Foster Electric Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥66.65B
• Operating Income: ¥4.33B
• Net Income: ¥3.28B
• EPS: ¥117.34

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

Foster Electric Co., Ltd. (consolidated, JGAAP) delivered a solid FY2026 Q2 with profitability improvement despite flat top-line growth. Revenue was ¥66.7bn, up a modest +0.1% YoY, while operating income rose +19.5% YoY to ¥4.33bn, indicating meaningful margin expansion. Gross profit reached ¥11.91bn with a gross margin of 17.9%, and operating margin improved to approximately 6.5%, reflecting disciplined cost control and/or a favorable product mix. Net income increased +10.9% YoY to ¥2.62bn, translating into a net margin of 3.93%. On a DuPont basis, ROE was 3.74%, driven by a 3.93% net margin, 0.625x asset turnover, and 1.52x financial leverage—showing modest profitability on a relatively conservative balance sheet. Ordinary income of ¥3.86bn was below operating income due to non-operating costs, including ¥338m interest expense, but interest coverage remains comfortable at 12.8x (EBIT/interest). Operating cash flow of ¥2.70bn compares well with net income, yielding an OCF/NI ratio of 1.03, which supports earnings quality. Liquidity is strong with a current ratio of 245% and working capital of ¥49.2bn, underscoring ample short-term flexibility. Total liabilities of ¥38.1bn against equity of ¥70.0bn result in a low debt-to-equity of 0.54x, indicating modest financial risk. Although several items appear as zero (e.g., inventories, investing cash flow, cash and equivalents, equity ratio, share counts), these are unreported rather than true zeros; conclusions are therefore based only on disclosed non-zero metrics. The implied tax burden appears normal; using net income and income taxes suggests an indicative effective tax rate in the mid-20% range, despite the displayed 0.0% figure. EBITDA was ¥5.92bn (8.9% margin), providing additional buffer for debt service and investment. Free cash flow cannot be reliably calculated due to unreported investing cash flows; the displayed FCF and related coverages of 0 should be treated as not disclosed. Dividend per share for the period is shown as 0 with a 0% payout ratio, which may reflect timing of interim distributions rather than a definitive policy shift. Overall, Foster’s improved margins, positive operating leverage, and solid liquidity support a constructive fundamental profile, albeit with restrained ROE and limited visibility on capex/FCF due to disclosure gaps.

Profitability Analysis

ROE_decomposition: ROE 3.74% = Net margin 3.93% × Asset turnover 0.625 × Financial leverage 1.52. The low-to-mid single digit ROE is primarily constrained by modest net margins and moderate asset turnover. margin_quality: Gross margin 17.9% and operating margin ~6.5% reflect improved cost discipline and/or mix, given operating income grew +19.5% YoY on flat revenue. Net margin at 3.93% remains modest for the sector but is trending positively. operating_leverage: With revenue +0.1% YoY and operating income +19.5% YoY, operating leverage was positive this half. The delta implies SG&A efficiency and/or product mix benefits; sustaining this will be key as volumes evolve.

Growth Assessment

revenue_sustainability: Top-line growth was essentially flat at +0.1% YoY, suggesting subdued end-demand or product transition effects. Sustainability hinges on shipment volumes in core acoustics segments and customer program ramps. profit_quality: Net margin expansion alongside a 1.03x OCF/NI ratio supports the quality of earnings. Ordinary income trails operating income due to non-operating expenses, but interest burden is manageable. outlook: Absent explicit guidance, the trajectory appears to rely on mix/efficiency rather than volume growth near term. Key swing factors include demand from major consumer electronics customers, automotive audio content, and currency effects. Continuation of cost control could preserve margin gains even with modest sales growth.

Financial Health

liquidity: Current assets ¥83.0bn vs current liabilities ¥33.9bn yield a current ratio of 245% and working capital of ¥49.2bn. The quick ratio is shown equal to the current ratio due to unreported inventories; liquidity nonetheless appears strong. solvency: Debt-to-equity is 0.54x based on total liabilities to equity (¥38.1bn/¥70.0bn). Interest coverage is 12.8x (EBIT/interest), indicating comfortable debt service capacity. capital_structure: Assets ¥106.6bn and equity ¥70.0bn imply leverage of 1.52x (Assets/Equity). While the equity ratio is displayed as 0.0% (unreported), the implied equity ratio is approximately 65–66% based on disclosed totals, evidencing a conservative balance sheet.

Cash Flow Quality

earnings_quality: Operating cash flow of ¥2.70bn versus net income of ¥2.62bn results in OCF/NI of 1.03, indicating earnings are broadly cash-backed in the period. FCF_analysis: Free cash flow cannot be determined as investing cash flow is unreported (displayed as 0 indicates not disclosed). Capex intensity and investment requirements therefore remain unclear. working_capital: Working capital is ample at ¥49.2bn. However, the composition (receivables, inventories, payables) is not fully visible due to unreported inventories, limiting analysis of cash conversion dynamics.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is shown as 0 and payout ratio at 0%, which likely reflects lack of disclosure for the interim period rather than a confirmed suspension. FCF_coverage: FCF coverage cannot be assessed because FCF is not computable without investing cash flows. On an earnings basis, coverage would likely be manageable given modest payout requirements if reinstated. policy_outlook: With improving profitability and strong liquidity, the company appears positioned to fund dividends if policy supports it; however, visibility is limited due to missing cash and capex data and the interim nature of the report.

Risk Assessment

Business Risks:

• Customer concentration with major consumer electronics OEMs affecting volume and pricing
• End-market cyclicality in smartphones, headsets, and audio peripherals
• Competitive price pressure in acoustic components and modules
• Product mix volatility impacting margins
• Supply chain and manufacturing concentration risk (including China exposure)
• Technology transition risk (e.g., acoustic architecture shifts, ANC/AI feature adoption)

Financial Risks:

• Foreign exchange fluctuations (USD, CNY, EUR vs JPY) impacting revenue and costs
• Working capital swings affecting operating cash flow
• Interest rate risk on floating-rate borrowings (degree unknown)
• Capex visibility risk due to unreported investing cash flows
• Potential impairment risk if demand weakens in key programs

Key Concerns:

• Flat revenue growth implies reliance on cost/mix to drive earnings
• Limited disclosure on cash, capex, and inventories constrains FCF assessment
• ROE at 3.74% remains below typical cost of equity thresholds, requiring further improvement

Investment Implications

Key Takeaways:

• Profitability improved meaningfully on flat sales, indicating positive operating leverage
• ROE of 3.74% is restrained by modest margins and asset turnover despite conservative leverage
• Strong liquidity and low leverage provide resilience and strategic flexibility
• Earnings quality is acceptable with OCF/NI at 1.03x
• Visibility on FCF and capital intensity is limited due to unreported investing cash flows

Metrics to Watch:

• Revenue growth trajectory and program wins in core audio segments
• Gross and operating margin sustainability (pricing, mix, cost control)
• Operating cash flow and working capital turns (DSO/DPO/DIO when disclosed)
• Capex and investing cash flows to gauge FCF and capital allocation capacity
• FX impact on margins and competitiveness
• Interest coverage and any changes in interest-bearing debt

Relative Positioning: Within Japan-listed electronic component peers, Foster exhibits conservative leverage and solid liquidity, with mid-tier profitability that improved this period; sustaining margin gains and converting them into consistent free cash flow will be key to narrowing the gap with higher-ROE competitors.

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