EAGLE INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥85.51B
• Operating Income: ¥5.55B
• Net Income: ¥5.82B
• EPS: ¥105.13

Income Statement

Balance Sheet

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

Verdict: Solid profitability inflection in FY2026 Q2 (1H cumulative), with operating leverage and non-operating tailwinds driving a sharp earnings step-up despite modest topline growth. Revenue rose 3.1% YoY to 855.1, while operating income increased 30.1% YoY to 55.5, lifting ordinary income 25.7% to 72.3 and net income 75.5% to 47.6. Operating margin improved to 6.5% (operating income 55.47 / revenue 855.10). Based on prior-period back-calculations (using disclosed YoY growth rates), operating margin expanded by roughly 135 bps YoY (from ~5.1% to ~6.5%). Net margin expanded by about 230 bps YoY (from ~3.3% to ~5.6%), supported by lower effective tax (19.4%) and higher non-operating gains. Gross margin stands at 24.5%, indicating positive spread over SG&A (SG&A-to-sales ~18.0%) and improved operating leverage. Non-operating income of 22.0 (notably interest income 2.19 and dividends 0.23) was sizable versus operating income, cushioning ordinary profit; non-operating expenses were 5.19 including interest expense of 3.24. ROE is 3.7% (DuPont: NPM 5.6%, asset turnover 0.407x, leverage 1.61x), and ROIC is 3.3%, both below typical cost of capital thresholds, flagging capital efficiency as a structural gap. Balance sheet is strong: current ratio 255%, quick ratio 229%, and D/E 0.61x; cash and deposits of 308.8 comfortably exceed short-term loans of 130.9. Interest coverage is robust at 17.1x, indicating ample capacity to service debt. Earnings quality cannot be fully assessed because operating cash flow and capex are unreported; consequently, OCF/NI and FCF coverage are not calculable. The calculated payout ratio is 104.5%, implying potential pressure on dividend sustainability if profits or cash flows soften, though data limitations apply. Forward-looking, sustaining the higher operating margin will likely require continued SG&A discipline and stable gross margin amid input cost and FX dynamics. The large non-operating contribution raises the bar for maintaining ordinary profit if financial gains normalize. Priority areas for improvement are ROIC uplift (toward ≥5–7%), asset turnover improvement, and clearer cash flow disclosure.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.6% × 0.407 × 1.61 ≈ 3.7%. Component changes: Net margin improved materially YoY (approx. +230 bps), while asset turnover (0.407x) remains modest and leverage is moderate at 1.61x. The largest driver of ROE improvement is net margin expansion, supported by: (1) operating margin expansion (~+135 bps YoY) as revenue growth (+3.1%) outpaced implied SG&A pressure, and (2) sizable non-operating income that boosted ordinary profit and net income, alongside a relatively low effective tax rate (19.4%). Business reasons: product mix and cost control lifted operating leverage; financial income (interest, and other non-operating items) further supported bottom line. Sustainability: operating margin gains appear more defensible if gross margin hold (24.5%) and SG&A ratio (~18.0%) remains contained; however, the non-operating contribution is less predictable and may normalize. Watchpoints: asset turnover at 0.407x indicates slow capital cycling; improvement in working capital turns and asset utilization is needed for structural ROE uplift. Concerning trend flags: None directly observable for SG&A growth vs revenue due to missing YoY SG&A detail, but dependence on non-operating income (non-operating income ≈ 40% of operating income) heightens earnings volatility risk.

Growth Assessment

Topline growth is modest (+3.1% YoY to 855.1), driven likely by steady demand rather than volume breakout (segment detail N/A). Profit growth is strong: operating income +30.1% and net income +75.5%, reflecting improved operating leverage and non-operating tailwinds. Operating margin at 6.5% marks a meaningful recovery versus the back-solved prior ~5.1%. Net margin uplift to 5.6% reflects both operating gains and lower tax burden (19.4%) plus financial income. Quality: the profit mix leans on non-operating items (non-operating income 22.03 vs operating income 55.47), which may be less recurring than core operating earnings. Outlook: sustaining the higher run-rate hinges on cost discipline, stable input prices, and FX; a normalization of financial gains could dampen ordinary profit. With ROIC at 3.3% (<5% benchmark), management focus likely targets capital efficiency (asset turnover improvement, disciplined capex, and portfolio optimization). Near-term, balance sheet strength supports continued operations and investment, but structural growth will require throughput gains and/or margin-accretive mix.

