HOKURIKU ELECTRIC INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.63B
• Operating Income: ¥1.32B
• Net Income: ¥1.05B
• EPS: ¥133.98

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: Solid profitability resilience with margin expansion despite top-line softness, supported by disciplined cost control and positive operating cash flow. Revenue declined 3.7% YoY to 206.33, but operating income rose 5.7% YoY to 13.18, indicating improved operating efficiency. Gross profit was 42.55, delivering a gross margin of 20.6%. SG&A expenses were 29.36, implying an SG&A ratio of 14.2%, which helped lift operating margin to 6.4%. Ordinary income surged 45.8% YoY to 13.73, aided by a positive non-operating balance (+0.54) and low interest costs (0.40). Net income increased 34.9% YoY to 10.51, with an effective tax rate of 27.9%. Operating margin expanded by an estimated 57 bps YoY (to 6.4%), while net margin improved by approximately 146 bps (to 5.1%). EBITDA was 18.40, with an EBITDA margin of 8.9%, and interest coverage was a very strong 32.95x. Balance sheet liquidity remains robust: cash and deposits of 110.24 versus short-term loans of 37.09, and a current ratio of 253%. Leverage is moderate with D/E at 0.86x and financial leverage (A/E) at 1.86x. Operating cash flow of 12.31 exceeded net income (OCF/NI 1.17x), indicating good earnings quality this quarter. ROE stood at 4.6% via DuPont, while ROIC at 4.9% is below the 5% warning threshold, signaling capital efficiency remains a structural improvement area. Dividend payout ratio is estimated at 72.4%, above the 60% benchmark, suggesting a tighter buffer for reinvestment if earnings soften. Financing cash outflow of -17.63 includes share buybacks of -1.28 and likely debt repayments, consistent with balance sheet discipline. Forward-looking, the company enters the second half with healthy liquidity and improved margins, but will need to lift ROIC and sustain margin gains amid a weaker revenue environment. Key watchpoints include order trends, FX, and the sustainability of non-operating contributions.

Profitability Analysis

ROE decomposition: ROE (4.6%) = Net Profit Margin (5.1%) × Asset Turnover (0.487) × Financial Leverage (1.86x). The most significant positive change versus last year appears in net margin, which we estimate expanded ~146 bps (from ~3.6% to 5.1%), driven by improved cost discipline (lower SG&A ratio) and a net positive non-operating balance. Operating margin also rose ~57 bps YoY to ~6.4%, implying better gross-to-operating conversion despite lower revenue. Asset turnover of 0.487 (half-year basis) suggests subdued volume/utilization; top-line contraction (-3.7%) limited efficiency gains here. Financial leverage at 1.86x remains moderate and relatively stable; leverage was not the driver of ROE change. Business drivers: cost control (SG&A containment) and manageable interest burden (interest expense 0.40 with 32.95x coverage) improved bottom-line conversion; a small uplift from non-operating income (interest/dividends) also helped ordinary income. Sustainability: cost-driven margin gains can persist if mix and pricing hold, but reliance on non-operating tailwinds (non-operating income ratio 15.2%) is less controllable; continued gross margin discipline is key. No evidence that SG&A grew faster than revenue (YoY SG&A not disclosed), but vigilance is warranted given the softer sales base. Overall, ROE remains constrained by low asset turnover and sub-5% ROIC, highlighting the need for better capital productivity.

Growth Assessment

Revenue declined 3.7% YoY, indicating a soft demand backdrop or product mix normalization. Profit growth outpaced sales due to improved margins: operating income +5.7% and net income +34.9% YoY, reflecting operating leverage and cleaner non-operating items. Gross margin of 20.6% and operating margin of 6.4% are constructive versus last year, but still modest for further self-funded growth. Ordinary income benefited from interest/dividend income (non-operating income 1.60 vs expenses 1.06). With ROIC at 4.9%, growth reinvestment returns are below the 7–8% target range seen in efficient peers, suggesting careful capital allocation is needed to drive sustainable growth. Outlook hinges on order momentum in electronics end-markets (not disclosed), FX tailwinds, and cost pass-through. Given liquidity strength and lean cost base, the company is positioned to defend profitability if volumes remain soft; any top-line recovery would likely translate well into earnings.

