MEIWA INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.12B
• Operating Income: ¥217M
• Net Income: ¥110M
• EPS: ¥31.47

Income Statement

Balance Sheet

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

Verdict: A mixed quarter with solid operating recovery but headline net income declined due to non-operating drag and large OCI losses. Revenue grew 0.9% YoY to 111.21, while operating income jumped 199.1% YoY to 2.17, demonstrating meaningful operating leverage from a low base. Ordinary income rose 294.6% YoY to 1.56, but net income fell 60.3% YoY to 1.10, indicating below-the-line headwinds. Gross margin printed at 14.7%, operating margin at 1.95%, ordinary margin at 1.40%, and net margin at 0.99%. Based on YoY math, operating margin expanded by roughly 129 bps (from ~0.66% to ~1.95%), and ordinary margin expanded by about 104 bps (from ~0.36% to ~1.40%). Conversely, net margin compressed by about 152 bps (from ~2.51% to ~0.99%), as non-operating losses and taxes weighed. Non-operating result was a 0.60 drag (0.44 income vs 1.04 expenses), with interest expense of 0.63 keeping interest coverage moderate at 3.44x. Total comprehensive income was -3.86, implying sizable unrealized losses (likely securities valuation and/or FX), which overshadow the modest net profit. Equity expanded to 115.29 with assets of 234.96, implying financial leverage of 2.04x; DuPont ROE is low at 0.9%. Liquidity is adequate but not abundant (current ratio 139%, quick ratio 116%), and reliance on short-term loans (44.69) is notable. ROIC is weak at 1.1% (below 5% warning), signaling capital efficiency challenges despite the operating rebound. Earnings quality cannot be validated due to unreported cash flows; OCF/NI and FCF are N/A. The calculated payout ratio of 159.2% looks stretched absent supportive FCF. Forward-looking, sustaining operating gains while reducing non-operating drag and improving capital efficiency are key; OCI volatility represents an additional risk to equity. Overall, core operations improved, but headline profitability and capital efficiency remain subdued with balance-sheet and financing structure requiring attention.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.9% = Net Profit Margin 1.0% × Asset Turnover 0.473 × Financial Leverage 2.04x. The largest change driver YoY appears to be the margin components: operating margin expanded materially (approx. +129 bps), but net margin contracted (~-152 bps) due to higher non-operating costs and OCI-related pressure not captured in NI. Business drivers: a slight revenue increase with better cost control (COGS flat-ish) lifted operating profit from a low base, but higher interest and other non-operating expenses offset gains at the bottom line. Sustainability: operating improvement could be partly sustainable if cost discipline holds, but interest burden and any volatile non-operating items (e.g., FX, securities-related) could keep NI subdued; OCI volatility is inherently non-recurring but can persist with market swings. Concerning trends: SG&A of 14.20 consumed 87% of gross profit (16.37), leaving a thin operating margin; with revenue nearly flat, the business remains highly sensitive to small cost variances. Also, non-operating expenses (1.04) exceeded non-operating income (0.44), keeping ordinary profit below operating profit.

Growth Assessment

Top-line growth was modest at +0.9% YoY, indicating a largely flat demand environment. Operating profit surged (+199% YoY) from a depressed base as gross profit outpaced SG&A, evidencing operating leverage. Ordinary income growth (+295% YoY) was strong but still below operating profit due to net non-operating losses. Net income fell 60.3% YoY to 1.10 as below-the-line items and potentially different tax effects weighed. Gross margin at 14.7% suggests limited pricing power in a cost-plus/competitive environment; sustaining this level will be key. Interest income (0.12) and dividend income (0.09) were insufficient to offset interest expense (0.63), limiting ordinary profit conversion. With total comprehensive income at -3.86, market-sensitive items (securities valuation and/or FX) are a notable swing factor. Outlook hinges on maintaining cost control, managing financing costs, and mitigating non-operating/OCI volatility; without stronger revenue growth, incremental margin gains may be difficult. Near-term growth visibility is moderate given flat sales and financing drag.

