AXELL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.63B
• Operating Income: ¥1.15B
• Net Income: ¥692M
• 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

AXELL Co., Ltd. (TSE:6730) delivered mixed but overall resilient FY2026 Q2 results under JGAAP on a consolidated basis. Revenue declined 6.2% YoY to ¥7,635m, reflecting demand softness or mix shifts, yet profitability improved meaningfully. Gross profit was ¥2,326m with a gross margin of 30.5%, while operating income rose 22.4% YoY to ¥1,148m, lifting operating margin to roughly 15.0%. Net income increased 24.0% YoY to ¥858m, translating into a net margin of 11.24%. The DuPont decomposition indicates ROE of 6.25%, driven by modest asset turnover (0.479x) and low financial leverage (1.16x), highlighting a balance sheet-first posture rather than leverage-driven returns. Liquidity is very strong with a current ratio of 6.26x and quick ratio of 4.29x, supported by sizeable working capital of ¥10,427m. Solvency is robust with total liabilities at only ¥2,026m against equity of ¥13,734m, implying a low debt-to-equity of 0.15x. Although the dataset reports an equity ratio of 0.0%, the balance sheet implies an equity ratio near 86%, suggesting the 0.0% is an unreported placeholder. Despite earnings strength, operating cash flow was negative at -¥837m, resulting in an OCF/Net Income ratio of -0.98, indicating weak cash conversion likely due to working capital build (especially inventories at ¥3,908m). Investing cash flow is shown as 0 and cash and equivalents as 0, both likely unreported rather than true zeros; thus, free cash flow cannot be reliably assessed from the provided figures. Financing cash flow of -¥879m suggests outflows (potentially dividends or buybacks), but the reported DPS and payout ratios are 0.00, which likely reflect non-disclosure rather than actual zeros. Effective tax rate shown as 0.0% is inconsistent with the disclosed tax expense; using ordinary income as a proxy, the implied tax rate is approximately 24–25%, typical for Japan. Overall, the company demonstrates strong margin execution and disciplined cost control in a softer top-line environment. The principal near-term concern is the cash flow shortfall versus profits and the inventory level that may be absorbing cash. The balance sheet strength provides a cushion to manage working capital normalization or demand volatility. Near-term monitoring should focus on revenue trajectory, inventory turnover, and operating cash flow recovery in the second half. Data limitations (notably zero placeholders for key cash and equity metrics) constrain precision, but the available non-zero datapoints support a view of improving profitability on a very solid capital base.

Profitability Analysis

ROE of 6.25% decomposes into net margin of 11.24%, asset turnover of 0.479x, and financial leverage of 1.16x. Margin quality improved: operating margin is approximately 15.0% (¥1,148m/¥7,635m), up YoY given operating income rose 22.4% despite a 6.2% revenue decline. Gross margin at 30.5% indicates healthy pricing/mix and cost management, with EBITDA margin at 15.6% (¥1,189m/¥7,635m). Operating leverage appears positive: a mid-single-digit decline in revenue yielded double-digit operating income growth, implying fixed cost absorption and efficiency gains. Non-operating items were modest; ordinary income of ¥1,227m is close to operating income, with negligible reported interest expense (likely a non-disclosed small value), indicating earnings are primarily operational. The implied effective tax rate, using ordinary income as a proxy, is roughly 24–25% (¥300m/¥1,227m), consistent with norms. Overall, profitability is driven by margin expansion and tight opex control rather than asset intensity or leverage.

Growth Assessment

Revenue declined 6.2% YoY to ¥7,635m, signaling softer end-market demand or product mix shifts. Despite this, operating income grew 22.4% YoY and net income 24.0% YoY, pointing to quality of earnings improvement via cost discipline and mix. Sustainability hinges on whether the company can stabilize or re-accelerate the top line without sacrificing margins. The current margin profile (gross 30.5%, operating ~15.0%, net 11.24%) suggests headroom if demand normalizes, but upside may be capped if revenue pressures persist. The negative OCF against positive earnings indicates growth is not yet cash-backed, likely due to working capital investment, particularly inventories (¥3,908m, about 31.5% of current assets). If inventory converts to sales in H2, cash generation should improve, supporting sustainable growth. Without disclosed backlog/order trends, we infer that operational efficiency drove profit growth; enduring earnings quality will depend on maintaining gross margin while reducing inventory. Outlook: cautiously constructive on profitability resilience with near-term revenue uncertainty and a need for cash conversion to catch up.

