F-TECH INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥142.09B
• Operating Income: ¥2.85B
• Net Income: ¥595M
• EPS: ¥16.12

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

Verdict: Mixed quarter—operating execution improved markedly, but bottom-line was nearly wiped out by a heavy tax burden and financing costs, leaving capital efficiency weak. Revenue declined 2.5% YoY to 1,420.94, yet operating income rose 45.9% to 28.48, evidencing solid cost control and manufacturing efficiency gains. Gross profit was 118.42, implying an 8.3% gross margin; operating margin reached approximately 2.0% (28.48/1,420.94). We estimate operating margin expanded by about 66 bps YoY (vs. ~1.34% a year ago based on back-solved comparables), despite lower sales. Ordinary income doubled (+103.5% YoY) to 18.24, translating to an ordinary margin of roughly 1.28%, about a 67 bps YoY expansion. Net income was only 2.99, a slim 0.21% net margin, pressured by a very high effective tax rate of 70.2% and interest expense of 10.49. Non-operating expenses (13.82) exceeded non-operating income (3.57), with interest the main drag, partially offset by interest income and dividends. Cash generation was robust: operating cash flow of 63.96 was 21.4x net income, supported by sizable non-cash depreciation of 63.66. Financing cash outflow of -23.22 indicates net repayments or distributions, while capex was disciplined at 52.40, implying positive albeit modest FCF (~11.56) under our calculation. Liquidity is tight with a current ratio of 101.3% and a quick ratio of 92.7%, and leverage remains elevated at a D/E of 1.75x, constraining flexibility. Total comprehensive income was negative (-15.23), suggesting valuation or FX losses that eroded equity despite positive net income. ROIC is low at 1.4%, below a typical cost of capital, highlighting poor capital efficiency. Overall, operational recovery is tangible (margin expansion), but earnings quality optics are skewed by taxes and financing costs, and balance sheet constraints persist. Forward-looking, sustaining OPM gains, normalizing the tax rate, and deleveraging (or lowering interest costs) are pivotal to translate improving operations into durable net profit growth. Close monitoring of short-term debt rollover risk, effective tax normalization, and further cost pass-through to customers will determine the trajectory into 2H. In sum, execution is improving at the factory floor, but financial structure and below-par ROIC remain the key brakes on equity value compounding.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = 0.2% × 0.833 × 2.75 ≈ 0.5% (matches reported 0.5%). Component changes: the largest YoY improvement came from profit margin at the operating/ordinary level (OPM +~66 bps, ordinary margin +~67 bps), while leverage (2.75x) and asset turnover (0.833) appear broadly stable given the revenue dip. Business driver: the operating margin expansion despite lower revenue implies cost reduction/productivity improvements and possibly better pricing/mix or pass-through effects, albeit partially offset by higher financing costs in non-operating items. Sustainability: operational improvements can be sticky if driven by structural cost downs and process efficiency; however, the elevated financing cost and unusually high tax rate depress net margin—normalization of taxes could lift ROE, but sustained deleveraging or lower interest rates are needed to fully capture operating gains. Concerning trends: SG&A detail is unreported, but ordinary income being dragged by interest expense (10.49) and non-operating net cost (10.25) is a headwind. Also, ROIC at 1.4% is far below the 7–8% target zone, signaling insufficient returns on invested capital despite better OPM.

Growth Assessment

Topline contracted 2.5% YoY to 1,420.94, likely reflecting softer auto production volumes or model transitions. Profit growth was driven by margin expansion: operating income +45.9% YoY to 28.48 and ordinary income +103.5% to 18.24. Net income of 2.99 was constrained by a 70.2% effective tax rate and interest burden, masking underlying operating progress. With D&A of 63.66, EBITDA reached 92.14 (6.5% margin), providing cushion to service debt but still modest versus peers. Revenue sustainability hinges on OEM production schedules, EV platform transitions, and potential price/pass-through agreements. Profit quality appears to be improving at the operating level; however, financial structure (interest costs) and tax normalization are necessary for durable EPS growth. Outlook: if operating margin gains persist and the tax rate reverts toward a normalized range (e.g., 30–35%), net margin could improve materially; further cost pass-through and mix upgrades are key amid input and wage inflation. Near term, revenue likely tracks OEM output and FX, while execution focus should remain on cost controls and asset efficiency to lift ROIC.