Financial Health

Liquidity: Current ratio 139.2% and quick ratio 116.4% indicate adequate short-term liquidity (above 1.0 but below the >150% comfort benchmark). No explicit warning for current ratio <1.0 or D/E >2.0. Solvency: Debt-to-equity is 1.04x; leverage is moderate, with assets/equity at 2.04x. Maturity structure: Short-term loans are sizable at 44.69 versus cash 28.68, AR 48.67, and inventories 21.10; current liabilities total 92.90, implying dependence on rolling short-term funding but with sufficient current assets (129.28) to cover. Interest-bearing debt detail is partly unreported, but disclosed short-term and long-term loans total 52.53. Off-balance sheet obligations are not disclosed; none can be assessed from provided data. Overall, balance sheet is stable but with a notable short-term funding reliance and moderate interest burden.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported; thus OCF/NI and FCF coverage cannot be assessed. Earnings quality flags: OCF/NI cannot be computed (N/A), so we cannot confirm cash conversion. Working capital: receivables (48.67) and inventories (21.10) are meaningful relative to revenue, but without period changes we cannot assess working capital release/consumption or potential end-period optimization. Given interest coverage of 3.44x and thin operating margin, cash generation needs monitoring, especially if rates or spreads rise. No signs of working capital manipulation can be concluded from the data provided.

Dividend Sustainability

The calculated payout ratio is 159.2%, which is above the <60% benchmark and appears unsustainably high in the absence of positive, stable FCF; however, DPS and total dividends are unreported. With ROE at 0.9% and ROIC at 1.1%, internal capital generation is weak, making generous payouts hard to sustain without balance-sheet support. Interest burden and non-operating volatility further constrain dividend flexibility. Policy outlook: absent stronger OCF/FCF or reduced leverage, a conservative dividend stance would be prudent; we cannot confirm actual policy due to missing DPS data.

Risk Assessment

Business Risks:

• Low gross margin (14.7%) and thin operating margin (1.95%) increase sensitivity to input cost inflation and pricing pressure
• Flat revenue growth (+0.9% YoY) suggests demand softness or competitive constraints
• Operational leverage from a low base could reverse if costs re-accelerate

Financial Risks:

• Moderate interest coverage (3.44x) with short-term loan reliance (44.69) exposes to refinancing and rate risk
• Non-operating loss (net -0.60) and large negative OCI (-3.86 total comprehensive income) add earnings/equity volatility
• ROIC at 1.1% indicates poor capital efficiency and potential value dilution if reinvestment continues at low returns

Key Concerns:

• Net income down 60.3% YoY despite stronger operations, highlighting below-the-line headwinds
• Payout ratio at 159.2% looks stretched without confirmed FCF support
• Data gaps (OCF, capex, DPS) limit visibility on sustainability

Investment Implications

Key Takeaways:

• Core operations improved meaningfully from a low base (OP +199% YoY) with operating margin ~1.95%
• Headline profitability weak: NI down 60.3% YoY; total comprehensive loss of -3.86
• Leverage moderate (D/E 1.04x) but financing structure leans on short-term loans
• Interest coverage only 3.44x; non-operating costs erode ordinary profit
• Capital efficiency is poor (ROIC 1.1%, ROE 0.9%), requiring margin/turn improvement or asset optimization

Metrics to Watch:

• Operating cash flow and free cash flow (currently unreported)
• Interest coverage and trajectory of short-term borrowings
• Gross and operating margin stability versus input costs
• OCI components (securities and FX) impacting equity and comprehensive income
• Working capital turns (AR and inventory days) and asset turnover improvement

Relative Positioning: Within auto/interior materials peers, profitability and ROIC appear below average with higher sensitivity to financing costs; balance sheet liquidity is adequate but reliance on short-term debt and OCI volatility keep risk higher than low-leverage, higher-ROIC peers.

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