YOROZU CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥83.76B
• Operating Income: ¥1.01B
• Net Income: ¥-2.58B
• EPS: ¥6.27

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

Yorozu (72940) reported FY2026 Q2 consolidated results under JGAAP that show sharp improvement in operating profitability despite a revenue decline and weak bottom-line and cash conversion. Revenue fell 7.9% YoY to 83.8 billion yen, but operating income surged to 1.01 billion yen (+736% YoY), implying a meaningful turnaround in operating margin to roughly 1.2%. Gross profit was 8.82 billion yen, yielding a gross margin of 10.5%, indicative of better cost discipline or improved price/mix despite top-line pressure. Ordinary income was 0.84 billion yen, below operating income due to interest expense of 0.47 billion yen, keeping financial costs a notable drag. Net income was modest at 0.15 billion yen (EPS 6.27), translating to a thin net margin of 0.18% and highlighting that the improvement has yet to fully translate to shareholders. DuPont analysis shows ROE at 0.25%, driven by very low net margin (0.18%), moderate asset turnover (0.648x), and financial leverage of 2.14x. Liquidity appears solid on the surface with a current ratio of 158%, and working capital of 29.9 billion yen, though inventory data were not disclosed. The balance sheet leverage is moderate with a debt-to-equity ratio of 1.25x, and an implied equity ratio of about 46.8% (computed from equity/total assets), even though the reported equity ratio field was undisclosed. Cash flow quality is weak this half: operating cash flow was negative at -0.56 billion yen, implying OCF/NI of -3.69x, likely driven by working capital outflows. Financing cash inflow of 2.16 billion yen suggests reliance on external funding to bridge OCF shortfall, as investing CF was undisclosed. Interest coverage at roughly 2.2x is adequate but leaves limited buffer if operating conditions soften or rates rise. The company paid no dividend (DPS 0), consistent with preserving liquidity while profitability normalizes. Given the revenue contraction, the outsized improvement in operating income implies cost measures and possibly easing input costs; however, sustainability depends on stabilizing demand and managing working capital. Several disclosures are missing or shown as zeros (e.g., inventories, cash, investing CF, share counts), so some interpretations rely on available aggregates and standard relationships. Overall, the quarter shows encouraging operational progress but lingering concerns on cash conversion, interest burden, and the fragile net margin.

Profitability Analysis

ROE is 0.25%, decomposed into net margin 0.18%, asset turnover 0.648x, and financial leverage 2.14x. The main constraint is profitability at the bottom line: operating margin is about 1.20% (1.009/83.763), ordinary margin about 1.00% (0.842/83.763), and net margin 0.18% (0.152/83.763). Gross margin at 10.5% indicates limited pricing power and a cost-intensive product mix, but the YoY surge in operating income (despite revenue decline) points to improved operating efficiency and cost control. EBITDA was 4.88 billion yen, implying an EBITDA margin of 5.8% and D&A of 3.87 billion yen; operating leverage magnified the earnings rebound despite lower sales. Interest expense of 0.47 billion yen remains material; EBIT/interest is about 2.2x, indicating sensitivity to either EBIT softness or higher borrowing costs. The spread between gross margin and operating margin (~9.3pp) reflects sizable SG&A and other operating costs; further SG&A discipline or mix improvement could materially lift operating margin given the low base. Effective tax rate appears inconsistent in the calculated metric (0.0% shown), whereas reported income tax expense is 0.66 billion yen against ordinary income of 0.84 billion yen; the high tax burden versus small net profit suggests non-operating items or tax adjustments. Overall profitability is improving at the operating level, but debt service and taxes absorb much of the gains, leaving thin returns for equity holders.

Growth Assessment

Revenue declined 7.9% YoY to 83.8 billion yen, signaling demand softness or customer program changes. Despite this, operating income surged 736% YoY, implying that cost actions, pricing, or input cost relief outweighed volume pressure. The quality of profit improvement is stronger at the operating level than at the net level, where net profit remained small at 0.15 billion yen. Ordinary income trailing operating income underscores ongoing financial cost headwinds. Given negative OCF, a portion of the earnings improvement has not yet converted to cash, raising questions on sustainability without continued working capital discipline. With investing CF undisclosed, capacity expansion or maintenance capex trends are unclear, limiting visibility on medium-term growth investment. In the near term, stabilization of sales and maintaining the improved cost base are key to sustaining operating margin gains. Outlook hinges on auto production schedules, customer order momentum, and input cost trajectories; any recovery in end-demand could leverage the leaner cost structure. Conversely, renewed cost inflation or production cuts would quickly compress margins given the thin net margin. On balance, operational turnaround is evident, but revenue headwinds and cash conversion issues temper the growth quality assessment.

