COSEL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.13B
• Operating Income: ¥-659M
• Net Income: ¥-6M
• EPS: ¥-0.15

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: Weak quarter operationally with a swing to operating loss on sharply lower revenue, partially cushioned by non-operating gains and very strong cash generation and liquidity. Revenue fell to 111.34 (−25.0% YoY), driving gross profit of 25.97 and an operating loss of −6.59 (−85.0% YoY), while ordinary income remained positive at 1.17 on sizable non-operating income of 7.80. Gross margin printed at 23.3%, while SG&A intensity was elevated at 29.3% of sales, resulting in an operating margin of −5.9%. Net income was essentially breakeven at −0.06 (EPS −0.15 yen), with an unusual effective tax rate of 105.3%, implying tax expense despite minimal pre-tax profit. Non-operating tailwinds were mainly interest income and dividends (0.33 each) alongside other unreported components, which offset the operating loss to lift ordinary income into positive territory. Cash flow was a bright spot: operating cash flow reached 27.24, far exceeding accounting earnings due to non-cash charges (D&A 6.95) and likely working capital inflows. The balance sheet remains pristine: cash and deposits of 294.01, current assets 474.26 vs current liabilities 29.32, and total equity of 555.51 with minimal leverage (total liabilities 44.42). Liquidity ratios are extraordinarily strong (current ratio 1,617.5%, quick ratio 1,516.5%), and D/E is just 0.08x. ROIC is weak at −1.3%, reflecting underutilized capacity and operating deleverage amid the demand downturn. Margin comparison in basis points versus prior periods is not possible due to lack of prior-period margin disclosure in the dataset; directionally, margins compressed significantly given the operating loss and 25% revenue decline. Earnings quality flags mechanically trigger (OCF/NI −454x), but the underlying signal is positive because OCF is strong while NI is near zero and distorted by taxes. Forward-looking, the key is revenue stabilization and gross margin recovery, plus SG&A discipline; with cash-rich, minimal-debt positioning, the company has ample capacity to navigate the downturn and support selective investment, but ROIC must normalize toward mid-single digits to restore value creation.

Profitability Analysis

DuPont decomposition: ROE ≈ Net Profit Margin (−0.1%) × Asset Turnover (0.186x) × Financial Leverage (1.08x) ≈ slightly negative, in line with the reported near-zero negative ROE. The largest drag is Net Profit Margin, which turned negative due to a −5.9% operating margin despite non-operating income of 7.80 lifting ordinary income to 1.17. Asset turnover is low at 0.186x, reflecting a sizable asset base (599.93) relative to depressed sales, indicating underutilization. Financial leverage is modest at 1.08x (assets/equity), providing limited magnification of returns—supportive in downturns but limiting ROE in upturns. Business drivers: a 25% YoY revenue drop, a 23.3% gross margin, and high SG&A burden (29.3% of sales) produced operating deleverage. Non-operating contributions (interest and dividends) mitigated but could not fully offset the operating shortfall. Sustainability: the margin pressure appears cyclical (industrial demand correction/inventory adjustments common in power supplies), while non-operating gains are recurring but modest; sustainable ROE recovery requires gross margin improvement and better asset utilization. Concern flags: operating income negative with SG&A exceeding gross profit; EBITDA is only 0.36 (0.3% margin), indicating limited buffer. We lack prior-period SG&A to confirm whether SG&A grew faster than revenue; however, SG&A intensity is elevated and warrants cost scrutiny.

Growth Assessment

Top line contracted 25.0% YoY to 111.34, indicating a pronounced cyclical downturn or customer inventory correction in end markets. Operating income fell 85% YoY to −6.59, highlighting severe operating deleverage. Ordinary income of 1.17 was sustained by 7.80 in non-operating income (notably interest and dividend income), masking weakness in core operations. Net income was −0.06, effectively breakeven, but the >100% effective tax rate signals one-off tax effects or timing differences that depress reported profit. Revenue sustainability hinges on stabilization of industrial/electronics demand and normalization of customer inventory levels; absent that, utilization and gross margin will remain pressured. Profit quality currently leans on non-operating items; to improve, the company needs mix/pricing and cost actions to restore operating margin to mid-single digits. Near-term outlook: expect cautious demand and continued emphasis on cash preservation; a rebound scenario would drive outsized profit recovery via operating leverage given fixed cost absorption dynamics.

