KOKUSAI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.95B
• Operating Income: ¥992M
• Net Income: ¥700M
• Earnings per Unit (EPU): ¥49.49

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 strong FY2026 Q2 with sharp operating recovery and high-quality cash flows, though net profit growth lagged due to a higher tax burden and likely one-off effects in the prior year. Revenue rose 22.5% YoY to 69.46, with gross profit at 28.27 and gross margin at 40.7%, indicating healthy pricing and mix. Operating income surged 314.4% YoY to 9.92, driving operating margin to roughly 14.3%. Ordinary income climbed 613.5% YoY to 10.86, aided by 1.12 in non-operating income and minimal non-operating expenses of 0.17. Despite the strong operating and ordinary profit gains, net income increased only 1.0% YoY to 6.67, implying heavier tax drag (effective tax rate 35.6%) or prior-year favorable items. Calculated operating margin expanded by about 1,007 bps YoY (from roughly 4.2% to 14.3%), a notable step-change in profitability. In contrast, net margin compressed by about 204 bps YoY (from ~11.6% to 9.6%), highlighting the divergence between operating performance and bottom-line. Cash generation was excellent with operating cash flow of 11.67, 1.75x net income, pointing to robust earnings quality. Liquidity is strong (current ratio 236%, quick ratio 230%) and leverage is conservative (D/E 0.72x; interest coverage 88.6x). Asset efficiency improved, with asset turnover at 0.336 and ROIC at 10.6%, above typical hurdle rates. ROE stands at 5.6% via DuPont (9.6% margin × 0.336 turnover × 1.72x leverage). Working capital is ample at 90.13, and cash and deposits of 81.75 comfortably exceed short-term loans of 7.80. Non-operating income contribution is moderate (non-operating income ratio 16.7%), supportive but not dominant. Forward-looking, the step-up in operating profitability and ROIC suggests improved structural earnings power, but sustaining net margin will require tax normalization and disciplined SG&A. With balance sheet strength and strong OCF, the company has flexibility to fund capex, shareholder returns, and potential growth investments.

Profitability Analysis

ROE decomposition: ROE 5.6% = Net Profit Margin (9.6%) × Asset Turnover (0.336) × Financial Leverage (1.72x). The biggest swing YoY is in operating profitability: operating margin expanded by about 1,007 bps to ~14.3%, driven by higher gross margin (40.7%) and strong operating leverage on 22.5% revenue growth. However, the net margin declined by ~204 bps to 9.6%, as a higher effective tax rate (35.6%) and possible prior-year one-offs offset operating gains. Asset turnover (0.336) likely improved with revenue growth outpacing balance sheet growth; leverage at 1.72x remains moderate and stable. Business drivers: better mix/pricing and fixed-cost absorption boosted operating profit; non-operating income (1.12) provided a modest tailwind, while interest expense was minimal (0.11). Sustainability: gross margin and operating leverage gains appear partly sustainable if demand holds; the tax rate looks elevated and could normalize, which would aid net margin; non-operating contributions are moderate and should not be overly relied upon. No explicit evidence of SG&A growth outpacing revenue, but the SG&A ratio of 26.4% should be watched.

Growth Assessment

Top-line growth of 22.5% YoY indicates robust demand for the company’s products/services. Operating income rose 314.4% YoY, significantly outpacing revenue growth due to operating leverage and margin expansion. Ordinary income (+613.5% YoY) benefited from the operating step-up and positive, albeit modest, non-operating income. Net income growth was muted at +1.0% YoY owing to a higher effective tax rate and potential prior-year favorable items. EBITDA reached 10.76 (15.5% margin), supporting the view of improved unit economics. ROIC of 10.6% exceeds common hurdle rates, implying value-accretive growth. With strong liquidity and cash generation, the company is positioned to sustain growth investments; capex was light at -0.37. Outlook hinges on demand durability and maintaining gross margin; absent explicit backlog/order disclosures, sustainability is assumed but unverified.

