KYOSHA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.35B
• Operating Income: ¥338M
• Net Income: ¥285M
• EPS: ¥7.42

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

Kyosha Co., Ltd. (TSE: 68370) reported FY2026 Q2 consolidated results under JGAAP showing revenue of ¥12.35bn, down 3.6% YoY, with a sharp contraction in operating income to ¥338m (-49.1% YoY). The topline softness translated disproportionately into profit due to operating leverage, compressing operating margin to roughly 2.7% and net margin to 0.87%. Gross profit was ¥2.35bn, implying a gross margin of 19.1%, which appears pressured for a printed circuit board (PCB) manufacturer facing input cost and pricing headwinds. Ordinary income of ¥219m fell below operating income as interest expense of ¥182m weighed on non-operating results. Net income was ¥107m (-60.1% YoY), with reported EPS of ¥7.42; the DuPont-derived ROE is 1.14%, reflecting low profitability and modest asset turnover (0.533x) supported by leverage (2.48x). Cash generation was relatively resilient: operating cash flow (OCF) reached ¥821m and OCF/Net Income was 7.67x, indicating solid cash conversion relative to accounting earnings. Liquidity looks adequate on headline metrics, with current ratio of 162% and working capital of ¥6.06bn; however, cash and inventories are unreported, so buffer composition is uncertain. The balance sheet shows total assets of ¥23.18bn and total equity of ¥9.35bn, implying a debt-to-equity ratio of 1.57x and equity ratio not disclosed in XBRL. Interest coverage at 1.9x is thin for a cyclical manufacturer and is a key constraint on financial flexibility. Dividend distribution is suspended (DPS ¥0, payout 0%), consistent with preserving cash given earnings pressure and leverage. Free cash flow is not assessable because investing cash flows are unreported this period; stated FCF of zero should be interpreted as data not disclosed rather than true zero. Overall, results indicate cyclical or customer-driven softness with meaningful operating leverage, increased financial burden from interest costs, and cautious capital allocation. Near-term recovery hinges on demand normalization, product mix improvement, and pricing cost pass-through, while interest burden and potential capex needs remain constraints. The company’s cash conversion offers a partial mitigant, but visibility is limited by missing disclosures for cash, inventories, and investing flows. We base the analysis strictly on available non-zero data points and acknowledge limitations where key items were not disclosed.

Profitability Analysis

ROE decomposition (DuPont): Net margin 0.87% × Asset turnover 0.533 × Financial leverage 2.48 = ROE 1.14%, aligning with the reported figure. The low net margin is the primary drag on ROE, with leverage partially offsetting weak profitability. Operating margin is approximately 2.7% (¥338m / ¥12,351m), down sharply YoY due to negative operating leverage: a 3.6% revenue decline drove a 49.1% drop in operating income. Gross margin of 19.1% indicates limited pricing power or adverse mix/input costs; the spread between gross and operating margins (~16.4pp) reflects a relatively high fixed cost base in SG&A and manufacturing overhead. EBITDA was ¥875m (7.1% margin), so D&A of ¥537m consumed a large share of gross profits, typical for capital-intensive PCB production. Ordinary margin compressed to 1.8% (¥219m / ¥12,351m) due to interest expense of ¥182m; interest coverage is 1.9x (operating income/interest), highlighting sensitivity to rate levels and earnings volatility. Net margin at 0.87% embeds tax and possibly non-controlling interests; although a 0.0% effective tax rate is shown in the calculated metrics, the disclosed income tax expense of ¥158m versus ordinary income of ¥219m implies a high tax burden, suggesting the 0.0% figure is not reflective this period. Overall, margin quality is weak, with limited buffer to absorb further volume or price pressure, and profitability currently relies on maintaining utilization and cost control.

Growth Assessment

Revenue declined 3.6% YoY to ¥12.35bn, suggesting soft demand across end-markets or pricing headwinds in PCB. The magnitude of the operating income decline (-49.1% YoY) versus revenue (-3.6%) indicates pronounced negative operating leverage and/or an unfavorable mix shift. With EBITDA margin at 7.1% and operating margin at 2.7%, incremental margins appear low, pointing to limited ability to pass through costs or to flex fixed expenses in the short term. Ordinary income of ¥219m and net income of ¥107m both fell more than revenue, underscoring that non-operating costs (interest) and taxes exacerbate earnings cyclicality. Cash generation was comparatively stable (OCF ¥821m), implying working capital support or non-cash charges cushioning earnings; however, without investing cash flows, we cannot judge whether maintenance or growth capex is being deferred. Outlook hinges on: stabilization in key end-markets (automotive/industrial electronics), normalization of customer inventories, FX effects on imported materials, and the company’s ability to improve mix toward higher value-added boards. Near-term growth quality is constrained by thin margins and interest burden; any revenue recovery should yield outsized profit improvement if capacity utilization rises, but downside risks persist if demand remains weak.