Financial Health

Liquidity is exceptionally strong: current assets 474.26 vs current liabilities 29.32 imply a current ratio of 16.18 and quick ratio of 15.17—no near-term liquidity stress. There is no warning on Current Ratio (<1.0) or D/E (>2.0); D/E (liabilities/equity) stands at ~0.08x, reflecting a net-cash, low-leverage balance sheet. Cash and deposits total 294.01, and investment securities 33.92 add further financial flexibility. Interest expense is minimal at 0.03, and interest-bearing debt is unreported (likely negligible). Maturity mismatch risk is low given large liquid assets versus small current liabilities. No off-balance sheet obligations are disclosed in the provided data. Equity base remains robust at 555.51 with retained earnings of 397.18, supporting resilience and strategic optionality.

Cash Flow Quality

OCF of 27.24 materially exceeds net income (−0.06), yielding an OCF/NI ratio of −454x, which triggers a mechanical quality alert but reflects strong cash conversion alongside a near-zero accounting loss. Drivers include D&A of 6.95 and likely working capital inflows (details not disclosed), consistent with inventory and receivable normalization in a downturn. Free cash flow cannot be precisely calculated due to missing investing CF detail; using capex as a proxy, OCF − capex suggests an indicative FCF of ~19.81, comfortably covering maintenance investment. Financing CF was −12.19, likely reflecting dividends and/or minor share transactions, and appears well covered by internal cash generation. No signs of aggressive working capital manipulation are evident from disclosed figures, but fuller CF detail (inventories/receivables movement) is needed to confirm.

Dividend Sustainability

Dividend amounts are unreported, but financing cash outflow of −12.19 suggests distributions may have continued. With substantial cash (294.01), strong OCF (27.24), and modest capex (7.43), the company appears capable of sustaining ordinary dividends through the cycle. The calculated payout ratio is not meaningful given near-zero negative net income. In the absence of investing CF detail and explicit DPS, we cannot compute FCF coverage precisely; qualitatively, internal cash generation and net cash balance provide ample coverage for a normalized dividend policy unless the operating downturn deepens materially. Policy outlook likely prioritizes stability given the conservative balance sheet, but vigilance is warranted if operating losses persist.

Risk Assessment

Business Risks:

• Demand downturn/inventory correction in industrial and electronics end markets (−25% YoY revenue).
• Margin compression from lower utilization; SG&A exceeding gross profit yields operating loss.
• Pricing pressure and competitive dynamics in power supply markets affecting gross margin.
• Product mix shifts toward lower-margin SKUs.
• Supply chain and component cost variability impacting COGS and lead times.

Financial Risks:

• ROIC at −1.3% indicates capital inefficiency during the downturn.
• Tax expense volatility (effective tax rate 105.3%) distorting net results.
• Dependence on non-operating income to maintain ordinary profit.
• Potential FX sensitivity affecting revenue and non-operating income (interest/dividends), though not quantified here.

Key Concerns:

• Operating margin −5.9% and EBITDA margin 0.3% leave minimal buffer.
• Asset turnover 0.186x highlights underutilization; recovery requires revenue normalization.
• Earnings quality flag (OCF/NI) is mechanical but underscores divergence between cash and accounting profit.
• Limited visibility into segment profitability and order trends due to data gaps.

Investment Implications

Key Takeaways:

• Core operations weak with operating loss despite solid gross margin base of 23.3%.
• Non-operating income (7.80) is cushioning ordinary income but cannot be relied upon to drive sustainable growth.
• Cash-rich, low-leverage balance sheet (D/E ~0.08x, cash 294.01) provides high resilience.
• Strong OCF (27.24) and modest capex (7.43) imply healthy internal funding despite earnings dip.
• ROIC at −1.3% needs recovery toward 5–8% to restore value creation.
• Margin recovery hinges on demand normalization and SG&A discipline.

Metrics to Watch:

• Order intake and book-to-bill ratio (leading indicator for revenue rebound).
• Gross margin trend and price/mix vs component cost dynamics.
• SG&A run-rate versus sales; breakeven point progress.
• Inventory and receivables turnover (working capital normalization).
• Operating margin and EBITDA margin trajectory.
• Actual dividends paid/DPS guidance and FCF coverage.
• Effective tax rate normalization.

Relative Positioning: Within Japan-listed power supply peers, the company stands out for an exceptionally strong net-cash balance sheet and liquidity, but currently lags on profitability with negative operating margin and low asset turnover; cyclical recovery could drive outsized operating leverage relative to peers if demand rebounds.

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