FUTABA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.95B
• Operating Income: ¥-1.12B
• Net Income: ¥-1.18B
• EPS: ¥-16.75

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

Futaba Corporation (6986) reported FY2026 Q2 consolidated results under JGAAP showing revenue of ¥20.95bn, down 14.7% YoY, indicating a meaningful demand slowdown or weaker pricing/mix relative to the prior year. Despite the top-line decline, reported gross profit of ¥4.36bn implies a gross margin of 20.8%, though the arithmetic against reported cost of sales suggests potential line-item definition differences within the disclosed figures. Operating income was a loss of ¥1.13bn (flat YoY per disclosure), reflecting negative operating leverage as revenue declined and fixed costs were not fully flexed down. Ordinary income improved relative to operating income (−¥0.86bn vs. −¥1.13bn), implying net non-operating gains or income of roughly ¥0.27bn even after ¥0.04bn of interest expense. Net income was a loss of ¥0.71bn (EPS −¥16.75), also indicated as flat YoY, suggesting similar bottom-line pressures vs. the prior year. EBITDA was negative at ¥0.57bn, with a margin of −2.7%, underscoring ongoing profitability challenges at the operating level. The DuPont breakdown shows a net margin of −3.39%, low asset turnover of 0.204x, and modest financial leverage of 1.14x, resulting in a calculated ROE of −0.79%. Liquidity is very strong: current ratio 9.0x and quick ratio 8.4x, supported by substantial working capital (¥52.42bn). The balance sheet appears conservative with total equity of ¥89.88bn versus liabilities of ¥12.78bn (financial leverage 1.14x), indicating low structural solvency risk. Cash flow from operations was solidly positive at ¥2.88bn despite the net loss, yielding an OCF/Net Income ratio of −4.06, typically signaling supportive working capital movements and non-cash charges. Investing cash flow and cash balance were not disclosed (zeros denote unreported), so free cash flow cannot be reliably determined even though a placeholder “0” is shown. Dividend per share is undisclosed/0 for the period and payout is 0%, consistent with loss-making conditions and a likely conservative capital allocation stance. Interest coverage is negative (−29.6x) due to operating losses, but the absolute interest burden is small (¥38m), mitigating near-term financial strain. Overall, the quarter reflects a demand-led decline in sales, negative operating leverage, but robust liquidity and operating cash generation. Data limitations include unreported cash, investing cash flows, equity ratio, and share count metrics, which constrain per-share and full FCF analysis.

Profitability Analysis

ROE decomposition indicates pressure from profitability rather than leverage: net margin −3.39% and asset turnover 0.204x yield a low return profile while leverage at 1.14x is modest. The reported gross margin of 20.8% appears reasonable for a components/industrial electronics mix, but the gap between revenue and cost of sales suggests some line-item definitional differences in the gross profit figure; we rely on the provided gross margin as stated. Operating margin is −5.4% (−¥1.125bn on ¥20.953bn revenue), confirming negative operating leverage as costs did not flex with the 14.7% revenue decline. EBITDA margin of −2.7% implies limited buffer from depreciation and amortization (¥558m), and cost base rigidity remains a concern. Ordinary income at −¥860m vs. operating loss suggests net non-operating support (~¥265m), potentially FX or investment-related gains; however, sustainability of this support is uncertain. Interest burden is small (¥38m), but interest coverage is negative due to losses; this is more an earnings issue than a balance sheet one. The negative net margin and flat YoY losses signal that structural profitability initiatives (pricing, mix upgrade, cost restructuring) have yet to materially improve earnings. Asset turnover of 0.204x is low, consistent with a capital- and working-capital-intensive profile; improving utilization and inventory turns would be key to lifting ROA/ROE. Overall margin quality is mixed: gross margin is decent on paper, but operating losses point to overhead absorption issues and possibly weak scale in end markets this half. Operating leverage is currently unfavorable; stabilization in demand or deeper fixed-cost realignment is needed to restore positive incremental margins.

Growth Assessment

Revenue declined 14.7% YoY to ¥20.95bn, indicating cyclical or customer-specific weakness, likely in key end markets (e.g., industrial electronics, auto/FA, or specialty displays). Profit did not recover with revenue shortfalls, as operating income and net income were both negative and flat YoY, suggesting limited progress on structural cost reductions or mix improvements. Given the negative EBITDA and operating losses, near-term growth in profits will likely require either a sales rebound or accelerated cost measures. The improvement from operating to ordinary income suggests some non-operating support, but this is not a growth driver and may not be durable. With asset turnover at 0.204x, utilization recovery could meaningfully enhance earnings if demand normalizes. Price/mix enhancements and product rationalization could support gross margins; however, visibility is limited due to data constraints on segment trends and backlog. Outlook hinges on end-market demand recovery and inventory normalization at customers; current data suggest cautious near-term growth expectations. Sustainability of revenue will depend on order intake and book-to-bill; absent those disclosures, we infer caution from the double-digit revenue decline. The YoY flatness in losses may indicate an earnings trough, but evidence is insufficient without sequential data and order trends. Overall, growth quality is currently weak, with profits reliant on non-operating gains and working capital support rather than core operations.

