DAIHEN CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥105.25B
• Operating Income: ¥6.93B
• Net Income: ¥5.79B
• EPS: ¥216.41

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 solid Q2 with double-digit profit growth and margin expansion, but capital efficiency (ROIC 2.5%) and near-threshold cash conversion temper the strength. Revenue rose 9.5% YoY to 1,052.5, supported by broad demand across businesses (implied from topline growth). Operating income increased 36.9% YoY to 69.3, driving operating margin up to 6.6%. Ordinary income was 79.0 (+36.9% YoY), aided by net non-operating gains (non-op income 17.7 vs non-op expenses 8.1). Net income climbed 22.7% to 51.7, with EPS at 216.41 JPY. Gross profit reached 303.5 (gross margin 28.8%). EBITDA was 100.5, implying an EBITDA margin of 9.5%, and interest coverage was strong at 14.4x. Operating margin expanded by roughly 132 bps YoY (from ~5.3% to 6.6%), while net margin improved by ~53 bps (from ~4.4% to 4.9%). Cash flow quality is adequate but not robust: OCF of 42.2 is 0.82x net income and below capex (64.4), implying negative implied FCF. Liquidity is healthy (current ratio 231%, quick ratio 185%), and leverage is moderate (reported D/E 0.85x), though ROE remains modest at 3.2%. The non-operating income ratio of 34.2% signals some reliance on below-the-line contributions in earnings. Capex exceeds depreciation (64.4 vs 31.1), indicating proactive investment but pressuring near-term free cash flow. With ROIC at 2.5%, the spread versus assumed WACC is negative, highlighting a need for better asset turns and/or margin enhancement. Overall, the quarter shows operational improvement and cost discipline, but sustainability depends on continued mix/pricing gains, working capital normalization, and better cash conversion. Forward-looking, backlog strength, pricing power, and execution on capex returns will be key to lifting ROIC and supporting dividends.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.2% = Net Profit Margin 4.9% × Asset Turnover 0.356 × Financial Leverage 1.85x. The biggest improvement driver this quarter is margin expansion: operating income grew 36.9% vs revenue +9.5%, indicating operating leverage and/or mix/pricing benefits. Operating margin expanded ~132 bps YoY (approx. 6.6% vs ~5.3% prior), and net margin expanded ~53 bps (~4.9% vs ~4.4% prior). Asset turnover at 0.356 remains subdued, reflecting a sizeable asset base (inventories/PP&E/investments) relative to revenue; this constrains ROE despite profit growth. Financial leverage at 1.85x is moderate and relatively stable; leverage is not the main ROE lever. Business drivers likely include: better cost pass-through, improved utilization, and SG&A discipline (SG&A up slower than operating profit), while non-operating gains (net +9.6) contributed to ordinary income. Sustainability: operating margin gains appear more durable than non-operating items; however, continued input cost stability and demand breadth are required to sustain the current run-rate. Watch for any SG&A growth re-acceleration outpacing revenue; for now, operating leverage is positive.

Growth Assessment

Topline growth of 9.5% YoY to 1,052.5 indicates healthy demand across core segments. Profit growth outpaced revenue: operating income +36.9% and net income +22.7%, implying improved mix/pricing and fixed-cost absorption. Non-operating gains (income 17.7 vs expense 8.1) added to ordinary profit, but core operating profit accounted for the majority of improvement. EBITDA of 100.5 underscores improved operating performance and cost control. Revenue sustainability hinges on end-market capex cycles (welding/FA, power systems) and FX; no explicit backlog data provided, so durability is uncertain. Given capex > depreciation, management appears to be investing for growth, but returns must lift ROIC above the current 2.5%. Outlook: if demand remains intact and pricing holds, further incremental margin improvement is possible; however, cash conversion needs to improve to fund investment and dividends internally.

