HEPHAIST CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥846M
• Operating Income: ¥-142M
• Net Income: ¥-59M
• EPS: ¥-35.26

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

Heishist Co., Ltd. (TSE: 6433) reported FY2026 Q2 consolidated results under JGAAP showing a sharp topline contraction and continued operating losses. Revenue came in at ¥846.0 million, down 21.3% year on year, indicating demand softness and/or order timing issues in its industrial equipment/components exposure. Gross profit is disclosed at ¥159.4 million with a gross margin of 18.8%, signaling margin compression and limited pricing power; note there is an internal mismatch between the reported revenue, cost of sales, and gross profit figures, so we rely on the stated gross profit and margin for quality assessment. Operating income was a loss of ¥142.0 million, essentially flat YoY (indicated as +0.0% YoY), reflecting weak operating leverage on a smaller revenue base. Ordinary income deteriorated to a loss of ¥176.0 million, suggesting incremental non-operating burdens, including ¥8.2 million of interest expense and other non-operating items. Net income was a loss of ¥219.0 million (EPS ¥-35.26), implying a net margin of -25.9% as per the DuPont inputs provided. EBITDA was negative at ¥-51.6 million, confirming that cash earnings were also under pressure despite depreciation and amortization of ¥90.4 million. Operating cash flow was an outflow of ¥367.1 million, exceeding the accounting loss, which points to adverse working capital movements and/or non-cash benefits not translating into cash. The balance sheet remains relatively solid: total assets are ¥4.802 billion and total equity is ¥2.585 billion, implying an equity ratio of roughly 53.8% (computed) and financial leverage of 1.86x per DuPont, even though the reported equity ratio line shows 0.0% (undisclosed). Liquidity metrics appear robust on reported balances, with a current ratio of 278.6% and quick ratio of 226.9%, supported by ¥2.395 billion in current assets and manageable current liabilities of ¥859.5 million. Debt-to-equity is shown at 0.85x (using total liabilities), and interest coverage on EBIT is -17.4x, highlighting near-term earnings stress despite overall balance-sheet strength. Inventory stands at ¥443.9 million, underscoring working capital intensity for this industrial business. The DuPont decomposition yields ROE of -8.47% on a net margin of -25.89%, asset turnover of 0.176x (cumulative half-year), and leverage of 1.86x, underscoring that negative margins are the primary drag on returns. Dividend per share is undisclosed/zero for the period, consistent with loss-making conditions and a conservative stance pending earnings normalization. Several cash flow and capital allocation items (investing CF, cash balance, shares outstanding) are undisclosed, limiting precision on free cash flow and per-share analysis. Overall, the quarter reflects cyclical and execution challenges with revenue contraction, unfavorable operating leverage, and cash outflows, but the balance sheet offers a buffer to execute operational initiatives and manage through the downcycle.

Profitability Analysis

ROE_decomposition: DuPont inputs indicate Net Profit Margin -25.89%, Asset Turnover 0.176x, and Financial Leverage 1.86x, resulting in ROE of -8.47%. The dominant driver of negative ROE is the steep negative margin; asset turnover is seasonally/cycle-lowered given H1 cumulative revenue against total assets; leverage is moderate and not the main swing factor. margin_quality: Gross margin is disclosed at 18.8% (gross profit ¥159.4m on revenue ¥846.0m), implying modest value-add for an industrial components profile. Note the internal mismatch between reported revenue, cost of sales, and gross profit; we rely on the provided gross margin metric for assessment. Operating margin is -16.8% (OI ¥-142.0m on revenue ¥846.0m), signaling limited ability to flex fixed costs at current volume. Net margin is -25.9%, reflecting both operating losses and non-operating burdens. operating_leverage: Revenue declined 21.3% YoY while operating loss persisted, showing negative operating leverage. Depreciation of ¥90.4m versus EBITDA of ¥-51.6m suggests a relatively fixed cost base; incremental volume recovery should provide high drop-through, but at current scale fixed costs weigh heavily.

Growth Assessment

revenue_sustainability: Revenue of ¥846.0m fell 21.3% YoY, indicating weak demand/order intake or shipment delays in core industrial end-markets. With asset turnover at 0.176x on a half-year basis, utilization appears low versus asset base. profit_quality: EBITDA ¥-51.6m and OCF ¥-367.1m point to weak profit quality: accounting losses are accompanied by worse cash outcomes, likely from working capital build or collection delays. Ordinary loss of ¥176.0m indicates non-operating headwinds beyond core operations. outlook: Near-term recovery hinges on order intake normalization, backlog conversion, and tighter cost control. If volumes stabilize, fixed-cost absorption could improve margins; however, absent revenue recovery, profitability will likely remain constrained. Watch for mix/pricing actions to rebuild gross margin toward the low-20% range and for signs of working capital normalization.

