KURODA PRECISION INDUSTRIES LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.62B
• Operating Income: ¥-74M
• Net Income: ¥193M
• 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

Kuroda Precision Industries (7726) reported FY2026 Q2 consolidated results under JGAAP showing a modest top-line decline and weak operating profitability but solid operating cash generation. Revenue was ¥8.62bn, down 1.9% YoY, with a gross profit of ¥2.27bn and a gross margin of 26.3%, indicating stable but not expanding margin structure. Operating income was a loss of ¥74m, an improvement of about 30% YoY, reflecting some cost control or mix improvements but still signaling insufficient operating leverage at current volumes. Ordinary income was a loss of ¥87m, implying that financial and non-operating items did not fully offset the operating deficit in the core business. Despite this, net income was positive at ¥120m (down 42.4% YoY), suggesting material extraordinary gains or non-recurring items that more than offset the ordinary loss and tax expense in the period. The DuPont breakdown points to a low ROE of 1.04%, driven primarily by a thin net margin of 1.39%, modest asset turnover of 0.299x, and financial leverage of 2.49x. EBITDA was ¥412m with a 4.8% margin, which covers interest on a cash-earnings basis, but EBIT remained negative, highlighting ongoing pressure from depreciation and weaker pricing or utilization. On liquidity, the company maintains a comfortable current ratio of 154% and quick ratio of 138%, supported by working capital of ¥4.58bn, which provides a near-term buffer. Solvency is mixed: the debt-to-equity ratio stands at 1.26x, and the provided interest coverage ratio is negative at the EBIT level (-1.5x), pointing to sensitivity if operating losses persist. Operating cash flow was strong at ¥1.44bn, equating to nearly 12x net income, indicating either robust non-cash charges and/or a favorable working capital swing; this provides downside protection despite weak accounting profitability. Free cash flow cannot be reliably assessed because Investing CF is not disclosed in the provided XBRL (shown as zero), and cash balances are also undisclosed (zero values are placeholders, not actual). Dividend payments were not disclosed for the period (DPS shown as 0), and payout and FCF coverage metrics therefore cannot be interpreted as true zeros. The balance sheet totals provided do not reconcile perfectly to the accounting identity using the disclosed subtotals, likely due to undisclosed items or differing classifications; therefore, leverage and equity ratio assessments rely on the reported calculated metrics. Overall, the core business remains under earnings pressure, but cash generation and liquidity reduce near-term financial stress. The outlook hinges on demand normalization in end-markets such as machinery, automotive, and precision components, as well as the company’s ability to pass through costs and lift utilization. Absent clear visibility on capital expenditures and investing cash flows, assessing longer-term reinvestment and FCF sustainability remains constrained. The key watchpoints are progress toward breakeven at the operating level, stability of gross margins, and normalization of extraordinary items that boosted bottom-line results.

Profitability Analysis

ROE_decomposition: ROE 1.04% = Net margin 1.39% x Asset turnover 0.299x x Financial leverage 2.49x. The low ROE is mainly constrained by thin net margin; asset intensity (ATO below 0.3x) further dilutes returns, while leverage provides only modest uplift. margin_quality: Gross margin is 26.3% (¥2.27bn GP on ¥8.62bn sales), relatively stable but insufficient to deliver positive EBIT given operating cost structure and depreciation. EBITDA margin at 4.8% indicates limited operating cushion. Net income is positive despite an operating loss, implying reliance on non-operating/extraordinary gains; thus, margin quality is weak from a recurring standpoint. operating_leverage: Operating income improved to -¥74m (+30.2% YoY), indicating some incremental operating leverage, but current volume/mix has not yet cleared the breakeven threshold. D&A of ¥486m exceeds EBITDA improvement, keeping EBIT negative. Interest expense of ¥49m contributes to ordinary loss when EBIT is negative.

Growth Assessment

revenue_sustainability: Revenue declined 1.9% YoY to ¥8.62bn, suggesting soft end-market demand or unfavorable mix. No disclosure on orders/backlog limits visibility; current run-rate implies flat-to-slightly negative growth unless demand in machinery/auto-related segments improves. profit_quality: Net income (+¥120m) is not reflective of core profitability given -¥74m operating income and -¥87m ordinary income; extraordinary/non-recurring items likely drove the bottom line. EBITDA is positive but low, implying limited resilience if pricing or utilization softens further. outlook: With modest revenue contraction and negative EBIT, near-term profit recovery depends on cost rationalization, utilization gains, and pricing actions. Potential macro tailwinds (capital goods cycle, inventory normalization) could help, but absent order data, outlook is cautious. Seasonal second-half pickup could aid breakeven, but sustainability remains uncertain.

