KURODA PRECISION INDUSTRIES LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.62B
• Operating Income: ¥-74M
• Net Income: ¥130M
• EPS: ¥21.03

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

FY2026 Q2 was a mixed quarter: core operations remained loss-making at the operating level, but bottom-line profit was achieved via below-the-line items, while cash generation from operations was solid. Revenue declined 1.9% YoY to 86.17, reflecting soft demand. Gross profit was 17.52 with a 20.3% margin, but SG&A of 18.27 exceeded gross profit, resulting in an operating loss of 0.74 (operating margin of approximately -0.86%). Non-operating items were a modest net negative (income 1.32 vs expenses 1.45), taking ordinary income to a loss of 0.87. Profit before tax, however, printed positive at 1.96, implying the presence of extraordinary gains (not disclosed in the XBRL breakdown). After taxes of 0.66, net income was 1.20, down 42.4% YoY, with EPS of 21.03 yen. Operating margin improved by an estimated ~35 bps YoY (from about -1.21% to -0.86%) as the operating loss narrowed by ~0.32, while net margin compressed by roughly ~98 bps (from ~2.37% to ~1.39%) due to weaker below-the-line support versus the prior year. Ordinary margin also deteriorated by ~26 bps (from ~-0.75% to ~-1.01%). Earnings quality was better than headline profit suggests: operating cash flow of 3.31 was 2.76x net income, indicating healthy cash conversion this quarter. Liquidity remains adequate (current ratio 152.2%, quick ratio 138.4%), though leverage is on the high side for an industrial company (D/E 1.49x) and interest coverage on an EBIT basis is negative (-0.92x), underscoring earnings fragility. ROE stands at 1.0% via DuPont (NPM 1.4% × Asset Turnover 0.299 × Leverage 2.49x), while ROIC is negative (-0.3%), signaling sub-par capital efficiency. Financing cash inflow of 7.72 suggests incremental reliance on debt or refinancing to support liquidity and investments. With SG&A still above gross profit, restoring an operating profit requires either revenue growth or cost adjustments. Forward-looking, the key tasks are improving gross margin, tightening SG&A, and lifting operating income to cover interest sustainably. Absent clarity on extraordinary gains and capex, we remain cautious on the durability of bottom-line profitability. Monitoring order trends, price/mix, and interest burden will be critical into 2H.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.0% = Net Profit Margin 1.4% × Asset Turnover 0.299 × Financial Leverage 2.49x. The biggest swing factor YoY is the net profit margin, which compressed by roughly ~98 bps (from ~2.37% to ~1.39%), driven by weaker below-the-line support and taxes despite a narrower operating loss. Operating margin improved by ~35 bps YoY as the operating loss narrowed (from ~-1.21% to -0.86%), primarily due to better cost control relative to revenue or improved mix; however, SG&A (18.27) still exceeded gross profit (17.52), keeping EBIT negative. Ordinary margin deteriorated (-0.75% to ~-1.01%), reflecting a less favorable non-operating balance (non-op expenses 1.45 exceeding non-op income 1.32). The apparent positive profit before tax indicates extraordinary gains; these are likely one-off and not a sustainable driver of profitability. Asset turnover at 0.299 remains low, consistent with underutilized assets and a soft demand backdrop. Financial leverage at 2.49x supports ROE mathematically but increases risk given negative EBIT and weak interest coverage. Sustainability assessment: the operating margin improvement could be sustainable if accompanied by continued cost discipline and mix improvement, but the bottom-line support from extraordinary gains is non-recurring. Concerning trends: SG&A growth versus revenue cannot be precisely measured (itemized detail unreported), but the absolute level of SG&A above gross profit is a clear red flag; also, interest expense (0.81) is high relative to EBITDA (5.13), pressuring interest coverage.

Growth Assessment

Top-line contracted 1.9% YoY to 86.17, indicating demand softness in the company’s end markets. Operating loss narrowed by ~0.32 (YoY +30.2% improvement in loss), showing some operating leverage, albeit from a negative base. Non-operating balance was slightly negative this quarter, and ordinary income worsened YoY, implying less recurring support from affiliates/finance income and/or higher non-op costs. Net income fell 42.4% YoY to 1.20, with the gap between ordinary loss and positive PBT implying reliance on extraordinary items; this reduces the quality of earnings growth. Revenue sustainability depends on order backlog and sector demand (e.g., precision components/machine tools), which are not disclosed here. Margin sustainability hinges on recovering gross margin above SG&A or executing cost reductions. Outlook: near-term growth is constrained without a demand recovery or price increases; management focus should be on mix, pricing, and SG&A efficiency to return to positive EBIT. Given ROIC at -0.3%, incremental investments should be tightly screened for returns above the cost of capital. Net-net, the trajectory shows tentative stabilization in core operations but lacks evidence of durable profit growth.

