Hosiden Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥245.43B
• Operating Income: ¥8.10B
• Net Income: ¥6.11B
• EPS: ¥120.03

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: A topline surge with significant margin compression; earnings grew modestly aided by non-operating income and solid cost control, while cash conversion was adequate but not stellar. Revenue rose 111.3% YoY to 2,454.26, yet operating income increased only 1.6% to 80.98, highlighting pronounced dilution in operating profitability. Gross profit reached 128.74, implying a 5.2% gross margin, while operating margin settled at roughly 3.3%. Ordinary income jumped 51.2% to 95.88, reflecting a larger contribution from non-operating items (non-operating income 15.17, or about 24.8% of operating income). Net income rose 38.0% to 61.08, with an effective tax rate of 30.7% and EPS (basic) of 120.03 yen. Balance sheet strength is evident: cash and deposits stood at 580.35 and working capital at 1,289.56, driving a current ratio of 334%. Leverage is conservative with a D/E ratio of 0.49x and interest coverage at a robust 404.9x. Operating cash flow was 55.94 versus net income of 61.08, yielding an OCF/NI of 0.92x—acceptable but below the ideal >1.0 threshold. Capital expenditures were 30.23; on a minimum basis, FCF approximates 25.7 (OCF minus capex), though full investing CF details are unreported. ROE calculated at 4.3% (Net Margin 2.5% × Asset Turnover 1.152 × Leverage 1.49x) remains modest, while ROIC at 6.5% is below the typical 7–8% management target range. Margins compressed materially: estimated operating margin fell from ~6.9% to ~3.3% (roughly -350 bps) despite the revenue spike. Net margin likely compressed from ~3.8% to ~2.5% (about -130 bps), implying mix and pricing pressure or elevated cost of sales. Non-operating income (interest and dividends) supported ordinary profit, cushioning the margin squeeze at the operating level. Liquidity and solvency are strong, but earnings quality bears watching given OCF/NI <1 and the step-up in non-operating reliance. Forward-looking, the key is whether gross margin can normalize and operating leverage reappear; without that, sustaining ROE expansion above mid-single digits will be difficult.

Profitability Analysis

ROE decomposition: ROE 4.3% = Net Profit Margin (2.5%) × Asset Turnover (1.152) × Financial Leverage (1.49x). The most notable change vs. implied prior period is net margin compression, as revenue more than doubled while operating income grew only slightly. Business drivers likely include lower pricing/mix in core components, pass-through dynamics where cost increases were not fully recovered, and possibly higher COGS tied to the sales surge. Non-operating income (interest 4.12, dividends 0.98, and others) helped ordinary income, but does not remedy core operating margin pressure. Asset turnover appears healthy at 1.152, suggesting better utilization of the asset base amid the sales spike; leverage is low at 1.49x and not a major ROE driver. Sustainability: margin pressure may ease if input costs normalize and product mix improves, but absent evidence of pricing power, the improvement is not assured. Watch for SG&A discipline—SG&A at 47.75 is contained relative to gross profit, yet top-line growth far outpaced operating profit, indicating limited operating leverage. A concerning trend is the dependence on non-operating income (24.8% of operating income), which may be less stable than recurring operating earnings.

Growth Assessment

Revenue growth of 111.3% YoY is exceptional, but its sustainability is uncertain given the simultaneous compression in gross and operating margins. Operating income increased only 1.6% YoY, indicating that the growth was likely driven by high-volume, low-margin business or temporary demand spikes. Ordinary income growth (+51.2%) benefited from non-operating income, not from core operating improvement. Net income +38.0% outpaced operating income due to the same non-operating tailwinds and a manageable tax rate. The EBITDA margin is 4.2%, which, alongside a 5.2% gross margin, implies limited pricing power in the current mix. Outlook hinges on margin normalization, cost pass-through, and product mix upgrade; without those, future profit growth may trail revenue growth. Near-term, monitoring order visibility and ASP trends is critical to assess whether the extraordinary revenue level is durable.

