ZACROS Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥78.33B
• Operating Income: ¥5.57B
• Net Income: ¥4.40B
• EPS: ¥53.17

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: A steady topline with mixed margin dynamics and solid cash conversion, but depressed ROIC and negative FCF due to elevated capex temper the quality of the beat at the net income level. Revenue rose 3.8% YoY to 783.3, while operating income edged down 1.0% to 55.7, and ordinary income improved 4.1% to 60.8. Net income climbed 7.5% to 38.9, supported by lower non-operating drag and disciplined financing costs. Gross margin printed at 23.1% and the operating margin was 7.1%. Based on YoY math, the operating margin compressed by roughly 35 bps (from about 7.46% to 7.11%). Net margin expanded by about 17 bps (from roughly 4.80% to 4.97%), implying better below-OP items and tax rate stability (effective tax rate 27.0%). Ordinary income benefited from non-operating income of 6.2 and modest non-operating expenses of 1.1, keeping interest coverage extremely strong at 68.7x. Cash flow quality was sound with OCF/NI at 1.21x, indicating earnings backed by cash. However, capex was heavy at 94.3, resulting in negative implied FCF (OCF − capex), which raises near-term capital allocation tension. Liquidity is strong (current ratio 220% and quick ratio 197%), and leverage is conservative (D/E 0.46x), reducing financial risk. ROE calculated at 3.9% remains modest, and ROIC at 4.5% is below the 5% warning threshold, signaling capital efficiency headwinds. Non-operating contributions accounted for a meaningful share (non-operating income ratio 16%), cushioning OP softness. The reported payout ratio (calculated) of 257.4% appears elevated and, combined with negative implied FCF, suggests potential pressure on future shareholder returns absent earnings acceleration or lower capex. Forward-looking, a successful ramp of capex projects is critical to lift ROIC above cost of capital and restore FCF coverage of distributions. Monitoring margin trajectory, utilization of new capacity, and raw material cost pass-through will be key for 2H.

Profitability Analysis

DuPont decomposition: ROE 3.9% = Net Profit Margin (≈5.0%) × Asset Turnover (0.532x) × Financial Leverage (1.46x). The largest constraint on ROE is the low asset turnover (0.53x) coupled with subdued net margin mid-single digits; leverage is conservative and not the main driver. YoY, operating profit declined slightly (-1.0%) despite revenue growth (+3.8%), pointing to mild negative operating leverage and likely input cost/mix headwinds in the cost base. Operating margin compressed by ~35 bps (≈7.46% → 7.11%), while net margin expanded by ~17 bps (≈4.80% → 4.97%) on non-operating tailwinds and a stable tax rate. Business reason: gross margin at 23.1% suggests materials/energy costs and product mix offset pricing gains; below-OP items (interest income 1.22 vs interest expense 0.81; total non-op income 6.21) helped ordinary profit. Sustainability: non-operating gains may be less repeatable than structural gross margin improvement; absent pricing/mix actions or cost-downs, OP margin recovery could be gradual. Watch for SG&A discipline—absolute SG&A is 125.2; we lack the YoY split, but OP softness despite sales growth indicates SG&A + COGS outpaced revenue, a mild concern.

Growth Assessment

Topline growth of 3.8% YoY to 783.3 was modest and appears organic, with limited contribution from non-operating items to revenue. Profit quality is mixed: operating profit declined slightly (-1.0%) despite revenue growth, but ordinary profit rose (+4.1%) and net income increased (+7.5%) thanks to non-operating support and benign financing costs. EBITDA of 86.9 (11.1% margin) provides cushion for reinvestment, but ROIC at 4.5% indicates that incremental investments must yield higher returns to create value. Near-term outlook hinges on executing the sizable capex (94.3 in 1H) to drive utilization, mix upgrade, and cost efficiencies; successful ramp could lift asset turnover and margins in 2H. Risks to growth include raw material price volatility and potential demand softness in end markets; pricing power and pass-through speed will be critical.

