NEW COSMOS ELECTRIC CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.63B
• Operating Income: ¥4.02B
• Net Income: ¥2.95B
• EPS: ¥220.24

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: A solid FY2026 Q2 with strong top-line growth and robust cash conversion, albeit with slight operating margin compression but notable net margin expansion. Revenue rose 21.9% YoY to 246.34, with operating income up 19.2% to 40.18 and net income up 33.6% to 27.16, indicating effective cost control below the operating line. Gross profit reached 115.15 for a gross margin of 46.7%, consistent with a high value-add product mix. Operating margin was 16.3% this quarter versus an estimated 16.7% in the prior year period, implying a roughly 36 bps compression as SG&A likely grew slightly faster than gross profit. Ordinary income of 40.04 (up 18.0% YoY) reflects net non-operating losses of about 0.14, as dividend and interest income were offset by non-operating expenses. Net profit margin improved to 11.0% from an estimated 10.1% last year, a ~97 bps expansion, aided by a normalized tax rate (26.4%) and low interest burden. Cash generation was strong: operating cash flow of 41.14 exceeded net income (OCF/NI 1.51x), supporting reinvestment and buybacks without stressing the balance sheet. Capital expenditures were modest at 6.85, underscoring disciplined growth investment and supporting an implied positive FCF. The balance sheet remains very conservative with cash and deposits of 210.88, current ratio at 461.8%, and debt-to-equity at 0.31x. Interest coverage is exceptionally high at 230.7x, reflecting minimal financial risk. ROE is 5.1% (DuPont: 11.0% margin × 0.354 asset turnover × 1.31x leverage), indicating value creation with room to improve via asset efficiency. Reported ROIC of 8.3% is at target or slightly above typical industrial benchmarks, suggesting disciplined capital allocation. Shareholder returns appear prudent, with a calculated payout ratio of 27.7% and share repurchases of 6.08 during the period. Earnings quality is high given OCF outpaced net income and limited reliance on non-operating gains. Forward-looking, sustaining double-digit growth will hinge on demand momentum, mix, and supply chain stability, while maintaining margin resilience amid potential input cost and FX volatility.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 11.0% × Asset Turnover 0.354 × Financial Leverage 1.31x = ROE 5.1%. The most notable YoY change at the P&L level is net margin expansion (+97 bps) despite mild operating margin compression (-36 bps), implying improved below-OP performance (lower net non-operating drag and manageable tax rate). Operating income grew 19.2% versus revenue growth of 21.9%, pointing to slightly negative operating leverage in the quarter, likely due to higher SG&A ratio (SG&A/Revenue = 30.4%). Business drivers likely include growth investments (sales, service, and product development) and inflationary pressures in personnel/logistics that outpaced gross profit growth, while financial items remained benign (interest expense 0.17, largely offset by dividend/interest income 1.00). Sustainability: the net margin uplift appears supported by a normalized effective tax rate (26.4%) and structurally low interest costs, which is sustainable, while operating margin could recover with pricing/mix and cost discipline as growth normalizes. Asset efficiency (AT 0.354) and low leverage (1.31x) keep ROE modest; incremental improvement requires better turnover (orders-to-revenue conversion, inventory turns) rather than leverage. Watch for any trend where SG&A growth outpaces revenue; this quarter’s slight OP margin compression is a caution flag but not yet concerning.

Growth Assessment

Top-line momentum is strong with revenue up 21.9% YoY to 246.34, suggesting healthy demand in core gas detection products and/or favorable mix. Operating income growth of 19.2% indicates near-commensurate scaling but slight pressure from opex. Net income rose faster at 33.6%, benefiting from lower net non-operating drag and an in-line tax rate, improving overall earnings leverage at the bottom line. Gross margin at 46.7% remains robust, consistent with differentiated products and after-sales/service mix. Sustainability: growth durability will depend on order inflows, FX tailwinds, and execution on supply chain and component availability; these data points are not disclosed here, so visibility is moderate. Non-operating contributions are small and not a key driver, which enhances quality of growth. With ROIC at 8.3%, incremental investment appears value-accretive, provided growth persists. Outlook: near term, expect continued revenue growth to support earnings, with scope to stabilize or improve operating margin if SG&A efficiency measures gain traction and pricing offsets cost inflation.

