ARAYA INDUSTRIAL CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.85B
• Operating Income: ¥877M
• Net Income: ¥690M
• EPS: ¥123.72

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

For FY2026 Q2 (consolidated, JGAAP), the company delivered resilient profitability amid a softer top line. Revenue declined 7.7% year over year to 19,850 million yen, but operating income increased 14.9% to 877 million yen, highlighting effective cost control and mix/pricing management. Gross profit was 3,758 million yen, implying an 18.9% gross margin, while operating margin improved to approximately 4.4%, indicating positive operating leverage despite revenue contraction. Ordinary income reached 1,055 million yen, outpacing operating income and suggesting net financial/other income contributions, though net income fell 14.0% to 589 million yen, indicating higher below-ordinary items or non-recurring charges. EBITDA was 1,279 million yen (6.4% margin), and depreciation and amortization totaled 402 million yen, pointing to a moderate capital intensity. Cash generation was strong: operating cash flow (OCF) of 1,901 million yen was 3.23x net income, signaling robust earnings quality and potential working capital release. The balance sheet appears conservative with total assets of 54,158 million yen, total liabilities of 20,482 million yen, and total equity of 32,370 million yen (liabilities-to-equity of 0.63x). Liquidity is sound with a current ratio of 187.1% and a quick ratio of 140.7%, backed by working capital of 13,587 million yen. Interest expense was minimal at 19 million yen, and interest coverage was a very strong 46.2x, underscoring low financial risk. The DuPont-calculated ROE is 1.82%, driven by a 2.97% net margin, asset turnover of 0.367x, and financial leverage of 1.67x—adequate asset productivity but subdued profitability leading to a modest ROE. The reported effective tax rate metric shows 0.0%, yet tax expense of 230 million yen suggests taxes are not zero; this discrepancy likely reflects data definition differences or missing pre-tax income detail. Financing cash outflows of 1,179 million yen imply debt repayments and/or shareholder returns, but dividends per share are shown as 0.00, which may be an unreported figure rather than an actual zero. Several items are shown as zero (e.g., investing cash flow, cash and equivalents, equity ratio), which per the data note indicates non-disclosure rather than true zero balances. Overall, the quarter demonstrates cost discipline, strong cash conversion, and balance sheet resilience, offset by revenue softness and lower net income due to below-ordinary items. Near-term performance will hinge on demand recovery, input cost trends, and sustaining margin discipline. The limited disclosure of certain line items (capex, cash, share count) constrains deeper per-share and FCF analysis, which should be monitored in subsequent filings.

Profitability Analysis

ROE decomposition (DuPont) indicates: Net Profit Margin 2.97% × Asset Turnover 0.367 × Financial Leverage 1.67 = ROE 1.82%. The ROE is modest, primarily constrained by the mid–single-digit operating margin and below-ordinary charges that reduced net income. Gross margin of 18.9% on revenue of 19,850 million yen reflects reasonable cost of sales management; cost of sales was 17,751 million yen. Operating margin of approximately 4.4% (877 million yen operating income) improved YoY as operating income rose 14.9% despite a 7.7% revenue decline, indicating positive operating leverage via SG&A efficiency and/or favorable product mix. SG&A expense (approximate) is inferred at 2,881 million yen (gross profit 3,758 minus operating income 877), suggesting tight opex control. Ordinary income margin of about 5.3% (1,055 million yen) exceeded operating margin, implying supportive non-operating factors; however, net income margin was 2.97%, indicating below-ordinary drag (taxes and potentially extraordinary losses or non-controlling interests). EBITDA margin of 6.4% with D&A at 402 million yen shows moderate capital intensity and an EBITDA-to-Operating Income ratio of ~1.46x. Interest expense was only 19 million yen, yielding an interest coverage ratio of 46.2x, so financing costs are not a material headwind to profitability. Overall margin quality appears solid at the gross and operating levels, but the conversion to net income was dampened by below-ordinary items in this period.

Growth Assessment

Revenue fell 7.7% YoY to 19,850 million yen, indicating cyclical or demand-related softness. Despite the top-line contraction, operating income grew 14.9% to 877 million yen, evidencing improved cost controls and/or a richer mix. Gross profit of 3,758 million yen and an 18.9% gross margin suggest relatively stable pricing relative to input costs. Ordinary income reached 1,055 million yen, but net income declined 14.0% to 589 million yen, pointing to elevated taxes and/or one-off items below ordinary income. With EBITDA at 1,279 million yen, operating cash flows of 1,901 million yen exceeded accounting earnings, indicating good profit quality and possibly favorable working capital movements. Sustainability of revenue remains uncertain given the decline; order trends, backlog, and regional end-demand will be important to monitor. The positive operating leverage achieved this quarter may moderate if volume weakness persists, so maintaining gross margin and SG&A discipline is key. Near-term outlook hinges on end-market recovery, input cost normalization (materials/energy), and FX impacts on both costs and export competitiveness. Given limited disclosure (no investing CF/capex details), growth investments pipeline and capacity constraints cannot be fully assessed from the current data.

