AXELL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.63B
• Operating Income: ¥1.15B
• Net Income: ¥869M
• EPS: ¥79.04

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 6.2% YoY revenue decline, FY2026 Q2 delivered a solid profit beat driven by notable margin expansion and disciplined costs. Revenue was 76.35 (100M JPY), while operating income rose 22.4% YoY to 11.48, lifting operating margin to roughly 15.0%. Ordinary income increased 23.3% YoY to 12.27, and net income climbed 24.0% YoY to 8.58, pushing net margin to about 11.2%. Using implied prior-period levels, operating margin expanded by roughly 351 bps (from about 11.5% to about 15.0%). Net margin expanded by an estimated 274 bps (from about 8.5% to about 11.2%). Gross margin printed at 33.7%, indicating solid product mix/pricing and cost control. Operating cash flow of 8.97 exceeded net income (8.58), with an OCF/NI ratio of 1.05x, pointing to good earnings quality this quarter. The balance sheet is very strong: current ratio 630%, quick ratio ~419%, and cash of 50.93 against current liabilities of 19.68, minimizing liquidity risk. Leverage is low (D/E 0.16x) and equity ratio is approximately 86% (equity/total assets), supporting resilience through cycles. ROE was 6.2% (DuPont: 11.2% NPM × 0.479x asset turnover × 1.16x leverage), reflecting structurally low leverage despite improved profitability. ROIC at 9.4% sits above the 8% excellence benchmark, suggesting efficient capital deployment in core operations. Non-operating income was modest at 0.80, with dividends (0.27) and interest (0.05) contributing, implying limited reliance on non-core gains. Financing cash outflow of -7.19 included share repurchases of -2.27, signaling capital return discipline. The calculated payout ratio of 58.8% appears near the upper bound of sustainability but is supported by positive OCF. Forward-looking, margin management and cash discipline appear robust, but the revenue contraction highlights ongoing demand and cycle risk typical of semiconductors/embedded solutions. Overall, the quarter shows healthy profitability and cash generation with a fortress balance sheet, though sustaining growth will require stabilizing topline and maintaining pricing/mix advantages.

Profitability Analysis

ROE decomposition: 6.2% = 11.2% Net Profit Margin × 0.479 Asset Turnover × 1.16x Financial Leverage. The component that moved most this quarter is the profit margin, as operating income rose 22.4% YoY despite a 6.2% YoY revenue decline, implying stronger gross-to-operating conversion and cost control. Business drivers likely include better product mix/pricing and SG&A discipline (SG&A ratio ~18.6%), alongside modest non-operating tailwinds (0.80). Asset turnover remains subdued at 0.479, consistent with cash-rich, inventory-heavy profiles and a conservative balance sheet. Leverage is intentionally low (1.16x), limiting ROE uplift from gearing but enhancing resiliency. Sustainability: part of the margin expansion appears structural (tight SG&A, product mix) but some elements may be cyclical if demand softens; maintaining 15%+ operating margin will depend on pricing power and utilization. Watch for any reversal in gross margin and potential normalization of operating leverage if revenue recovers and necessitates higher opex. No clear sign that SG&A growth exceeded revenue growth (YoY SG&A not disclosed), but the current cost base supports healthy operating leverage.

Growth Assessment

Revenue fell 6.2% YoY to 76.35, indicating near-term demand softness or shipment timing. Profit growth was driven by margin expansion: operating income +22.4% YoY and net income +24.0% YoY. Implied operating margin widened by ~351 bps and net margin by ~274 bps YoY, reflecting effective cost control and mix. The quality of profit is good, with OCF/NI at 1.05x and limited reliance on non-operating items (non-op income 0.80). Sustainability hinges on stabilizing the topline; continued margin-led growth without revenue support may be hard to sustain if mix or utilization normalizes. ROIC at 9.4% exceeds the 8% benchmark, suggesting the current portfolio is creating value even with lower sales. Near-term outlook should focus on order momentum, backlog visibility, inventory normalization, and currency tailwinds/hedges. The company’s large cash cushion provides flexibility to invest through the cycle and support selective buybacks.

