ESPEC CORP. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.32B
• Operating Income: ¥2.61B
• Net Income: ¥2.45B
• EPS: ¥87.49

Income Statement

Balance Sheet

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

Espec Co., Ltd. (6859) reported FY2026 Q2 (cumulative) consolidated results with revenue of ¥30.322bn, down 0.5% YoY, indicating a relatively stable topline amid a softer demand environment. Gross profit was ¥11.137bn, implying a solid gross margin of 36.7%, which remains a key strength for the company’s specialized environmental test equipment franchise. Operating income declined 20.9% YoY to ¥2.607bn, translating to an operating margin of approximately 8.6%, signaling cost pressure and/or an unfavorable mix despite resilient gross margin. Ordinary income of ¥2.704bn exceeded operating income, suggesting modest non-operating gains and minimal financial burden given interest expense of only ¥13m. Net income fell 22.0% YoY to ¥1.912bn, with a net margin of 6.31%; the YoY decline outpaced the slight revenue contraction, evidencing negative operating leverage in the period. The DuPont-derived ROE is 3.30%, driven by a low asset turnover of 0.394 (half-year denominator effect) and conservative financial leverage of 1.33. The balance sheet is strong: total assets are ¥76.934bn, equity is ¥57.967bn, implying an equity ratio of roughly 75.3% (though the disclosed “Equity Ratio” field is unreported). Liquidity is robust, with a current ratio of 328.1% and a quick ratio of 310.3%, supported by ¥50.589bn of current assets versus ¥15.421bn of current liabilities. Working capital stands at ¥35.168bn, providing ample buffer to navigate order and production cycles. Interest coverage is extremely strong at 200.5x, underscoring very low financial risk. The YoY profit compression despite flat revenue suggests SG&A growth, pricing/mix pressures, or delivery phasing, which warrants monitoring into H2. Cash flow figures are unreported in the dataset; therefore, operating cash flow, free cash flow, and cash balances cannot be assessed from the provided inputs. The reported effective tax rate appears at 0.0% due to an unreported tax line; this may reflect timing and should not be extrapolated. Dividend data show DPS at ¥0.00 and a 0% payout in the dataset; without policy context or cash flow data, dividend assessment is limited. Overall, Espec remains financially sound with strong margins and a conservative balance sheet, but faces near-term earnings pressure from negative operating leverage in a flat revenue environment.

Profitability Analysis

ROE_decomposition: ROE 3.30% = Net margin 6.31% × Asset turnover 0.394 × Financial leverage 1.33. The low ROE is primarily a function of subdued asset turnover (half-year cumulative basis and a balance-sheet-heavy model) and modest leverage, with margins remaining mid-high single digit at the operating level. margin_quality: Gross margin is a healthy 36.7%, evidencing pricing power and value-add in environmental test equipment. Operating margin is ~8.6% (¥2.607bn/¥30.322bn), down YoY given operating income -20.9% amid nearly flat sales; the compression likely stems from higher SG&A, delivery mix, or project phasing. Ordinary margin is ~8.9%, slightly above operating due to small non-operating gains and minimal interest burden. operating_leverage: Revenue declined 0.5% YoY, while operating income fell 20.9% YoY, indicating negative operating leverage. This suggests fixed cost absorption pressure or mix shifts (e.g., lower-margin projects or higher installation and service components). Monitoring SG&A-to-sales and gross margin trends into H2 will clarify whether the pressure is transitory.

Growth Assessment

revenue_sustainability: Topline was stable at ¥30.322bn (-0.5% YoY) despite cyclical headwinds in electronics/auto-related capex. This suggests demand resilience in core niches (environmental stress testing) but lacks broad-based growth catalysts in the period. profit_quality: Net margin of 6.31% and operating margin ~8.6% indicate healthy underlying profitability, but the notable YoY decline in operating income points to cost/mix headwinds. Ordinary profit exceeding operating profit implies no deterioration from financial costs. outlook: With a strong order-driven business, H2 performance will likely hinge on order intake, backlog conversion, and pricing discipline. If mix normalizes and SG&A growth moderates, margins can recover; conversely, prolonged customer capex caution (semiconductor/EV/autonomous testing) could keep growth muted.

