The Furukawa Battery Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥35.60B
• Operating Income: ¥407M
• Net Income: ¥227M
• EPS: ¥7.39

Income Statement

Balance Sheet

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 weak FY2026 Q2 with sharp operating margin compression and heavy reliance on non-operating items, partly offset by improved bottom-line vs. last year. Revenue declined 4.8% YoY to 355.99, with gross profit of 66.24 and a gross margin of 18.6%. SG&A totaled 62.16, equating to 17.5% of sales, leaving operating income of 4.07 (operating margin ~1.1%), down 67.9% YoY. Non-operating income of 2.31 (notably interest income 0.69 and dividends 0.27) exceeded non-operating expenses of 1.50 (interest expense 1.01), adding a net +0.81 to profit before tax. Ordinary income fell 64.5% YoY to 4.88, while profit before tax was 4.71. Despite weak operations, net income rose 80.9% YoY to 2.42, aided by non-operating factors and base effects; effective tax rate was elevated at 51.8%, which constrained bottom-line conversion. We estimate operating margin compressed by roughly 225 bps YoY to ~1.1% (from ~3.4% last year based on back-calculation), while the net margin improved by about 32 bps to ~0.68% (from ~0.36%) due to the swing in below-operating items. Total comprehensive income was negative at -9.50, implying sizable OCI losses (likely securities valuation and/or FX), which reduced equity despite positive net income. Interest coverage was 4.03x, below the 5x strength benchmark, reflecting pressure from lower EBIT and ongoing interest costs. Liquidity remains solid with a current ratio of 190.5% and quick ratio of 166.4%, and balance sheet leverage is moderate with D/E of 0.60x and an implied equity ratio of ~62.4% (calculated). DuPont ROE stood at 0.6% (Net margin ~0.7%, asset turnover 0.546, financial leverage 1.60x), indicating very low capital efficiency. ROIC was reported at 0.5%, far below the 7–8% management targets typical in Japan and below the 5% warning line. The divergence between operating weakness and net income growth highlights earnings quality concerns, compounded by negative comprehensive income. Forward-looking, margin recovery hinges on price pass-through, cost controls, and normalization of non-operating items; visibility is limited without cash flow disclosures. Absence of OCF and capex data prevents assessment of cash conversion and capex discipline, a key watchpoint for sustaining dividends and deleveraging. Overall, the quarter prioritizes balance sheet stability over earnings momentum, with near-term focus on rebuilding operating margin and improving cash generation.

Profitability Analysis

ROE decomposition: ROE 0.6% = Net Profit Margin (~0.68%) × Asset Turnover (0.546) × Financial Leverage (1.60x). The largest driver of deterioration is operating margin compression: operating income fell 67.9% YoY versus a 4.8% revenue decline, implying pronounced negative operating leverage and cost pressures (SG&A at ~17.5% of sales left only ~1.1% operating margin). Net margin improved YoY due to higher non-operating contribution (net +0.81) relative to last year and base effects, despite a high 51.8% tax rate. Asset turnover at 0.546 is modest and suggests underutilized asset base relative to sales scale; we lack historical turnover to quantify change, but falling revenue against a largely fixed asset base likely pressured this metric. Financial leverage at 1.60x is conservative-to-moderate and not a major ROE driver. Business reasons: lower sales, cost inflation (materials/energy/logistics), and limited price pass-through likely compressed gross and operating margins; elevated SG&A absorption reduced operating leverage. Sustainability: the non-operating uplift (interest/dividends) is not a structural solution to margin compression and could reverse with rate/market changes; without operating fixes, ROE is unlikely to improve sustainably. Concerning trend flags: operating profit down far more than revenue (negative operating leverage), and SG&A ratio (~17.5%) appears high for the sales level; interest coverage at 4.0x below the 5x benchmark leaves limited cushion if rates rise or EBIT softens further.

Growth Assessment

Top line contracted 4.8% YoY to 355.99, indicating demand softness and/or pricing/mix headwinds. Operating income declined 67.9% YoY to 4.07 as costs outpaced revenue, signaling weakening underlying profitability. Net income rose 80.9% YoY to 2.42, but this improvement is driven by below-operating items and base effects rather than core operations. Estimated operating margin compressed from ~3.4% to 1.1% (-225 bps), while net margin improved from ~0.36% to 0.68% (+32 bps) on non-operating support. Ordinary income fell 64.5%, reinforcing the downtrend in recurring earnings before extraordinary/OCI effects. The negative total comprehensive income (-9.50) highlights market-related valuation pressure offsetting accounting earnings, which may temper investor confidence and capital allocation flexibility. With no segment or order backlog data provided, sustainability of revenue is unclear; industrial and automotive battery end-markets can be cyclical and sensitive to input costs and FX. Outlook hinges on cost pass-through, procurement optimization, and SG&A discipline to restore operating leverage; absent these, growth in headline EPS would be fragile. Near term, expect cautious guidance bias and focus on protecting margins over volume growth.

