DAIICHI JITSUGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥107.33B
• Operating Income: ¥6.59B
• Net Income: ¥5.00B
• EPS: ¥155.63

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: Solid Q2 performance with modest margin expansion, robust cash conversion, and healthy balance sheet strength. Revenue rose 6.0% YoY to 1,073.26, while operating income grew 7.6% YoY to 65.91, demonstrating positive operating leverage. Net income increased 15.8% YoY to 49.66, outpacing sales growth and indicating improved profitability at the bottom line. Gross profit reached 187.66 with a gross margin of 17.5%, consistent with a stable mix in higher-value equipment/solutions. Operating margin improved to 6.1% (65.91/1,073.26), a roughly 9 bps expansion versus the prior year implied level. Net margin improved to 4.6% (49.66/1,073.26), approximately 39 bps higher YoY, aided by controlled non-operating items. Ordinary income rose 7.9% YoY to 67.05, reflecting steady core operations with limited drag from non-operating expenses. Cash generation was strong: operating cash flow of 62.97 exceeded net income (OCF/NI = 1.27x), indicating good earnings quality and disciplined working capital. Liquidity is ample with a current ratio of 186% and quick ratio of 157%, and cash of 395.63 comfortably covering short-term loans of 21.60. Leverage remains conservative at total liabilities-to-equity of 0.96x and interest coverage of 366x, minimizing financial risk. ROE stands at 5.9% via DuPont (NPM 4.6% × ATO 0.651 × leverage 1.96x), and ROIC of 9.9% exceeds the 8% excellence benchmark, indicating efficient capital deployment. Non-operating income (5.20) is modest (10.5% of operating income) and largely recurring (dividend income 2.24; interest income 0.63), with no disclosed one-off securities gains. Dividend payout is calculated at 60.7%, slightly above a conservative threshold, but supported by OCF and low capex (1.99). Equity ratio (calculated) is about 51%, reinforcing balance sheet resilience. Forward-looking, the combination of modest margin expansion, high ROIC, and strong liquidity supports a stable near-term outlook, though visibility on order backlog, equity-method income, and segment mix would refine confidence. Overall, the quarter reflects disciplined execution and healthy fundamentals with manageable risk.

Profitability Analysis

ROE decomposition: 5.9% = Net Profit Margin (4.6%) × Asset Turnover (0.651) × Financial Leverage (1.96x). The most notable driver this quarter is the improvement in net profit margin, as net income growth (+15.8% YoY) outpaced revenue (+6.0% YoY), while leverage remained stable and asset turnover appears unchanged within the period. The business reason for margin improvement likely stems from a favorable sales mix and controlled SG&A, evidenced by operating income growth (+7.6% YoY) exceeding revenue growth and a stable gross margin of 17.5%. Non-operating items were balanced (income 5.20 vs expenses 4.05) and included recurring dividend and interest income, contributing modestly to ordinary income. Sustainability: The margin gains appear operational rather than one-time, given the absence of disclosed securities gains and the small impact from non-operating items; however, confirmation requires segment/backlog detail. Operating leverage was positive this quarter since operating income grew faster than sales; with SG&A at 11.3% of revenue, maintaining this ratio is key to sustain margins. No evidence that SG&A growth outpaced revenue (prior SG&A YoY not disclosed), but ratio levels are consistent with stable cost discipline.

Growth Assessment

Top-line growth of 6.0% YoY to 1,073.26 suggests steady demand in core machinery/solutions domains. Operating income growth of 7.6% and net income growth of 15.8% indicate improving profitability and expense control. Gross margin at 17.5% and operating margin at 6.1% imply resilient pricing and mix. Ordinary income increased 7.9%, tracking operating income, with limited reliance on non-operating tailwinds. ROIC at 9.9% is above the 8% benchmark, signaling value-accretive growth. The growth quality is reinforced by OCF exceeding NI (1.27x), indicating that earnings are supported by cash conversion rather than accruals. Capital intensity remains low: depreciation at 5.56 and capex at 1.99 reflect an asset-light trading/engineering model. With non-operating income at 10.5% of operating income and no reported securities gains, profit composition looks recurring. Outlook: Sustained growth depends on order intake, project execution, and macro capex cycles in customer industries; the strong balance sheet and cash generation provide flexibility to pursue selective growth investments without stressing leverage.