Financial Health

liquidity: Current assets ¥50.589bn versus current liabilities ¥15.421bn yield a current ratio of 328.1% and quick ratio of 310.3%, indicating strong near-term solvency. Working capital is ¥35.168bn, providing ample liquidity for project execution. solvency: Total liabilities are ¥19.153bn against equity of ¥57.967bn, implying a liabilities-to-equity ratio of ~0.33x and an inferred equity ratio around 75.3%. Interest coverage is 200.5x, highlighting very low financial risk. capital_structure: Leverage is conservative with financial leverage at 1.33 (assets/equity). The balance sheet can support strategic investment and R&D without reliance on debt, and provides resilience through cycles.

Cash Flow Quality

earnings_quality: OCF is unreported in the dataset, so accrual-to-cash conversion cannot be evaluated. The negative operating leverage suggests potential timing effects between revenue recognition and cash receipts, but evidence is insufficient without OCF and working capital detail. FCF_analysis: Free cash flow is unreported. Given strong liquidity and low interest burden, structural FCF potential is likely positive over the cycle, but current-period FCF cannot be assessed from the provided data. working_capital: Inventories are ¥2.741bn, modest relative to COGS in the period, but without receivables/payables disclosures and OCF, working capital movements cannot be quantified. The large working capital base suggests project-driven cash swings are possible.

Dividend Sustainability

payout_ratio_assessment: EPS is ¥87.49 for the half, but the dataset shows DPS at ¥0.00 (payout 0.0%), which may reflect timing or non-disclosure rather than policy. Without full-year guidance and tax/OCF data, a precise payout ratio assessment is not possible. FCF_coverage: FCF is unreported; therefore, dividend coverage by FCF cannot be evaluated. Balance sheet strength implies capacity for distributions, but policy and cash-generation visibility are required. policy_outlook: Espec historically emphasizes financial stability; given the conservative leverage, the company likely prioritizes sustainable dividends aligned with earnings visibility. Confirmation requires management guidance and full-year cash flow disclosure.

Risk Assessment

Business Risks:

• Cyclical demand from semiconductor, automotive (including EV/ADAS), and electronics customers impacting order intake.
• Project mix and delivery timing affecting margins and revenue recognition.
• Price competition in environmental testing equipment, including overseas competitors.
• Raw material and component cost inflation pressuring gross margins.
• Supply chain constraints affecting lead times and costs.
• FX volatility influencing export competitiveness and overseas subsidiaries’ results.
• Technology shifts (battery testing standards, new thermal/humidity test requirements) requiring sustained R&D.

Financial Risks:

• Working capital swings from large projects could temporarily depress OCF.
• Potential increase in SG&A (sales/service network, R&D) outpacing revenue growth.
• Exposure to customer credit cycles and receivables collection timing.
• Limited operating leverage if volumes soften, compressing profitability despite fixed cost base.

Key Concerns:

• Negative operating leverage in H1 despite stable revenue indicates cost/mix pressure.
• Unreported cash flow figures limit assessment of earnings-to-cash conversion.
• Zero reported tax line implies timing; normalized effective tax rate could reduce net margin vs. current period depiction.

Investment Implications

Key Takeaways:

• Revenue essentially flat YoY at ¥30.3bn, but operating income down 20.9% indicates margin pressure.
• Gross margin remains strong at 36.7%, suggesting pricing/mix resilience at the product level.
• ROE at 3.30% reflects low turnover (half-year base) and conservative leverage rather than weak economics.
• Balance sheet is robust with an inferred equity ratio ~75%, and interest coverage >200x.
• Liquidity is ample (current ratio 328%), providing flexibility through order cycles.
• Cash flow unreported; near-term visibility on OCF and FCF is a key gap.
• H2 recovery depends on order intake, backlog conversion, and SG&A discipline.

Metrics to Watch:

• Order intake and book-to-bill ratio
• Backlog size and conversion cycle
• Gross margin trend and pricing versus input costs
• SG&A-to-sales ratio and operating margin trajectory
• Inventory, receivables, and payables days; OCF/NI once reported
• Capex levels and R&D intensity
• FX impact on overseas revenue and costs

Relative Positioning: Within the environmental test equipment space, Espec exhibits higher-than-average margins and a very conservative balance sheet versus typical capital goods peers in Japan, positioning it defensively through cycles but with currently subdued earnings momentum due to negative operating 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