A&D HOLON Holdings Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.38B
• Operating Income: ¥3.16B
• Net Income: ¥1.72B
• EPS: ¥62.25

Income Statement

Balance Sheet

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: A&D Holon Holdings delivered a resilient but subdued FY2026 Q2, with flat revenue and modest profit compression, supported by strong liquidity and low leverage but constrained by weak capital efficiency. Revenue was 303.81 (100M JPY), essentially flat YoY (+0.0%), while operating income declined slightly to 31.56 (-3.6% YoY). Ordinary income improved to 33.30 (+4.6% YoY), aided by positive non-operating contributions, while net income softened to 17.04 (-3.7% YoY). Gross profit reached 137.10, translating to a robust gross margin of 45.1%. The operating margin was approximately 10.4%, with an estimated YoY compression of about 39 bps given flat sales and a 3.6% decline in operating income. Net margin stood at 5.6%, likely compressing by roughly 22 bps YoY based on the net income decline. Non-operating income was 3.47, with interest income of 2.80 offsetting non-operating expenses of 1.74 (interest expense 1.46), resulting in a net non-operating lift to ordinary income. The effective tax rate was elevated at 38.1%, weighing on bottom-line conversion. Liquidity remained a clear strength: current ratio 228% and quick ratio 179%, with cash of 138.19 and ample working capital of 287.56. Leverage appears conservative (D/E 0.57x; calculated equity ratio around 63.7%), though the company does carry meaningful short-term borrowings of 104.62. Earnings quality cannot be validated due to unreported cash flow data (OCF/NI N/A), limiting visibility into working capital dynamics and free cash flow. Capital efficiency is a concern: DuPont ROE was 3.9% and ROIC 4.8%, below the 5% warning threshold, signaling underutilized assets or subdued pricing power/turns. Forward-looking, normalization of the tax rate, tighter SG&A control, and better asset turns could lift ROE, while any cyclical recovery in end-markets would support margin improvement. However, absent disclosed OCF and capex, dividend sustainability and FCF resilience remain uncertain. Near term, maintaining operating discipline and improving ROIC above 7% will be key to re-rating.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.6% × 0.438 × 1.57 ≈ 3.9% (matches reported). The most notable driver this quarter was net profit margin, pressured by a 39 bps operating margin compression and a high 38.1% effective tax rate, while asset turnover appears broadly flat with revenue unchanged and assets sizable. Business drivers: flat topline suggests limited pricing/volume leverage, while SG&A at 34.7% of sales constrained operating leverage; elevated taxes further dampened net margin. Sustainability: the tax rate could normalize, offering upside to NPM, but with revenue flat and inventories/receivables sizable, improving asset turnover will require either stronger demand or stricter working capital discipline. Financial leverage is modest at 1.57x and unlikely to be a material lever for ROE uplift without increasing balance sheet risk. Concerning trend flags: SG&A growth versus revenue cannot be assessed due to missing YoY SG&A, but the decline in operating income despite flat sales implies cost pressure and operating deleverage. Vigilance on margin mix and operating expense control is warranted.

Growth Assessment

Revenue was flat at 303.81 (0.0% YoY), indicating subdued demand momentum. Operating income fell 3.6% YoY to 31.56, reflecting mild operating deleverage amid stable gross profit dollars. Ordinary income rose 4.6% YoY to 33.30, supported by positive net non-operating items (interest income exceeding interest expense). Net income declined 3.7% YoY to 17.04 as the elevated tax rate (38.1%) offset non-operating gains. Gross margin is healthy at 45.1%, but operating margin compressed to ~10.4%. With AR of 134.67 (~81 DSO) and inventory of 109.63 (~120 days on half-year COGS basis), working capital appears heavy for flat sales, hinting at caution on near-term revenue acceleration. Outlook hinges on demand normalization in core instrumentation/metrology markets, pricing stability, and cost discipline; a recovery could restore operating leverage, while continued flat sales would keep profit growth muted.

