MIYAIRI VALVE MFG.CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.21B
• Operating Income: ¥45M
• Net Income: ¥20M
• EPS: ¥0.42

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

Verdict: A modest operational turnaround with sharply higher operating profit on flat sales, but capital efficiency remains weak and free cash flow is negative due to heavy capex and tight liquidity. Revenue was 32.14 (100M JPY), essentially flat YoY (+0.0%), while operating income rose to 0.45 (+226.5% YoY), lifting the operating margin to roughly 1.4%. Gross profit reached 5.15 with a gross margin of 16.0%, and SG&A was 5.01, leaving only a thin operating surplus. Ordinary income climbed to 0.39 (+188.9% YoY), as non-operating income and expenses netted out (both 0.15), indicating limited help from non-core items. Net income printed at 0.20 (net margin 0.6%), and EPS (basic) was 0.42 JPY, though YoY comparatives were not provided. Margin-wise, the operating margin expanded by about 97 bps vs last year (from roughly 0.4% to ~1.4%), and the ordinary margin expanded by about 78 bps (from ~0.4% to ~1.2%), reflecting improved cost control on flat sales. Earnings quality is solid this quarter: operating cash flow of 0.90 is 4.5x net income, indicating cash-backed earnings and some working capital inflows or disciplined collections. However, free cash flow is likely negative when considering capex of 3.19, implying reliance on financing (financing CF +1.56) to bridge investment needs. Liquidity remains tight with a quick ratio of 0.88 and cash of 4.37 against short-term loans of 13.53, even as interest coverage stands borderline strong at 5.8x. Balance sheet leverage (D/E 1.25x) is within reasonable bounds, but capital efficiency is weak: ROE is only 0.5% and ROIC is 0.8%, well below a 5% warning threshold. There is an unusual line-item mix: profit before tax is shown at -1.06 despite positive ordinary income and net income, suggesting the presence of significant extraordinary items or classification differences not fully disclosed; this limits precision on below-the-line drivers. Forward-looking, sustaining margin gains, improving ROIC above the cost of capital, and converting inventory into cash will be central. Monitoring order intake, pricing power, and capex pacing vs cash generation will determine whether the improvement can translate into healthier free cash flow and a stronger balance sheet in the second half.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.5% = Net Profit Margin 0.6% × Asset Turnover 0.364 × Financial Leverage 2.25x. The most notable change driver this quarter is net profit margin expansion, inferred from the large YoY gains in operating and ordinary income on flat revenue. Business context: improved cost discipline and slightly better gross-to-SG&A spread boosted operating margin to ~1.4%, while non-operating items were neutral overall (0.15 income offset by 0.15 expenses). Asset turnover remains low at 0.364, reflecting a relatively asset-heavy profile with inventories of 10.58 and sizable noncurrent assets (53.75) versus modest sales; this depresses ROE despite margin gains. Financial leverage at ~2.25x contributes to ROE, but at the current margin/turnover levels, leverage does not translate into high returns. Sustainability: margin gains look operational (cost-side) and could be sustainable if pricing and mix hold; however, the thin gross margin (16.0%) leaves little buffer against input costs or volume softness. Concerning trends: SG&A (5.01) nearly equals gross profit (5.15), indicating limited operating leverage; without clear SG&A reductions or gross margin expansion, earnings remain highly sensitive. With revenue flat and capex elevated, improving asset turnover will be challenging unless order execution accelerates and inventories are reduced.

Growth Assessment

Revenue was flat YoY at 32.14, suggesting steady demand without clear growth catalysts in the quarter. Profit growth was driven by cost improvements: operating income +226.5% and ordinary income +188.9% on flat sales, indicating margin-focused execution rather than volume-led growth. The operating margin improved by ~97 bps to ~1.4%, and ordinary margin by ~78 bps to ~1.2%. Non-operating contributions were neutral (0.15 income offset by 0.15 expenses), so the uplift is primarily operating. EBITDA was 1.84 (margin 5.7%), giving some cushion for interest (0.08) but still modest for reinvestment. Outlook considerations: backlog and order intake (not disclosed) will be key to reigniting top-line growth; cost pass-through and procurement discipline need to drive further gross margin gains from 16.0% to sustain profitability. Given negative implied FCF (OCF 0.90 vs capex 3.19), growth will depend on maintaining financing access while capitalizing on any demand recovery in H2. Absent acceleration in asset turnover or higher gross margins, profit growth may decelerate.