Financial Health

Liquidity is strong: current assets 1,933.6 vs current liabilities 837.7, yielding a current ratio of 230.8% and quick ratio of 184.5%—no near-term liquidity stress. Solvency looks comfortable: reported D/E 0.85x and interest coverage 14.44x indicate manageable leverage. Maturity profile: short-term loans 259.2 are well covered by liquid assets (cash 302.8 plus receivables 461.5), reducing refinancing risk; long-term loans 408.9 suggest a balanced debt stack. No explicit off-balance sheet obligations disclosed in the provided data. Working capital is sizable (1,096.0), with notable receivables (461.5) and inventories (388.5); while supportive of sales, it ties up capital and depresses asset turnover and ROIC. No warnings: Current Ratio well above 1.0 and D/E below the 2.0 threshold.

Cash Flow Quality

OCF of 42.2 is 0.82x net income (51.7), slightly below the 1.0 benchmark but above the 0.8 risk flag threshold—watchlist for earnings quality. Implied FCF is negative at roughly -22.2 (OCF 42.2 minus capex 64.4), reflecting investment outlays exceeding cash generation this half. Capex of 64.4 exceeds D&A of 31.1, consistent with growth or renewal capex; near-term FCF compression is expected but should be evaluated against future returns. Working capital details are limited; elevated receivables/inventories suggest potential cash tied in operations, but we lack period-on-period deltas to assess any deliberate working capital release/build. No clear signs of manipulation from available data, but continued OCF/NI <1.0 would warrant scrutiny.

Dividend Sustainability

The calculated payout ratio is 80.4%, above the 60% comfort threshold and high relative to current earnings and cash generation. With implied negative FCF this period, dividend coverage relies on cash balances or financing unless H2 cash flow improves. Policy details and actual DPS are unreported; therefore, precise sustainability cannot be concluded. If capex normalization and working capital unwinding lift OCF in H2, coverage could improve; otherwise, elevated payout risks crowding out growth investment or increasing reliance on the balance sheet. Near-term stance: cautious until OCF/NI rebounds above 1.0 and FCF turns positive.

Risk Assessment

Business Risks:

• Cyclical demand in capital goods and factory automation affecting welding and power systems orders
• Input cost volatility (steel, copper, components) impacting margins if pricing power weakens
• Execution risk on capex with ROIC currently 2.5%, below cost of capital
• Supply chain and lead-time variability affecting deliveries and inventory levels
• FX fluctuations impacting export competitiveness and translation effects

Financial Risks:

• Cash conversion near threshold (OCF/NI 0.82) and implied negative FCF amid elevated capex
• Dependence on non-operating items (non-operating income ratio 34.2%) to support ordinary profit
• Working capital intensity (receivables 461.5, inventories 388.5) depressing asset turnover and ROIC
• Moderate leverage with refinancing needs on short-term loans 259.2 if liquidity were to tighten

Key Concerns:

• Persistent sub-5% ROIC signaling capital inefficiency
• Payout ratio at ~80% despite negative implied FCF in the period
• Sustainability of margin gains if end-market demand slows or cost tailwinds fade

Investment Implications

Key Takeaways:

• Strong profit growth with operating margin expansion of ~132 bps YoY to 6.6%
• Net income up 22.7% YoY; net margin up ~53 bps to 4.9%
• Healthy balance sheet and liquidity (current ratio 231%, interest coverage 14.4x)
• Cash conversion only fair (OCF/NI 0.82) and implied negative FCF due to elevated capex
• ROIC at 2.5% highlights need for better asset efficiency and/or margin uplift
• Non-operating contributions meaningful; core profitability improved but quality mix should be monitored

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue visibility
• OCF/Net income ratio (target >1.0) and working capital days (DSO/DIO/DPO)
• Capex returns and ROIC trajectory (target >5% near term, >7-8% medium term)
• Operating margin sustainability and SG&A growth vs revenue
• FX sensitivity and pricing pass-through to protect gross margin

Relative Positioning: Within Japanese industrial/electrical equipment peers, Daihen exhibits improving profitability and strong liquidity but lags on capital efficiency (low ROIC, low asset turnover). Its leverage and interest coverage compare favorably, yet cash conversion and reliance on non-operating items place it mid-pack on earnings quality.

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
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