS are unreported, so we rely on the calculated payout ratio provided and caution that policy sustainability depends on 2H cash generation. Given low ROE (1.7%) and ROIC (2.5%), maintaining a high payout could constrain reinvestment capacity unless profitability improves. Outlook: a normalized payout closer to cash earnings or recalibration in line with full-year results would improve coverage; confirmation at FY end is necessary due to data limitations.

Risk Assessment

Business Risks:

• Demand cyclicality in hydraulics/machinery end-markets affecting order intake and utilization
• Pricing pressure and input cost volatility (steel and components) impacting gross margin
• Export and currency fluctuation risk (JPY) influencing both revenue and non-operating items
• Supply chain disruptions or lead-time variability affecting deliveries and working capital
• Execution risk on capex intended to raise productivity/ROIC

Financial Risks:

• Low ROIC (2.5%) and ROE (1.7%) indicating weak capital efficiency vs cost of capital
• Non-operating losses driven by interest and other items pressuring ordinary income
• Reliance on financing CF in the period to fund capex and buybacks while proxy FCF negative
• Short-term loans (42.50) add refinancing needs, albeit mitigated by strong liquidity
• OCI volatility (comprehensive income ~0) reducing equity growth despite positive NI

Key Concerns:

• Ordinary income declined despite stronger operating profit, highlighting below-the-line headwinds
• Payout ratio at 150.7% looks high relative to earnings and cash, risking future adjustments
• Asset turnover (0.341x) and ROIC are low, requiring either higher growth or asset optimization
• Sensitivity to interest costs (1.24) given moderate leverage and rising-rate backdrop

Investment Implications

Key Takeaways:

• Operational improvement evident: operating margin expanded ~108 bps on modest revenue growth
• Non-operating drag reversed much of the operating gains, compressing ordinary and net margins
• Liquidity is strong; solvency is sound with D/E 0.76x and interest coverage 7.10x
• Capital efficiency remains the core challenge: ROIC 2.5% and ROE 1.7% are low
• Cash conversion is healthy (OCF/NI 1.55x), but capex lifted proxy FCF into negative territory
• Payout ratio (150.7%) appears stretched versus period earnings and cash generation

Metrics to Watch:

• Ordinary income trajectory vs operating income (size of non-operating losses)
• Interest expense trend and debt mix (short vs long-term)
• OCF, working capital turns (receivables and inventory), and proxy FCF
• Operating margin sustainability and SG&A discipline
• ROIC uplift from new capex and asset turnover improvement
• Comprehensive income and OCI volatility

Relative Positioning: Within Japanese precision machinery/hydraulics small-cap peers, the company shows decent operating discipline and strong liquidity but trails on capital efficiency (low ROIC/ROE) and exhibits higher sensitivity to non-operating items, placing it below median on profitability quality despite acceptable balance sheet strength.

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