Financial Health

Liquidity is strong: current ratio 185.8% and quick ratio 157.3%, with working capital of 653.03. Cash and deposits of 395.63 far exceed short-term loans of 21.60, indicating very low near-term refinancing risk. Solvency is healthy: total liabilities-to-equity is 0.96x (below the 1.5x conservative benchmark), and the calculated equity ratio is approximately 51.1% (841.45/1,647.64). Interest coverage is exceptionally high at 366x, reflecting minimal interest burden (interest expense 0.18) and ample operating earnings. No explicit warnings: Current Ratio is well above 1.0 and D/E (total liabilities/equity) is below 2.0. Maturity mismatch risk appears low given current assets (1,413.86) exceed current liabilities (760.83) by a wide margin. Off-balance sheet obligations are not disclosed; absence of disclosure limits full assessment of guarantees or project-related commitments common in trading/engineering businesses.

Cash Flow Quality

OCF/Net Income is 1.27x (>1.0), indicating healthy earnings quality and supportive working capital dynamics. Operating cash flow of 62.97 comfortably covers modest capital expenditures of 1.99, implying robust pre-dividend free cash generation, although official FCF is unreported. There are no signs of aggressive working capital tactics from the available snapshot; receivables (362.03) and inventories (217.42) are reasonable relative to sales and payables (275.12), but lack of prior-period comparatives prevents cycle analysis. Financing cash outflow of -18.07 likely reflects dividends and/or debt movements; detailed breakdown is unreported. Given cash on hand (395.63) and strong OCF, the company appears well-positioned to fund operations, modest capex, and shareholder returns without incremental leverage.

Dividend Sustainability

The calculated payout ratio is 60.7%, slightly above a conservative <60% benchmark but broadly in a sustainable range given OCF/NI > 1.0. DPS and total dividends paid are unreported, limiting precision. With modest capex (1.99) and strong cash (395.63), ongoing dividends appear supported by internal cash generation in the near term. Coverage by implied pre-dividend free cash flow looks comfortable this period, though official FCF is unreported. Policy outlook: with ROIC at 9.9% and balance sheet strength intact, the company retains capacity for stable dividends while funding organic growth; any step-up would hinge on visibility into order backlog, profit stability, and capital allocation priorities.

Risk Assessment

Business Risks:

• Cyclical demand risk tied to customer capital expenditure in machinery/industrial sectors
• Project execution risk on large turnkey or engineered solutions (timing, cost overruns)
• Supply chain and logistics disruptions impacting delivery schedules and margins
• FX fluctuation risk (e.g., USD/JPY, EUR/JPY) affecting procurement costs and translation

Financial Risks:

• Receivables collection and credit risk given sizeable trade receivables (362.03)
• Working capital swings typical of project/trading models potentially impacting OCF in certain quarters
• Limited transparency on interest-bearing debt composition and maturities (long-term loans unreported)

Key Concerns:

• Dependence on maintaining SG&A discipline to preserve thin operating margins (~6.1%)
• Lack of disclosure on equity-method income and securities gains limits assessment of profit volatility
• Potential sensitivity to commodity and components price volatility passing through gross margins

Investment Implications

Key Takeaways:

• Steady topline growth (+6.0% YoY) with modest operating margin expansion (~+9 bps)
• Bottom-line outperformance (+15.8% YoY NI) and improved net margin (~+39 bps)
• High quality earnings with OCF/NI of 1.27x and minimal capex requirements
• Balance sheet resilience: equity ratio ~51%, strong liquidity, negligible short-term refinancing risk
• ROIC at 9.9% exceeds the 8% excellence benchmark, indicating efficient capital deployment
• Limited reliance on non-operating items; recurring dividend and interest income provide a small cushion

Metrics to Watch:

• Order backlog and booking-to-bill to gauge revenue visibility
• SG&A as a percentage of revenue to monitor operating leverage
• OCF/NI and working capital turns (AR days, inventory turnover, AP days)
• Gross margin by segment/mix and pricing power indicators
• FX exposure and hedging effectiveness
• Any disclosure of equity-method income or investment securities gains/losses
• ROIC by segment and capital allocation (M&A, growth investments, buybacks/dividends)

Relative Positioning: Within specialized Japanese trading/engineering peers, the company exhibits above-benchmark ROIC, conservative leverage, and strong cash conversion, positioning it as a disciplined operator with stable profitability rather than a high-beta, commodity-driven earnings profile.

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