Financial Health

Liquidity is strong: current ratio 253.1% and quick ratio 238.5% (both well above benchmarks). No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is 0.86x, a conservative profile. Cash and deposits (110.24) comfortably exceed short-term loans (37.09), reducing refinancing risk. Working capital is ample at 179.84, with receivables 84.58 and inventories 17.15; collection risk appears manageable given the cash balance, though receivables represent ~41% of H1 revenue. Total liabilities are 196.16 against equity of 227.63, implying financial leverage of 1.86x (assets/equity). Long-term loans of 41.30 suggest some duration balance; no evident maturity mismatch given strong current assets. No off-balance sheet obligations disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 1.17x, indicating good earnings-to-cash conversion and low accrual pressure this period. OCF of 12.31 covers estimated dividends if the 72.4% payout ratio is applied to NI (implied dividends ~7.6), leaving buffer pre-capex; however, investing CF and capex are unreported, so FCF cannot be confirmed. Financing CF of -17.63 reflects de-leveraging/shareholder returns (including -1.28 in buybacks). No clear signs of working capital manipulation from the data provided; however, without period-to-period deltas for AR/inventory, we cannot assess timing effects. Free cash flow sustainability for both dividends and capex cannot be determined due to missing investing CF and capex figures.

Dividend Sustainability

The calculated payout ratio is 72.4%, above the <60% benchmark, implying a tighter cushion if earnings weaken. Using NI 10.51, implied dividends would be ~7.6, which are covered by OCF of 12.31 (~1.6x) before capex; coverage after capex is unknown given unreported investing CF/capex. Balance sheet liquidity (cash 110.24) provides flexibility for near-term distributions, but structurally low ROIC (4.9%) argues for cautious capital returns until reinvestment returns improve. Dividend policy details, DPS, and total dividends paid are unreported; future payout may be sensitive to H2 profitability and capex needs.

Risk Assessment

Business Risks:

• End-market demand volatility in electronics/components leading to revenue declines (-3.7% YoY).
• Margin sensitivity to input costs and pricing, with modest operating margin (6.4%).
• FX fluctuations affecting export competitiveness and translated profits (not disclosed but typical for sector).
• Potential concentration in automotive/industrial segments (typical for Japanese component makers; not disclosed).
• Supply chain and lead-time risks impacting deliveries and working capital.

Financial Risks:

• ROIC at 4.9% below target levels, indicating suboptimal capital efficiency.
• Elevated payout ratio (72.4%) could constrain reinvestment during downturns.
• Ordinary income partly reliant on non-operating items (non-operating income ratio 15.2%), which may be volatile.
• Receivables represent ~41% of H1 revenue, exposing the company to collection timing risk.

Key Concerns:

• Sustaining margin gains if revenue softness persists.
• Limited visibility on capex and investing CF, obscuring true FCF and dividend headroom.
• Dependence on macro/FX/semiconductor cycle for recovery in asset turnover and ROE.

Investment Implications

Key Takeaways:

• Profitability improved despite lower sales; operating margin expanded ~57 bps and net margin ~146 bps YoY.
• Earnings quality is solid with OCF/NI at 1.17x and strong interest coverage (32.95x).
• Balance sheet is robust: cash exceeds short-term debt; current ratio 253%.
• Capital efficiency is the main drag: ROE 4.6% and ROIC 4.9% remain low.
• Payout ratio of 72.4% is on the high side; sustainability depends on H2 cash generation and capex.

Metrics to Watch:

• Order backlog/book-to-bill and H2 revenue trajectory.
• Gross and operating margin trend (pricing vs input costs).
• Capex and investing cash flows to clarify FCF.
• ROIC progression and asset turnover improvements.
• AR days and inventory turns to monitor working capital discipline.
• FX rates (USD/JPY, EUR/JPY) and exposure breakdown.
• Non-operating income/expense volatility.

Relative Positioning: Within Japanese electronic component peers, the company shows conservative liquidity and leverage with improved margins, but trails best-in-class players on capital efficiency (ROIC/ROE). Its cash position and low interest burden provide resilience, yet sustained re-rating likely requires clearer top-line recovery and ROIC uplift.

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