Harima-Kyowa Co.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.42B
• Operating Income: ¥1.14B
• Net Income: ¥990M
• EPS: ¥183.88

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Solid earnings resilience in FY2026 Q2 with margin expansion and strong cash conversion despite top-line contraction. Revenue declined 8.9% YoY to 304.21, but operating income increased 3.7% YoY to 11.40 and ordinary income rose 27.5% to 14.78. Net income advanced 29.0% YoY to 9.89, with EPS at 183.88 JPY. Operating margin improved to 3.75% (from ~3.29% a year ago), while ordinary margin rose to 4.86% (from ~3.47%) and net margin increased to 3.25% (from ~2.29%). That implies operating margin expansion of roughly +46 bps, ordinary margin +139 bps, and net margin +96 bps YoY. Gross profit was 38.81 (gross margin 12.8%), with SG&A at 27.40 (SG&A ratio ~9.0%). Earnings quality is strong: OCF of 26.59 equates to 2.69x net income, indicating solid cash conversion and likely favorable working capital movements. The balance sheet is conservative with a current ratio of 219.5% and D/E of 0.46x; interest coverage stands at 86.4x, underscoring low refinancing risk. ROE is 3.8% on DuPont (NPM 3.2% × AT 0.807 × leverage 1.46x), and ROIC at 3.4% is below a 5% warning threshold, signaling capital efficiency improvement is needed. Non-operating income of 3.63 contributed meaningfully (about 36.7% of net income), boosting ordinary income and margins. Despite the revenue decline, cost control and non-operating gains protected profitability. Cash generation appears sufficient to fund capex (-14.47) and a moderate dividend (implied payout ~27.5%) with a cushion. Forward-looking, key watchpoints are sustaining operating margin gains amid demand softness, reducing reliance on non-operating items, and improving ROIC toward at least 5–7%. Currency and commodity exposure inherent to trading activity remain external swing factors. Overall, the quarter demonstrates improved profitability quality and liquidity strength, tempered by low capital efficiency and top-line contraction.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 3.2% × Asset Turnover (AT) 0.807 × Financial Leverage 1.46x = ROE 3.8%. Component shifts YoY: NPM improved meaningfully (net margin ~3.25% vs ~2.29% prior, +96 bps), AT likely softened given revenue fell 8.9% while assets are broadly stable (~377), and leverage remained conservative (assets/equity ~1.46x). The largest positive change is NPM, helped by operating cost discipline (operating margin +46 bps) and sizable non-operating income (3.63), which lifted ordinary margin (+139 bps). Business drivers: mix/pricing and SG&A control supported operating margin, while non-operating gains (details unreported) were an incremental tailwind. Sustainability: Operating margin gains have some persistence if cost control holds; reliance on non-operating income is less predictable and may normalize. Flags: Revenue contracted while SG&A is 27.40, yielding an SG&A ratio ~9.0%; no evidence of SG&A growing faster than revenue this quarter, but sustained top-line pressure would limit operating leverage. With ROIC at 3.4%, returns remain below cost-of-capital benchmarks; margin improvement must be paired with better asset turns to lift ROE sustainably.

Growth Assessment

Top line shrank 8.9% YoY to 304.21, indicating demand softness or pricing pressure in core categories. Despite this, operating income grew 3.7% to 11.40 and ordinary income rose 27.5% to 14.78, evidencing effective cost control and non-operating support. Net income increased 29.0% to 9.89, and net margin expanded ~96 bps YoY to 3.25%. Operating margin improved to 3.75% even on lower sales, suggesting mix optimization and SG&A discipline; EBITDA margin stands at 4.7% (EBITDA 14.22). Growth quality is mixed: operating improvements are positive, but a 36.7% contribution of non-operating income to net income elevates earnings volatility risk if such items normalize. With asset turnover at 0.807 and ROIC 3.4%, the growth algorithm needs better capital efficiency to be sustainable. Near-term outlook: margins can remain above last year if cost control persists, but reacceleration of revenue is needed to drive meaningful ROE/ROIC uplift; watch for stabilization in end markets and FX/commodity backdrop affecting trading spreads.