Financial Health

liquidity: Current ratio 154.1% and quick ratio 138.2% indicate solid short-term liquidity. Working capital is ¥4.58bn. Cash and equivalents were not disclosed (reported as 0), so absolute liquidity buffers cannot be precisely gauged, but OCF of ¥1.44bn supports liquidity. solvency: Debt-to-equity ratio is 1.26x, implying moderate leverage. Interest coverage is negative at the EBIT level (-1.5x), though EBITDA of ¥412m covers interest expense of ¥49m by ~8.4x on a cash-earnings basis. Reported equity ratio is shown as 0.0% (undisclosed), so structural solvency should be inferred from the provided leverage metrics. capital_structure: Total assets ¥28.81bn; total liabilities ¥14.58bn; total equity ¥11.56bn (subtotals may exclude certain items). Financial leverage in DuPont (2.49x) aligns with assets/equity, indicating a balanced but not conservative structure given weak profitability.

Cash Flow Quality

earnings_quality: OCF of ¥1.44bn vs net income of ¥120m (OCF/NI ~12x) suggests earnings are supported by non-cash charges and/or favorable working capital movements. Given negative EBIT, cash flow quality is better than accrual earnings imply. FCF_analysis: Investing cash flow is undisclosed (shown as 0), preventing calculation of free cash flow and capex intensity. As such, true FCF and reinvestment sufficiency cannot be assessed for the period. working_capital: Inventories are ¥1.35bn; other working capital details are not disclosed. The strong OCF hints at either receivables collection or inventory reduction, but without line-by-line changes, the durability of this WC benefit is uncertain.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is shown as 0 and payout ratio 0.0%, which should be treated as undisclosed for the period rather than a definitive suspension/zero payout. With net income positive but operating income negative, a high payout would not be prudent; however, actual policy for the year is not disclosed here. FCF_coverage: FCF coverage cannot be determined since investing cash flows are undisclosed. OCF is strong, but the ability to cover dividends after capex is unknown. policy_outlook: In the absence of disclosed DPS or guidance, dividend visibility is low. Sustained distribution likely depends on restoring operating profitability and confirming consistent OCF after normalizing working capital.

Risk Assessment

Business Risks:

• Cyclical demand in machinery/automotive/precision components end-markets
• Operating leverage risk given current negative EBIT
• Pricing pressure and input cost inflation impacting gross margin
• Utilization risk from uneven order intake and mix shifts
• Dependence on non-operating/extraordinary gains to sustain net income
• FX volatility if export exposure is material
• Supply chain and lead-time variability affecting deliveries and inventory

Financial Risks:

• Negative EBIT leading to weak interest coverage at the operating level
• Moderate leverage (D/E 1.26x) amid subdued profitability
• Potential refinancing or covenant pressure if losses persist
• Uncertain capex/FCF due to undisclosed investing cash flows
• Sensitivity to working capital reversals after a strong OCF half

Key Concerns:

• Sustained operating losses despite stable gross margins
• Reliance on extraordinary items to achieve positive net income
• Lack of visibility on capex and free cash flow
• Low ROE (1.04%) relative to cost of equity benchmarks

Investment Implications

Key Takeaways:

• Core operations remain subscale at current volumes, with EBIT at -¥74m despite a 26.3% gross margin
• Net profit of ¥120m appears non-recurring in nature given ordinary loss and tax expense
• Liquidity is adequate (current ratio 154%, quick ratio 138%) and OCF is strong (¥1.44bn), providing near-term cushion
• Leverage is moderate (D/E 1.26x), but EBIT-based interest coverage is negative, making margin recovery a priority
• Data gaps on investing cash flows and cash balances limit FCF and balance sheet visibility

Metrics to Watch:

• Order intake and backlog/book-to-bill to gauge demand recovery
• Operating margin progression toward breakeven and beyond
• Gross margin stability and pricing pass-through
• Capex and investing cash flows to assess true FCF
• Inventory turns and receivables days to validate working capital-driven OCF
• EBITDA-to-interest coverage and net debt trajectory
• Magnitude and recurrence of extraordinary gains/losses

Relative Positioning: Versus Japanese small-cap precision/machinery peers, Kuroda Precision shows weaker profitability (negative EBIT, 4.8% EBITDA margin) and low ROE, offset by reasonable liquidity and mid-range leverage; improvement hinges on restoring operating margins and demonstrating sustainable FCF.

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
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