Financial Health

Liquidity appears adequate with a current ratio of 162% and working capital of ¥6.06bn; the quick ratio also shows 162% because inventories are unreported, so true immediate liquidity may be lower if inventories are significant. Cash and equivalents are unreported, limiting visibility on cash buffers and net debt. Total liabilities of ¥14.65bn against equity of ¥9.35bn imply a debt-to-equity ratio of 1.57x, indicating moderate-to-elevated leverage for a cyclical manufacturer. Interest coverage at 1.9x is thin, leaving limited room for interest rate increases or further earnings declines. The equity ratio is not disclosed in XBRL; using the provided balance sheet, equity/total assets suggests approximately 40% capitalization, but we defer to the non-disclosed value per instruction. Overall solvency is acceptable but constrained by leverage and weak profitability, making covenants and liquidity management important until margins recover.

Cash Flow Quality

OCF of ¥821m compared to net income of ¥107m yields an OCF/NI ratio of 7.67x, indicating strong cash conversion and significant non-cash charges (notably D&A of ¥537m) and/or favorable working capital movements. EBITDA of ¥875m is close to OCF, suggesting limited cash leakage below EBITDA in the period; however, the absence of investing cash flows means we cannot assess capex intensity or free cash flow (FCF). The stated FCF of 0 should be treated as ‘not disclosed’ rather than actual zero. Working capital quality cannot be fully assessed because inventories and cash are not reported, but the increase in OCF relative to earnings hints at working capital release or tight management. Earnings quality appears better in cash terms than in accounting terms this quarter, but sustainability depends on maintaining working capital discipline and managing capex requirements.

Dividend Sustainability

The company paid no dividend (DPS ¥0; payout 0%). Given low net margin (0.87%), thin interest coverage (1.9x), and leverage (D/E 1.57x), retaining cash aligns with balance sheet protection. FCF coverage of dividends is not assessable because investing cash flows are not disclosed; the displayed 0.00x should be interpreted as data not available. Near-term dividend capacity depends on margin recovery and cash generation after capex. Policy outlook likely remains conservative until operating margins normalize and interest coverage improves; reinstatement would require clearer visibility on sustainable FCF and leverage reduction.

Risk Assessment

Business Risks:

• Cyclical demand in automotive, industrial, and consumer electronics end-markets affecting PCB volumes
• Pricing pressure and mix shifts reducing gross margin
• Input cost volatility (copper, laminates) and FX pass-through risk
• High fixed-cost base leading to negative operating leverage in downturns
• Customer concentration and potential order volatility
• Technological change requiring ongoing capex to stay competitive

Financial Risks:

• Thin interest coverage (1.9x) and leverage (D/E 1.57x) limiting flexibility
• Potential covenant constraints if earnings weaken further
• Unreported cash and investing CF obscure true liquidity and FCF
• Tax burden variability; implied high effective tax rate despite reported 0.0% metric
• Refinancing and interest rate risk if debt re-prices higher

Key Concerns:

• Operating margin compression to ~2.7% with revenue down just 3.6% indicates strong negative operating leverage
• Ordinary income below operating income due to sizable interest expense (¥182m)
• Visibility constraints from unreported cash, inventories, and investing cash flows
• Low ROE (1.14%) given leverage, pointing to weak economic returns

Investment Implications

Key Takeaways:

• Revenue softness (-3.6% YoY) translated into a disproportionate profit decline (-49.1% YoY operating income) due to fixed-cost absorption
• Net margin (0.87%) and ROE (1.14%) are subdued; leverage (2.48x assets/equity) props up ROE but raises risk
• Cash conversion is solid (OCF/NI 7.67x), partially mitigating weak earnings
• Interest coverage is thin (1.9x), making earnings recovery and cost control critical
• Dividend suspension conserves cash amid uncertain FCF and leverage
• Data gaps (cash, inventories, capex/Investing CF) limit full assessment of liquidity and FCF

Metrics to Watch:

• Revenue trajectory and book-to-bill/inventory normalization at key customers
• Gross and operating margin progression; incremental margins on volume changes
• Interest coverage and net debt once cash and debt details are disclosed
• Working capital turns (receivables/payables/inventories days) and OCF sustainability
• Capex levels and investing CF to assess true FCF and maintenance needs
• Product mix shift toward higher value-added PCBs and pricing pass-through

Relative Positioning: Within Japan’s PCB/EMS peer set, Kyosha currently exhibits below-average profitability and thin interest coverage but comparatively decent cash conversion. Improvements in utilization and mix could drive outsized margin recovery versus peers if demand returns, yet leverage and disclosure gaps temper relative resilience.

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