TOPPAN Holdings Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥863.62B
• Operating Income: ¥24.79B
• Net Income: ¥33.94B
• EPS: ¥103.92

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: Mixed quarter with resilient topline but margin compression and weak cash conversion; earnings propped up by below-operating items. Revenue grew 4.3% YoY to 8,636.19, while operating income fell 12.8% YoY to 247.87, indicating cost pressure and operating deleverage. Gross profit was 2,031.85 (23.5% GPM), and SG&A was 1,783.98 (20.7% of sales), leaving a thin operating margin of 2.9%. Ordinary income declined 19.7% YoY to 261.20, but profit before tax surged to 483.22, implying sizable extraordinary gains. Net income decreased 9.2% YoY to 298.90, with net margin at 3.5%. EBITDA was 635.90 (7.4% margin), and interest coverage remained acceptable at 5.99x. Operating margin compressed by an estimated 56 bps YoY (to ~2.9%) as revenue grew but operating profit declined. Net margin compressed by an estimated ~51 bps YoY to ~3.5%. Earnings quality is a notable concern: operating cash flow was -87.19 versus net income of 298.90 (OCF/NI -0.29x), and profit before tax far exceeded ordinary income, suggesting one-off gains. ROE stood at 2.1% (DuPont: NPM 3.5%, asset turnover 0.352x, leverage 1.74x), and ROIC at 1.2% is well below the 5% warning threshold. Liquidity is sound (current ratio 168.9%, quick ratio 156.5%), and capital structure is moderate (D/E 0.74x), but Debt/EBITDA of 6.28x signals elevated leverage versus earnings capacity. Total comprehensive income (196.39) was below net income, indicating negative OCI items impacting equity. Cash returned to shareholders continued via share repurchases (-171.69) despite negative OCF and heavy capex (-879.56), pressuring free cash flow. Forward-looking, the company must improve operating execution and cash conversion, moderate capex or align it with clearer returns, and lift ROIC toward cost of capital to sustain shareholder returns. Absent a recovery in core margins and OCF, reliance on non-operating and extraordinary gains may not be repeatable. Monitoring SG&A discipline, pricing, and mix shifts will be essential for margin repair. Overall, stabilization of core profitability and cash flows is required to de-risk the outlook.

Profitability Analysis

ROE decomposition: ROE 2.1% = Net Profit Margin 3.5% × Asset Turnover 0.352 × Financial Leverage 1.74x. The largest driver of the weak ROE is the low net margin and sluggish asset turnover; leverage is moderate and not the primary lever. YoY, operating income fell 12.8% while sales rose 4.3%, indicating margin pressure rather than volume shortfall; we estimate operating margin compressed ~56 bps to ~2.9%. Business reasons likely include input cost pressure (materials/energy), pricing lag, and higher SG&A burden relative to revenue. Non-operating and extraordinary items elevated pre-tax profit versus ordinary income, masking weaker core profitability. Sustainability: without structural cost reductions or pricing power, margin recovery is uncertain; extraordinary gains are inherently non-recurring. Concerning trend flags: operating deleverage (OI down while revenue up) and ROIC at 1.2% well below target thresholds. SG&A as a percentage of sales is 20.7%; lack of YoY breakdown limits confirmation, but operating deleverage suggests SG&A grew faster than gross profit.

Growth Assessment

Revenue growth was modest at +4.3% YoY to 8,636.19, indicating steady demand across businesses. However, operating profit declined 12.8% YoY to 247.87, pointing to adverse mix/cost absorption and limited pricing pass-through. Gross margin is 23.5%, but with operating margin at 2.9%, fixed cost intensity remains high. Ordinary income fell 19.7% YoY to 261.20; the jump to profit before tax of 483.22 suggests one-time gains drove the bottom-line resilience. Net income declined 9.2% YoY to 298.90, with net margin at 3.5%. EBITDA margin at 7.4% provides some buffer, but Debt/EBITDA at 6.28x underscores constrained earnings power relative to leverage. Outlook hinges on cost normalization, SG&A discipline, and monetization of capex; without improvement in operating margin and OCF, sustaining growth in EPS will be challenging. The negative operating cash flow this half, despite positive net income, raises questions on the durability of reported earnings growth. Given low ROIC (1.2%), incremental growth must be returns-accretive to avoid value dilution.