Financial Health

Liquidity is very strong: current ratio 334.4% and quick ratio 321.5%, with cash and deposits of 580.35 comfortably exceeding short-term loans of 10.50. No warnings: Current Ratio >> 1.0 and D/E of 0.49x is well below the 2.0 threshold. Interest coverage is extremely high at 404.9x, indicating negligible near-term solvency risk. Maturity mismatch risk appears low: current assets (1,839.61) comfortably cover current liabilities (550.05), and accounts payable (440.56) is substantially funded by cash and receivables (608.46). Noncurrent liabilities are modest at 151.42; long-term loan details are unreported but overall leverage is conservative. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF/Net Income at 0.92x is slightly below the >1.0 benchmark, a mild quality caution but not alarming. Working capital appears manageable: receivables (608.46) vs. payables (440.56) and low inventories (71.23) suggest limited inventory build risk; however, detailed working capital drivers are not disclosed. Minimum FCF (OCF - capex) is approximately 25.7, indicating internal funding capacity for maintenance capex but leaving less room for both higher capex and dividends if either steps up. No obvious signs of working capital manipulation are evident from the limited disclosure, but the divergence between sales growth and operating profit suggests tight margins rather than accrual-driven earnings inflation.

Dividend Sustainability

The payout ratio is calculated at 58.1%, near the upper bound of the sustainable range (<60%) based on net income of 61.08. Estimated dividends implied by this payout approximate 35.5. Against a minimum FCF estimate of ~25.7, dividend coverage looks tight if we assume no additional investing inflows; however, full investing cash flows and actual dividend payments are unreported. With strong liquidity (cash 580.35) and low leverage, near-term dividends are supportable, but long-term sustainability depends on restoring operating margins and maintaining positive FCF after capex. Policy outlook: without disclosed DPS guidance, assume a conservative stance tied to earnings; if margins remain compressed, management may prioritize balance sheet strength and selective reinvestment over aggressive payout increases.

Risk Assessment

Business Risks:

• Margin compression risk: operating margin declined to ~3.3% despite >100% revenue growth.
• Pricing/mix pressure in core components limiting gross margin (5.2%).
• Dependence on non-operating income (24.8% of operating income) to support ordinary profit.
• Demand volatility risk if the revenue surge reflects temporary orders or a single program.
• Supply chain and input cost volatility impacting COGS.

Financial Risks:

• OCF/NI at 0.92x slightly below ideal indicates moderate earnings quality risk.
• Dividend coverage appears tight versus minimum FCF if capex remains at current levels.
• FX exposure: potential translation/transaction impacts on margins and non-operating income (interest/dividend flows).

Key Concerns:

• ROE at 4.3% and ROIC at 6.5% below typical targets, limiting value creation.
• Operating leverage absent despite revenue doubling, pointing to structural margin limits.
• Limited disclosure on investing CF and DPS, constraining full cash return assessment.

Investment Implications

Key Takeaways:

• Topline more than doubled, but operating profit barely grew—evidence of significant margin dilution.
• Ordinary profit and net profit were supported by non-operating income; core profitability needs improvement.
• Balance sheet is strong with ample liquidity and low leverage, providing resilience.
• ROE (4.3%) and ROIC (6.5%) remain subdued; improving margins is essential for better capital returns.
• Cash conversion is adequate but below best practice (OCF/NI 0.92x); dividend coverage versus minimum FCF looks tight.

Metrics to Watch:

• Gross and operating margin trajectory (bps changes QoQ/YoY).
• Order visibility and ASP trends to gauge sustainability of the sales surge.
• Non-operating income components and volatility (interest/dividend/others).
• Working capital turns: AR and inventory levels relative to sales.
• Capex plans and full investing cash flows to refine FCF and dividend coverage.
• ROIC versus internal targets and cost of capital.

Relative Positioning: Within Japanese electronic component peers, Hosiden currently shows exceptional sales momentum but weaker price/mix and profitability, offset by a very conservative balance sheet; improving margin quality is needed to close the return gap with higher-ROIC 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