HOCHIKI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥48.59B
• Operating Income: ¥4.31B
• Net Income: ¥3.01B
• EPS: ¥121.25

Income Statement

Balance Sheet

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 FY2026 Q2 with double-digit profit growth and clear operating margin expansion, underpinned by disciplined cost control and minimal reliance on non-operating gains. Revenue rose 6.7% YoY to 485.94, while operating income climbed 27.5% YoY to 43.06, and net income increased 32.0% YoY to 30.15. Gross margin stood at 38.0% (184.70/485.94), reflecting healthy project pricing and input cost management. Operating margin improved to 8.86% (43.06/485.94). Using reported growth rates, last year’s operating margin is estimated at 7.43%, indicating a margin expansion of roughly 143 bps YoY. Net margin improved to 6.21%, up from an estimated ~5.02% a year earlier (~119 bps expansion), aided by operating leverage and a stable effective tax rate of 31.2%. Ordinary income rose 30.1% to 43.75, with non-operating income modest at 1.30 (non-operating income ratio ~4.3%), signaling that earnings quality is driven primarily by core operations. The DuPont profile shows ROE of 4.9% = 6.2% net margin × 0.565 asset turnover × 1.39x leverage; improvement vs last year is mainly margin-led. Liquidity is very strong: current ratio 366.8% and cash/deposits of 222.72 against current liabilities of 170.25, reducing short-term refinancing risk. The balance sheet is conservative, with an estimated equity-to-asset ratio of ~71.8% (our calculation; XBRL not provided), and interest coverage is extremely robust at 307.6x. Working capital is ample (454.16), though receivables are sizable at 212.09, and inventories were unreported, limiting full WC analysis. Cash flow data were not disclosed this quarter, so we cannot validate the conversion of earnings into cash (OCF/NI not calculable), which is a key watchpoint. The indicated payout ratio is 70%, somewhat above the 60% benchmark for comfort; however, the strong cash position provides near-term cushion. Forward-looking, sustained operating margin discipline and receivable collection will be pivotal to maintain ROE above 5% and support the dividend. Overall, the quarter demonstrates healthy core profitability with prudent leverage, but cash flow disclosure and payout alignment with FCF merit attention.

Profitability Analysis

ROE is 4.9%, decomposed as Net Profit Margin (6.2%) × Asset Turnover (0.565) × Financial Leverage (1.39x). The most notable change versus last year is operating and net margin expansion, with operating margin rising from an estimated ~7.43% to 8.86% (+143 bps) and net margin from ~5.02% to 6.21% (+119 bps). This improvement likely reflects better gross margin (now 38.0%) and operating leverage as revenue grew 6.7% while operating income grew 27.5%. Asset turnover at 0.565 remains moderate, consistent with project-based businesses with sizable working capital; leverage at 1.39x indicates a conservative capital structure, so ROE uplift is predominantly margin-driven rather than leverage-driven. Sustainability: margin gains appear supported by core operations (minimal non-operating contribution: 1.30 in non-op income), suggesting persistence if cost discipline and pricing hold. Watch for SG&A intensity: SG&A ratio is 29.15% (141.64/485.94); we lack YoY SG&A to confirm whether SG&A growth exceeded revenue growth, but the operating leverage suggests SG&A was contained relative to sales. Effective tax rate of 31.2% is within a normal range and unlikely to be a major swing factor. Overall, ROE could trend higher if asset turnover improves via faster collections and if the company maintains the current gross margin.

Growth Assessment

Top-line grew 6.7% YoY to 485.94, a steady pace suggesting healthy demand and timely project deliveries. Operating income outpaced sales at +27.5% YoY, indicating favorable mix and cost discipline. Ordinary income (+30.1%) and net income (+32.0%) outperformance versus revenue confirms operating leverage. Non-operating items are small (1.30 income vs 0.60 expenses), so growth was not reliant on one-offs. With gross margin at 38.0% and operating margin at 8.86%, profitability quality improved. Given receivables at 212.09 (indicative DSO around ~80 days using half-year sales), growth sustainability will depend on maintaining collection velocity and avoiding backlog slippage; inventories unreported limits a fuller view. No segment breakout was provided, so we cannot attribute growth to specific product or region. Outlook hinges on continued demand for safety systems and execution on installations; absent cash flow disclosure, we remain cautious on growth-to-cash conversion. Key sensitivities include input costs, labor availability, and project timing.