Financial Health

Total assets are 129.36 billion yen and total equity 60.50 billion yen, implying an equity ratio of about 46.8% (computed), despite the equity ratio field showing 0.0% due to non-disclosure. Total liabilities are 75.40 billion yen, resulting in a debt-to-equity ratio of 1.25x; leverage is moderate for the sector. Current assets are 81.16 billion yen versus current liabilities of 51.29 billion yen, yielding a current ratio of 158% and working capital of 29.87 billion yen; the quick ratio equals the current ratio because inventories were undisclosed. Interest expense of 0.47 billion yen is meaningful relative to EBIT, with interest coverage at ~2.2x—adequate but not robust. The positive financing CF of 2.16 billion yen suggests incremental borrowing or refinancing, likely to support liquidity amid negative OCF. While the balance sheet appears reasonably capitalized, persistent negative OCF would pressure liquidity and potentially increase leverage if continued.

Cash Flow Quality

Operating cash flow was -0.56 billion yen despite net income of 0.15 billion yen, implying OCF/NI of -3.69x and weak earnings-to-cash conversion for the half. The discrepancy likely stems from working capital outflows (e.g., receivables, payables, or inventories), though line-item details were not disclosed. EBITDA of 4.88 billion yen indicates underlying cash earnings capacity, but the period’s cash usage signals that working capital management is a current headwind. Investing CF was undisclosed (shown as 0), so Free Cash Flow cannot be reliably computed; the presented FCF of 0 should be treated as unavailable rather than true zero. Financing CF of +2.16 billion yen implies reliance on external funding to cover operational cash needs and/or refinance obligations. Monitoring the trajectory of OCF relative to EBIT and the direction of working capital changes will be critical to assess whether the improvement in profitability is translating into sustainable cash generation.

Dividend Sustainability

The company paid no dividend (DPS 0) for the period, with a payout ratio of 0%. Given modest net income (0.15 billion yen), negative OCF, and positive financing inflows, prioritizing balance sheet strength and liquidity over distributions appears prudent. FCF coverage is shown as 0.00x, but FCF itself is not determinable due to undisclosed investing cash flows; as such, payout capacity cannot be robustly assessed. Near-term dividend resumption or increase would likely depend on consistent positive OCF and clearer visibility on capex requirements.

Risk Assessment

Business Risks:

• End-demand and production volatility in the automotive sector affecting volumes and utilization
• Customer concentration risk typical for auto parts suppliers, potentially impacting pricing and volumes
• Input cost fluctuations (steel, energy) compressing margins given low net margins
• Program launch and ramp risks, including quality and logistics execution
• Foreign exchange volatility impacting revenues and costs across global operations

Financial Risks:

• Weak cash conversion with negative OCF despite positive EBIT
• Moderate leverage (debt-to-equity 1.25x) and limited interest coverage (~2.2x)
• Potential need for continued external financing if working capital outflows persist
• Tax burden and non-operating items reducing net profitability
• Data limitations on cash, inventories, and investing CF reduce visibility

Key Concerns:

• Sustainability of operating margin gains amid declining sales
• Negative OCF and reliance on financing inflows
• Thin net margin (0.18%) leaving little buffer against shocks
• Interest expense (0.47 billion yen) constraining earnings
• Limited disclosure on investing CF and inventories

Investment Implications

Key Takeaways:

• Revenue contracted 7.9% YoY, but operating income rebounded strongly to 1.01 billion yen
• Margins improved at the operating level (1.2% OPM; 5.8% EBITDA margin) but remain thin at the net level (0.18%)
• ROE is low at 0.25%, constrained by minimal net profitability
• Liquidity is adequate (current ratio 158%), with moderate leverage (D/E 1.25x)
• OCF was negative (-0.56 billion yen), indicating weak cash conversion and reliance on financing inflows

Metrics to Watch:

• Operating cash flow versus EBIT and changes in working capital
• Interest coverage and trajectory of interest expense
• Revenue run-rate versus customer production schedules
• Gross and operating margins, especially vs. input cost trends
• Capex/investing cash flows (once disclosed) to assess FCF
• Equity ratio (computed) and leverage to monitor balance sheet resilience

Relative Positioning: Within Japanese auto parts peers, Yorozu shows improving operating execution but remains challenged by thin net margins and subpar cash conversion; balance sheet leverage is moderate, and sustained cash generation is necessary to close the gap with peers boasting steadier OCF and stronger interest coverage.

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