TOREX SEMICONDUCTOR LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.88B
• Operating Income: ¥414M
• Net Income: ¥337M
• EPS: ¥31.72

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

Verdict: Despite a 5.1% YoY revenue decline, FY2026 Q2 (cumulative) showed resilient profitability with operating income up 23.1% YoY and stronger cash conversion. Revenue was 118.79, gross profit 29.91, and operating income 4.14, taking operating margin to about 3.5%. Ordinary income surged to 3.81 (+444.6% YoY), aided by a swing in non-operating line items (non-op income 0.88 vs expenses 1.21), though the net non-operating balance was slightly negative. Net income reached 3.36, translating to EPS of 31.72 JPY on an average share count of 10.61 million. Gross margin stood at 25.2%, and EBITDA was 14.03 (11.8% margin), indicating improved cost discipline. Operating margin expanded by roughly 81 bps YoY (from ~2.7% to ~3.5%), with operating profit growth outpacing revenue due to mix/expense control. Interest coverage of 4.88x is adequate but just shy of the 5x “strong” threshold, suggesting interest costs remain a headwind. Liquidity is robust with a current ratio of 305% and cash/deposits at 109.34 against short-term loans of 19.00. Leverage is moderate with a reported D/E of 1.00x and effective equity ratio of roughly 50% (175.03/350.59), leaving room to navigate the cycle. Cash generation was strong: operating CF of 11.90 versus net income of 3.36 (OCF/NI 3.54x), indicating high earnings quality. Implied free cash flow (OCF minus reported capex) was positive at about 6.84, before other investing flows (which were unreported). Working capital is sizable (inventories 64.78 and receivables 44.97), but cash covers all current liabilities, reducing near-term liquidity risk. ROE is modest at 1.9% per DuPont (NPM 2.8% × AT 0.339 × Leverage 2.00x), constrained by low asset turnover and a still-low net margin. ROIC is 2.0%, well below the 5% warning threshold, underscoring capital efficiency as a key improvement area. Forward-looking, margin traction and cash discipline are positives, but low ROIC, modest interest coverage, and inventory intensity necessitate continued focus on mix, pricing, and asset efficiency. Overall, the quarter reads as a margin-and-cash quality improvement amid softer topline, with a need to raise capital efficiency to sustain shareholder returns.

Profitability Analysis

ROE decomposition: 1) Net profit margin 2.8%, 2) Asset turnover 0.339x, 3) Financial leverage 2.00x, yielding ROE ~1.9% (matches reported). The element showing the most constructive change this period is margin: operating margin expanded ~81 bps YoY as operating profit rose 23.1% against a 5.1% revenue decline. Business drivers likely include better product mix/pricing in power management ICs and tighter SG&A control (SG&A at 25.76, or ~21.7% of revenue), partially offset by interest expense of 0.85. Asset turnover remains low (0.339x), reflecting high cash (109.34) and inventories (64.78) relative to revenue scale, which drags ROE despite moderate leverage. Non-operating volatility narrowed ordinary margin gaps, but interest burden still caps net margin. Sustainability: cost controls and mix improvements can persist, but if demand remains soft, operating leverage benefits may fade; asset turnover recovery depends on inventory normalization and revenue growth. Watch for any trend where SG&A growth outpaces revenue; currently, profit growth exceeded revenue, indicating positive operating leverage this period.

Growth Assessment

Revenue declined 5.1% YoY to 118.79, implying softer end demand or pricing in select segments. Operating income increased 23.1% YoY and ordinary income rose sharply, signaling improved mix and/or cost base. EBITDA margin at 11.8% and gross margin at 25.2% suggest stabilization versus prior softness, though still not high for analog peers. Non-operating items were mixed (income 0.88 vs expenses 1.21), with interest costs limiting ordinary income conversion. With inventories at 64.78, there may be channel normalization ahead; revenue sustainability hinges on book-to-bill recovery, automotive/industrial demand, and FX tailwinds. Outlook: near-term growth likely modest; profitability can hold if mix and pricing remain firm and utilization improves; medium-term recovery requires better asset turnover and ROIC lift.