Financial Health

Liquidity is strong: current ratio 219.5% and quick ratio 219.5%, with working capital of 101.35. No warning on current ratio (<1.0) or D/E (>2.0); D/E at 0.46x is conservative. Maturity profile appears manageable: current assets 186.16 comfortably exceed current liabilities 84.81, and short-term loans are modest at 5.90. Interest-bearing debt detail is unreported in aggregate, but disclosed short/long-term loans total 24.45 versus cash and deposits of 55.60, implying net cash. Interest coverage is 86.4x, suggesting very low solvency risk. No off-balance sheet obligations are disclosed in the provided data. Equity base is robust at 257.51, keeping financial leverage at 1.46x.

Cash Flow Quality

OCF of 26.59 is 2.69x net income, indicating high cash conversion and no immediate quality red flags (well above the 0.8x threshold). While full investing CF is unreported, disclosed capex is -14.47; a proxy FCF (OCF - Capex) is approximately +12.12, implying internal funding capacity. With a calculated payout ratio of 27.5% on net income, implied dividends are likely well covered by both earnings and OCF. Working capital: Accounts receivable of 83.70 against payables of 43.41 and strong OCF suggest effective collections and/or inventory normalization (inventory data unreported, limiting deeper diagnosis). No signs of aggressive working capital management are evident from the limited disclosures. Overall, cash flow quality supports ongoing capex and a modest dividend with headroom.

Dividend Sustainability

The calculated payout ratio is 27.5%, comfortably below the 60% benchmark. Although DPS and total dividends paid are unreported, the low payout against net income (9.89) implies dividend capacity. Proxy FCF of ~12.12 (OCF 26.59 minus capex 14.47) indicates cash coverage for dividends plus maintenance capex, with residual flexibility. The balance sheet’s net cash position and high interest coverage add resilience. Policy outlook: If management targets stable or gradually rising dividends, current earnings/cash flow profile appears supportive; however, elevated reliance on non-operating income this quarter adds some variability risk if those items normalize.

Risk Assessment

Business Risks:

• Top-line contraction of 8.9% YoY indicates end-market softness or pricing pressure.
• Margin sensitivity to commodity price and FX volatility inherent in trading/wholesale activities.
• High reliance on non-operating income this quarter (36.7% of net) increases earnings volatility.
• Low ROIC at 3.4% signals capital efficiency risk if assets are not optimized.
• Thin gross margin profile (12.8%) leaves limited buffer in a downturn.

Financial Risks:

• Potential normalization of non-operating gains could compress ordinary income.
• Concentration risk in receivables (83.70) if counterparties weaken, though OCF was strong.
• Data gaps on inventories and investment securities limit full balance sheet risk assessment.

Key Concerns:

• Sustaining operating margin gains amid declining revenue.
• Improving asset turnover to raise ROE/ROIC above warning thresholds.
• Monitoring the durability of non-operating income contributions.

Investment Implications

Key Takeaways:

• Resilient profitability with operating and net margin expansion despite revenue decline.
• Strong cash conversion (OCF/NI 2.69x) and conservative balance sheet underpin financial flexibility.
• ROIC at 3.4% is below acceptable thresholds, requiring asset and portfolio optimization.
• Non-operating income was a significant profit driver; normalization would pressure ordinary income.
• Current liquidity and low leverage help buffer macro/industry volatility.

Metrics to Watch:

• Operating margin vs prior year and sequential trend.
• Non-operating income ratio to net income and its drivers.
• ROIC and asset turnover improvement initiatives.
• OCF/NI ratio and working capital turns (AR days; inventory once disclosed).
• Revenue trajectory and order visibility in core segments.
• FX and commodity exposures affecting trading spreads.

Relative Positioning: Within Japan specialty trading/wholesale peers, the company exhibits strong liquidity and low leverage but lags on capital efficiency (ROIC 3.4%, ROE 3.8%). Margin resilience this quarter is above peers facing similar revenue declines, yet dependence on non-operating income elevates earnings volatility relative to more operations-driven 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
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