EIKEN INDUSTRIES CO.,LTD FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.95B
• Operating Income: ¥53M
• Net Income: ¥48M
• EPS: ¥47.27

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Verdict: FY2026 Q1 results show modest revenue resilience but materially weaker profitability, driven by margin compression and working-capital strain. Net sales edged down 2.7% YoY to ¥1,950 million (19.50 億円) while operating income fell 53.7% YoY to ¥53 million (0.53 億円). Ordinary income declined 52.9% YoY to ¥61 million and net income fell 47.1% YoY to ¥48 million. Gross profit was ¥258 million (2.58 億円), delivering a gross margin of 13.2%; SG&A totaled ¥204 million leaving an operating margin of 2.7% (EBIT margin 2.7%). Effective tax rate for the quarter was 20.8%, and interest expense was immaterial at ¥1.15 million, producing a high interest coverage ratio of ~46x by reported calculation. Balance sheet remains conservatively funded: total assets ¥7,780 million, equity ¥6,036 million and interest-bearing debt limited to short-term loans of ¥460 million (debt/equity ~0.29x). Liquidity on a balance-sheet basis is healthy: cash & deposits ¥1,785 million and current ratio ~335% with working capital of ¥3,378 million. However, operating efficiency and working-capital dynamics present material operational risks: reported DSO and DIO indicators are very high (quality alerts), producing an extended cash conversion cycle flagged by the company data. Segment concentration is acute — the Filter segment accounts for 95.8% of revenue (¥1,869 million) and generates most of operating profit (¥137 million), creating customer/product concentration risk. Year-on-year comparisons show the Filter segment revenue down 3.4% and operating profit down 31.9%, while the smaller Burning Appliances segment grew revenue 17.9% but contributes only ~4% of sales. Management guidance (full-year forecast) implies slight revenue growth (+3.1% YoY) but essentially flat operating income for the full year (FY full-year operating income forecast ¥4,080 million) relative to base; full-year net income guidance is ¥3,010 million. Profitability metrics are weak: calculated ROE 0.8% and calculated ROIC 0.9% (quality alerts). Earnings quality cannot be assessed (operating cash flow and FCF unreported), but high receivable and inventory days combined with long CCC raise the risk that reported profits are not being converted into cash. Key short-term implications: (1) liquidity appears adequate today because of high cash balances and low leverage, but refinancing/rollover risk exists because all debt is short-term; (2) operational focus should be on reducing receivables and inventories in the Filter business to restore margin and free cash flow; (3) concentration in a single segment and low operating margin keep the company sensitive to demand or price shifts in that product line. Overall, the quarter shows conservative capitalization but weakening operating performance and poor working-capital efficiency that merit close monitoring over subsequent quarters.

Profitability Analysis

dupont_3_factor:

• net_profit_margin: 2.5% (Net income ¥48m / Revenue ¥1,950m)
• asset_turnover: 0.251x (Revenue ¥1,950m / Total assets ¥7,780m)
• financial_leverage: 1.29x (Assets/Equity)
• calculated_roe: 0.8% (matches reported) which_component_changed_most: Net profit margin contracted the most (operating income down 53.7% YoY and net margin down materially) relative to minor movement in asset turnover and stable leverage. explanation_for_change: The operating margin contraction stems from lower gross profit (gross margin 13.2%) combined with SG&A that consumes a large portion of gross profit — SG&A of ¥204m vs gross profit ¥258m leaves a slim operating result. Segment performance shows the Filter business (95.8% of revenues) saw revenue -3.4% and operating profit -31.9%, pointing to mix/price/volume pressure or higher cost of goods sold in the core product line. sustainability_assessment: The deterioration in margins appears at least partly structural given persistent low gross margin and high inventories/receivables, suggesting working-capital related inefficiencies or pricing pressure rather than a one-off. Without demonstrable cost reductions or inventory/collection improvements, margin recovery is uncertain. concerning_trends_flagged: Yes — SG&A relative to gross profit is high (SG&A consumes ~79% of gross profit), and capital efficiency metrics (ROIC 0.9%) are well below industry benchmarks. Also high inventory/receivable days indicate potential future margin impairment or write-down risk.

Growth Assessment

revenue_sustainability: Revenue slightly declined (-2.7% YoY) in Q1. The company’s full-year forecast implies modest growth (+3.1% YoY), but that relies on stronger H2 performance; the heavy concentration in the Filter segment (95.8% of sales) makes top-line sustainability sensitive to demand in that product line. profit_quality: Reported profits are thin and there is insufficient cash-flow disclosure to confirm conversion to cash (OCF and FCF unreported). High DSO and DIO flagged by the dataset indicate profit may not convert to cash quickly, weakening profit quality. outlook: Near term outlook is cautious: management projects roughly flat operating income for the full year, implying they expect margin pressures to persist. The company’s strong balance-sheet liquidity cushions risk, but operational reforms (inventory reduction, receivables collection) are needed to convert forecasted sales into durable earnings growth.

