Heiwa Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥131.47B
• Operating Income: ¥23.11B
• Net Income: ¥10.41B
• EPS: ¥99.44

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

Heiwa (6412) reported strong top-line momentum in FY2026 Q2 with revenue of ¥131.5bn, up 83.1% YoY, indicating a robust demand recovery and/or favorable shipment timing. Operating income rose 50.0% YoY to ¥23.1bn, demonstrating solid operating performance, though growth lagged revenue, implying some margin compression and less-than-fully-positive operating leverage. Ordinary income of ¥18.4bn fell below operating income by ¥4.7bn, suggesting sizable non-operating losses or negative financial items beyond the modest reported interest cost. Net income declined 5.8% YoY to ¥9.8bn, highlighting a disconnect between strong operations and ultimate earnings delivery. Net profit margin stood at 7.46%, while operating margin was roughly 17.6%, indicating that the drag occurred primarily below the operating line. DuPont analysis shows a calculated ROE of 3.91% driven by modest profitability, low asset turnover (0.120), and high financial leverage (4.37x), resulting in a sub-par return relative to leverage employed. Gross profit margin is listed at 20.0%, but the combination of revenue, cost of sales, and gross profit figures appears internally inconsistent; we rely on the provided margin figure with caution and note data limitations. Cash generation was positive but moderate: operating cash flow was ¥6.9bn, equating to an OCF/Net Income ratio of 0.70, which points to working capital absorption or timing effects. Liquidity appears adequate with a current ratio of 1.24x and quick ratio of 1.20x, supported by low inventories (¥3.76bn). Leverage is elevated on a total-liabilities-to-equity basis (D/E 3.43x), though interest coverage is strong at 76.3x, indicating limited near-term interest burden. The balance sheet shows total assets of ¥1,095.7bn and equity of ¥250.6bn, implying an equity ratio of about 22.9% (the reported 0.0% equity ratio is clearly an undisclosed placeholder). Free cash flow cannot be reliably assessed because investing cash flow was undisclosed (0 indicates not reported), constraining visibility on reinvestment needs. Dividend data are also undisclosed this period; DPS and payout ratios shown as zero should not be interpreted as actual zero distributions or policy changes. EPS was ¥99.44; based on net income, this implies roughly 98.6m shares outstanding, though share data were not disclosed. Overall, the quarter reflects strong operating momentum offset by non-operating headwinds and softer cash conversion, with elevated leverage amplifying the importance of sustained profitability and improved cash flow. Key uncertainties remain around the composition of non-operating items, working capital trends, and capital allocation (capex/dividends) due to disclosure gaps.

Profitability Analysis

ROE_decomposition: Net margin 7.46% x Asset turnover 0.120 x Financial leverage 4.37 = ROE 3.91% (as reported). The subdued ROE reflects modest margins and low turnover, partly offset by high leverage. margin_quality: Operating margin ~17.6% (¥23.1bn / ¥131.5bn) is solid, but net margin fell to 7.46% due to negative non-operating items. The reported gross margin of 20.0% conflicts with the revenue and cost of sales figures provided; we treat the 20% figure as indicative but note data inconsistency. operating_leverage: Revenue +83.1% YoY vs operating income +50.0% YoY indicates negative operating leverage in the period (margins compressed YoY), likely from mix, pricing, or higher fixed/semifixed costs not scaling down as quickly.

Growth Assessment

revenue_sustainability: The +83.1% YoY revenue growth suggests cyclical or recovery dynamics and/or strong product cycle. Sustainability depends on order backlog, repeat demand, and regulatory/market conditions, which are not disclosed here. profit_quality: Ordinary income (¥18.4bn) below operating income (¥23.1bn) signals non-operating losses (e.g., FX, valuation losses, other expenses) weighing on earnings quality. Effective tax rate calculated from available numbers is approximately 26–27% (¥4.88bn/¥18.39bn), though the reported effective tax rate metric of 0.0% is not reliable. outlook: With healthy operating profit and strong interest coverage, operating fundamentals appear intact; however, the drop in net income YoY and cash conversion (OCF/NI 0.70) indicate execution focus needed on non-operating exposures and working capital. Near-term outlook hinges on maintaining shipment momentum and stabilizing below-the-line items.

