VALQUA,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥27.08B
• Operating Income: ¥3.18B
• Net Income: ¥2.55B
• EPS: ¥144.93

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

FY2026 Q2 was a mixed but net-positive quarter for Valqua: margins strengthened and earnings quality was solid despite a 10% revenue decline. Revenue fell to 270.81, but operating income rose 8.8% to 31.83, evidencing effective cost control. Gross profit came in at 115.94, yielding a gross margin of 42.8%. Operating margin expanded to roughly 11.8%, up about 200 bps year over year by our estimate. Ordinary income declined 2.0% to 30.81, as non-operating losses (net -1.02) offset part of the operating uplift. Net income jumped 27.7% to 25.51, supported by a low effective tax rate of 15.0%. Net margin improved to 9.4%, up an estimated 280 bps YoY, highlighting better profitability even on lower sales. Cash conversion was healthy: operating cash flow of 33.46 was 1.31x net income, and implied FCF (OCF minus capex) was about 13.93 despite capex of 19.53. Liquidity is strong with a current ratio of 291.7% and quick ratio of 245.4%, and solvency remains conservative with D/E at 0.56x and interest coverage at 23.4x. Asset efficiency is the weak link: asset turnover is low at 0.339, dragging ROE to 5.0% and ROIC to 4.6% (a sub-5% warning zone). Comprehensive income of 20.21 was below net income, indicating negative OCI effects (likely FX or securities valuation). The rise in profitability alongside declining sales suggests disciplined SG&A and a firmer product mix/pricing. However, ordinary income softness and reliance on a low tax rate raise some caution on the durability of net profit growth. With goodwill and intangibles totaling 52.79, impairment risk should be monitored amid softer top-line trends. Forward-looking, if demand stabilizes and current cost discipline holds, the margin gains can sustain, but capital efficiency must improve (higher turnover or optimized asset base) to lift ROE/ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = 9.4% × 0.339 × 1.56 ≈ 5.0%. The largest drag is asset turnover at 0.339, which, combined with a declining revenue base (-10% YoY), lowered efficiency and capped ROE despite stronger margins. Net margin expanded meaningfully (to 9.4%) thanks to improved operating margin (~11.8%) and a low effective tax rate (15.0%), partially offset by a small net non-operating loss (income 2.98 vs expenses 4.00). Financial leverage is moderate at 1.56x, providing limited ROE amplification relative to peers with higher gearing. Business drivers: cost discipline (SG&A stable to lower relative to sales) and potentially better mix/pricing improved operating margin even in a volume-soft environment; non-operating headwinds (interest expense 1.36 and other items) trimmed ordinary income slightly. Sustainability: operating margin gains from structural cost actions and mix can be partly sustainable; the low effective tax rate is less controllable and may normalize, tempering net margin. Watch for any reversal if SG&A grows faster than sales; given revenue contraction (-10%) alongside rising operating income (+8.8%), the implied operating leverage is positive but could reverse if demand weakens further.

Growth Assessment

Top-line contracted 10.0% YoY to 270.81, pointing to cyclical or end-market softness. Despite this, operating income rose 8.8% to 31.83, indicating resilient pricing/mix and cost control. Ordinary income slipped 2.0% (30.81) due to net non-operating losses, limiting the flow-through to pre-tax. Net income increased 27.7% to 25.51 on margin gains and a benign 15.0% tax rate. Estimated operating margin improved about 200 bps YoY to ~11.8%; net margin improved roughly 280 bps to 9.4%. EBITDA was 45.57 (margin 16.8%), providing comfortable coverage for interest and maintenance capex. Forward outlook hinges on demand normalization in key verticals (semiconductor, chemicals, industrial) and sustaining mix/pricing; if sales stabilize, current margin structure could drive double-digit profit growth. However, continued revenue contraction would pressure operating leverage and risk reversion in margins.