Financial Health

Liquidity is strong: current ratio 228.3% and quick ratio 179.4%, with cash and deposits of 138.19 against current liabilities of 224.14. Solvency is conservative: reported D/E 0.57x and a calculated equity ratio of ~63.7% (total equity 441.98 / total assets 693.00). Interest coverage is robust at 21.62x (operating income 31.56 / interest expense 1.46). Maturity profile: short-term loans of 104.62 dominate total borrowings, but are well covered by current assets (511.70) and cash plus receivables (272.86), suggesting low near-term refinancing risk; nonetheless, reliance on short-term debt introduces rollover sensitivity. No off-balance sheet items were disclosed in the provided data. No explicit warnings triggered (Current Ratio > 1.0, D/E < 2.0).

Cash Flow Quality

OCF and FCF were not disclosed (N/A), preventing assessment of earnings-to-cash conversion and free cash flow sustainability. Accordingly, OCF/Net Income cannot be computed; we cannot validate the quality of earnings. Working capital indicators: AR ~81 days and inventory ~120 days (based on half-year COGS), which are on the higher side and could tie up cash if sales remain flat. Interest income (2.80) suggests material average cash balances during the period, partially offsetting interest expense (1.46). Without OCF and capex data, we cannot evaluate FCF coverage of dividends or potential working capital normalization benefits/risks. No explicit signs of quarter-end working capital manipulation can be inferred from the static balance sheet alone.

Dividend Sustainability

The calculated payout ratio is 65.4%, slightly above the <60% benchmark for comfort, but DPS and total dividends were unreported, limiting precision. With OCF and capex unreported, FCF coverage of dividends cannot be assessed. Balance sheet strength (equity ratio ~63.7%, strong liquidity) provides a buffer, but subdued ROE (3.9%) and ROIC (4.8%) constrain organic funding capacity. Policy outlook is uncertain from the data; sustainability will depend on restoring operating leverage and generating consistent OCF.

Risk Assessment

Business Risks:

• Demand cyclicality in core end-markets (precision instruments/semiconductor-related metrology) could prolong flat revenue.
• Margin pressure from operating deleverage if sales remain stagnant while SG&A stays elevated.
• Product mix and pricing risk affecting the 45.1% gross margin.
• Execution risk in inventory and receivables management given relatively high days on hand/outstanding.

Financial Risks:

• Refinancing exposure due to reliance on short-term loans (104.62) despite strong liquidity.
• Earnings sensitivity to an elevated effective tax rate (38.1%).
• Interest rate risk affecting both interest income and expense.
• Capital efficiency risk with ROIC at 4.8% (<5% warning) and ROE at 3.9%.

Key Concerns:

• Lack of cash flow disclosure (OCF/FCF N/A) limits validation of earnings quality and dividend coverage.
• Flat revenue with slight profit compression suggests limited operating leverage near term.
• High working capital intensity (AR ~81 days, inventory ~120 days on H1 basis) may constrain cash generation if growth is muted.

Investment Implications

Key Takeaways:

• Steady topline but mild margin compression at operating and net levels.
• Ordinary income supported by net non-operating gains (interest income > interest expense).
• Strong liquidity and low leverage underpin financial resilience.
• Capital efficiency below par (ROIC 4.8%, ROE 3.9%) is the main structural constraint.
• Visibility is limited by absent OCF/FCF and dividend cash data.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales.
• OCF/Net income and free cash flow once disclosed.
• Inventory turns and receivables days (working capital intensity).
• ROIC progress toward >7% and ROE uplift drivers.
• Effective tax rate normalization.
• Net non-operating balance (interest income vs expense) and debt tenor mix.

Relative Positioning: Within Japan precision instruments/metrology peers, A&D Holon exhibits healthy gross and operating margins with notably strong liquidity and conservative leverage, but lags on capital efficiency (ROIC/ROE) amid flat growth; improving working capital turns and restoring operating leverage would be needed to close the gap.

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