Financial Health

Liquidity: Current ratio is 1.26 (above 1.0 but below the >1.5 comfort benchmark), and the quick ratio is 0.88, signaling tight near-term liquidity. Cash and deposits are 4.37 versus short-term loans of 13.53, pointing to reliance on ongoing bank lines. Working capital is positive at 7.19, supported by receivables (11.53) and inventories (10.58). Solvency: Total liabilities are 49.22 vs equity 39.27; reported D/E is 1.25x, within a conservative boundary (<1.5x) but not low. Interest coverage is 5.82x, at the threshold of strong, implying manageable interest burden for now. Maturity profile: Short-term debt (13.53) is sizeable relative to current assets (35.23) and especially relative to cash, highlighting a maturity mismatch risk if OCF wobbles. Off-balance sheet: None disclosed in the provided data. No explicit breach-level warnings (Current Ratio is not <1.0; D/E is not >2.0), but liquidity buffers are thin.

Cash Flow Quality

Earnings quality appears strong this quarter: OCF/Net Income is 4.52x (>1.0), suggesting profit is cash-backed and working capital management contributed positively. However, free cash flow is likely negative when considering capex of 3.19 versus OCF of 0.90, implying an approximate FCF of about -2.29 (Investing CF detail not disclosed). Financing CF of +1.56 indicates external funding is supporting the investment program and/or working capital. Sustainability: With SG&A almost fully consuming gross profit, maintaining positive OCF will require continued tight control of receivables and inventories; elevated inventories (10.58) are a lever for cash release if conversion accelerates. No obvious signs of working capital manipulation are evident from the disclosed snapshot, but the dependence on financing alongside negative implied FCF warrants monitoring.

Dividend Sustainability

Dividend data are largely unreported; DPS and total dividends paid are not disclosed. The calculated payout ratio shown (488.5%) likely reflects legacy or estimation inputs and should not be relied upon without the actual dividend figure. Given OCF of 0.90 and capex of 3.19 (implying negative FCF), internal coverage of dividends would be weak in this half if any cash dividends were paid. Without confirmed dividend cash outflow, we cannot compute FCF coverage; prudently, dividend capacity near term appears constrained by negative implied FCF and tight liquidity. Policy outlook depends on H2 earnings/OCF improvement and capex cadence; maintaining or increasing dividends would likely require stronger cash generation or balance sheet support.

Risk Assessment

Business Risks:

• Margin risk from input cost volatility given low gross margin (16.0%) and SG&A near gross profit
• Demand cyclicality and project timing in industrial valve end-markets, potentially leading to flat or volatile revenue
• Execution risk on capex (3.19) without commensurate revenue/OCF uplift
• Customer concentration risk (not disclosed but common in specialized components)

Financial Risks:

• Tight liquidity: quick ratio 0.88 and cash 4.37 vs short-term loans 13.53
• Negative implied FCF (OCF 0.90 vs capex 3.19) leading to reliance on financing (FinCF +1.56)
• Leverage dependence: D/E 1.25x and need to maintain interest coverage (~5.8x) amid potential rate increases
• Maturity mismatch: significant short-term debt vs modest cash and OCF

Key Concerns:

• Very low capital efficiency: ROE 0.5% and ROIC 0.8%
• Inconsistency between positive ordinary income and net income vs reported negative profit before tax (-1.06), suggesting undisclosed extraordinary items
• Inventory levels (10.58) tie up cash and depress asset turnover (0.364)
• Limited buffer in margins; small shocks could erase operating profit

Investment Implications

Key Takeaways:

• Operational improvement with operating income +226.5% on flat revenue, expanding operating margin by ~97 bps to ~1.4%
• Cash earnings quality is solid (OCF/NI 4.5x), but implied FCF is negative due to elevated capex
• Liquidity is tight (quick ratio 0.88; cash 4.37 vs ST debt 13.53), though interest coverage is acceptable (~5.8x)
• Capital efficiency remains a core issue: ROE 0.5% and ROIC 0.8% are well below acceptable thresholds
• Below-the-line items appear volatile/unclear (PBT -1.06), introducing uncertainty in reported bottom-line dynamics

Metrics to Watch:

• Order intake/backlog and book-to-bill to assess top-line trajectory
• Gross margin progression and SG&A ratio to revenue
• Inventory days and receivables days to drive OCF and asset turnover
• Free cash flow (OCF minus capex) and reliance on new borrowings
• Debt maturity profile, interest coverage, and short-term debt rollover
• ROIC and ROE improvement vs internal targets

Relative Positioning: Versus domestic small-cap industrial component peers, Miyairi Valve shows improving operating profitability but lags on capital efficiency and liquidity. The balance sheet is serviceable but less liquid than peers with stronger quick ratios, and current ROIC is meaningfully below typical peer mid-single-digit to high-single-digit levels.

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
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