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

Financial Highlights

• Net Sales: ¥168.54B
• Operating Income: ¥8.50B
• Net Income: ¥3.41B
• 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

Musashi Seimitsu Industry (TSE:7220) delivered resilient FY2026 Q2 consolidated results under JGAAP, with profitability improving despite a modest top-line contraction. Revenue declined 2.8% YoY to ¥168.5bn, reflecting soft volumes and/or pricing pressure, yet operating income rose 8.4% YoY to ¥8.5bn, evidencing effective cost control and better mix. Gross profit reached ¥24.8bn with a gross margin of 14.7%, while the operating margin improved to 5.0%, indicating progress in operating efficiency. Ordinary income was ¥8.0bn, slightly below operating income due to net non-operating costs including interest expense of ¥1.27bn. Net income increased sharply by 45.8% YoY to ¥4.33bn, assisted by stronger operations and manageable below-the-line items. DuPont analysis shows a calculated ROE of 3.39%, driven by a 2.57% net margin, 0.572x asset turnover, and 2.30x financial leverage. While ROE remains modest for an auto-parts supplier, the positive operating leverage amid revenue pressure is a constructive signal. EBITDA was ¥18.0bn (10.7% margin), and depreciation and amortization of ¥9.54bn underscore the capital-intensive nature of the business. Liquidity appears sound with a current ratio of 154.6% and quick ratio of 142.5%, supported by working capital of ¥51.9bn. The capital structure is moderate with total liabilities/equity at 1.26x; equity represents roughly 43.5% of total assets based on reported balances. Interest coverage is healthy at 6.7x, suggesting adequate debt-servicing capacity under current earnings. Operating cash flow was strong at ¥15.6bn, providing solid earnings quality with OCF/NI at 3.59x. However, free cash flow cannot be assessed due to unreported investing cash flows in the dataset, limiting visibility on capex intensity and cash conversion. Dividend data (DPS and payout) are not disclosed here, and share information is incomplete, constraining per-share and distribution analysis; therefore, dividend sustainability cannot be concluded from this extract. Overall, the company demonstrates improving profitability, healthy liquidity, and adequate solvency, but sustained ROE uplift will likely require either margin expansion or renewed growth. Data gaps (cash balance, investing CF, DPS, share count) warrant caution when interpreting cash flow coverage and shareholder return capacity.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 2.57% × asset turnover 0.572 × financial leverage 2.30 = ROE 3.39%. Margin quality improved: operating margin is 5.04% (¥8.50bn/¥168.55bn), up YoY as operating income rose despite lower sales. Gross margin is 14.7%, indicating moderate value-add typical of precision auto components; the EBITDA margin of 10.7% shows meaningful non-cash charges (D&A ¥9.54bn) relative to EBIT, consistent with high capital intensity. Ordinary income (¥7.96bn) sits below operating income due to net non-operating costs, including interest (¥1.27bn), though interest coverage of 6.7x remains comfortable. Estimated effective tax rate is approximately 35.9% using income tax (¥2.86bn) over a pre-tax proxy (ordinary income), noting JGAAP taxonomy differences. Operating leverage is positive: revenue fell 2.8% YoY while operating income rose 8.4% YoY, implying unit cost efficiencies, pricing/mix improvements, or reduced fixed cost burden. Sustained ROE improvement will require further margin gains or better asset turnover, as leverage is already moderate.

Growth Assessment

Top-line contracted 2.8% YoY to ¥168.5bn, suggesting soft demand in certain end-markets or FX/mix effects. Despite this, profit growth outpaced sales: operating income +8.4% YoY and net income +45.8% YoY, pointing to improved cost structure and potentially favorable product/customer mix. The widening gap between gross margin (14.7%) and operating margin (5.0%) implies controlled SG&A and efficiency gains YoY. Ordinary income at ¥8.0bn indicates manageable non-operating headwinds; interest costs were contained. Given the capital intensity (D&A ¥9.54bn), sustaining profit growth will depend on maintaining utilization and cost discipline while navigating auto cycle volatility. Revenue sustainability hinges on OEM program cadence, EV/HEV penetration of Musashi’s driveline portfolio, and regional demand (not disclosed here). Near-term outlook: modest growth pressure is possible if global light-vehicle production decelerates; however, cost actions could preserve operating margin around current levels. Upside could come from higher-value components and localization benefits; downside risks include raw material and energy costs and FX. Data limitations (no order backlog, segment/regional detail) temper the precision of the growth outlook. Overall, profit quality is improving even with flat-to-down revenue, a constructive sign for near-term resilience.