Financial Health

Liquidity is robust: current ratio 291.7% and quick ratio 245.4% are well above benchmarks; no warning flags (Current Ratio is not <1.0). Working capital is ample at 298.47, with cash 71.69, receivables 106.18, and inventories 72.02 against current liabilities of 155.70. Solvency is conservative: D/E 0.56x, total loans (short + long) 142.25 vs EBITDA 45.57 imply Debt/EBITDA ≈ 3.1x; interest coverage is strong at 23.4x (>5x benchmark). Maturity profile: short-term loans are 33.38, readily covered by cash and receivables; no apparent maturity mismatch risk. Total equity is 513.00, providing a solid buffer. Off-balance sheet obligations are not reported; no explicit guarantees/commitments disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 1.31x (>1.0), indicating good earnings quality with cash backing profits. Implied free cash flow (OCF - Capex) is approximately 13.93, suggesting capacity to fund dividends and debt service, though full investing CF is unreported (potential acquisitions/asset sales unknown). Working capital behavior cannot be fully assessed without detail, but OCF exceeding NI reduces concerns about aggressive revenue recognition. No signs of short-term window dressing are apparent from the snapshot; however, the negative comprehensive income suggests market/FX valuation swings outside OCF.

Dividend Sustainability

The calculated payout ratio is 109.9%, which would be above a typical sustainable range (<60%), but total dividends and DPS are unreported, so this metric may reflect interim assumptions or guidance rather than actual cash outflows. Implied FCF of ~13.93 is below net income (25.51) but could still cover a moderate interim dividend; without dividend cash data, FCF coverage cannot be confirmed. Given low leverage and strong liquidity, balance-sheet capacity exists to bridge temporary FCF shortfalls, but persistently paying >100% of earnings would be unsustainable absent growth in OCF. Policy outlook cannot be inferred due to missing DPS history; monitor full-year guidance and capital allocation policy updates.

Risk Assessment

Business Risks:

• Demand softness evidenced by -10.0% YoY revenue decline; risk of further top-line pressure if end-markets weaken
• Product mix and pricing sustainability; margin gains may reverse with competitive or macro pressure
• Raw material and energy cost volatility impacting gross margin
• Exposure to semiconductor/industrial cycles if those are key customer segments
• Potential impairment risk with goodwill and intangibles totaling 52.79 amid slower growth

Financial Risks:

• Low asset turnover (0.339) constrains ROE/ROIC; capital efficiency risk
• ROIC at 4.6% (<5%) below typical cost-of-capital benchmarks
• Ordinary income sensitivity to non-operating items (interest and other), which turned net negative this quarter
• Negative other comprehensive income (comprehensive income below net income), implying valuation/FX volatility
• Potential dividend coverage risk if payout remains above 100% of earnings

Key Concerns:

• Sustainability of low effective tax rate (15.0%) supporting net profit
• Revenue contraction alongside higher operating profit suggests limited cushion if volumes weaken further
• Concentration risk in specific geographies or industries (not disclosed here) could amplify cyclicality

Investment Implications

Key Takeaways:

• Margin-led earnings beat with operating income +8.8% despite -10.0% revenue decline
• Operating margin expanded to ~11.8% and net margin to 9.4%; earnings quality strong with OCF/NI at 1.31x
• Capital efficiency remains the main challenge: ROE 5.0% and ROIC 4.6% are low due to weak asset turnover
• Balance sheet and liquidity are solid (current ratio ~2.9x, D/E 0.56x, interest coverage 23.4x)
• Comprehensive income lagged net income, highlighting market/FX sensitivity in OCI

Metrics to Watch:

• Top-line trajectory by end-market (sequential and YoY sales trends)
• Gross and operating margin stability (costs vs pricing/mix)
• Asset turnover and working capital turns to lift ROIC
• Tax rate normalization risk and its impact on net margin
• Capex levels vs OCF to sustain positive FCF and dividend coverage

Relative Positioning: Within Japanese industrial components peers, Valqua shows superior liquidity and solid interest coverage with improving margins, but trails on capital efficiency (low ROE/ROIC) due to subdued asset turnover; sustaining margin gains while reigniting revenue growth will be key to closing the efficiency 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