JAPAN PULP AND PAPER COMPANY LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Operating Income: ¥4.33B
• Net Income: ¥1.41B
• EPS: ¥7.47

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 weak FY2026 Q2 with sharp earnings deterioration and sub-par capital efficiency, driven by margin pressure and a heavy non-operating drag amid a very high effective tax rate. Operating income fell to 43.27, down 47.1% YoY, indicating material compression in operating profitability despite gross profit of 493.46. Ordinary income declined 54.6% YoY to 37.48 as non-operating items turned into a net loss (income 16.74 vs expenses 22.53, net -5.79), reversing any cushion from dividends and interest income. Net income plunged 83.9% YoY to 9.20, further hit by a 60.5% effective tax rate (21.60 tax on 35.73 PBT), which is abnormally high and well above a normalized range. Revenue was not disclosed, so margin rates (gross, operating, ordinary, net) and basis-point changes cannot be calculated; however, the absolute trajectory points to significant compression across the P&L. The spread from operating to ordinary income was -13.4% of operating income, evidencing a pronounced non-operating drag compared to typical periods for trading businesses. Interest expense of 14.78 weighed on ordinary profits, with interest coverage at a modest 2.93x, below a comfortable 5x threshold. Balance sheet leverage is elevated with D/E at 1.62x and financial leverage at 2.62x, magnifying earnings volatility on a depressed profit base. Liquidity is adequate but not robust: current ratio is 121.5% but quick ratio is only 86.7%, reflecting heavy inventory (634.63) and reliance on short-term funding (short-term loans 417.39). ROIC is just 1.2% (management KPI for trading firms typically targets 7–8%), flagging poor capital efficiency and likely under-earning assets. Non-operating income ratio is reported at 182.0%, indicating structural dependence on below-operating items in the business model; yet in this quarter, net non-operating contribution was negative due to higher non-operating expenses. Equity method investment income was not disclosed, limiting insight into affiliate-driven variability—a key factor for trading companies. Cash flow statements were not reported, preventing an OCF vs NI cross-check; earnings quality cannot be validated this quarter. Dividend metrics are incomplete, but the calculated payout ratio of 2245.1% (driven by very low NI) signals a likely mismatch between dividends and current earnings capacity. Forward-looking, the priorities are margin repair, inventory discipline to lift the quick ratio, interest burden management, and normalizing the tax rate to stabilize net income.

Profitability Analysis

DuPont decomposition (ROE = Net Profit Margin × Asset Turnover × Financial Leverage): Net profit margin = N/A (revenue unreported), Asset turnover = N/A (revenue unreported), Financial leverage = 2.62x (Assets 3,810.65 / Equity 1,455.05). The component changing most appears to be net profit margin (implied by the steep declines in OI -47.1% YoY and NI -83.9% YoY), not leverage which remains structurally high. Business drivers include weaker operating profitability (OI 43.27) and a negative non-operating balance (-5.79) amid higher interest expenses, compounded by an unusually high effective tax rate of 60.5%. These impacts look partly cyclical (interest costs and margin pressure) and partly one-off/technical (tax rate spike), but sustainability is uncertain without revenue and segment detail. Concerning trend: implied operating deleverage, with SG&A at 450.19 nearly matching gross profit of 493.46, leaving a thin operating margin buffer; this suggests that cost base reductions or higher gross margins are needed to restore leverage. Also notable is that interest expense growth appears to be outpacing earnings capacity, compressing ordinary income and ROE.

Growth Assessment

Revenue growth is unassessable due to non-disclosure, but profitability contracted sharply: OI -47.1% YoY, ordinary income -54.6% YoY, NI -83.9% YoY. Gross profit of 493.46 versus SG&A of 450.19 indicates minimal operating headroom, implying weak operating leverage this quarter. Non-operating items were a net drag (-5.79), with interest costs offsetting dividend and interest income; this reduces resilience versus prior periods that may have benefited from non-operating support. The 60.5% effective tax rate depressed bottom-line growth disproportionately relative to PBT, implying potential upside if the tax rate normalizes. Outlook hinges on: stabilizing gross margins in paper/pulp trading, inventory optimization to lift the quick ratio and reduce funding costs, and interest burden management. Absent revenue disclosure, sustainability of gross profit and ordinary income is uncertain; watch for recovery in demand, improved spread management, and any contribution from affiliates (equity method income not disclosed).