Financial Health

Liquidity is very strong: current ratio 366.8% and quick ratio 366.8%, with cash and deposits of 222.72 covering 131% of current liabilities (170.25). There is no warning under our thresholds (Current Ratio < 1.0: not triggered; D/E > 2.0: not triggered). Balance sheet is conservative: total liabilities 242.33 vs total equity 618.41; our calculated equity ratio is ~71.8% (not from XBRL). Interest coverage is 307.6x, indicating minimal refinancing/stress risk. Maturity mismatch risk appears low given high cash and receivables (212.09) relative to current liabilities; short-term debt was unreported, but accounts payable are modest at 35.70. Noncurrent liabilities are 72.07, manageable versus noncurrent assets of 236.33. Off-balance sheet obligations were not disclosed; absence of lease and guarantee detail is a limitation. Overall solvency and liquidity positions are robust.

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income cannot be assessed and FCF cannot be calculated—this is a key limitation. Without OCF, we cannot verify cash conversion of earnings; however, receivables are sizable (212.09), suggesting some working capital tie-up typical for project businesses. Indicative DSO is roughly ~80 days based on half-year sales, within a reasonable range but still a watchpoint. Inventories were unreported, preventing an assessment of inventory build/consumption. Capex, dividends paid, and share repurchases were unreported; therefore, we cannot judge whether FCF covers shareholder returns and growth investments. We see no explicit signs of working capital manipulation from the disclosed balances, but lack of OCF and inventory data constrains conclusions.

Dividend Sustainability

The calculated payout ratio is 70.0%, above the <60% comfort benchmark, implying limited buffer if earnings normalize. FCF coverage cannot be assessed due to unreported OCF and capex. Near-term capacity to pay appears supported by the strong cash position (222.72) and low leverage, but sustainability depends on continued earnings momentum and cash conversion. Dividend policy details and DPS were unreported; clarity on policy (payout vs DOE vs progressive) would aid assessment. Until OCF is disclosed, we treat the payout as mildly elevated but manageable given the balance sheet.

Risk Assessment

Business Risks:

• Project timing and acceptance risk impacting quarterly revenue recognition and margins
• Input cost inflation and subcontractor cost pressures that could compress gross margin
• Supply chain constraints for electronic components affecting delivery schedules
• Concentration in building/commercial installation cycles and public procurement timing
• Execution risk on large projects leading to potential cost overruns

Financial Risks:

• Cash flow visibility risk due to unreported OCF and capex in the period
• Working capital intensity with sizable receivables (212.09) increasing collection risk
• Potential currency exposure on imported components (degree unreported)
• Dividend payout (70%) above comfort benchmark without FCF confirmation

Key Concerns:

• Lack of cash flow disclosure prevents validation of earnings quality
• Elevated payout ratio vs typical sustainability thresholds
• Inventories and debt details unreported, limiting full leverage and WC assessment
• Reliance on continued margin discipline to sustain improved ROE

Investment Implications

Key Takeaways:

• Core-led profit beat: operating income +27.5% on revenue +6.7% with 143 bps OPM expansion
• ROE at 4.9% is margin-driven; leverage remains conservative at 1.39x
• Balance sheet is strong with an estimated ~71.8% equity ratio and 307.6x interest cover
• Receivables are sizable; cash conversion needs verification once OCF is disclosed
• Payout ratio at 70% is on the high side absent FCF visibility

Metrics to Watch:

• Operating cash flow and OCF/Net Income ratio (target ≥1.0)
• Order backlog and book-to-bill to gauge revenue sustainability
• Gross margin and SG&A ratio to confirm operating leverage persistence
• Receivable days and collection trends; inventory days once disclosed
• Capex and FCF coverage of dividends; clarity on dividend policy

Relative Positioning: Within capital goods/installation peers, the company exhibits stronger-than-average liquidity and solvency, improving operating margins, and conservative leverage, albeit with less clarity on cash conversion this quarter and a relatively high indicated payout ratio.

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