IHI Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥713.65B
• Operating Income: ¥69.45B
• Net Income: ¥57.05B
• EPS: ¥52.76

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

IHI (IFRS, consolidated) reported FY2026 Q2 results with revenue of 7,136.51 (100M JPY), down 5.8% YoY, indicating a softer topline likely reflecting slower demand and/or delivery timing in project-centric businesses. Gross profit was 1,837.74 with a gross margin of 25.8%, suggesting reasonable pricing/production economics despite the revenue decline. SG&A was 1,029.87, and operating income came in at 694.49 (-10.1% YoY), implying some operating deleverage as fixed costs weighed on margins amid lower volumes. Operating margin was approximately 9.7% (operating income/revenue), a solid level for heavy industrials but down YoY given the operating income contraction. Profit before tax rose to 747.09, exceeding operating income by 52.6, implying positive non-operating contributions (e.g., equity-method gains of 44.33 and/or FX/one-off items), partially offsetting operating pressure. Net income surged 42.2% YoY to 559.12, driven by improved below-OP line items and a normalized tax burden (effective tax rate 29.1%). DuPont shows net margin of 7.8%, asset turnover of 0.305x, and financial leverage of 4.13x, yielding ROE of 9.9%—healthy for the sector, with leverage amplifying moderate profitability. The equity ratio is reported at 23.1%, broadly consistent with substantial leverage typical of EPC/project-heavy businesses. Cash flows were weak: operating CF was -74.41 and free cash flow was -327.30, implying earnings did not convert to cash this half, likely due to working capital absorption in receivables/inventory tied to project execution timing. Investing CF of -252.89 indicates ongoing reinvestment, while financing CF of -146.60 suggests net outflows including dividends (-75.72) and possibly debt reduction. Balance sheet shows large current assets (13,022.63) with heavy accounts receivable (5,067.18) and inventories (4,440.66), consistent with long-cycle businesses and explaining OCF drag. Debt-to-equity is 3.06x, highlighting sensitivity to funding conditions and importance of cash discipline. EPS (basic) was 52.76 JPY, aligning with reported net income and average shares (1,059.78 million). Dividend data are incomplete; a calculated payout ratio of 232.4% is not comparable for the half and should be treated with caution given limited disclosure. Overall, profitability is resilient at the net level, but cash flow quality and leverage warrant monitoring given project-driven working capital swings and the current negative FCF.

Profitability Analysis

ROE_decomposition: Net margin 7.8% x asset turnover 0.305x x financial leverage 4.13x = ROE ~9.9% (matches reported). Margin strength and high leverage compensate for modest asset efficiency. margin_quality: Gross margin 25.8% and operating margin ~9.7% indicate solid pricing/cost control. Operating income fell 10.1% YoY on a 5.8% revenue decline, implying negative operating leverage this half. Net margin at 7.8% benefited from below-OP items (equity-method income 44.33 and other non-operating positives). operating_leverage: With SG&A at 1,029.87 vs gross profit 1,837.74, fixed cost absorption pressured OP when sales declined. OP fell faster than revenue (-10.1% vs -5.8%), evidencing operating deleverage. Continued cost discipline is needed if revenue softness persists.

Growth Assessment

revenue_sustainability: Revenue declined 5.8% YoY to 7,136.51. Given IHI’s long-cycle/project mix, this likely reflects delivery phasing rather than structural demand erosion; however, visibility hinges on order intake and backlog (not disclosed here). profit_quality: OP was down YoY, but PBT and NI rose due to non-operating gains and equity-method contributions. This mix raises sustainability questions: earnings reliance on below-OP items may be less repeatable than core margin improvement. outlook: If project deliveries normalize and aero/industrial demand remains supportive, margins could stabilize. Near-term growth depends on backlog burn, supply chain normalization, and pricing to offset cost inflation. Absent stronger topline, OP recovery will require efficiency gains.