Financial Health

Liquidity: Current ratio 121.5% (adequate), but quick ratio 86.7% (below 100% benchmark) signals reliance on inventory and a tighter liquidity profile. Solvency: D/E 1.62x (above the 1.5x conservative benchmark), financial leverage 2.62x, and interest coverage 2.93x (below the 5x comfort threshold) indicate elevated financial risk. Maturity mismatch: Short-term loans 417.39 versus cash 158.55 and inventories 634.63 highlight refinancing and working capital management risk if inventory turns slow; however, working capital is positive at 392.29. No off-balance sheet obligations were disclosed. Warning thresholds: Current ratio is above 1.0 (no immediate red flag), D/E is below 2.0 (no hard warning) but is elevated and should be watched.

Cash Flow Quality

OCF was not reported; OCF/NI cannot be assessed, so earnings quality is unverified. Free cash flow is unreported; coverage for dividends and capex cannot be evaluated. Working capital observations from the balance sheet: high inventories (634.63) and sizable accounts receivable (1,344.62) fund a large portion of current assets, while accounts payable (996.88) and short-term loans (417.39) fund current liabilities, implying sensitivity to collection and inventory turnover cycles. Without CF data, signs of working capital timing management cannot be concluded; monitoring future OCF relative to NI will be key.

Dividend Sustainability

Dividend details are largely unreported, but the calculated payout ratio of 2245.1% indicates dividends far exceed current earnings due to depressed net income (9.20). With FCF unreported, coverage is indeterminate; however, interest coverage (2.93x) and a quick ratio below 1.0 argue for caution if the company maintains an aggressive dividend stance. Policy outlook likely depends on recovering ordinary income and normalizing the tax rate; until then, dividend flexibility may be required to preserve balance sheet resilience.

Risk Assessment

Business Risks:

• Commodity price volatility in paper and pulp affecting gross margins and inventory valuations
• Demand fluctuations in printing/packaging markets impacting gross profit
• Supplier pricing and pass-through risk compressing spreads
• Operational deleverage risk as SG&A (450.19) is close to gross profit (493.46)

Financial Risks:

• Elevated leverage (D/E 1.62x) and modest interest coverage (2.93x)
• Liquidity tightness with quick ratio 86.7% and reliance on short-term loans (417.39)
• High effective tax rate (60.5%) depressing net income and potentially volatile
• Exposure to interest rate increases raising financing costs

Key Concerns:

• ROIC at 1.2% well below 5% warning threshold—capital under-earning
• Non-operating income ratio 182% indicates structural dependence on below-OP items; yet net non-operating was negative this quarter
• Lack of cash flow disclosure prevents validation of earnings quality and dividend cover
• Equity method income unreported, limiting visibility on affiliate-driven volatility

Investment Implications

Key Takeaways:

• Earnings sharply weaker: OI 43.27 (-47.1% YoY), NI 9.20 (-83.9% YoY)
• Non-operating drag (-5.79) and high tax rate (60.5%) compounded the decline
• Balance sheet leverage elevated (D/E 1.62x); interest coverage only 2.93x
• Liquidity adequate but tight (current ratio 121.5%, quick ratio 86.7%) with high inventories
• ROIC 1.2% signals poor capital efficiency vs trading-company targets (7–8%)

Metrics to Watch:

• Revenue and gross margin disclosure to quantify margin recovery
• Ordinary income trajectory and non-operating balance (interest expense vs dividend/interest income)
• Effective tax rate normalization path
• Inventory and receivable turnover; quick ratio improvement
• Net debt and interest coverage trend
• Equity method income contribution (if any) and segment ROIC
• Operating cash flow vs net income and FCF coverage of dividends

Relative Positioning: Within trading-oriented paper distributors, the company currently screens weaker on profitability and capital efficiency (ROIC 1.2%) with tighter liquidity (sub-1.0 quick ratio) and higher leverage than conservative peers, leaving it more sensitive to demand softness, funding costs, and inventory cycles.

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
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