Financial Health

Liquidity is very strong: current ratio 461.8% and quick ratio 431.5%, well above benchmarks; no warning thresholds are breached. Cash and deposits of 210.88 cover short-term loans (0.50) many times over, indicating no maturity mismatch risk; current liabilities are 96.52 versus current assets 445.76. Solvency is conservative with total liabilities 165.25 against equity 530.25 (D/E 0.31x). Long-term loans total 35.83 and are easily serviceable given negligible interest expense (0.17) and very high interest coverage (230.7x). No off-balance sheet obligations are reported in the provided data. Overall balance sheet resilience is high, with ample working capital (349.24) and investment securities of 85.97 providing additional financial flexibility.

Cash Flow Quality

Earnings quality is high: OCF/Net Income is 1.51x (>1.0 benchmark), indicating strong cash conversion. Implied free cash flow is positive at approximately 34.29 (OCF 41.14 minus Capex 6.85), supporting internal funding of growth and shareholder returns. Financing cash outflows of -19.16 include share repurchases of -6.08; dividends are unreported, but the calculated payout ratio (27.7%) suggests likely cash dividends were comfortably covered by implied FCF. Working capital details for the period are not disclosed, but balance sheet composition (receivables 76.80, inventories 29.23, payables 25.22) suggests a healthy net working capital position; no signs of aggressive working capital manipulation are evident from available data. Overall, cash flow quality supports sustainability of current earnings and reinvestment.

Dividend Sustainability

The calculated payout ratio is 27.7%, comfortably below the 60% benchmark, implying room to sustain or modestly grow cash dividends. While total dividends paid are unreported, applying the payout ratio to net income (27.16) implies dividends of roughly 7.5, which would be well covered by implied FCF of ~34.3 even after capex. Balance sheet cash (210.88) and low leverage further de-risk the dividend. Policy signals are not provided, but the combination of strong liquidity, conservative capital structure, and mid-20s payout suggests high sustainability. Continued buybacks (6.08 in the period) also indicate capacity for shareholder returns without compromising investment needs.

Risk Assessment

Business Risks:

• Gross-to-operating margin squeeze risk if SG&A growth continues to outpace revenue growth.
• Supply chain and component availability constraints (e.g., electronics/semiconductors) potentially affecting lead times and costs.
• Pricing and input cost inflation risk that could pressure gross margin if not offset by price/mix.
• Regulatory and standards changes in gas detection and safety, which can alter demand timing and product requirements.
• Product and customer concentration within industrial gas detection niches leading to demand cyclicality.

Financial Risks:

• FX volatility impacting export competitiveness and translation of overseas revenues/costs.
• Interest rate normalization marginally increasing borrowing costs, albeit from a very low base.
• Potential mark-to-market volatility in investment securities (85.97) affecting comprehensive income.

Key Concerns:

• Slight operating margin compression (~36 bps YoY) despite strong sales growth.
• Asset turnover at 0.354 keeps ROE modest at 5.1%, requiring efficiency gains to lift returns.
• Limited disclosure of segment details and working capital drivers reduces visibility into sustainability of growth.

Investment Implications

Key Takeaways:

• Strong revenue growth (+21.9% YoY) with robust cash conversion (OCF/NI 1.51x).
• Net margin expanded ~97 bps YoY to 11.0% despite slight operating margin compression.
• Balance sheet highly liquid and conservatively financed (current ratio 4.6x; D/E 0.31x; interest coverage 230x).
• ROE of 5.1% constrained by asset turnover; ROIC at 8.3% indicates value-accretive reinvestment.
• Shareholder returns remain prudent with a ~28% payout ratio and ongoing buybacks.

Metrics to Watch:

• Operating margin trajectory versus SG&A intensity (SG&A/Revenue currently ~30%).
• Order backlog/book-to-bill and inventory turns to gauge asset efficiency and asset turnover uplift potential.
• Gross margin resilience amid input cost and FX movements.
• OCF/NI ratio and FCF after capex to ensure continued coverage of dividends and buybacks.
• ROIC trend relative to 8%+ target and capital allocation between growth and shareholder returns.

Relative Positioning: Within Japanese industrial/electronics peers, the company stands out for its exceptionally strong liquidity and low leverage, paired with solid mid-teens operating margins; return on equity is moderate, suggesting upside primarily from efficiency gains rather than leverage.

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