MUSASHI SEIMITSU INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥168.54B
• Operating Income: ¥8.50B
• Net Income: ¥4.86B
• EPS: ¥66.11

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

FY2026 Q2 results were resilient with improved profitability despite a modest revenue decline. Revenue fell 2.8% YoY to 1,685.45, but operating income rose 8.4% YoY to 84.98, lifting operating margin to 5.0%. Ordinary income increased 27.4% YoY to 79.64, and net income surged 45.8% YoY to 43.32, supported by tighter cost control and a stronger operating base. Gross profit was 256.75, implying a gross margin of 15.2%, and EBITDA reached 173.39 (EBITDA margin 10.3%). We estimate operating margin expanded by roughly 52 bps YoY (to 5.0% from about 4.5%), given higher operating profit on lower sales. Non-operating items were a net drag (income 13.90 vs expenses 19.24; net -5.34), mainly from interest expense of 10.73, partially offset by interest and dividend income totaling 5.07. The effective tax rate was elevated at 37.9%, tempering the flow-through from ordinary profit to net income. Cash generation was strong: operating cash flow (OCF) was 169.08, which is 3.9x net income, pointing to high earnings quality this quarter. Free cash flow, approximated as OCF minus capex, was positive at about 68.01, even after capital expenditures of 101.07. The balance sheet shows solid liquidity with a current ratio of 153.1% and quick ratio of 139.1%, though leverage remains meaningful with a D/E of 1.30x and Debt/EBITDA of 5.42x. ROE stands at a modest 3.4% and ROIC at 2.9%, both below desirable thresholds and highlighting capital efficiency as a key structural challenge. Working capital appears well managed, with cash and deposits of 372.57 and receivables of 469.92 comfortably offsetting short-term loans of 433.43. While dividends data are largely unreported, the calculated payout ratio of 75.7% looks high against earnings but appears covered by FCF this period. Forward-looking, the margin traction and strong OCF are positives, but sustained improvement in ROIC and deleveraging are necessary to enhance shareholder value. Key watchpoints are cost pass-through to customers, capex discipline, and sensitivity to auto production cycles and FX.

Profitability Analysis

ROE (3.4%) decomposes into Net Profit Margin (2.6%) × Asset Turnover (0.572) × Financial Leverage (2.30x). The dominant change driver this quarter is margin improvement: operating income rose 8.4% YoY despite a 2.8% sales decline, pushing operating margin to 5.0% and likely lifting net margin. Asset turnover likely eased slightly as sales contracted while the asset base remained large (assets 2,944.06), and leverage appears broadly stable at 2.30x. Business rationale for margin gains includes cost control (SG&A of 171.76 holding well relative to revenue) and operating efficiency reflected in EBITDA of 173.39. Non-operating headwinds (net -5.34) and a high effective tax rate (37.9%) capped net margin expansion. The margin gains look partly sustainable if cost discipline and pricing hold, but sensitivity to input costs, FX, and OEM volume remains high. Watch for any SG&A growth outpacing sales; with revenue down and SG&A contained, no red flag this quarter. Overall, mix and operating leverage supported profitability, but structurally low net margin and capital intensity keep ROE muted.

Growth Assessment

Top-line contracted 2.8% YoY to 1,685.45, suggesting a soft demand environment or pricing/mix headwinds. Profit growth outpaced sales: operating income +8.4% to 84.98, ordinary income +27.4% to 79.64, and net income +45.8% to 43.32, indicating improved operating efficiency. Gross margin printed at 15.2% and operating margin at 5.0%, both consistent with disciplined cost control. Non-operating drag (net -5.34) and a high tax rate moderated the flow-through to net. EBITDA margin of 10.3% indicates healthy operating cash earnings supporting investment needs. Near-term outlook hinges on auto production trends, FX pass-through, and input cost stability; growth is more margin-led than volume-led at present. Sustainability will depend on maintaining SG&A discipline and realizing returns on capex to lift ROIC from 2.9%.

