Meiko Electronics Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥111.49B
• Operating Income: ¥11.42B
• Net Income: ¥9.48B
• EPS: ¥359.99

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: FY2026 Q2 was a solid beat on profitability with healthy earnings quality, driven by operating leverage and tight cost control despite only moderate balance-sheet liquidity. Revenue grew 13.6% YoY to 1,114.9, and operating income rose 22.9% YoY to 114.2, implying margin expansion. Net income increased 48.3% YoY to 93.9, benefiting from stronger operating performance and a manageable tax rate (21%). Gross margin printed at 20.7%, and operating margin at 10.3%, indicating improved cost absorption and scale benefits. Using the given growth rates, we estimate operating margin expanded by about 78 bps YoY (from ~9.47% to 10.25%). Net margin expanded by roughly 198 bps YoY (from ~6.45% to 8.43%), reflecting both operating leverage and lower non-operating drag. Earnings quality was strong: operating cash flow of 134.8 exceeded net income by 1.43x, indicating healthy cash conversion. That said, free cash flow was negative on our proxy (OCF minus capex = approximately -118.8) due to heavy capital expenditures of 253.5, funded by substantial financing inflows (310.6). Liquidity improved only modestly; the current ratio is 117.6% and quick ratio 107.7%, adequate but below best-practice comfort (>150%). Leverage sits near the conservative threshold with D/E at 1.45x, while interest coverage is strong at 13.45x, limiting near-term solvency concerns. ROE is 7.6% (DuPont: 8.4% NPM × 0.368x ATO × 2.45x leverage), respectable but ROIC at 4.9% is below the 5% warning threshold, signaling capital efficiency pressure amid a capex-heavy phase. Non-operating items were broadly neutral (non-op income 9.5 vs non-op expense 10.1), and effective tax rate was consistent at 21.0%. Balance sheet equity is 1,236.9 (approx. 40.8% equity ratio) with moderate goodwill/intangibles (99.6 total). Forward-looking, momentum in operating margin and cash conversion supports earnings resilience, but the capex cycle implies continued reliance on financing until incremental returns lift ROIC above cost of capital. Key watchpoints are capacity ramp execution, demand normalization in end markets (notably autos/industrial), and maintaining OCF strength to turn FCF positive. Overall, the quarter marks a step-up in profitability with credible cash quality, tempered by capital efficiency and liquidity considerations tied to ongoing investment.

Profitability Analysis

ROE decomposition: 7.6% ROE = 8.4% Net Profit Margin × 0.368 Asset Turnover × 2.45x Financial Leverage. The largest positive change appears to be in net profit margin, inferred from net income growth (+48.3% YoY) outpacing revenue (+13.6% YoY), while asset turnover and leverage likely changed less within the half-year. Operating leverage drove the margin gains: operating margin expanded by an estimated ~78 bps YoY (to 10.25%), aided by SG&A discipline (SG&A at 10.4% of sales) and improved gross profit capture. Non-operating items were essentially neutral QoQ/YTD, so the margin uplift is primarily operating in nature. Sustainability: operating margin improvement appears partly structural (scale benefits and cost control) but could be partly cyclical given PCB demand sensitivity; persistence will depend on utilization and mix. Watch for potential SG&A creep as growth continues; we do not have SG&A YoY growth disclosure to confirm operating leverage durability. Asset turnover at 0.368 remains modest for a manufacturer given the sizable asset base; continued capex near-term may dilute ATO before new capacity ramps, which could pressure ROE unless margins continue to improve. Financial leverage at 2.45x supports ROE, but with D/E at 1.45x, incremental leverage headroom is limited without higher cash generation.

Growth Assessment

Revenue grew 13.6% YoY to 1,114.9, with operating income up 22.9% and net income up 48.3%, indicating strong operating leverage. Gross profit of 230.3 and EBITDA of 178.3 (16.0% margin) show improved scale efficiency. The improvement in operating and net margins (estimated +78 bps and +198 bps, respectively) suggests better mix/pricing or utilization. Non-operating items (interest income 3.5 vs interest expense 8.5) were a mild net drag but outweighed by operating gains. Revenue sustainability will hinge on end-market demand (notably auto/industrial electronics), where unit growth and content gains support medium-term trends but remain cyclical. Profit quality is supported by OCF > NI (1.43x), indicating real cash earnings. Outlook: near-term growth should be underpinned by capacity and margin improvements, but heavy capex implies a lag before ROIC accretion; we expect growth normalization as utilization stabilizes and depreciation rises.

