Azbil Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥132.90B
• Operating Income: ¥17.72B
• Net Income: ¥11.30B
• EPS: ¥26.37

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

Azbil Corporation (TSE: 6845) delivered a solid FY2026 Q2 performance marked by notable margin expansion despite a top-line contraction. Revenue declined 4.6% year over year to ¥132.9bn, but operating income rose 21.0% to ¥17.7bn, indicating successful cost control, favorable mix, and/or improved pricing. Gross profit of ¥58.5bn translated to a robust 44.0% gross margin, supporting an operating margin of approximately 13.3%. Ordinary income reached ¥18.3bn and net income ¥13.5bn, up 23.0% year over year, underscoring operating leverage and disciplined SG&A. EBITDA was ¥21.0bn, yielding a 15.8% EBITDA margin, consistent with margin expansion across the P&L. DuPont analysis shows a 10.13% net margin, 0.443x asset turnover, and 1.28x financial leverage, resulting in a calculated ROE of 5.76%, aligned with the reported figure. Liquidity is strong with a current ratio of 340% and a quick ratio of 328%, reflecting ample working capital of ¥163.0bn. The balance sheet appears conservative: total liabilities are ¥74.6bn against equity of ¥233.8bn, implying a low leverage posture (liabilities-to-equity ~0.32x). Interest coverage is very high at 179x, suggesting minimal financial risk from borrowing costs. Operating cash flow of ¥17.2bn exceeded net income, producing an OCF/NI ratio of 1.28, a positive indicator of earnings quality. The effective tax rate, inferred from income tax expense (¥4.94bn) relative to pre-tax profit, is approximately 26–27%, despite an “Effective Tax Rate: 0.0%” placeholder in the calculated metrics, which appears to be an unreported item. Several disclosures are missing or not reported under standard captions (e.g., investing cash flows, cash and equivalents, dividends per share, shares outstanding), limiting precision in free cash flow and dividend assessments. Equity ratio is shown as 0.0% but should be treated as undisclosed rather than zero; based on assets and equity, the implied equity ratio would be high. Overall, the quarter highlights resilient profitability and cash generation against a softer revenue backdrop. While a near-term slowdown in sales is evident, the improved margins and strong liquidity buffer provide stability for ongoing investment and shareholder returns. Outlook will hinge on demand recovery in building and process automation, project execution, and the trajectory of input costs and FX. We emphasize monitoring order trends, backlog conversion, and working capital dynamics given the project-based nature of Azbil’s businesses.

Profitability Analysis

ROE decomposition (DuPont) shows net margin of 10.13%, asset turnover of 0.443x, and financial leverage of 1.28x, yielding an ROE of 5.76%. Operating margin stands at ~13.3% (¥17.718bn / ¥132.897bn), up sharply YoY given operating income growth of +21% against revenue decline of -4.6%, evidencing positive operating leverage. Gross margin of 44.0% indicates strong value-add and cost management, likely supported by favorable mix and pricing in automation solutions. EBITDA margin of 15.8% and high interest coverage (179x) confirm robust core profitability and low financing drag. Margin quality appears sound: depreciation at ¥3.24bn (D&A/revenue 2.4%) suggests a relatively asset-light or well-sweated asset base, and the OCF/NI ratio of 1.28 supports that earnings translate into cash. The increase in operating income despite lower sales suggests effective SG&A control and/or higher project margins; sustaining this will depend on backlog quality and execution. Ordinary-to-operating income spread is modest (¥0.6bn), indicating limited non-operating distortion. Effective tax rate is approximately 26.8% (¥4.94bn tax on ~¥18.4bn pre-tax), consistent with a normalized tax burden under JGAAP.

Growth Assessment

Top line decreased 4.6% YoY to ¥132.9bn, signaling a pause in demand or project timing effects, typical for building/process automation cycles. Nonetheless, profit growth was strong: operating income +21% and net income +23% YoY, reflecting margin expansion and solid cost discipline. The combination of higher margins and strong OCF suggests profit quality is improving despite revenue softness. Without disclosed order intake/backlog, sustainability of the current profit trend cannot be confirmed; project timing and mix remain key variables. Areas likely supporting growth include building automation retrofits and process automation solutions, but visibility hinges on macro capex cycles and construction activity. The asset turnover at 0.443x is reasonable for a project-centric model; any future recovery in revenue should lift ROE if margins hold. Near-term outlook depends on the cadence of project awards, supply chain stability, and FX (export exposure), while medium-term growth should benefit from energy efficiency and digitalization trends. We expect normalized mid-teens operating margin to be tested by input cost movements; pricing power and mix will be crucial to sustain margins. Overall growth trajectory is cautious near term due to revenue decline, but with supportive profit quality and operating leverage if demand normalizes.

