KAWADEN CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.41B
• Operating Income: ¥2.01B
• Net Income: ¥1.35B
• EPS: ¥420.38

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

Kawaden Co., Ltd. (single-entity, JGAAP) delivered a strong FY2026 Q2 performance with revenue of ¥13.409bn, up 27.8% YoY, and operating income of ¥2.009bn, up 181.3% YoY, indicating powerful operating leverage. Gross profit reached ¥3.177bn, translating to a gross margin of 23.7%, while operating margin expanded to roughly 15.0%, reflecting improved mix, pricing, and/or utilization. Ordinary income of ¥2.023bn was slightly above operating income, suggesting modest net non-operating gains with minimal financing costs. Net income rose 187.8% YoY to ¥1.346bn, yielding a net margin of 10.04%, a material improvement in bottom-line efficiency. DuPont decomposition shows ROE of 7.13% driven by a 10.04% net margin, asset turnover of 0.521x, and conservative financial leverage of 1.36x, indicating returns are primarily operational rather than leverage-driven. EBITDA was ¥2.281bn (17.0% margin), and interest expense was just ¥3m, producing an exceptionally high interest coverage ratio of 669.7x and underscoring low financial risk. Operating cash flow was ¥1.222bn, about 0.91x net income, implying fairly good earnings-to-cash conversion for the half, although working capital details are partly undisclosed. Liquidity is robust with a current ratio of 305.7% and working capital of ¥12.891bn, supported by a solid balance sheet (equity ¥18.885bn vs liabilities ¥7.685bn; D/E 0.41x). While the reported effective tax rate shows 0.0% in the calculated metrics, the presence of ¥255m income tax suggests caution in interpreting that particular figure due to data definition differences. Several items are not disclosed (e.g., inventories, investing cash flows, cash and equivalents, shares outstanding), which limits depth of analysis on capital intensity, cash/liquidity buffers, and per-share metrics beyond the reported EPS of ¥420.38. The equity ratio is shown as 0.0% in the dataset, but the balance sheet clearly indicates substantial equity; therefore, the displayed equity ratio should be treated as not reported rather than reflecting capital weakness. Dividend data (DPS, payout, and FCF coverage) are marked as zero/unreported, so dividend policy and sustainability cannot be assessed from this release. Overall, the company exhibits strong profitability momentum, solid cash generation, and a very conservative capital structure. The outsized YoY operating income growth versus revenue growth points to meaningful margin expansion, likely from a favorable sales mix and cost control. Outlook-wise, sustaining the current margin profile will depend on order flow quality, pricing discipline, and input cost management, particularly if the business is project-based in electrical equipment. Key watch items include order backlog, working capital efficiency (receivables/inventories), and actual capex/investing cash needs once disclosed. Despite data gaps, the available non-zero metrics portray a financially resilient company with improving operational efficiency and ample balance-sheet capacity.

Profitability Analysis

ROE of 7.13% is explained by a 10.04% net margin, 0.521x asset turnover, and 1.36x leverage, indicating returns are mainly driven by margin improvement rather than high leverage. Operating margin is approximately 15.0% (¥2,009m OI / ¥13,409m revenue), a notable step-up relative to the prior year given OI growth of +181.3% vs revenue growth of +27.8%, evidencing strong positive operating leverage. Gross margin at 23.7% suggests solid value-add and likely improved project execution or pricing, given the scale of YoY operating income expansion. Ordinary income slightly exceeds operating income (¥2,023m vs ¥2,009m), implying minor non-operating tailwinds and negligible financing drag (interest expense ¥3m). EBITDA margin is 17.0%, consistent with healthy operating efficiency and good cost absorption. Margin quality appears favorable, but confirmation requires detail on backlog composition, warranty/after-sales costs, and any one-offs, which are not disclosed. The low interest burden and high interest coverage (669.7x) reinforce that profitability gains are not reliant on financial engineering. Given the single-entity basis, contributions from subsidiaries and consolidation effects are not relevant; improvements reflect the parent entity's operations. Sustaining mid-teens operating margins will depend on maintaining pricing power and controlling input volatility (e.g., metals) and subcontracting costs. With leverage modest, incremental ROE upside is more likely to come from further margin enhancements and better asset turnover than from balance-sheet gearing.

Growth Assessment

Revenue increased 27.8% YoY to ¥13.409bn, indicating robust demand and/or improved delivery of the order book. Operating income rose 181.3% YoY to ¥2.009bn, demonstrating exceptional operating leverage from scale, mix, or cost discipline. Net income expanded 187.8% YoY to ¥1.346bn, confirming that margin expansion flowed through to the bottom line. The sustainability of this growth will hinge on the quality and timing of orders, project execution, and potential normalization in input costs. Asset turnover of 0.521x is moderate; improved turnover would support growth without significant asset additions. Absence of investing cash flow disclosure limits visibility on growth capex and capacity expansion plans. Ordinary income exceeding operating income suggests small non-operating support; growth remains fundamentally operational. With EBITDA margin at 17.0%, there is headroom to secure future growth if utilization remains high. Outlook qualitatively improves given stronger profitability, but watch for reversion if project mix becomes less favorable or if cost inflation returns. Lack of backlog/order intake data is a key limitation for forward assessment.