Financial Health

Total assets were 54,158 million yen against total liabilities of 20,482 million yen and total equity of 32,370 million yen, resulting in a liabilities-to-equity ratio of 0.63x (low leverage). Liquidity appears strong with current assets of 29,180 million yen versus current liabilities of 15,593 million yen, delivering a current ratio of 187.1% and a quick ratio of 140.7%. Working capital stood at 13,587 million yen, providing a meaningful buffer against operating volatility. Inventories of 7,243 million yen represent a sizable share of current assets; inventory management will be important given the revenue decline. Interest expense was modest at 19 million yen, and interest coverage of 46.2x underscores ample debt-servicing capacity. Equity ratio is shown as 0.0% in the dataset, which per the disclosure note likely reflects non-reporting rather than the true ratio; based on assets and equity, equity-to-assets is approximately 59.8%. Overall solvency and liquidity metrics signal a conservative capital structure and low refinancing risk.

Cash Flow Quality

Operating cash flow of 1,901 million yen was 3.23x net income (589 million yen), indicating high earnings quality and strong cash conversion, likely supported by working capital inflows. EBITDA was 1,279 million yen, implying OCF exceeded EBITDA, often a sign of favorable working capital timing; without working capital detail, the durability of this cash conversion is uncertain. Investing cash flow is shown as 0, which per the data note indicates non-disclosure; capex thus cannot be determined. Consequently, Free Cash Flow cannot be reliably calculated beyond noting that OCF is positive and robust; the provided FCF of 0 in the dataset should be treated as unreported. Financing cash flow was a net outflow of 1,179 million yen, consistent with debt repayment and/or distributions; however, dividends per share are shown as 0.00 (likely unreported), so we cannot attribute the financing outflow precisely. Cash and equivalents is shown as 0 (unreported), preventing period-end liquidity cross-checks. Overall, cash flow quality is strong on the operating side, but the lack of capex data limits a full assessment of sustainable FCF.

Dividend Sustainability

The dataset shows annual DPS of 0.00 and a payout ratio of 0.0%, which should be interpreted as not disclosed rather than actual zero. With net income of 589 million yen and strong OCF of 1,901 million yen, internal capacity to fund dividends appears present, subject to capex and working capital needs. However, absent capex and cash balance disclosure, FCF coverage of dividends cannot be assessed; the reported FCF coverage of 0.00x likely reflects missing capex data. Financing cash outflow of 1,179 million yen could indicate debt repayment or shareholder returns, but specific dividend cash payments are not disclosed. Dividend policy outlook therefore remains unclear; monitoring the company’s explicit guidance, historical payout behavior, and upcoming capex plans is essential to judge sustainability.

Risk Assessment

Business Risks:

• Demand cyclicality in key end-markets leading to revenue volatility (-7.7% YoY in the period).
• Raw material and energy cost fluctuations impacting gross margins (currently 18.9%).
• Potential pricing pressure or unfavorable product mix that could erode operating margin (~4.4%).
• Supply chain disruptions affecting inventory levels and delivery schedules (inventories 7,243 million yen).
• FX volatility affecting input costs and export competitiveness.
• Dependence on non-operating items, with below-ordinary charges driving a 14.0% YoY decline in net income.

Financial Risks:

• Limited disclosure of cash and equivalents and capex impedes assessment of short-term liquidity headroom and FCF.
• Potential working capital swings; OCF outperformance may reverse if receivables or inventories normalize.
• Concentration risk if liabilities have short-term maturities (current liabilities 15,593 million yen) despite strong current ratio.
• Non-operating/extraordinary losses could recur, pressuring net margins and ROE (2.97% NPM; ROE 1.82%).

Key Concerns:

• Revenue decline despite improved operating income raises questions on demand sustainability.
• Net income down 14.0% YoY suggests below-ordinary headwinds not fully explained by available data.
• Lack of capex and investing CF data prevents reliable FCF and dividend sustainability analysis.
• Zeros in key fields (cash, equity ratio, shares) reflect non-disclosure, limiting per-share and capital policy analysis.

Investment Implications

Key Takeaways:

• Solid operating resilience: operating income +14.9% YoY to 877 million yen on revenue -7.7% YoY.
• Healthy margins and cost discipline: 18.9% gross margin; ~4.4% operating margin; EBITDA margin 6.4%.
• Strong cash conversion: OCF 1,901 million yen equals 3.23x net income.
• Conservative balance sheet: liabilities-to-equity 0.63x; current ratio 187.1%; interest coverage 46.2x.
• Modest ROE at 1.82% driven by low net margin; improving net conversion is key to value creation.
• Data gaps (capex, cash, share count, equity ratio disclosure) limit full assessment of FCF and capital returns.

Metrics to Watch:

• Revenue trajectory and order/backlog indicators to gauge demand stabilization.
• Gross margin and SG&A ratio for evidence of sustained cost discipline.
• Working capital days (inventory, receivables, payables) to validate OCF durability.
• Capex and investing CF to establish true FCF and reinvestment needs.
• Non-operating/extraordinary items and effective tax rate normalization versus the 230 million yen tax expense.
• ROE bridge: net margin improvements and asset turnover trends.

Relative Positioning: Within domestic industrial/manufacturing peers, the company exhibits stronger balance sheet conservatism (low leverage, high liquidity) and excellent interest coverage, but operates with mid–single-digit margins and a below-peer ROE of 1.82%; near-term positioning hinges on sustaining operating margin gains amid soft demand.

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