Financial Health

Liquidity is very strong: current ratio 625.6% (12,411/1,984) and quick ratio 428.6% reflect ample short-term coverage. Working capital stands at ¥10,427m, providing significant flexibility to absorb demand swings. Solvency is robust: total liabilities of ¥2,026m versus equity of ¥13,734m yields a debt-to-equity of roughly 0.15x. Although the equity ratio is shown as 0.0%, balance sheet math implies approximately 86% (13,734/15,955), indicating a very conservative capital structure; the reported 0.0% appears to be an unreported placeholder. Interest burden is negligible (interest expense shown as 0; likely very low), and interest coverage is therefore not meaningful but effectively ample given operating earnings. The asset base is predominantly current assets (¥12,411m of ¥15,955m total), which enhances flexibility but raises the importance of inventory and receivables management.

Cash Flow Quality

Earnings quality is currently weak on a cash basis: OCF/Net Income is -0.98, as operating cash flow of -¥837m contrasts with net income of ¥858m. The gap likely stems from working capital outflows, with inventories at ¥3,908m suggesting cash tied up in stock; receivables and payables detail is not disclosed. Depreciation is modest at ¥41m, consistent with a relatively light capital intensity for a fabless/technology model. Investing cash flow is reported as 0 (likely undisclosed), so Free Cash Flow cannot be reliably computed from the provided data; the listed FCF of 0 should be treated as a placeholder. Financing cash flow of -¥879m indicates outflows (potentially dividends or buybacks or debt repayment), but specifics are not disclosed. Near-term cash flow quality hinges on working capital normalization, especially inventory turnover and collection of receivables, to bring OCF in line with earnings.

Dividend Sustainability

Dividend data are not disclosed in the provided set: Annual DPS 0.00, payout ratio 0.0%, and FCF coverage 0.00x appear to be placeholders rather than actuals. Financing cash outflow of -¥879m could imply shareholder returns, but the absence of share count and DPS data prevents quantification. With net income of ¥858m and a very strong balance sheet (implied equity ratio ~86%), the capacity to pay dividends exists, but sustainability should be assessed against cash generation rather than accounting earnings. Given OCF is currently negative, near-term dividend sustainability depends on H2 cash conversion and working capital release. Policy outlook cannot be inferred from the dataset; investors should refer to company guidance or past dividend policies once disclosed.

Risk Assessment

Business Risks:

• End-market cyclicality in semiconductors/embedded solutions leading to revenue volatility
• Customer concentration risk typical of specialized semiconductor/IP suppliers
• Inventory obsolescence risk amid fast product cycles and demand shifts
• Supply chain and lead-time risks affecting component availability and delivery schedules
• Pricing pressure from larger competitors and OEM bargaining power
• Currency fluctuations impacting competitiveness and margins on exports

Financial Risks:

• Negative operating cash flow despite positive earnings, indicating working capital strain
• High inventory balance tying up cash and risking write-downs if demand weakens
• Potential mismatch between shareholder returns (financing outflows) and current cash generation
• Limited interest expense disclosure complicates coverage analysis (though leverage is low)
• Data gaps (cash balance, investing CF) reduce visibility on liquidity runway and capex needs

Key Concerns:

• Sustained negative OCF would pressure liquidity despite a strong balance sheet
• Revenue decline (-6.2% YoY) may persist if end-market demand remains soft
• Inventory normalization trajectory is unclear, creating risk to margins and cash
• Reliance on margin management rather than growth to drive earnings may have limits

Investment Implications

Key Takeaways:

• Margins expanded materially (operating margin ~15%) despite a 6.2% revenue decline
• ROE of 6.25% is driven by margins, with low leverage (1.16x) and moderate asset turnover (0.479x)
• Balance sheet is very strong (implied equity ratio ~86%, current ratio 6.26x)
• Operating cash flow of -¥837m indicates weak cash conversion and working capital drag
• Financing outflows of -¥879m suggest capital returns or repayments despite negative OCF
• Data placeholders (equity ratio 0.0%, cash 0, DPS 0) constrain precision; focus on non-zero disclosed figures

Metrics to Watch:

• Operating cash flow and OCF/Net Income ratio
• Inventory turnover and overall working capital movements
• Gross and operating margins to gauge sustainability of cost/mix benefits
• Revenue trend and order intake/backlog (if disclosed) for demand visibility
• Capex and investing cash flows to assess true FCF
• Shareholder return policy disclosures (DPS, buybacks) and alignment with cash generation

Relative Positioning: Relative to domestic electronics/semiconductor peers, AXELL exhibits stronger balance sheet conservatism and improving margin discipline but lags on cash flow conversion in the period; future positioning depends on inventory normalization and top-line stabilization.

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