Financial Health

liquidity: Current assets ¥2,394.5m vs current liabilities ¥859.5m yield a current ratio of 278.6% and quick ratio of 226.9%, indicating ample short-term coverage based on reported balances. Cash and equivalents are undisclosed (shown as 0), so absolute liquidity is not directly observable. solvency: Total assets ¥4,802.0m and total equity ¥2,585.0m imply an equity ratio of ~53.8% (computed) and financial leverage of 1.86x. Debt-to-equity (using total liabilities) is 0.85x, suggesting moderate balance-sheet risk. capital_structure: Total liabilities of ¥2,188.9m against equity ¥2,585.0m indicate a conservative capital structure overall. Interest expense is modest at ¥8.2m, but negative EBIT renders coverage -17.4x; solvency is supported by equity cushion, yet sustained losses could gradually erode it.

Cash Flow Quality

earnings_quality: Operating cash flow of ¥-367.1m vs net income of ¥-219.0m (OCF/NI = 1.68 on an absolute basis) indicates cash outflows exceeding accounting losses, consistent with working capital drag and weaker cash conversion. FCF_analysis: Investing cash flow is undisclosed (shown as 0), preventing a reliable free cash flow calculation. Depreciation of ¥90.4m implies ongoing capital intensity; if maintenance capex approximates depreciation, underlying FCF would be more negative than OCF in this period. working_capital: Inventories are ¥443.9m; with revenue down 21.3% YoY, inventory turn may have slowed, tying up cash. Working capital is positive at ¥1,535.0m, but the period’s OCF suggests either inventory build, receivables increase, or payables reduction. Monitoring receivable collections and inventory normalization is key for cash recovery.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is undisclosed/zero and payout ratio is shown at 0.0%. With net losses and negative OCF, distributing dividends would not be sustainable from earnings. FCF_coverage: FCF coverage is undisclosed; investing CF is not provided, so FCF cannot be assessed. Given negative OCF, any dividend would likely lack cash coverage. policy_outlook: Given current losses and cash outflows, a conservative dividend stance appears prudent until profitability and positive OCF are restored. Future distributions will depend on margin recovery, working capital normalization, and visibility on capex.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial machinery/components leading to volatile order intake
• Pricing pressure and product mix shifts compressing gross margins
• Operational deleverage from fixed-cost base at reduced volumes
• Supply chain and lead-time variability affecting deliveries and inventory
• Customer concentration risk typical in capital goods niches (not disclosed but common for the sector)

Financial Risks:

• Negative EBIT and EBITDA resulting in weak interest coverage (-17.4x on EBIT)
• Operating cash outflows (¥-367.1m) creating funding needs if sustained
• Potential working capital build increasing liquidity strain
• Erosion of equity if losses persist despite a currently solid equity buffer

Key Concerns:

• Sustained revenue decline of 21.3% YoY without visibility on order recovery
• Cash conversion weaker than earnings, indicating WC pressure
• Gross margin fragility at 18.8% limiting self-help without volume recovery

Investment Implications

Key Takeaways:

• Topline down 21.3% YoY with continued operating losses (OI ¥-142.0m)
• Negative EBITDA (¥-51.6m) and OCF (¥-367.1m) highlight cash pressure
• Balance sheet leverage moderate with computed equity ratio ~53.8% and D/E 0.85x
• Margin recovery and working capital normalization are pivotal to near-term repair
• Non-operating items (ordinary loss ¥-176.0m) add to headwinds beyond core operations

Metrics to Watch:

• Order intake/backlog and revenue trajectory into H2
• Gross margin trend toward >20% and cost-down progress
• EBITDA/EBIT breakeven timing and interest coverage improvement
• OCF inflection and working capital movements (inventory/receivables)
• Capex vs depreciation once investing CF is disclosed

Relative Positioning: Within Japanese small-cap industrial components, the company currently sits in a repair phase with weaker profitability and cash conversion than healthier peers, but maintains a comparatively sound equity buffer that could support a turnaround if demand stabilizes.

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