Financial Health

Liquidity is strong: current ratio 340.4% (¥230.8bn CA / ¥67.8bn CL) and quick ratio 327.9% (inventory is only ¥8.5bn), indicating ample near-term coverage. Working capital is ¥163.0bn, providing significant operational flexibility. Solvency is conservative: total liabilities of ¥74.6bn vs equity of ¥233.8bn imply liabilities-to-equity of ~0.32x and assets-to-equity (financial leverage) of 1.28x. Interest expense is minimal at ¥0.10bn, and EBIT/interest coverage is 179x, suggesting de minimis financial risk from debt service. Total assets are ¥299.9bn, and equity is ¥233.8bn; despite the reported equity ratio of 0.0% (undisclosed), the implied equity ratio is high. Absence of reported cash & equivalents and debt split limits precision on net cash/debt and maturity profile; however, overall balance sheet strength appears solid.

Cash Flow Quality

Operating cash flow of ¥17.24bn exceeds net income of ¥13.46bn, yielding an OCF/NI ratio of 1.28, a positive indicator that earnings are backed by cash generation. EBITDA of ¥20.95bn provides additional cushion for investment needs and working capital swings. Working capital appears well-managed given strong liquidity metrics, but detailed components (AR/AP changes) are not disclosed, limiting granular analysis of cash conversion cycles. Investing cash flow is reported as 0 (undisclosed), so free cash flow cannot be reliably calculated; the reported FCF of 0 should be treated as not determinable based on available data. With depreciation at ¥3.24bn, maintenance capex is likely below EBITDA capacity, but actual capex is not disclosed; thus, we cannot assess reinvestment intensity or growth capex. Earnings quality is further supported by high interest coverage and limited non-operating noise between operating and ordinary income. Key watchpoints are project cash profiles and potential working capital build if order intake accelerates.

Dividend Sustainability

Annual DPS is shown as 0.00 and payout ratio 0.0%, which should be interpreted as undisclosed rather than zero. EPS is ¥26.37 for the period, but without DPS, share count, or investing cash flows, we cannot compute dividend coverage from FCF. Based on OCF of ¥17.24bn and low interest burden, capacity for shareholder returns appears supported by operating cash generation and a strong balance sheet; however, lack of capex data prevents definitive FCF coverage assessment. Historically for companies in this sector, stable dividends are common, but policy for the period cannot be inferred from the provided data. Near-term dividend sustainability would depend on maintaining current profitability, controlling working capital, and capex discipline. Until DPS and capex are disclosed, we view dividend assessment as data-limited, with a neutral policy outlook contingent on FCF visibility.

Risk Assessment

Business Risks:

• Project timing and backlog conversion risk impacting quarterly revenue
• Cyclical exposure to building and process automation capex cycles
• Execution risk on large, fixed-price or milestone-based contracts affecting margins
• Input cost and supply chain volatility influencing gross margin
• Competitive pricing pressure in automation and controls markets
• FX fluctuations affecting export competitiveness and translated earnings

Financial Risks:

• Limited visibility on cash and capex due to undisclosed investing cash flows
• Potential working capital swings tied to project milestones and customer payments
• Counterparty risk from concentrated customers in industrial and construction sectors
• Tax rate variability across jurisdictions (effective rate ~26–27%)

Key Concerns:

• Revenue decline of 4.6% YoY despite strong profit; sustainability of margin expansion needs validation
• Undisclosed investing cash flows and cash balance limit FCF and net cash/debt assessment
• Equity ratio and dividend information not reported, constraining capital policy analysis

Investment Implications

Key Takeaways:

• Margin expansion drove double-digit profit growth despite lower revenue
• Strong OCF relative to net income supports earnings quality
• Balance sheet appears conservative with low leverage and high liquidity
• High interest coverage (179x) indicates minimal financing risk
• Data gaps (cash, capex, DPS) constrain FCF and dividend analysis

Metrics to Watch:

• Order intake and backlog, book-to-bill ratio
• Gross and operating margin trajectory amid input cost/FX moves
• Working capital days (DSO/DPO/DIO) and OCF/NI ratio
• Capex and R&D levels to gauge reinvestment and FCF
• Revenue growth reacceleration and asset turnover
• Tax rate normalization versus current ~26–27%

Relative Positioning: Within Japanese industrial automation peers, Azbil’s current period shows above-average margin resilience and conservative leverage, though revenue softness and disclosure gaps on cash/FCF obscure near-term capital return visibility.

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