Financial Health

Liquidity: current ratio 117.6% and quick ratio 107.7%—adequate but below the >150% comfort benchmark; no warning trigger (<1.0) breached. Solvency: D/E at 1.45x sits at the conservative upper bound; interest coverage is strong at 13.45x, mitigating near-term risk. Equity ratio estimated at ~40.8% (1,236.95 / 3,032.96), a solid capital buffer. Maturity profile/mismatch: short-term loans of 455 are sizeable versus cash of 387 and receivables of 511; however, current assets of 1,397 exceed current liabilities of 1,188, implying manageable roll-over risk. Long-term loans are 553, indicating a balanced funding mix for capex. No off-balance sheet obligations were disclosed in the provided data. Explicit warnings: none for current ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

OCF/NI is 1.43x, indicating high-quality earnings and solid cash conversion. Free cash flow proxy (OCF - Capex) is approximately -118.8 due to elevated capex of 253.5, implying cash outflows for growth investment. Financing cash inflow of 310.6 highlights reliance on debt/equity funding to bridge negative FCF in this investment phase. Working capital appears disciplined: AR 511 and AP 343 with inventories 118 suggest no obvious build-up beyond supporting growth; OCF strength indicates limited working-capital drag in the period. We see no signs of working-capital manipulation from the disclosed figures. Sustainability: if OCF remains robust and capex normalizes post-ramp, FCF should turn positive; near-term, dividends and capex will require ongoing internal cash plus financing.

Dividend Sustainability

The calculated payout ratio is 25.1%, comfortably below the 60% benchmark, indicating room for distribution within earnings capacity. However, FCF was negative this period on our proxy, reflecting heavy capex, so cash coverage of dividends likely depends on the balance sheet and financing until capex normalizes. With interest coverage at 13.45x and equity ratio ~41%, capacity exists to maintain a modest dividend. Policy outlook: given investment needs and ROIC at 4.9% (<5% warning), management may prioritize reinvestment over aggressive payout increases until returns improve. Specific DPS amounts and total dividends paid were not disclosed; assessment is based on payout ratio and cash flow proxies.

Risk Assessment

Business Risks:

• Cyclical demand in key PCB end-markets (automotive/industrial), risking utilization and pricing.
• Execution risk on capacity expansion; delays could depress ROIC and asset turnover.
• Customer concentration and pricing pressure typical in PCB supply chains.
• Product mix and yield variability affecting gross margin.
• FX volatility (JPY) impacting both competitiveness and translation.

Financial Risks:

• Negative FCF due to elevated capex, necessitating continued external financing.
• Leverage at the conservative upper bound (D/E 1.45x) with sizable short-term loans (455).
• Interest rate risk on floating-rate debt given the funding profile.
• Potential liquidity tightness if OCF softens, given current ratio only 117.6%.

Key Concerns:

• ROIC at 4.9% below the 5% threshold, signaling capital efficiency pressure.
• Sustaining margin gains as utilization normalizes and depreciation increases.
• Dependence on maintaining OCF strength to offset negative FCF in the capex phase.
• Limited disclosure on investing cash flows and dividend amounts restricts visibility.

Investment Implications

Key Takeaways:

• Profitability inflected positively with estimated +78 bps operating and +198 bps net margin expansion.
• Cash earnings quality is strong (OCF/NI 1.43x), supporting the credibility of profit growth.
• FCF negative due to heavy capex; expansion likely to weigh on near-term cash returns.
• Leverage and liquidity are manageable but close to thresholds; monitoring refinancing and OCF is key.
• ROE is decent at 7.6%, but ROIC at 4.9% highlights the need for better capital productivity.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales.
• OCF and FCF progression as capex rolls off.
• Asset turnover and ROIC uplift from new capacity utilization.
• Net debt and short-term debt refinancing profile; interest coverage.
• End-market indicators (auto electronics build rates, ASPs) and FX.

Relative Positioning: Within Japanese PCB/electronics peers, the company shows improving profitability and strong cash conversion but remains mid-pack on capital efficiency given sub-5% ROIC and negative FCF during a capex upcycle. Balance sheet strength is adequate, though less conservative than top-tier peers with higher equity ratios and positive FCF.

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