Financial Health

Liquidity is strong: current ratio 236.4% and quick ratio 230.5% comfortably exceed benchmarks; no warning triggers (current ratio well above 1.0). Solvency is conservative with D/E at 0.72x and interest coverage at 88.61x. Maturity mismatch risk appears low: short-term loans (7.80) are covered by cash and deposits (81.75) and receivables (25.08); accounts payable (13.54) are manageable versus current assets (156.23). Total liabilities are 86.46 against total equity of 120.00, indicating a solid capital base. Noncurrent liabilities (20.37) and long-term loans (14.50) are modest relative to equity. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net income is 1.75x, signaling high-quality earnings with cash conversion well above the 1.0x benchmark. Operating CF of 11.67 comfortably covers the period’s capex (-0.37) and small share repurchases (-0.35) and supports potential dividends, even though dividends paid are unreported. Proxy FCF (OCF minus capex) is approximately 11.30, indicating ample internal funding capacity. No signs of aggressive working capital management are evident from the high OCF relative to NI; inventories (3.89) appear lean and receivables (25.08) are moderate versus revenue scale. Financing CF was -8.26, likely reflecting net debt reduction and/or shareholder returns; given cash on hand (81.75), this is manageable.

Dividend Sustainability

The calculated payout ratio is 63.9%, slightly above the <60% benchmark but near sustainable territory. With proxy FCF of ~11.30 and NI of 6.67, cash generation appears sufficient to cover dividends, though exact dividends paid are unreported. Balance sheet strength (net cash position when comparing cash to total loans) provides an additional buffer. Policy outlook: absent disclosed DPS guidance, a stable to modestly rising dividend looks supportable if operating momentum persists and tax rate normalizes; if the elevated tax rate persists, payout growth could lag earnings growth. FCF coverage of dividends cannot be precisely confirmed due to limited disclosures but appears favorable based on OCF and light capex.

Risk Assessment

Business Risks:

• Demand cyclicality in measurement/industrial equipment end-markets impacting orders and utilization
• Pricing pressure from competitors potentially compressing gross margins from the current 40.7%
• Supply chain and component procurement risk affecting delivery schedules and costs
• FX volatility if export exposure is material (not disclosed), impacting revenue and margins

Financial Risks:

• Tax-rate volatility (effective tax rate at 35.6%) driving divergence between operating profit and net income
• Potential reliance on non-operating items (non-operating income ratio 16.7%) though currently moderate
• Receivables collection timing affecting cash flow, given 25.08 in AR vs. revenue scale

Key Concerns:

• Net margin compressed by ~204 bps YoY despite strong operating gains
• Limited disclosure on SG&A breakdown; inability to verify structural cost improvements
• Dividends paid not disclosed; payout ratio derived from EPS and may not reflect cash basis
• Data limitations on investing cash flows and one-off items constrain attribution of NI stagnation

Investment Implications

Key Takeaways:

• Operating margin inflected to ~14.3%, up ~1,007 bps YoY, signaling improved operating leverage
• Cash generation strong (OCF/NI 1.75x) with ample liquidity and low refinancing risk
• ROIC at 10.6% suggests value-accretive operations above typical hurdle rates
• Net profit growth muted (+1.0% YoY) due to elevated tax burden; normalization would lift bottom-line
• Balance sheet strength (cash 81.75 vs short-term loans 7.80) enables continued shareholder returns and growth capex

Metrics to Watch:

• Order backlog and book-to-bill (not disclosed) to validate revenue sustainability
• Gross margin trajectory and SG&A ratio (~26.4%) for signs of durable cost discipline
• Effective tax rate normalization and its impact on net margin
• OCF/NI conversion and working capital cycles (AR and inventory turns)
• ROIC and asset turnover to confirm improved capital efficiency

Relative Positioning: Versus typical small-to-mid Japanese industrial peers, the company exhibits stronger-than-average liquidity, low leverage, and superior ROIC this quarter, with standout operating margin expansion; however, bottom-line growth trails due to a high tax rate, making sustained net margin improvement the key differentiator going forward.

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