Financial Health

Liquidity is strong: current ratio 254.7% and quick ratio 229.3% comfortably exceed benchmarks; no warning (both >>1.0). Working capital is healthy at 694.7, with cash and deposits (308.8) covering short-term loans (130.9). Solvency: D/E 0.61x indicates conservative leverage; long-term loans are 244.7 and short-term loans 130.9. Interest coverage at 17.1x shows ample interest service capacity. Maturity mismatch risk appears low given current assets (1,143.7) well above current liabilities (449.0). Off-balance sheet obligations: none reported in the provided data. Equity base is solid at 1,300.1 with retained earnings of 822.9, supporting financial resilience.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex are unreported, so OCF/Net Income and FCF cannot be assessed. As a result, earnings quality and cash conversion cannot be validated—key limitation. Potential quality considerations: (1) A large non-operating income component supporting ordinary profit raises volatility; (2) Without working capital flow data, we cannot confirm whether margin gains translated into cash. Dividend coverage by FCF cannot be evaluated. No direct signs of working capital manipulation can be identified from the snapshot, but monitoring AR (342.4) and inventories (114.0) versus sales growth would be prudent when cash flow data become available.

Dividend Sustainability

The calculated payout ratio is 104.5%, which, if comparable on a like-for-like basis, suggests potential unsustainability absent strong FCF; however, dividend and cash flow data are unreported, and the calculation basis for the payout ratio is not disclosed here. With a strong balance sheet (net liquidity cushion and low leverage), near-term distributions may be supportable, but medium-term sustainability should be judged against OCF and capex needs once disclosed. Policy outlook: with ROIC at 3.3% (<5% benchmark), capital allocation may prioritize efficiency improvements; stable to cautious dividend stance is prudent until cash generation trends are confirmed.

Risk Assessment

Business Risks:

• Margin sustainability risk if gross margin (24.5%) compresses due to input cost or pricing pressure
• Demand cyclicality in end markets (e.g., automotive, industrial/process equipment) affecting volumes and mix
• Execution risk on SG&A discipline required to hold 6.5% operating margin
• Dependence on non-operating gains to support ordinary profit

Financial Risks:

• Earnings volatility from non-operating items (non-operating income 22.03 vs operating income 55.47)
• Potential dividend coverage shortfall (calculated payout 104.5%) if OCF underperforms
• Asset turnover at 0.407x and ROIC 3.3% indicate capital efficiency risk
• FX exposure impacts on financial income/expenses and translation effects (implied by interest/financial items)

Key Concerns:

• ROIC below 5% benchmark (3.3%) signals value-creation gap versus likely WACC
• OCF and capex are unreported, limiting verification of earnings quality and FCF
• Net margin uplift partly driven by non-operating income; normalization could compress ordinary profit
• Low effective tax rate (19.4%) may not persist if tax timing effects reverse

Investment Implications

Key Takeaways:

• Strong 1H profit uplift with operating margin expansion (+135 bps YoY) and net margin expansion (+230 bps)
• Non-operating income was a material contributor to ordinary profit, elevating volatility risk
• Balance sheet is robust (CR 255%, D/E 0.61x, interest coverage 17x), supporting resilience
• Capital efficiency remains the primary structural weakness (ROE 3.7%, ROIC 3.3%)
• Near-term focus should be on sustaining operating margin gains and improving asset turnover

Metrics to Watch:

• Operating cash flow and FCF (to validate earnings quality and dividend coverage)
• SG&A trajectory vs revenue (to confirm operating leverage)
• Gross margin stability amid input cost and FX changes
• Non-operating income composition and sustainability
• Asset turnover and ROIC progression toward ≥5–7%
• Working capital metrics (DSO, DIO) once disclosed

Relative Positioning: Financially conservative with strong liquidity and low leverage versus many industrial peers, but lagging on capital efficiency (ROIC/ROE) and potentially more reliant on non-operating income for profit uplift in the period.

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