Financial Health

Liquidity is robust: current ratio 220.2% and quick ratio 196.5% are well above benchmarks; no warning on current ratio. Working capital is ample with 427.7 of positive working capital; current assets (783.5) comfortably exceed current liabilities (355.8). Maturity profile is conservative: short-term loans are only 5.6 versus cash and deposits of 146.5, and accounts receivable (355.6) plus cash far exceed accounts payable (190.4). Solvency is solid with D/E at 0.46x and low interest-bearing debt (~47.7 across short- and long-term); interest coverage at 68.7x indicates minimal refinancing risk. No off-balance sheet obligations are reported in the provided data. There is no indication of a maturity mismatch risk given the strong liquidity buffer.

Cash Flow Quality

Earnings quality is good with OCF/NI at 1.21x, indicating cash-backed profits. However, implied FCF is negative in the period: OCF 47.1 minus capex 94.3 ≈ -47.3, driven by elevated investment outlays. This implies that dividends and buybacks (repurchases of 15.8; dividends not disclosed) are being funded by cash on hand or financing, as financing CF was -28.6 (suggesting distributions and/or debt repayment). Working capital appears reasonably managed given positive OCF despite AR of 355.6 and inventory of 84.4; we lack YoY balance sheet comps to assess build/relief trends, and we see no clear signs of working capital manipulation from the limited data.

Dividend Sustainability

The reported calculated payout ratio of 257.4% is elevated relative to typical sustainability thresholds (<60%), but detailed dividend amounts are unreported, so this figure should be treated cautiously. With implied negative FCF (≈ -47.3) due to heavy capex, coverage of dividends from free cash flow appears weak in the period. Share repurchases totaled 15.8, adding to cash outflows; financing CF of -28.6 suggests cash returns plus debt service exceeded inflows. Given strong liquidity and low leverage, near-term distributions are fundable, but sustained high payouts would be difficult without FCF normalization as capex subsides or earnings step up. Policy outlook will depend on 2H cash generation and capex cadence; stabilization of investment intensity would improve FCF coverage.

Risk Assessment

Business Risks:

• Raw material and energy price volatility affecting gross margin (petrochemical feedstocks, films, resins).
• Pricing power and pass-through timing risk if input costs rise faster than customer price adjustments.
• Execution risk on large capex program; delays or underutilization could depress ROIC and FCF.
• Demand variability in key end-markets (packaging/industrial/healthcare) impacting volume and mix.

Financial Risks:

• Negative implied FCF in the period increases reliance on cash reserves to fund distributions and investment.
• ROIC at 4.5% below warning threshold, risking value dilution if cost of capital exceeds returns.
• Exposure to interest rate or FX movements is not detailed; potential translation/transaction effects may affect non-operating results.

Key Concerns:

• Operating margin compression (~35 bps YoY) despite revenue growth signals mild negative operating leverage.
• High calculated payout ratio (257.4%) alongside negative implied FCF questions dividend sustainability absent improvement.
• Dependence on non-operating income (non-operating income ratio 16%) to support ordinary income, which may be less predictable.

Investment Implications

Key Takeaways:

• Topline growth of 3.8% YoY with operating margin compression but net margin expansion via non-operating support.
• Healthy liquidity and low leverage minimize downside financial risk.
• Cash conversion solid (OCF/NI 1.21x), but heavy capex drives negative implied FCF in 1H.
• ROIC at 4.5% underscores the need for better asset utilization and margin uplift to create value.
• Shareholder returns (payout and buybacks) appear aggressive versus current FCF profile.

Metrics to Watch:

• Operating margin trajectory and gross margin pass-through in 2H.
• Capex deployment, project ramp, and impact on ROIC and asset turnover.
• OCF and FCF recovery as working capital normalizes and capex cadence evolves.
• Non-operating income stability (interest income vs expense and other items).
• Dividend announcements and buyback pace relative to FCF.

Relative Positioning: Within Japanese packaging/materials peers, ZACROS exhibits conservative leverage and strong liquidity but lags on capital efficiency (ROIC 4.5%) and posted slight OP margin compression despite sales growth; near-term performance will hinge on realizing returns from current capex to close the ROIC gap while maintaining cash-backed earnings.

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