Financial Health

Liquidity is adequate: current ratio 152.2% and quick ratio 138.4% exceed benchmarks. No explicit warning triggers (Current Ratio < 1.0 not breached; D/E > 2.0 not breached). Working capital stands at 49.68, with cash and deposits 35.19 plus receivables 42.41 comfortably covering short-term loans of 33.70. Maturity profile shows current liabilities of 95.13 against current assets of 144.81, limiting near-term refinancing risk. Solvency: total liabilities 172.54 vs total equity 115.61 yields a D/E of 1.49x, elevated but within the 1.5x benchmark; however, the negative EBIT and interest coverage (-0.92x) highlight pressure on debt service from earnings. Long-term loans total 35.48, indicating a meaningful structural leverage component. No off-balance sheet obligations were disclosed in the provided data. Overall, balance sheet liquidity is sound, but income statement capacity to service debt is weak until operating profit turns positive.

Cash Flow Quality

OCF of 3.31 exceeds net income of 1.20, with an OCF/NI ratio of 2.76x, indicating good cash conversion this quarter. Free cash flow is not calculable due to unreported investing CF and capex; thus, we cannot fully assess coverage of dividends or growth investment needs. Financing CF was an inflow of 7.72, suggesting increased borrowing or refinancing—consistent with the elevated leverage and potentially funding working capital or investments. Working capital details (AR 42.41, inventories 13.16) are reported, but without period-on-period deltas we cannot identify manipulation; nothing in the single-period snapshot indicates aggressive working capital management. Given negative EBIT and high interest expense (0.81), sustaining positive OCF will require continued discipline on working capital and improved gross-to-SG&A spread.

Dividend Sustainability

Dividend data are largely unreported (DPS and total dividends not disclosed). The calculated payout ratio of 143.6% suggests dividends (likely on a trailing basis) exceeded accounting earnings, which is unsustainable over time if repeated. With OCF positive this quarter and financing inflows available, short-term dividend payments may continue, but long-term sustainability requires operating profit recovery and positive FCF (unreported). Without capex and investing CF, FCF coverage cannot be assessed. Policy outlook cannot be inferred from the data; however, given ROIC (-0.3%) and leverage (D/E 1.49x), prudent capital allocation would prioritize earnings repair over payout expansion.

Risk Assessment

Business Risks:

• Demand softness leading to a 1.9% YoY revenue decline, indicating cyclical exposure in precision components/machinery end-markets.
• Negative operating margin (-0.86%) with SG&A exceeding gross profit, making profits highly sensitive to small revenue or margin shocks.
• Reliance on extraordinary gains to achieve positive pre-tax profit, reducing earnings predictability.

Financial Risks:

• Interest coverage at -0.92x (EBIT basis) indicates weak debt-servicing capacity from core operations.
• Elevated leverage (D/E 1.49x) alongside negative EBIT increases vulnerability to interest rate and refinancing risks.
• Debt/EBITDA implied risk (13.5x in quality alerts) is high for an industrial, signaling leverage relative to earnings is stretched.

Key Concerns:

• ROIC at -0.3% points to value-destructive deployment of capital at present.
• Ordinary income loss (-0.87) and higher non-operating expenses (1.45) reduce recurring earnings support.
• Net margin compression (~98 bps YoY) with net income down 42.4% YoY highlights bottom-line fragility.

Investment Implications

Key Takeaways:

• Core operations improved sequentially YoY but remain loss-making; operating margin ~-0.86%.
• Bottom-line profit relies on non-recurring items (extraordinary gains implied), lowering quality of earnings.
• Cash generation is a relative bright spot (OCF/NI 2.76x) and liquidity is adequate (CR 152%).
• Leverage is elevated (D/E 1.49x) and interest coverage is weak, constraining financial flexibility.
• Capital efficiency is subpar (ROIC -0.3%, ROE 1.0%), necessitating sharper capital discipline.

Metrics to Watch:

• Order intake/backlog and book-to-bill for visibility on revenue recovery.
• Gross margin versus SG&A run-rate to reach break-even EBIT.
• Operating income and interest coverage (>2x as interim target, >5x longer term).
• Working capital turns (AR and inventory days) and sustained OCF.
• Extraordinary gains/losses and their recurrence; capex plans and investing CF to assess FCF.

Relative Positioning: Within Japanese precision industrial peers, the company shows weaker operating profitability and capital efficiency, with adequate liquidity but tighter debt-service metrics; improvement in cost structure and asset utilization is needed to align with sector medians.

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