Financial Health

Liquidity is solid: current ratio 190.5% and quick ratio 166.4%, comfortably above benchmarks. Working capital stands at 171.68, supported by cash 24.05, accounts receivable 103.18, and inventories 45.68 against current liabilities of 189.66. No warning on liquidity thresholds (Current Ratio > 1.0). Solvency is moderate: D/E 0.60x; calculated equity ratio ~62.4% (406.74/652.04), indicating a strong capital base. Interest-bearing debt detail is partially unreported, but disclosed short-term loans 52.74 and long-term loans 12.00 imply total borrowings of at least 64.74. Maturity profile shows a tilt to short-term debt; however, current assets comfortably exceed current liabilities, mitigating near-term refinancing risk. Interest coverage is 4.03x, below the 5x strength benchmark, so higher rates or lower EBIT could pressure coverage. No off-balance sheet obligations were disclosed; absence of leases/guarantees data limits full assessment. Overall financial health is acceptable, with liquidity a strength and leverage moderate, but earnings weakness narrows interest service headroom.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex were not disclosed, preventing a direct assessment of cash conversion and free cash flow. Consequently, OCF/Net Income and FCF coverage of dividends/capex are not calculable. Earnings quality flags: the gap between weak operating profit and improved net income indicates reliance on non-operating items; combined with negative comprehensive income (-9.50), this raises quality concerns. Working capital composition (AR 103.18, inventories 45.68, AP 50.47) appears balanced, but without period-over-period movement we cannot detect working capital-driven earnings management. Key watchpoints once data is available: OCF/NI >1.0, inventory turns, receivable days, capex intensity vs. depreciation, and cash interest paid vs. expense to validate coverage.

Dividend Sustainability

Dividend data was not reported, so payout ratio, DPS, and FCF coverage cannot be assessed. With ROE at 0.6% and ROIC at 0.5%, internal capital generation is weak, implying limited room for dividend growth without improved cash generation. Balance sheet capacity exists (equity ratio ~62%, D/E 0.60x), but sustaining or increasing dividends prudently requires visibility on OCF and capex, which are unreported. Policy outlook likely prioritizes margin recovery and investment efficiency over aggressive shareholder returns in the near term.

Risk Assessment

Business Risks:

• Input cost inflation (lead, lithium, energy) compressing margins
• Demand cyclicality in automotive/industrial battery end-markets
• Pricing power limitations delaying cost pass-through
• FX volatility impacting import costs and export competitiveness
• Technology transition risk (shift to newer chemistries and competitors)

Financial Risks:

• Interest coverage at 4.03x leaves limited cushion if EBIT declines or rates rise
• Negative comprehensive income (-9.50) from OCI volatility (securities/FX) eroding equity
• High effective tax rate (51.8%) dampening net profitability
• Reliance on non-operating gains to support earnings amid weak operations

Key Concerns:

• ROIC at 0.5% is below the 5% warning threshold, indicating poor capital efficiency
• Operating margin compressed to ~1.1% with SG&A ratio ~17.5%
• Short-term debt (52.74) reliance vs. soft operating earnings increases refinancing sensitivity
• Data gaps (no OCF/capex/dividends) obscure true cash generation and payout capacity

Investment Implications

Key Takeaways:

• Core profitability deteriorated sharply; operating margin compressed by ~225 bps YoY to ~1.1%
• Net income increase (+80.9% YoY) is not reflective of operating strength and benefited from non-operating items
• Negative comprehensive income signals market-related valuation losses despite positive NI
• Liquidity strong and leverage moderate, but interest coverage only 4.0x
• ROE 0.6% and ROIC 0.5% underscore subpar capital efficiency requiring margin and asset-use improvements

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory
• OCF/Net Income and free cash flow once disclosed
• Inventory turns and receivable days for working capital discipline
• Effective tax rate normalization and drivers
• OCI drivers (securities/FX) and their impact on equity
• Debt mix (short vs. long term) and interest cost trend
• Price pass-through and cost trend in key materials

Relative Positioning: Within Japan industrial battery peers, the company currently exhibits weaker operating leverage and capital efficiency, offset by a comparatively solid balance sheet; near-term performance hinges on restoring core margins and improving cash conversion.

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