JTEKT Corporation FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥1.92T
• Operating Income: ¥24.85B
• Net Income: ¥14.41B
• EPS: ¥37.62

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 results show resilient top-line growth but sharp margin compression, leading to materially lower operating and ordinary profits despite robust cash generation. Revenue rose 2.2% YoY to 19,249.5, while gross profit increased to 2,970.4, lifting gross margin by roughly 50 bps to 15.4%. Operating income fell 35.4% YoY to 248.5, compressing operating margin to 1.3% from 2.0% (down about 75 bps). Ordinary income declined 40.1% to 440.5, and profit before tax was 273.8. Net income attributable to owners decreased 12.7% to 119.7 with EPS at ¥37.62. Cash flow quality was strong: operating cash flow was 1,084.9 versus net income of 119.7 (OCF/NI 9.06x), supported by working capital releases in receivables and inventories. EBITDA was 960.3 (margin 5.0%), and cash conversion (OCF/EBITDA) was 1.13x, underscoring solid cash realization despite low P&L margins. Capex was 894.9 and free cash flow reached 557.9, comfortably covering dividends (FCF coverage 2.92x). The balance sheet strengthened modestly; equity ratio improved to 50.1% with total equity at 8,252.3 and net defined benefit liabilities down. Interest costs declined YoY, and net finance income turned positive, lifting EBT above EBIT. Effective tax rate was elevated at 47.4%, dampening bottom-line leverage. Segment-wise, Mobilities (core) expanded revenues and lifted segment profit materially, while Machine Tools sustained an 8.3% margin and modest profit growth. Management’s guidance implies a sharp rebound next year (OI 75.0 vs 24.8 actual; EPS ¥157.07; DPS ¥35), signaling confidence in cost normalization and mix improvements. Overall, earnings quality and liquidity are solid, but structural margin pressure, high tax burden, and low capital efficiency constrain ROE (1.4%) and ROIC (1.6%). Sustaining cash discipline, improving operating efficiency, and normalizing tax will be key to delivering on the step-up embedded in guidance.

Profitability Analysis

DuPont (3-factor): ROE = Net Profit Margin × Asset Turnover × Financial Leverage. Net Profit Margin: 119.74 / 19,249.50 = 0.62%. Asset Turnover: 19,249.50 / 15,776.96 = 1.22x. Financial Leverage (Assets/Equity): 15,776.96 / 8,252.30 = 1.91x. Calculated ROE ≈ 1.4%. Changes vs prior year: Net margin fell from ~0.73% to 0.62% (down ~11 bps), asset turnover edged up (1.20x → 1.22x), and leverage declined (2.02x → 1.91x). The largest negative driver was net margin compression, amplified by lower financial leverage. Business drivers: higher other expenses and still-low operating margin (1.3%) offset the ~50 bps improvement in gross margin, while an elevated effective tax rate (47.4%) further constrained net margin. Sustainability: the gross margin improvement appears sustainable given cost actions and mix, but restoring operating margin requires tighter SG&A/COGS control and continued normalization of one-time costs; tax normalization would be an incremental tailwind. Watchpoints: SG&A ratio ticked up slightly to 11.5%; maintaining expense discipline is essential given revenue growth of 2.2% YoY.

Growth Assessment

Revenue grew 2.2% YoY to 19,249.5, driven by Mobilities (+2.5%) and Machine Tools (+6.0%), offsetting a small decline in Industrial Machine & Bearing (-1.5%). Gross profit rose 5.3% YoY to 2,970.4, but operating income declined 35.4% to 248.5 as other expenses increased and operating leverage underperformed. Ordinary income fell 40.1% to 440.5, and net income attributable to owners decreased 12.7% to 119.7. Segment profit growth in Mobilities (+21.8%) and Industrial Machine & Bearing (+29.6%) indicates underlying operating improvements at the segment level, with Machine Tools stable (+0.2%). Guidance indicates a step-change recovery in profitability (OI 75.0; EPS ¥157.07; DPS ¥35), implying normalization of non-recurring costs and better operating efficiency. Execution on cost-downs, pricing, and mix within Mobilities, together with sustained margins in Machine Tools (8.3%), are the key levers for the outlook.

Financial Health

Liquidity: Current assets 7,992.2 vs current liabilities 5,070.3 imply a current ratio ~1.58 (healthy). Solvency: Equity ratio 50.1%; total liabilities 7,524.7 and total equity 8,252.3 denote a conservative balance sheet. Gross borrowings (bonds and borrowings) total 2,171.2; Debt/EBITDA ≈ 2.26x (within investment-grade benchmark). Interest coverage (EBIT/interest expense) ~1.4x indicates limited cushion at current EBIT levels; improving operating profit remains important. Debt/capital ~21% suggests ample headroom. Maturity profile: short-term borrowings 707.2 are well-supported by cash (1,375.5) and current assets, reducing near-term refinancing risk. No off-balance sheet obligations were highlighted.