Financial Health

Liquidity is solid: current ratio 154.6% (¥146.9bn/¥95.0bn) and quick ratio 142.5% reflect ample near-term coverage; working capital is ¥51.9bn. Total assets are ¥294.4bn and total equity ¥128.0bn, implying an equity ratio of ~43.5% (computed) despite an unreported figure in the dataset, indicating a balanced capital base. Solvency appears adequate with total liabilities/equity of 1.26x and interest coverage of 6.7x. Leverage (assets/equity) at 2.30x supports ROE but leaves room for balance-sheet flexibility if needed. Cash and equivalents are not disclosed here, preventing a net-debt analysis; however, financing cash outflows of ¥9.83bn suggest debt repayment and/or distributions. Overall, the company maintains a prudent capital structure with sufficient cushion against cyclical headwinds.

Cash Flow Quality

Operating cash flow of ¥15.57bn versus net income of ¥4.33bn yields an OCF/NI ratio of 3.59x, indicating strong earnings quality and robust non-cash add-backs and/or working-capital release. EBITDA of ¥18.04bn provides additional comfort on cash generation capacity relative to interest expense (¥1.27bn). Free cash flow cannot be calculated because investing cash flow is unreported in this dataset; as such, capex intensity and true cash conversion are opaque. Working capital appears supportive of cash flows (current and quick ratios both strong), but detailed drivers (inventory, receivables, payables) are not fully disclosed; inventory reported at ¥11.52bn seems low relative to revenue, suggesting partial disclosure under different account names. Until capex data are available, cash sustainability and debt paydown capacity should be viewed with caution despite strong OCF.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed in the provided dataset, so distribution capacity cannot be directly assessed. With net income of ¥4.33bn and strong operating cash flow of ¥15.57bn, internal capacity to support dividends appears plausible, but confirmation requires visibility on capex (investing CF), cash balances, and any debt reduction priorities. FCF coverage cannot be gauged without investing CF; therefore, assessing dividend safety, growth potential, or adherence to a target payout policy is not possible from this data alone. If historical policy targets a stable or progressive dividend, sustainability will hinge on maintaining current operating margins and moderating capex through the cycle.

Risk Assessment

Business Risks:

• Auto cycle exposure and production volatility across key OEM customers
• Electrification transition potentially impacting driveline component demand and pricing
• Raw material and energy cost inflation affecting gross margin
• FX fluctuations impacting export profitability and translation
• Customer concentration risk typical for Tier-1 suppliers
• Program launch and execution risk for new platforms
• Geopolitical and supply-chain disruptions (logistics, components)

Financial Risks:

• Capital intensity requiring sustained capex to remain competitive
• Interest rate and refinancing risk despite current 6.7x coverage
• Potential working-capital swings affecting short-term cash generation
• Currency mismatch between revenues and costs impacting earnings volatility
• Limited visibility on cash and investing flows in disclosed data

Key Concerns:

• Revenue contraction (-2.8% YoY) despite margin improvements
• Moderate ROE at 3.39% below typical cost-of-equity benchmarks
• Incomplete disclosure on cash, investing CF, and dividends hindering FCF and payout assessment

Investment Implications

Key Takeaways:

• Profitability improved with operating income +8.4% YoY despite a 2.8% revenue decline, indicating positive operating leverage
• ROE of 3.39% remains modest; further margin expansion and/or asset turnover gains are needed
• Liquidity and solvency are healthy (current ratio 154.6%, interest coverage 6.7x, equity ratio ~43.5%)
• Earnings quality is strong with OCF/NI at 3.59x, but FCF is unclear due to unreported investing CF
• Capital intensity is high (D&A ¥9.54bn), underscoring the importance of capex discipline for cash conversion

Metrics to Watch:

• Revenue trajectory and order/program visibility by region and powertrain
• Gross and operating margins, especially cost pass-through effectiveness
• Capex and investing cash flows to determine true FCF and payout capacity
• Net debt and cash balances; net debt/EBITDA and interest coverage trends
• OCF/NI ratio and working-capital movements (receivables, inventories, payables)
• FX exposure and hedging impact on ordinary income

Relative Positioning: Within Japanese auto parts peers, Musashi shows improving margin discipline and solid liquidity/solvency, but ROE trails higher-return suppliers; clearer capex/FCF disclosure and sustained margin gains would be needed to close the gap.

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