Financial Health

liquidity:

• current_ratio: 335.1% (Current assets ¥4,815m / Current liabilities ¥1,437m) — ample on a balance-sheet basis
• quick_ratio: 278.5% — indicates strong liquid coverage excluding inventories solvency:
• debt_to_equity: 0.29x (Interest-bearing debt ¥460m / Equity ¥6,036m) — conservative leverage
• debt_capital: 7.1% (reported)
• short_term_debt_ratio: 100.0% of interest-bearing debt is short-term (Short-term loans ¥460m; Long-term loans unreported) maturity_mismatch_warning: All reported interest-bearing debt is short-term, creating refinancing risk despite low absolute debt—this is material if market funding conditions tighten. off_balance_sheet: No off-balance-sheet obligations reported in the available data.

Cash Flow Quality

ocf_vs_net_income: Not calculable — Operating CF not reported. This prevents conclusive assessment of earnings-to-cash conversion. ocf_net_income_flag: Cannot compute OCF/Net Income; however, quality alerts indicate OCF/Net Income could be weak given very long DSO/DIO/CCC. fcf_sustainability: Free cash flow not reported. Given high inventory and receivables days, FCF is at risk until working capital is improved despite sizable cash balances. working_capital_signs: Working capital is positive (¥3,378m) but efficiency is poor: DSO and DIO are flagged extremely high (DSO 200 days; DIO 175–264 days per quality alerts), signalling slow collections and inventory turnover. These are classic signs of working-capital strain which can mask earnings weakness if not resolved.

Dividend Sustainability

payout_ratio: Not calculable — dividends unreported and DPS listed as N/A/0 in raw data fcf_coverage: Not calculable due to missing cash-flow disclosure policy_outlook: Balance-sheet strength (large equity and cash) could support dividends, but low profitability and uncertain cash conversion argue for caution. No dividend revision announced in qualitative notes.

Risk Assessment

Business risks include Revenue concentration: Filter segment accounts for 95.8% of sales — high product/customer concentration increases demand/price shock risk., Low operating efficiency: EBIT margin of 2.7% is below industry thresholds and reduces shock absorption capability., Inventory obsolescence: Very high inventory days (175–264 days) raise obsolescence and markdown risk for manufactured goods..

Financial risks include Refinancing risk: 100% of interest-bearing debt is short-term (¥460m) — if markets tighten, the company could face rollover pressure despite low total debt., Working-capital liquidity: Long DSO and DIO lengthen cash conversion, increasing dependency on cash reserves and credit lines., Low capital efficiency: ROIC ~0.9% is far below acceptable thresholds, indicating weak returns on invested capital..

Key concerns include Earnings quality: Operating cash flow and free cash flow are unreported; combined with long CCC, there is elevated risk that reported profits are not sustainable or convertible to cash., Segment concentration and margin pressure: Core Filter business both dominates revenue and is the source of margin erosion., Operational turnaround required: Inventory and receivables reductions are essential; absence of clear corrective actions in disclosures increases downside risk..

Investment Implications

Key takeaways include Conservative balance sheet with high cash and low leverage provides a buffer, but all debt is short-term creating refinancing timing risk., Profitability is weak — operating margin 2.7%, net margin ~2.5%, ROE 0.8% — indicating poor earnings power relative to capital employed., Working-capital inefficiency (very long receivable and inventory days) is the most significant near-term operational vulnerability and may impair cash flows and dividends if not addressed., High revenue concentration in the Filter segment amplifies single-product risk; diversification or stabilization of demand in this segment is critical for sustainable growth., Full-year guidance modestly optimistic on revenue but assumes margin recovery that is not yet evident in Q1 — monitor subsequent quarters for realized improvements..

Metrics to watch include Operating cash flow (OCF) and Free Cash Flow (to assess cash conversion), Receivable days (DSO) and Inventory days (DIO) — signs of working-capital improvement, Quarterly operating margin and gross margin (to see cost recovery or price improvements), Short-term debt rollovers and any new long-term refinancing actions, Segment revenue and margin trends for the Filter business.

Regarding relative positioning, Relative to manufacturing peers, the company has a stronger balance-sheet liquidity position but materially weaker profitability and capital efficiency. It is defensible on solvency metrics but underperforming on operational metrics — positioning it as lower-quality earnings with dependent short-term liquidity resilience.