JAPAN PULP AND PAPER COMPANY LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Operating Income: ¥4.33B
• Net Income: ¥6.42B
• 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

For FY2026 Q2 (cumulative), Japan Pulp & Paper Co., Ltd. reported a sharp deterioration in profitability despite a stable topline proxy inferred from disclosed components. Revenue was not explicitly disclosed in XBRL; however, based on Cost of Sales (¥232.48bn) and Gross Profit (¥45.939bn), we infer revenue of approximately ¥278.419bn for the half-year. Gross margin was about 16.5%, but operating margin compressed to 1.6% as operating income fell 47.1% YoY to ¥4.327bn. Ordinary income was ¥3.748bn, reflecting negative net non-operating items, including ¥1.345bn of interest expense. Net income plunged 83.9% YoY to ¥0.92bn, implying a very slim net margin of roughly 0.33%. The step-down from ordinary income to net income is primarily explained by a heavy income tax burden of ¥2.916bn, implying an estimated effective tax rate in the mid-70% range under simplifying assumptions, which is unusually high and likely includes one-offs or valuation effects. Liquidity is adequate with a current ratio of 1.22x and a quick ratio of 0.88x, supported by ¥41.9bn of working capital, though the reliance on inventory and payables is notable for a trading-centric business model. Capital structure appears balanced with total equity of ¥145.5bn and total liabilities of ¥246.7bn, implying a liabilities-to-equity ratio of 1.70x and an estimated equity ratio of ~38.2% (the reported 0% equity ratio is an undisclosed placeholder). Interest coverage remains moderate at 3.2x, but the decline in operating profit reduces cushion against higher financing costs. Asset turnover is healthy for a distribution-oriented business at ~0.73x for the half year (roughly ~1.5x annualized), supporting the inference that the business remains volume-driven. SG&A intensity is high at ~14.9% of inferred revenue, absorbing most of the gross profit and leaving limited operating headroom. Cash flow statements were not disclosed (reported as zero), constraining assessment of earnings-to-cash conversion and free cash flow coverage. Dividend information was also not disclosed; EPS came in at ¥7.47, but payout parameters are unavailable. Overall, the half-year profile indicates significant margin pressure, higher effective tax drag, and narrowing interest coverage, with adequate but not excess liquidity and a moderate leverage profile. The absence of cash flow and dividend disclosures increases analytical uncertainty and calls for close monitoring of H2 seasonality, tax normalization, and working capital movements.

Profitability Analysis

ROE_decomposition: Using inferred revenue, net margin ~0.33% (¥0.92bn / ¥278.419bn), asset turnover ~0.73x (¥278.419bn / ¥381.065bn), and financial leverage ~2.62x (Assets/Equity), an approximated half-year ROE is ~0.63% (Net income/Equity), or ~1.3% annualized, acknowledging period seasonality and data limitations. margin_quality: Gross margin ~16.5% (¥45.939bn / ¥278.419bn); operating margin ~1.6% (¥4.327bn / ¥278.419bn); ordinary margin ~1.35%; net margin ~0.33%. The sharp drop from gross to operating profit suggests elevated SG&A (¥41.612bn), at ~14.9% of sales, leaving a thin operating buffer. operating_leverage: A 47.1% YoY decline in operating income versus stable inferred revenue indicates negative operating leverage. Fixed cost absorption appears weak; modest topline or mix deterioration likely translated into outsized profit contraction. Interest expense (¥1.345bn) and a high tax burden further magnified the step-down to net.

Growth Assessment

revenue_sustainability: Topline was not disclosed; inferred revenue of ~¥278.4bn is consistent with reported cost of sales and gross profit. Without prior-period revenue, underlying demand trends cannot be quantified; trading and distribution exposure suggests sensitivity to paper demand, price pass-through, and FX. profit_quality: Profitability compressed significantly (OP -47.1% YoY; NI -83.9% YoY). The effective tax burden appears unusually high, implying potential one-offs or valuation allowance impacts. Ordinary income below operating income after financing costs indicates limited non-operating support and higher sensitivity to interest rates. outlook: Recovery hinges on SG&A discipline, normalization of tax rate, stabilizing financing costs, and gross margin resilience amid input price and FX volatility. Seasonal uplift in H2 could improve full-year margins, but the thin operating buffer elevates execution risk.