Financial Health

Liquidity: current ratio 101.3% (borderline) and quick ratio 92.7% (below 1.0—caution). Solvency/leverage: D/E at 1.75x is elevated vs. a conservative <1.5x benchmark, though not above the 2.0x high-risk threshold. Interest coverage at 2.71x is adequate but sub-comfortable (<5x), leaving limited buffer if earnings soften or rates rise. Maturity mismatch: short-term loans of 291.60 are sizable relative to cash (131.61) and working capital (9.57), but current assets of 774.96 (including 341.81 AR and 65.53 inventories) should cover current liabilities of 765.39—tight but manageable; rollover risk exists. Off-balance sheet: none disclosed in the provided data.

Cash Flow Quality

Earnings quality: OCF/NI at 21.39x is strong—cash generation far exceeds accounting earnings, largely due to substantial non-cash D&A (63.66) and possibly timing effects in taxes/interest. Free cash flow: with capex of 52.40 and OCF of 63.96, implied FCF is approximately 11.56, positive and supportive of deleveraging or distributions. Sustainability: OCF is supported by EBITDA; with EBITDA of 92.14 and interest of 10.49, pre-tax cash interest coverage is healthy, but capex must remain disciplined to keep FCF positive. Working capital: limited visibility on components, but OCF roughly matching D&A suggests minimal adverse WC drag this period; no clear signs of working capital manipulation from available figures.

Dividend Sustainability

Payout ratio (calculated) at 125.2% indicates dividends exceed current-period earnings, which is not sustainable if persistent. However, implied positive FCF (~11.56) suggests some cash headroom if actual cash dividends are modest; total dividends paid are unreported. With leverage elevated and liquidity tight, prioritizing balance sheet strengthening over high payouts would be prudent. Outlook: dividend capacity hinges on sustaining OCF and improving net income via tax normalization and interest burden reduction; without these, maintaining a payout above earnings would be risky.

Risk Assessment

Business Risks:

• Auto production volume volatility and model cycle risk affecting revenue
• Cost inflation (materials, energy, wages) challenging margin pass-through
• EV/platform transition potentially requiring higher capex and R&D
• Customer concentration typical of Tier-1/Tier-2 suppliers (not disclosed here)

Financial Risks:

• Tight liquidity (quick ratio 0.93) and high short-term loans (291.60) pose rollover risk
• Elevated leverage (D/E 1.75x) and modest interest coverage (2.71x)
• High effective tax rate (70.2%) suppressing net income and cash available for equity
• Negative total comprehensive income (-15.23) indicates valuation/FX losses impacting equity

Key Concerns:

• ROIC at 1.4% well below cost of capital, implying value dilution unless improved
• Non-operating expenses (especially interest) offset operating gains
• Borderline current ratio (1.01) and minimal working capital buffer (9.57)
• Visibility limited by unreported SG&A and dividend details, creating uncertainty on cost dynamics and payout policy

Investment Implications

Key Takeaways:

• Operating margin expanded to ~2.0% despite a 2.5% revenue decline, signaling improved execution
• Ordinary income more than doubled, but heavy interest and taxes capped net margin at 0.21%
• OCF strong at 63.96 with D&A of 63.66; implied FCF positive (~11.56)
• Liquidity tight (quick ratio 0.93) and leverage elevated (D/E 1.75x), constraining flexibility
• ROIC of 1.4% highlights subpar capital efficiency; improving asset turns/margins is critical
• Negative comprehensive income (-15.23) erodes equity despite positive NI—likely FX/valuation-related
• Interest expense (10.49) is a meaningful drag; deleveraging or refinancing could unlock earnings

Metrics to Watch:

• Operating margin and gross margin trajectory (bps changes QoQ/YoY)
• Effective tax rate normalization path
• Interest coverage and total interest expense trend
• Short-term debt rollover and net debt movement
• Working capital (AR days, inventory days) and cash conversion
• Capex discipline vs. EBITDA and OCF
• Total comprehensive income (FX and securities valuation impacts)

Relative Positioning: Versus domestic auto parts peers, profitability and ROIC are on the low end, leverage is somewhat higher than conservative peers, and liquidity is tighter; execution improvements are visible, but financial structure and low capital returns remain notable disadvantages.

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