Notable B/S Changes

Goodwill and Intangible Assets: -1,023.9 (-22.5%) - Likely disposals/impairments; reduces amortization/impairment risk but may reflect portfolio pruning. Other Financial Assets (Noncurrent): -4,172.8 (-22.0%) - Reallocation/realizations (including sales of investment securities), lowering financial asset exposure. Bonds and Borrowings (Noncurrent): -3,971.9 (-21.3%) - Deleveraging of long-term debt, reduces refinancing risk and interest burden. Deferred Tax Liabilities: -1,944.3 (-53.3%) - Tax base movements/OCI effects; contributes to improved equity ratio. Assets Held for Sale: +3,982.6 (+317.0%) - Active portfolio reshaping; anticipate further asset disposals and potential gain/loss recognition. Property, Plant & Equipment: +1,753.2 (+3.6%) - Ongoing investment program consistent with capex > depreciation. Other Financial Liabilities (Noncurrent): +636.1 (+46.7%) - Increase in derivative or lease-related liabilities; monitor interest rate/FX exposure. Other Components of Equity (OCI): +2,929.6 (+43.1%) - Significant OCI gains (FVTOCI and FX translation), strengthening equity.

Cash Flow Quality

OCF/NI of 9.06x signals high earnings quality, aided by working capital inflows: receivables (+146.5), inventories (+126.1), and other WC (+202.7), partly offset by payables (-26.8). Cash conversion (OCF/EBITDA) at 1.13x is strong. Free cash flow was 557.9 after capex of 894.9; FCF was driven by improved OCF and contained investing outflows. Capex/depreciation at 1.26x indicates ongoing reinvestment slightly above maintenance, consistent with moderate growth/capability upgrades. No signs of working capital manipulation are evident given simultaneous improvements in receivables and inventory alongside stable operations and higher taxes paid.

Dividend Sustainability

Total DPS was ¥60 (¥30/¥30). Reported payout ratio is 123.9%, elevated versus earnings given compressed net margin, but FCF coverage is comfortable at 2.92x, indicating near-term sustainability supported by cash generation. With guidance implying EPS of ¥157.07 and DPS of ¥35, the payout ratio would normalize meaningfully if the earnings recovery materializes. Capital allocation remains balanced: limited buybacks and capex/depreciation >1.0 support maintenance and selective growth while preserving liquidity.

Risk Assessment

Business risks include High customer concentration: major exposure to Toyota group across all segments, Segment concentration: Mobilities accounts for 71.0% of revenue, increasing auto-cycle sensitivity, Commodity/input cost and pricing pressure impacting margins, Geographic demand shifts (e.g., Europe softness; China volatility) affecting volume/mix.

Financial risks include Low operating margin (1.3%) and limited EBIT interest coverage (~1.4x) reduce shock absorption, Elevated effective tax rate (47.4%) suppresses net earnings conversion, Receivable days of 66 indicate slower collections and working capital sensitivity, Capital efficiency: ROIC 1.6% well below cost of capital.

Key concerns include Execution risk in restoring operating margins despite improving gross margin, Sustained high tax burden undermining bottom line even if operating profit recovers, Earnings volatility from other expenses and impairments impacting operating income.

Investment Implications

Key takeaways include Top line resilient (+2.2% YoY) with gross margin up ~50 bps, but operating margin compressed ~75 bps to 1.3%, Cash generation notably strong (OCF/NI 9.06x; OCF/EBITDA 1.13x), yielding FCF of 557.9, Balance sheet solid (equity ratio 50.1%; Debt/EBITDA ~2.3x) but EBIT interest coverage is thin, Guidance implies step-change recovery (OI 75.0; EPS ¥157) contingent on cost normalization and mix, Dividend covered by FCF despite high payout on earnings; DPS guided to normalize with earnings recovery.

Metrics to watch include Operating margin trajectory and SG&A ratio vs revenue, Effective tax rate normalization, Interest coverage (EBIT/interest expense), Receivable days (targeting <60) and inventory levels, Segment margins, especially Mobilities and sustainment of 8%+ margin in Machine Tools.

Regarding relative positioning, Within Japanese auto components/industrial peers, JTEKT shows stronger cash conversion but structurally lower operating margins and capital returns; the balance sheet is healthier than average, yet profitability metrics (ROE/ROIC) lag, making operational improvement the key differentiator.