Eidai Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥35.26B
• Operating Income: ¥-118M
• Net Income: ¥-404M
• EPS: ¥-1.84

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 weak, with a small operating loss and negative operating cash flow despite modest topline growth. Revenue grew 3.7% YoY to 352.6, but gross profit of 73.8 could not cover SG&A of 75.0, resulting in operating income of -1.18. Operating margin was -0.33%, ordinary income -2.14, and net income -0.81 (EPS -1.84 yen), underscoring continued margin pressure. Gross margin printed at 20.9%, while EBITDA margin was 4.4%, indicating some depreciation shield (D&A 16.82) but insufficient to offset SG&A drag. Non-operating income of 1.47 (including 0.84 dividends and 0.10 interest) was outweighed by non-operating expenses of 2.44, including interest expense of 1.94, pushing ordinary income deeper into loss. Tax expense of 2.62 despite a pre-tax loss (-1.41) drove an anomalous effective tax rate of -185.8%, likely reflecting valuation allowance movements or non-deductible items. Total comprehensive income was positive at 2.83, presumably on securities valuation gains, but this is non-cash and does not alleviate core earnings weakness. Cash flow from operations was -7.31, worse than net income, highlighting cash burn at the operating level. With capital expenditures of 10.96, implied pre-dividend FCF was roughly -18.27, suggesting external funding or cash drawdown covered investments. Liquidity remains adequate (current ratio 211%), and capital structure is moderate (D/E 1.10x), but interest coverage is negative (-0.61x), a clear debt-service warning. Balance sheet shows substantial long-term loans (193.69) and cash of 47.65, indicating net debt remains material. ROE was -0.2% per DuPont, with negative net margin the principal driver, asset turnover low at 0.401, and leverage at 2.10x. ROIC at -0.2% is well below the 5% warning threshold, implying value dilution if sustained. We lack prior-period margin data, so bps expansion/compression cannot be quantified; however, the fact SG&A exceeded gross profit this quarter indicates deterioration in core operating leverage. Earnings quality is mixed: the mechanical OCF/NI ratio looks high (9.02x) but both OCF and NI are negative, so quality is weak in substance. Forward-looking, margin repair via pricing, mix improvement, and SG&A discipline is required to restore positive operating income and coverage; otherwise, rising funding costs could pressure equity.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-0.2%) × 0.401 × 2.10 ≈ -0.2% (matches reported). The largest swing factor is the net profit margin, which is negative (-0.23%) due to operating losses and a tax expense recorded despite a loss. Asset turnover at 0.401 indicates a relatively asset-heavy profile for the current revenue base, typical for building materials/fixtures with sizable fixed assets and working capital. Financial leverage of 2.10x is moderate and not the proximate cause of the ROE decline; leverage actually magnifies the negative margin into a small negative ROE. Business drivers: SG&A (74.95) exceeded gross profit (73.77), erasing operating profit; interest expense (1.94) further pressured ordinary income; and the unusual tax expense deepened net loss. Sustainability: the tax anomaly is likely non-recurring, but the core issue—insufficient gross margin/SG&A structure—will persist without pricing and cost actions. Concerning trends: SG&A outpacing gross profit and negative interest coverage (-0.61x). With only revenue YoY disclosed, we cannot assess whether SG&A grew faster than revenue, but the absolute relationship (SG&A > gross profit) is a clear red flag for operating leverage.

Growth Assessment

Revenue rose 3.7% YoY to 352.6, suggesting stable to modestly improving demand. However, profit growth is absent: operating income was -1.18 and net income -0.81, indicating that cost inflation and/or price competition offset volume gains. Gross margin at 20.9% appears thin for the fixed cost base, and EBITDA margin at 4.4% leaves little buffer against interest and non-operating items. The negative ordinary income signals limited pricing power or lagged pass-through of input costs (e.g., wood, resins, logistics). Non-operating income (dividends) contributed but cannot structurally offset operational shortfalls. Outlook: near-term profit recovery hinges on price hikes, product mix upgrades (higher-margin interior materials), procurement savings, and SG&A discipline. If housing starts soften or renovation demand slows, revenue resilience could weaken, amplifying operating deleverage. Given ROIC of -0.2%, incremental growth must be margin-accretive to be value-creative. With missing segment data and no order backlog disclosed, visibility on sustainability is limited.