Financial Health

Liquidity is exceptionally strong: current ratio 630.2% and quick ratio 418.8%; no warning thresholds are breached. There is no current ratio <1.0 or D/E >2.0 risk; D/E is 0.16x, indicating a very conservative capital structure. Maturity mismatch risk appears low: cash and deposits (50.93) alone cover current liabilities (19.68) 2.6x; receivables are unreported but likely add buffer, and inventories are sizable at 41.61. Total liabilities are only 22.21 vs total equity 137.34, yielding an equity ratio around 86%, supportive of solvency. Interest-bearing debt is unreported; interest coverage is not calculable but likely ample given negligible interest expense and strong operating income. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 1.05x (>1.0 benchmark), indicating solid earnings-to-cash conversion this quarter. Working capital quality looks reasonable given large cash and manageable payables (10.48), though inventories at 41.61 warrant monitoring for potential obsolescence or cycle risk. Estimated FCF (OCF - Capex) is about 8.81, using capex of -0.16 (noting total investing CF is unreported). This FCF level appears sufficient to fund dividends implied by the ~58.8% payout ratio and partial buybacks, though precise dividend cash outflow is not disclosed. No clear signs of working capital manipulation are evident from the snapshot; however, the absence of receivables detail limits a full assessment of DSO and collections. Cash generation aligns with income, supporting quality of earnings.

Dividend Sustainability

The calculated payout ratio is 58.8%, within the <60% benchmark and thus likely sustainable if earnings and OCF hold. OCF at 8.97 appears to cover estimated FCF needs (capex only -0.16 disclosed) and leaves room for shareholder returns; financing CF of -7.19 includes -2.27 of buybacks, implying room for both dividends and repurchases given cash on hand. FCF coverage of dividends is not directly calculable due to unreported dividend cash flow, but the cash position and OCF suggest adequate coverage. With ROIC at 9.4% and a strong balance sheet, the company can maintain a balanced capital allocation policy; however, sustainability will depend on preserving margins amid a softer topline. Policy visibility is limited as DPS and total dividends paid are unreported.

Risk Assessment

Business Risks:

• Revenue contraction (-6.2% YoY) signals potential demand softening or order timing risk.
• Inventory risk (41.61) in a cyclical/technology-driven market could lead to write-downs if demand weakens.
• Product mix and pricing reliance to sustain margins; any shift could compress gross and operating margins.
• Semiconductor/embedded solutions cycle risk impacting utilization and order visibility.
• FX exposure (e.g., USD/JPY) affecting import costs, pricing, and translation.

Financial Risks:

• Concentration risk in investment securities (31.76) introduces valuation volatility and potential OCI swings.
• Limited disclosure on interest-bearing debt and interest expense obscures interest coverage assessment (though overall leverage appears low).
• Dividend and buyback commitments could pressure cash if OCF weakens alongside revenue.

Key Concerns:

• Sustaining current ~15% operating margin if revenue pressure persists.
• Potential inventory build tying up cash and increasing obsolescence risk.
• Data gaps (receivables, debt details) limit full liquidity and coverage analysis.

Investment Implications

Key Takeaways:

• Solid profit beat with margin-led growth despite a declining topline.
• Margin expansion of ~351 bps at the operating level and ~274 bps at the net level YoY.
• High-quality earnings: OCF/NI at 1.05x and low reliance on non-operating gains.
• Fortress balance sheet with equity ratio ~86% and D/E 0.16x.
• ROIC at 9.4% exceeds the 8% benchmark, indicating value creation.
• Capital returns ongoing (buybacks -2.27) alongside a payout ratio ~59%.

Metrics to Watch:

• Order backlog and quarterly booking-to-bill
• Gross and operating margin trajectory
• Inventory turnover and write-downs
• OCF/NI ratio and working capital movements (AR/collections)
• ROIC and capex discipline
• FX sensitivity and hedging effectiveness

Relative Positioning: Within Japanese fabless/semiconductor solution peers, the company stands out for balance sheet strength, solid mid-teens operating margins, and ROIC >8%; ROE is moderate at 6.2% due to conservative leverage, suggesting resilience but less financial gearing-driven upside compared to more leveraged 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