Financial Health

Liquidity is strong: current ratio 305.4% and quick ratio 217.5% exceed benchmarks comfortably. No warning on current ratio (<1.0) or D/E (>2.0); reported D/E is 1.00x and equity ratio is roughly 49.9%. Cash and deposits (109.34) exceed total current liabilities (73.73), and short-term loans (19.00) are well covered by cash, minimizing maturity mismatch risk. Long-term loans are 93.40, keeping interest-bearing debt around 112.4 and net debt near zero (small net debt of ~3.1 versus cash). Interest coverage at 4.88x is adequate but should improve to enhance flexibility. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 3.54x, indicating high-quality earnings with strong cash conversion. Operating CF of 11.90 coupled with capex of 5.06 implies positive implied FCF of ~6.84 before other investing flows (investing CF not fully reported). Shareholder returns included repurchases of 1.85; dividends were unreported, so total cash return coverage cannot be fully assessed. Working capital: inventories (64.78) are sizable vs COGS (88.89), suggesting low turns; any reduction could be a cash source, but accumulation poses risk if demand slows. No signs of aggressive working-capital manipulation are evident from available data; OCF strength despite lower revenue implies collection/expense discipline.

Dividend Sustainability

Dividend data is largely unreported, but a calculated payout ratio of 192.6% suggests elevated payout relative to current earnings (methodology unknown and likely TTM/board guidance-based). Without disclosed DPS and total dividends, sustainability cannot be confirmed. From a cash perspective, implied FCF (~6.84) together with strong liquidity could support moderate distributions, but low ROIC (2.0%) argues for prioritizing investment or balance-sheet strengthening. Key watchpoints: actual interim DPS decision, payout policy (baseline + variable), and whether FCF consistently covers dividends plus capex through the cycle.

Risk Assessment

Business Risks:

• Semiconductor cycle exposure: demand volatility in industrial/consumer end-markets
• Pricing pressure and product mix shifts impacting gross margin
• Inventory risk (64.78) relative to COGS, potential for write-downs if demand weakens
• Customer concentration risk typical for analog/power management IC suppliers
• FX risk (JPY volatility) affecting export pricing and input costs

Financial Risks:

• Interest expense burden (0.85) with interest coverage at 4.88x, near threshold
• Moderate leverage (D/E 1.00x) with long-term loans of 93.40
• Low ROIC at 2.0% below cost of capital, constraining self-funded growth
• Potential capex needs to sustain competitiveness versus limited current profitability

Key Concerns:

• Capital efficiency: ROIC 2.0% and ROE 1.9% are low despite healthy liquidity
• Asset turnover at 0.339x limits returns; high cash and inventory weigh on efficiency
• Non-operating result partially offset by interest, capping ordinary income
• Data gaps (dividends, R&D, segment mix) reduce visibility on sustainability

Investment Implications

Key Takeaways:

• Profit resilience: operating income +23.1% YoY on -5.1% revenue shows cost/mix progress
• Operating margin expanded ~81 bps YoY to ~3.5%; EBITDA margin at 11.8%
• Cash conversion strong (OCF/NI 3.54x); implied positive FCF before other investing flows
• Balance sheet liquid with current ratio 305% and near-net-cash position
• Return metrics subdued: ROE 1.9% and ROIC 2.0% highlight efficiency gap

Metrics to Watch:

• Gross and operating margin trajectory (bps changes QoQ/YoY)
• Inventory levels and turns; book-to-bill/orders
• Asset turnover and working-capital intensity
• Interest coverage and effective tax rate normalization
• ROIC progression toward >5% and eventually >7–8%
• Actual DPS, total cash returns vs FCF

Relative Positioning: A small/mid-cap power management IC player showing improving margins and cash conversion but lagging peers on capital efficiency; robust liquidity buffers near-term risk while low ROIC and modest interest coverage temper the quality of the earnings recovery.

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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