KUBOTEK CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.14B
• Operating Income: ¥72M
• Net Income: ¥68M
• EPS: ¥4.96

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

Verdict: FY2026 Q2 was a weak quarter with sharp profit contraction and negative operating cash flow despite maintaining modest liquidity buffers. Revenue fell 6.0% YoY to 11.40, while operating income declined 54.5% YoY to 0.72, driving operating margin down to roughly 6.3%. Net income dropped 56.2% YoY to 0.68, with net margin at 6.0%. Using the YoY rates provided, prior-year operating income is estimated at ~1.58 and revenue at ~12.13, implying operating margin compressed from ~13.0% to ~6.3% (~670 bps). Net margin similarly compressed from ~12.8% to 6.0% (~680 bps). Gross profit was 4.65 (margin 40.8%), indicating the main pressure came below gross profit (SG&A, other costs). SG&A of 3.93 consumed 85% of gross profit, leaving limited operating leverage in a softer revenue environment. Earnings quality was poor: operating cash flow was -1.49 versus positive net income of 0.68 (OCF/NI -2.19x), suggesting working capital absorption and/or accrual-driven earnings. Financing cash flow was -0.42, and reported capex was -0.40, indicating cash outflows across activities and an indicative negative FCF (OCF - capex) of about -1.89. Balance sheet shows high leverage (D/E 3.24x) and a thin equity base (owners' equity 2.96; book value per share ~21.50 JPY), with negative retained earnings (-15.26) highlighting historical accumulated losses. Liquidity is adequate but not robust (current ratio 114%, quick ratio 113%), with current assets only modestly exceeding current liabilities. Intangible assets are sizable at 2.30 (about 18% of total assets), adding potential impairment sensitivity if performance weakens further. Reported ROE is high at 23.0%, but it is flattered by low equity and is not supported by cash generation this quarter. Interest coverage appears ample on reported figures, but the very small interest charge makes it less meaningful. Forward-looking, the company must stabilize margins (tighten SG&A), improve cash conversion (collections and inventory), and manage refinancing risk amid high leverage. With DPS unreported and OCF negative, near-term capital allocation is likely constrained until cash generation improves.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 6.0% × Asset Turnover (AT) 0.908 × Financial Leverage (FL) 4.24x = ROE ~23.0%. The largest change this quarter versus last year is implied in NPM: net income fell 56.2% on a 6.0% revenue decline, indicating substantial margin compression. Business driver: SG&A intensity rose relative to gross profit, eroding operating margin from an estimated ~13.0% to ~6.3%, while non-operating items were negligible and taxes low (effective tax rate ~4%), so the compression is operational. Sustainability: current margins appear unsustainably low if cost base is not adjusted; recovery hinges on revenue rebound and/or SG&A containment. Asset turnover of 0.908 (half-year snapshot) is reasonable but could be pressured if receivables remain elevated; improving working capital discipline could lift AT. Financial leverage (4.24x) amplifies ROE but increases downside risk; with negative OCF, reliance on leverage is risky. Concerning trend: SG&A growth outpaced revenue (implied, as revenue fell while SG&A remained high), pointing to negative operating leverage; management needs to realign fixed costs with demand.

Growth Assessment

Top-line contracted 6.0% YoY to 11.40, suggesting softness in demand and/or delayed customer deliveries. Operating profit fell 54.5% to 0.72, indicating high sensitivity of earnings to revenue changes due to fixed-cost load. Gross margin at 40.8% is decent, implying core product/service economics remain viable; the deterioration is primarily in operating leverage rather than direct cost inflation. Ordinary income and net income declines (~55% and ~56%) confirm broad-based compression across the P&L. With OCF negative, growth quality is weak this quarter, as earnings did not translate into cash. Outlook hinges on order intake, backlog conversion, and cost actions; absent a revenue recovery or SG&A reductions, profit growth will likely remain challenged. Near-term stabilization priorities: (1) tighten expense control, (2) accelerate receivables collection, and (3) calibrate production/delivery to reduce cash burn. Medium-term, restoring double-digit operating margins (prior-year ~13% run-rate) may require mix improvement and disciplined pricing. Data constraints (no R&D breakdown, limited non-operating detail) limit visibility into growth investments and recurring vs. one-time effects.