Financial Health

liquidity: Current ratio 1.22x (¥233.953bn / ¥192.05bn) and quick ratio 0.88x indicate adequate short-term coverage, though inventory dependence is material (inventories ¥64.708bn). Working capital stands at ¥41.903bn. solvency: Total liabilities/Equity = 1.70x; inferred equity ratio ~38.2% (¥145.505bn / ¥381.065bn). Interest coverage at 3.2x (operating income/interest expense) is acceptable but trending tighter with weaker operating income. capital_structure: Balance sheet leverage is moderate relative to trading peers; however, earnings volatility and higher interest expense heighten sensitivity. No cash balance disclosed; lack of CF data limits assessment of liquidity buffers.

Cash Flow Quality

earnings_quality: Operating CF was not disclosed. With net income at ¥0.92bn and significant working capital intensity typical for the business, cash conversion cannot be evaluated. The high tax expense versus ordinary income raises the likelihood of timing or one-off effects. FCF_analysis: Investing and financing CF were not disclosed; capex and FCF cannot be assessed. In the absence of OCF, FCF coverage of dividends cannot be evaluated. working_capital: Inventories of ¥64.708bn represent ~23% of inferred half-year revenue; payables/receivables data were not disclosed. Given thin margins, tighter inventory and receivables management will be critical to protect OCF in H2.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio were not disclosed. EPS is ¥7.47 for H1, but without DPS guidance and OCF, payout discipline cannot be assessed. FCF_coverage: Undisclosed due to missing OCF and capex; no conclusion can be drawn on FCF dividend coverage. policy_outlook: Absent disclosed policy and cash flow data, continuation of dividends (if any) will depend on H2 earnings recovery, tax normalization, and working capital release. Prudence would suggest prioritizing balance sheet strength given compressed margins and interest coverage.

Risk Assessment

Business Risks:

• Demand volatility in paper and packaging end-markets impacting volume and pricing.
• Input cost fluctuations and FX movements affecting gross margins and price pass-through.
• High SG&A intensity limiting operating flexibility and amplifying negative operating leverage.
• Customer credit risk and receivables collection in a low-margin trading model (data not disclosed).
• Supply chain and procurement risks affecting inventory levels and obsolescence.

Financial Risks:

• Narrowing interest coverage (3.2x) amid elevated interest expense (¥1.345bn).
• Potentially elevated effective tax burden (~mid-70% estimate) reducing net profitability.
• Working capital reliance and possible cash conversion risk (OCF not disclosed).
• Moderate leverage (liabilities/equity 1.70x) heightening sensitivity to earnings downturns.
• Limited visibility on liquidity buffers due to undisclosed cash and cash flows.

Key Concerns:

• Sharp declines in operating and net income (-47.1% and -83.9% YoY, respectively).
• Thin operating margin (~1.6%) with high SG&A ratio (~14.9% of sales).
• Unusually high tax expense depressing net income.
• Absence of cash flow and dividend disclosures, increasing uncertainty on sustainability.

Investment Implications

Key Takeaways:

• Inferred revenue ~¥278.4bn; gross margin ~16.5%, but operating margin compressed to ~1.6%.
• Operating income down 47.1% YoY and net income down 83.9% YoY; tax burden unusually high.
• Interest coverage at 3.2x; leverage moderate with equity ratio ~38%.
• Liquidity acceptable (current ratio 1.22x; quick ratio 0.88x), but cash flow visibility is low.
• SG&A discipline, tax normalization, and working capital control are pivotal for H2.

Metrics to Watch:

• H2 operating margin trajectory and SG&A as a percentage of sales.
• Effective tax rate normalization and any disclosed one-off tax items.
• Interest expense trend and refinancing costs.
• OCF and FCF once disclosed; inventory days and receivables days.
• Ordinary income versus operating income to gauge non-operating drag.

Relative Positioning: Within Japanese trading-oriented paper distributors, the company exhibits typical high asset turnover but currently faces subpar profitability and compressed interest coverage. Balance sheet leverage is moderate, but visibility on cash generation lags peers due to undisclosed CF data.

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