Financial Health

Liquidity is strong: current ratio 902.3% and quick ratio 840.4%, with working capital of ¥52.42bn, indicating ample short-term coverage. Inventories are ¥4.05bn, relatively small versus current assets, implying the bulk of liquidity likely sits in cash and receivables, though cash was not disclosed. Solvency appears sound with total equity of ¥89.88bn against liabilities of ¥12.78bn; financial leverage of 1.14x reflects a highly equity-heavy balance sheet. Debt-to-equity is reported at 0.14x, supportive of low balance sheet risk, although the composition of interest-bearing debt is not disclosed. Interest expense is modest at ¥38m, and while EBIT is negative, the absolute financing burden is light. The undisclosed equity ratio (reported as 0) limits precise assessment of capital structure metrics such as net debt/EBITDA or net cash position. Overall, the company appears conservatively capitalized with ample liquidity, mitigating near-term solvency risk despite operating losses.

Cash Flow Quality

Operating cash flow was a positive ¥2.88bn despite a net loss of ¥0.71bn, giving an OCF/Net Income ratio of −4.06; this typically indicates supportive working capital movements and non-cash charges (e.g., ¥558m D&A) cushioning cash generation. EBITDA was −¥567m, so the bridge from EBITDA to OCF likely includes favorable working capital (collection of receivables, inventory reductions, or payables dynamics) and tax timing effects; detailed drivers are not disclosed. Investing cash flow is unreported (shown as 0), preventing reliable estimation of capital expenditures and, therefore, free cash flow; the “Free Cash Flow: 0” placeholder should not be interpreted as actual FCF. Financing cash flow was an outflow of ¥482m, consistent with modest debt service, lease payments, or other financing uses; specifics are not disclosed. Given positive OCF and strong liquidity, near-term cash adequacy seems comfortable; however, sustainability depends on maintaining working capital discipline and improving operating earnings. Working capital intensity appears high (large current assets vs. current liabilities), which can be both a source of cash when unwound and a drain if rebuild is required as demand returns. Earnings quality is mixed: non-cash D&A and working capital drove cash flow while core profitability remained negative.

Dividend Sustainability

Annual DPS is undisclosed/0 for the period, with a payout ratio of 0% aligned with loss-making conditions (EPS −¥16.75). With operating losses and limited visibility on capex (investing CF undisclosed), assessing true FCF coverage of dividends is not possible; the reported FCF coverage of 0.00x is not decision-useful. The balance sheet is strong, which could theoretically support distributions, but current earnings do not. Near-term dividend policy is likely conservative until sustained operating profitability and clearer FCF emerge. Key determinants of dividend capacity will be a return to positive EBIT, stabilization of EBITDA, and visibility into maintenance vs. growth capex. Without capex data, we assume management prioritizes liquidity and restructuring/growth investments over payouts.

Risk Assessment

Business Risks:

• Demand volatility in industrial/auto electronics and specialty display markets leading to revenue swings
• Negative operating leverage from fixed-cost structure during downturns
• Pricing pressure and product mix shifts impacting gross margins
• Technology transition risk in legacy display products (e.g., VFD) and competition from alternative technologies
• Customer concentration risk typical in components and module businesses
• Supply chain and input cost fluctuations affecting cost of sales
• Foreign exchange volatility impacting ordinary income and competitiveness

Financial Risks:

• Sustained operating losses leading to negative interest coverage despite low absolute interest costs
• Working capital intensity creating cash flow volatility as demand cycles turn
• Limited disclosure on cash balance and capex constraining FCF visibility
• Potential need for restructuring charges to right-size cost base

Key Concerns:

• Double-digit YoY revenue decline (−14.7%) with continued operating losses
• EBITDA negative (−¥567m) and net margin −3.39%, indicating weak core profitability
• Dependence on non-operating items to narrow losses from operating to ordinary income
• Data gaps (cash, investing CF, equity ratio, shares) limiting per-share and FCF analysis

Investment Implications

Key Takeaways:

• Top-line down 14.7% YoY; negative operating leverage drove an operating loss of ¥1.13bn
• Gross margin reported at 20.8%, but operating costs remain too high for current scale
• Ordinary income benefited from non-operating gains, masking some operating weakness
• Liquidity and equity base are very strong, reducing near-term solvency concerns
• OCF positive at ¥2.88bn despite loss, likely on working capital releases and non-cash items
• Capex/FCF not disclosed; true cash generation capacity remains unclear
• Interest burden is low (¥38m), but interest coverage negative due to operating losses

Metrics to Watch:

• Order intake, book-to-bill, and backlog to gauge revenue inflection
• Sequential gross margin and operating margin trends (cost actions, mix improvement)
• EBITDA trajectory and conversion to OCF excluding working capital swings
• Inventory levels and turns; receivables collection and DSO
• Capex disclosures to assess sustainable FCF
• FX impacts on ordinary income and pricing competitiveness
• Any restructuring charges or cost-reduction targets

Relative Positioning: Versus Japan small-cap electronics/component peers, Futaba exhibits stronger liquidity and low leverage but weaker current-period profitability, with earnings dependence on non-operating factors; sustained recovery will hinge on demand normalization and cost base realignment.

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