Financial Health

Liquidity is healthy: current ratio 168.9% and quick ratio 156.5% comfortably above benchmarks; no warning on current ratio. Solvency is moderate: D/E 0.74x (within conservative thresholds), equity base 14,084.83 against total assets 24,553.29. Interest coverage at 5.99x sits at the strong threshold, but Debt/EBITDA of 6.28x is elevated relative to typical comfort ranges. Maturity mismatch risk appears manageable: short-term loans 2,064.03 are covered by cash 3,685.15 plus receivables 4,458.91 and inventories 781.88. Goodwill (1,993.23) and intangibles (2,826.20) are sizable, implying potential impairment sensitivity if earnings weaken. No explicit off-balance sheet obligations were reported in the provided data. Working capital is positive at 4,352.21, supporting near-term liquidity.

Cash Flow Quality

Earnings quality is weak this period: OCF/Net Income is -0.29x (<0.8 threshold), indicating profits not backed by cash. Operating CF was -87.19 versus net income of 298.90; working capital swings are the likely culprit, but the breakdown is unreported. Capex was heavy at -879.56; with negative OCF, proxy FCF (OCF - Capex) is materially negative, implying external financing or cash reserves fund investments and buybacks. Financing CF was -380.54, including share repurchases of -171.69, further reducing cash buffers. The gap between ordinary income (261.20) and profit before tax (483.22) suggests one-time gains that do not translate into recurring cash inflows. No explicit signs of deliberate working capital manipulation are observable from the disclosed items, but the negative OCF vs positive NI warrants close monitoring of receivables and inventory turns. Sustainability of current dividend and buybacks depends on OCF normalization or capex tapering.

Dividend Sustainability

The calculated payout ratio is 55.2%, within the broadly sustainable zone (<60%) on an earnings basis. However, OCF was negative and proxy FCF appears deeply negative given capex of -879.56, implying poor cash coverage for dividends and buybacks this period. Dividends paid and annual DPS were unreported, limiting precision on cash distributions. With Debt/EBITDA at 6.28x and ROIC at 1.2%, maintaining or growing shareholder returns will likely require either operating cash flow recovery or a reduction/re-phasing of capex. Policy outlook likely remains focused on stable dividends, but near-term flexibility may be constrained by cash generation unless one-off gains are monetized in cash.

Risk Assessment

Business Risks:

• Margin pressure from input costs (materials, energy) and pricing lag, evidenced by OI down 12.8% YoY amid +4.3% revenue.
• Execution risk on SG&A and fixed-cost absorption with low operating margin (~2.9%).
• Low ROIC (1.2%) risks value dilution if capex does not earn above the cost of capital.
• Dependence on non-operating/extraordinary gains (PBT 483.22 vs ordinary income 261.20) increases earnings volatility.
• Industry competition and structural shifts in printing/packaging demand mix.

Financial Risks:

• Negative operating cash flow (OCF/NI -0.29x) raises earnings quality concerns.
• Elevated Debt/EBITDA of 6.28x vs earnings capacity.
• Large goodwill and intangibles (total ~4,819) create impairment risk if profitability weakens.
• High capex (-879.56) amidst weak OCF tightens funding headroom.
• Potential FX exposure and interest rate sensitivity through debt and overseas operations (not quantified).

Key Concerns:

• Operating margin compression (~-56 bps YoY) despite revenue growth.
• Cash flow deficit funding both capex and buybacks (-171.69).
• Total comprehensive income below net income (196.39 vs 298.90) indicating OCI headwinds.
• ROE only 2.1% driven by low NPM and asset turnover.
• Sustainability of dividend and buybacks without OCF recovery.

Investment Implications

Key Takeaways:

• Topline growth (+4.3%) contrasted with weaker core profitability (OI -12.8%).
• Operating and net margin compressed by ~56 bps and ~51 bps YoY, respectively.
• Earnings quality is weak: OCF/NI -0.29x and reliance on non-operating/extraordinary gains.
• ROIC at 1.2% and Debt/EBITDA 6.28x highlight limited headroom without margin/OCF improvement.
• Liquidity is solid, but sustained negative FCF would erode flexibility.

Metrics to Watch:

• Operating cash flow recovery and working capital turns (AR and inventory days).
• Operating margin trajectory and SG&A as % of sales.
• Capex phasing and project returns (ROIC uplift).
• Composition of non-operating and extraordinary gains (repeatability).
• Debt/EBITDA and interest coverage trends.
• Total comprehensive income vs net income (OCI volatility).

Relative Positioning: Within Japanese diversified printing/packaging peers, the company shows competitive scale and liquidity but lags on capital efficiency (ROIC 1.2%) and cash conversion this period; margin repair and cash discipline are required to close the gap with best-in-class peers.

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