Financial Health

Liquidity is solid: current ratio 153.1% and quick ratio 139.1%, both above benchmarks. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.30x, a moderate-to-elevated level for an auto parts supplier. Interest coverage is strong at 7.92x, indicating manageable interest burden. Short-term loans total 433.43 against cash 372.57 plus receivables 469.92, suggesting low maturity mismatch risk given sizeable current assets (1,514.79) versus current liabilities (989.59). Total debt (short-term 433.43 + long-term 507.00) of ~940 indicates leverage remains meaningful relative to EBITDA (Debt/EBITDA 5.42x). No off-balance sheet obligations are reported in the data provided. Equity stands at 1,279.54, supporting a buffer for volatility, but capital efficiency is weak.

Cash Flow Quality

OCF of 169.08 is 3.90x net income of 43.32, comfortably above the 0.8 threshold and indicative of high earnings quality this period. Approximate FCF is positive at 68.01 after capex of 101.07, leaving capacity for debt service and dividends. With financing CF at -26.63, the company appears to be modestly reducing net debt or paying dividends/interest. Working capital details by movement are not disclosed, but strong OCF alongside lower sales suggests cash conversion benefits, likely from receivables or inventory management. No clear signs of working capital window-dressing are evident from the aggregate data, though verification would require period-over-period WC roll-forwards.

Dividend Sustainability

Dividend disclosures are limited; however, the calculated payout ratio is 75.7%, which is above the <60% benchmark and signals a relatively aggressive policy versus current earnings power. Using the calculated payout ratio, implied dividends would be ~32.8 (0.757 × 43.32). With estimated FCF of ~68.01, FCF coverage of implied dividends is about 2.1x this period, suggesting near-term affordability. Sustainability hinges on maintaining OCF and disciplined capex; given ROE of 3.4% and ROIC of 2.9%, higher payout could constrain reinvestment unless profitability improves. Policy outlook: stable to cautious; a prudent stance would be to align distributions with sustained FCF rather than episodic OCF strength. Data gaps (DPS, total dividends paid) limit precision.

Risk Assessment

Business Risks:

• Auto production and demand cyclicality affecting volumes and pricing
• Input cost and energy price volatility impacting gross margin (15.2%)
• FX fluctuations affecting export competitiveness and translation of overseas operations
• Customer concentration risk typical for tier-1/2 auto suppliers
• Execution risk on capex returns given ROIC at 2.9%

Financial Risks:

• Leverage: Debt/EBITDA at 5.42x and D/E at 1.30x
• Interest rate risk on 433.43 of short-term loans
• High effective tax rate (37.9%) dampening net profitability
• Non-operating drag (net -5.34) including interest expense of 10.73

Key Concerns:

• Capital efficiency: ROE 3.4% and ROIC 2.9% below cost of capital
• Thin operating margin (5.0%) vulnerable to cost shocks
• Reliance on strong OCF to support elevated payout ratio (~75.7%)

Investment Implications

Key Takeaways:

• Profitability improved despite a 2.8% revenue decline; operating margin expanded to 5.0% (~+52 bps YoY).
• OCF robust at 169.08 (3.9x net income), enabling positive FCF (~68.01) after 101.07 of capex.
• Balance sheet liquidity is healthy, but leverage remains notable (D/E 1.30x; Debt/EBITDA 5.42x).
• ROE 3.4% and ROIC 2.9% highlight a need for structural returns improvement.
• Dividend affordability appears adequate on current FCF, but payout ratio (~75.7%) is high versus earnings.

Metrics to Watch:

• Operating margin and gross margin trajectory
• ROIC progression toward >5% and ideally 7–8%
• Debt/EBITDA and interest coverage amid rate and FX changes
• OCF to net income ratio and working capital turns
• Capex intensity versus realized returns
• OEM production trends and order book visibility

Relative Positioning: Within Japanese auto parts peers, Musashi shows solid cash conversion and improving margins this quarter but lags on capital efficiency and carries relatively higher leverage; sustained ROIC uplift and deleveraging would be required to close the gap with best-in-class suppliers.

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
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