Financial Health

Liquidity: Current ratio 114.1% and quick ratio 112.6% are above 1.0 (no immediate red flag) but below the 1.5x comfort threshold; liquidity buffer is modest. Solvency: D/E 3.24x is high (warning), equity/asset implied at ~23.6% (2.96/12.56), and retained earnings are negative (-15.26), underscoring a thin capital base. Maturity profile: Current liabilities 8.41 versus current assets 9.60 suggests coverage, but reliance on short-term funding (short-term loans 1.15) adds rollover risk. Interest-bearing debt details are partly unreported; reported long-term loans 0.79 indicate some terming-out, but liability structure is still tilted short-term. Maturity mismatch risk: moderate—cash 1.03 plus receivables 3.82 cover a portion of near-term obligations; however, conversion risk on receivables elevates liquidity sensitivity. Off-balance sheet: no disclosures provided (not assessed). Explicit warnings: Current Ratio is >1.0 (no breach); D/E >2.0 (high leverage—warning).

Cash Flow Quality

OCF/Net Income is -2.19x (<0.8), indicating poor earnings quality this quarter. Negative OCF alongside positive NI implies working capital absorption and/or accruals; given sizable accounts receivable (3.82), slow collections likely contributed. With capex of -0.40, indicative FCF (OCF - capex) is around -1.89, not covering any potential dividends or debt service without drawing on cash/credit. There is no sign of deliberate working capital optimization; rather, signs point to receivables build or timing mismatches. Without detailed cash flow components (investing CF breakdown unreported), we cannot isolate one-off items; however, the magnitude of the cash shortfall relative to NI is a clear red flag. Sustained negative OCF would pressure liquidity and force tighter operating discipline.

Dividend Sustainability

Dividend data are unreported, and payout ratios are not calculable. Given negative OCF and high leverage (D/E 3.24x) with negative retained earnings (-15.26), capacity to fund dividends from internally generated cash appears limited this quarter. Indicative FCF is negative (~-1.89), providing no coverage for distributions. Unless profitability and cash conversion improve quickly, a conservative stance on dividends would be prudent. Policy outlook cannot be inferred from data provided; visibility is limited without management guidance.

Risk Assessment

Business Risks:

• Demand softness leading to top-line decline (-6.0% YoY) and adverse operating leverage
• Margin erosion at the operating level (operating margin ~6.3% vs. prior ~13%)
• Execution risk in SG&A and cost control with a largely fixed cost base
• High intangible asset share (2.30) implying potential impairment risk if earnings weaken
• Potentially long receivable cycles (AR 3.82) affecting cash conversion

Financial Risks:

• High leverage (D/E 3.24x) amplifies earnings volatility and refinancing risk
• Negative operating cash flow (-1.49) despite positive NI, stressing liquidity
• Reliance on short-term borrowings (short-term loans 1.15) creates rollover risk
• Thin equity base (owners' equity 2.96) and negative retained earnings (-15.26) reduce shock absorption
• Limited interest expense visibility; coverage ratios may be distorted by very low interest charges

Key Concerns:

• OCF/NI at -2.19x indicates low earnings quality this quarter
• Operating margin compressed by ~670 bps YoY, signaling deteriorating operating leverage
• Current ratio only 1.14x—adequate but below comfort levels, leaving little room for shocks
• Potential receivables buildup undermining liquidity
• Data gaps (non-operating income detail, investing cash flows) constrain full risk assessment

Investment Implications

Key Takeaways:

• Sharp profit contraction with severe margin compression despite only modest revenue decline
• Earnings quality weak: negative OCF against positive NI; indicative FCF negative
• Balance sheet leveraged (D/E 3.24x) with limited equity cushion and negative retained earnings
• Liquidity adequate but not strong; dependence on converting receivables to cash
• Reported ROE (23%) and ROIC (17.9%) look strong but are flattered by low equity and are not corroborated by cash flow

Metrics to Watch:

• Order intake and backlog conversion to revenue
• Operating margin trajectory and SG&A to sales ratio
• OCF/NI and working capital movements (DSO, inventory turns, payables days)
• Debt maturity profile and refinancing plans; net debt/EBITDA
• Intangible asset impairment indicators and any restructuring costs

Relative Positioning: Within small-cap industrial/technology peers, the company currently screens weaker on cash conversion and leverage, with profitability under pressure from negative operating leverage; any near-term rerating would likely require visible improvement in OCF, receivables collection, and a rebound in operating margin.

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