Financial Health

liquidity: Current assets are 13,022.63, but current liabilities are unreported, so current/quick ratios are not calculable. Cash and deposits are unreported; cash and equivalents at period-end are 1,368.09, indicating available liquidity but not sufficient alone to infer short-term coverage. solvency: Total liabilities 17,317.32 vs total equity 5,660.90 yields a debt-to-equity ratio of 3.06x, reflecting high leverage. The equity ratio is 23.1% (likely based on owners’ equity), consistent with a geared balance sheet typical of EPC/project businesses. capital_structure: Interest-bearing debt breakdown is unreported, but financing CF (-146.60) and dividends (-75.72) imply ongoing capital returns and/or debt movements. Leverage amplifies ROE but heightens sensitivity to cash flow volatility and interest rates.

Cash Flow Quality

earnings_quality: OCF/Net income is -0.13x (OCF -74.41 vs NI 559.12), indicating poor cash conversion this half. The divergence likely stems from working capital build tied to receivables (5,067.18) and inventories (4,440.66) in long-cycle projects. FCF_analysis: Free cash flow was -327.30 (OCF -74.41 plus investing CF -252.89). Negative FCF despite positive earnings underscores reliance on external funding or cash balances in the period. working_capital: Detailed movement is not disclosed, but the large AR and inventory balances suggest cash is tied up in WIP and milestone-based billing. Monitoring DSO/DIO and advances received is key (not available here).

Dividend Sustainability

payout_ratio_assessment: A calculated payout ratio of 232.4% is likely distorted by period mismatch and incomplete DPS data; treat as non-comparable. On a cash basis, dividends paid were 75.72 against negative FCF, implying uncovered dividends this half. FCF_coverage: FCF coverage negative (-0.25x), as FCF is -327.30. Coverage should improve if working capital unwinds in H2; current data do not confirm this. policy_outlook: Without disclosed full-year DPS or policy guidance, sustainability hinges on H2 cash generation and backlog delivery. Given leverage, stable or rising dividends would require improved OCF and visibility on project cash milestones.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns in EPC/industrial projects
• Aero-engine demand and MRO cycle sensitivity
• Supply chain constraints and parts inflation impacting margins
• Timing risk on milestone recognition and deliveries affecting quarterly volatility
• Foreign exchange exposure on imports/exports and translation of overseas subsidiaries

Financial Risks:

• High leverage (debt-to-equity 3.06x) and low equity ratio (~23%)
• Weak cash conversion this half (OCF/NI -0.13x) and negative FCF
• Potential interest rate sensitivity with unreported interest-bearing debt structure
• Working capital intensity (large receivables and inventory) creating cash flow swings

Key Concerns:

• Sustainability of net income strength given reliance on non-operating gains
• Execution on backlog to release working capital and restore OCF
• Maintaining covenant headroom and liquidity under volatile project cash profiles

Investment Implications

Key Takeaways:

• Revenue down 5.8% YoY; operating income down 10.1% indicates operating deleverage.
• Net income up 42.2% YoY driven by below-OP items, lifting net margin to 7.8%.
• ROE at 9.9% supported by leverage (4.13x) and decent margins; asset turnover remains low at 0.305x.
• Cash conversion weak (OCF -74.41) with FCF -327.30; working capital absorption is the main drag.
• Balance sheet geared (debt-to-equity 3.06x; equity ratio ~23%), requiring disciplined cash management.
• Dividend coverage by FCF is negative this half; payout assessment constrained by data gaps.

Metrics to Watch:

• Order intake and backlog by segment
• Operating cash flow and OCF/NI conversion ratio
• Receivables and inventory turnover (DSO/DIO) and advances received
• Segment operating margins and cost pass-through
• Equity-method income sustainability and non-operating items
• Leverage metrics (net debt/EBITDA when disclosed) and equity ratio

Relative Positioning: Within Japanese heavy industrial peers, IHI shows respectable operating margins and ROE aided by leverage but weaker cash conversion this half. Compared with peers exposed to long-cycle projects (e.g., MHI, Kawasaki Heavy Industries), the profile is consistent: earnings can be solid while cash flow is volatile due to working capital dynamics.

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
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