Financial Health

Total assets are ¥25.753bn and total equity is ¥18.885bn, implying a conservative leverage profile (D/E 0.41x; assets/equity 1.36x). Total liabilities are ¥7.685bn, of which current liabilities are ¥6.267bn, against current assets of ¥19.158bn, producing a strong current ratio of 305.7%. Working capital stands at ¥12.891bn, providing ample buffer for project execution and procurement cycles. Interest expense is only ¥3m, and coverage is extremely high (669.7x), signaling minimal refinancing or rate risk. The displayed equity ratio of 0.0% should be treated as not reported; balance sheet figures clearly indicate high equity and solvency strength. Inventories are shown as zero (unreported), which precludes analysis of inventory turns and could understate current asset composition in the ratios presented. Cash and equivalents are shown as zero (unreported), so immediate liquidity reserves cannot be precisely assessed, though overall current asset coverage is substantial. No major solvency concerns are evident from the available data.

Cash Flow Quality

Operating cash flow of ¥1.222bn equates to 0.91x net income (¥1.346bn), indicating reasonable cash conversion for the half-year, consistent with improved earnings quality. Depreciation and amortization of ¥272m aligns with EBITDA of ¥2.281bn, suggesting non-cash charges are proportionate and not inflating reported profits. Free cash flow is not computable due to unreported investing cash flows (Investing CF shown as zero indicates not disclosed), so capex intensity and FCF coverage cannot be determined. Working capital details (receivables, payables, inventories) are largely undisclosed, limiting analysis of the drivers behind OCF; however, the strong current ratio implies no immediate strain. Financing cash flow of -¥332m implies outflows (potential debt repayment or shareholder returns), but DPS is unreported, so the nature of outflows is unclear. Overall, earnings-to-cash alignment is decent, but confirmation of sustainability requires disclosure of capex and working capital cycle metrics.

Dividend Sustainability

Dividend per share is shown as ¥0.00 and payout ratio 0.0%, which should be interpreted as not disclosed in this dataset rather than an actual zero. FCF coverage of dividends cannot be assessed because investing cash flows (and thus FCF) are undisclosed. The company’s strong profitability, robust liquidity (current ratio ~306%), and low leverage (D/E 0.41x) suggest capacity to fund distributions if policy allows, but policy/track record is not provided here. Without confirmed DPS and capex data, we cannot evaluate payout affordability or stability. Outlook depends on management’s capital allocation stance and the visibility of future cash generation once capex is reported.

Risk Assessment

Business Risks:

• Order and project timing volatility affecting quarterly revenue and margins
• Input cost fluctuations (e.g., copper, steel) impacting gross margin
• Execution risk on large or custom projects (cost overruns, delivery penalties)
• Customer concentration risk if sales are skewed to a few large clients or public works
• Supply chain constraints for key components or materials
• Potential normalization of margins after a favorable mix/price period

Financial Risks:

• Working capital swings affecting operating cash flow due to project-based billing
• Limited visibility on capex and investing needs (Investing CF not disclosed)
• Concentration of liquidity in non-cash current assets if cash is lower than implied
• Interest rate risk is minimal currently but could rise if leverage increases

Key Concerns:

• Data gaps: inventories, cash balance, investing cash flows, and DPS not disclosed
• Equity ratio shown as 0.0% is not reflective of balance sheet strength; treat as not reported
• Effective tax rate metric appears unreliable relative to disclosed tax expense

Investment Implications

Key Takeaways:

• Significant margin expansion: OI +181% YoY on revenue +28% underscores strong operating leverage
• Healthy profitability: net margin 10.0%, EBITDA margin 17.0%, ordinary income above operating income
• Robust balance sheet: D/E 0.41x, current ratio ~306%, working capital ¥12.9bn
• Solid earnings quality: OCF ~0.91x net income, though capex undisclosed
• ROE 7.1% primarily driven by margin, with scope to improve via turnover and potentially modest leverage
• Low financing risk: interest expense ¥3m; interest coverage ~670x

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Gross and operating margin trajectory amid input cost changes
• Working capital days (receivables, inventories) once disclosed
• Capex and full investing cash flows to derive true FCF
• OCF/Net income ratio staying at or above 1.0x over time
• Actual equity ratio and net cash position when cash is disclosed
• Dividend policy updates (DPS, payout target) and any buyback activity

Relative Positioning: Within Japan’s small/mid-cap electrical equipment and industrial components space, Kawaden currently shows stronger-than-peer margin momentum and very conservative leverage, translating to solid but not yet standout ROE. Liquidity is superior, financial risk is low, and upside to ROE could come from sustained margin gains and improved asset turnover relative to peers.

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