Financial Health

liquidity: Current ratio 1.24x and quick ratio 1.20x indicate adequate short-term liquidity. Working capital stands at ¥26.4bn. Cash and equivalents are undisclosed this period (reported as 0), limiting visibility on immediate cash buffers. solvency: Total liabilities ¥859.8bn vs equity ¥250.6bn results in D/E of 3.43x and an estimated equity ratio of ~22.9% (equity/assets). Interest coverage is strong at 76.3x (EBIT/interest), implying low near-term interest burden despite high balance-sheet leverage. capital_structure: Leverage appears high due to substantial liabilities relative to equity; absent a breakdown, a portion may be non-interest-bearing. The high financial leverage (4.37x in DuPont) supports ROE but increases sensitivity to profit volatility.

Cash Flow Quality

earnings_quality: OCF/Net Income at 0.70 indicates below-par cash conversion, likely due to working capital build or timing effects. EBITDA was ¥27.55bn (21.0% margin), supporting the capacity to generate cash before working capital and capex. FCF_analysis: Investing cash flow is undisclosed (shown as 0), so free cash flow cannot be determined reliably this period. As a proxy, OCF of ¥6.9bn would need to cover maintenance capex and any growth investments; lack of disclosure constrains assessment. working_capital: Inventories are modest at ¥3.76bn; the gap between NI and OCF suggests increases in receivables or other current assets, or reductions in payables/advances. Detailed working capital components were not provided.

Dividend Sustainability

payout_ratio_assessment: EPS is ¥99.44, but annual DPS is undisclosed (0 indicates non-disclosure). Therefore, payout ratio cannot be meaningfully assessed from provided data. FCF_coverage: With investing cash flows undisclosed, FCF coverage of dividends cannot be calculated. OCF alone was ¥6.9bn in the period, but capital needs are unknown. policy_outlook: Dividend policy was not disclosed for the period. Sustainability would depend on stabilizing non-operating items, maintaining operating margins, and improving cash conversion.

Risk Assessment

Business Risks:

• Revenue normalization risk after an exceptionally strong YoY rebound
• Product cycle and mix risk impacting margins
• Regulatory and market demand variability in core end-markets
• Supply chain and component availability affecting delivery timing

Financial Risks:

• High leverage (D/E 3.43x) amplifying earnings volatility
• Non-operating losses dragging ordinary income below operating income
• Weaker cash conversion (OCF/NI 0.70) implying working capital sensitivity
• Disclosure gaps on cash, investing flows, and dividend policy limiting visibility

Key Concerns:

• Sustained non-operating headwinds reducing net income despite solid operations
• Potential margin compression evidenced by weaker operating leverage YoY
• Inadequate disclosure on capex/investing and cash balances hindering FCF assessment

Investment Implications

Key Takeaways:

• Strong operational recovery: revenue +83.1% YoY, operating income +50.0% YoY
• Non-operating drag: ordinary income ¥18.4bn below operating income ¥23.1bn
• ROE modest at 3.91% despite high financial leverage (4.37x)
• Cash conversion soft with OCF/NI at 0.70; working capital likely consumed cash
• Liquidity adequate (current ratio 1.24x), interest burden low (76.3x coverage)
• Equity ratio estimated ~22.9%; reported 0.0% is an undisclosed placeholder

Metrics to Watch:

• Non-operating income/expenses (drivers of gap between operating and ordinary income)
• OCF/Net Income and working capital turnover (AR, AP, contract liabilities)
• Operating margin trajectory and gross margin consistency
• Leverage and equity ratio trends
• Capex and investing cash flows once disclosed
• Dividend policy updates and payout intentions

Relative Positioning: The company exhibits strong operating momentum but comparatively low ROE given high leverage and weaker cash conversion. Visibility on capital allocation and non-operating items is limited due to partial disclosures, placing emphasis on forthcoming updates to gauge sustainability.

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