Financial Health

Liquidity is sound: current ratio 211.2% and quick ratio 211.2% (inventory unreported), with working capital of 236.6. Solvency is moderate: D/E 1.10x; total liabilities 461.08 vs equity 418.53. Interest-bearing debt concentration is long-term (long-term loans 193.69 vs short-term loans 1.75), reducing immediate refinancing risk. Interest coverage is negative (-0.61x EBIT/interest), a clear warning on debt service if losses persist. Cash and deposits are 47.65, providing some buffer, but negative OCF may erode this. Maturity mismatch risk appears limited near-term given low short-term loans and strong current assets versus current liabilities (449.31 vs 212.71). No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF was -7.31 versus net income -0.81, resulting in a mechanical OCF/NI ratio of 9.02x; however, both are negative, so underlying cash earnings quality is weak. With capex of 10.96, indicative pre-dividend FCF is about -18.27, implying reliance on cash reserves or financing to fund investments. Working capital details are incomplete (inventories unreported), limiting diagnosis, but negative OCF alongside higher revenue suggests either margin compression or working capital outflows (e.g., receivables build). No apparent working capital manipulation can be inferred from the limited data. Given interest expense of 1.94 and negative operating income, internal cash generation currently does not cover financing costs or capex.

Dividend Sustainability

Dividend disclosures are unreported; a calculated payout ratio of -577.6% implies dividends may have been paid despite a net loss, but this cannot be validated from the data. With OCF negative (-7.31) and indicative FCF around -18.27, coverage for any dividends would be unsustainable from internal cash flows this quarter. Balance sheet liquidity (current ratio >200%) offers a temporary cushion, but continued payouts under negative FCF would erode cash and potentially increase leverage. Policy outlook likely contingent on restoring positive OCF and operating income; absent recovery, a conservative stance on dividends would be prudent. Data gaps (total dividends paid, DPS) limit precision.

Risk Assessment

Business Risks:

• Margin pressure from input cost inflation and limited pass-through (gross margin 20.9% vs SG&A 74.95 exceeding gross profit).
• Demand cyclicality in housing/renovation markets affecting volumes and pricing.
• Product mix risk if lower-margin categories dominate.
• Execution risk on cost reductions and SG&A control.

Financial Risks:

• Debt service risk: interest coverage -0.61x with interest expense 1.94.
• Negative operating cash flow (-7.31) and negative indicative FCF (~-18.27).
• Potential tax charge volatility (effective tax rate -185.8%) impacting net profit.
• Refinancing risk if losses persist, despite currently long-dated debt structure.

Key Concerns:

• Sustained operating losses (operating margin -0.33%).
• ROIC -0.2% below the 5% warning threshold, implying value dilution.
• Reliance on non-operating items (dividends) that cannot offset core weakness.
• Data limitations on inventories, investing cash flows, and dividends obscure full cash profile.

Investment Implications

Key Takeaways:

• Topline grew 3.7% YoY, but profitability deteriorated to an operating loss.
• SG&A exceeded gross profit, indicating urgent need for cost and pricing actions.
• Interest coverage is negative; sustained losses could pressure financing flexibility.
• Liquidity is adequate (current ratio ~211%), but cash burn is evident.
• ROE (-0.2%) and ROIC (-0.2%) are below acceptable thresholds.

Metrics to Watch:

• Gross margin percentage and pricing pass-through rate.
• SG&A-to-sales ratio and fixed cost reduction progress.
• Operating cash flow and working capital movements (AR and inventories).
• Interest coverage and average borrowing rate.
• Capex discipline and project returns.
• Tax normalization (avoidance of losses with tax expense).

Relative Positioning: Within Japanese building materials/interior fixtures peers, leverage is moderate but profitability is weaker given negative operating margin and negative ROIC; restoration of positive OCF and margin is required 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