IWATANI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥409.13B
• Operating Income: ¥10.76B
• Net Income: ¥13.99B
• EPS: ¥88.27

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

Iwatani Corp. (8088) reported FY2026 Q2 consolidated results showing modest topline growth but a sharp contraction in operating profitability, offset by strong non-operating/extraordinary contributions that lifted bottom-line earnings. Revenue rose 2.3% YoY to ¥409.1bn, while operating income fell 33.3% YoY to ¥10.8bn, compressing the operating margin to 2.6%. Gross profit of ¥106.7bn implies a solid gross margin of 26.1%, but elevated SG&A and/or mix effects drove the gap between gross and operating profitability. Ordinary income of ¥18.0bn and net income of ¥20.3bn significantly exceed operating income, indicating sizable non-operating gains and/or extraordinary items in the period. Net income surged 51.1% YoY, helped by these non-operating factors and a very low reported effective tax rate (0.0% per the provided metric), which is likely an artifact of partial period timing and/or data capture rather than a sustainable rate. EPS came in at ¥88.27 for the period. The DuPont-decomposed ROE is 4.95%, built from a 4.97% net margin, 0.481x asset turnover, and 2.07x financial leverage; this indicates moderate profitability with leverage amplifying returns. The balance sheet appears sound: total assets ¥850.4bn and equity ¥410.2bn imply an equity ratio around 48% (versus the disclosed 0.0%, which is likely undisclosed), and current ratio of 128.8% and quick ratio of 103.0% indicate adequate liquidity. Operating cash flow was ¥13.3bn, which is below net income (OCF/NI 0.65), pointing to weaker cash conversion, likely from working capital outflows; investing cash flow was unreported (0) and financing cash flow was ¥10.2bn. EBITDA was ¥24.2bn, with an EBITDA margin of 5.9%, and interest coverage remained comfortable at 8.6x, suggesting manageable debt service capacity. Working capital stood at ¥73.5bn, supporting ongoing operations despite margin pressure. The decline in operating income alongside revenue growth suggests cost headwinds and/or negative mix, highlighting the importance of cost control and pricing power in the second half. With bottom-line strength driven by non-operating factors, the sustainability of earnings into H2 will hinge on operating margin recovery and normalization of tax and non-operating items. Dividends were reported as zero (likely undisclosed), so payout and coverage cannot be assessed from these inputs. Overall, financial health is adequate, profitability is under pressure at the operating level, cash conversion is weaker than earnings, and non-operating contributions are a key swing factor this term. Data limitations—especially zeros for equity ratio, cash and equivalents, investing CF, and share counts—constrain precision; analysis focuses on the non-zero disclosures provided.

Profitability Analysis

ROE (DuPont) = Net Profit Margin (4.97%) × Asset Turnover (0.481x) × Financial Leverage (2.07x) = 4.95%, matching the reported ROE. Margin quality: gross margin is 26.1% (¥106.7bn/¥409.1bn), but operating margin compressed to 2.6% (¥10.8bn/¥409.1bn), indicating increased SG&A, weaker pricing, and/or adverse mix versus last year. EBITDA margin is 5.9%, suggesting limited operating leverage at current scale and cost structure during H1. The sharp -33.3% YoY drop in operating income despite +2.3% revenue points to margin pressure rather than volume shortfall. Ordinary income (¥18.0bn) and net income (¥20.3bn) materially exceed operating income, implying non-operating gains (e.g., financial income, equity-method gains, FX, or one-offs) and likely a below-normal tax burden in the half. Interest expense was ¥1.25bn, and EBIT/interest coverage is 8.6x, consistent with adequate debt service capacity. Operating leverage appears unfavorable in H1: a small sales increase accompanied by a large operating profit decline suggests fixed-cost absorption issues and/or inflation in input/logistics costs not fully passed through. The sustainability of the 4.97% net margin is questionable absent recurring non-operating gains; normalized net margin could be closer to operating performance if such gains fade. Depreciation and amortization of ¥13.46bn versus EBITDA of ¥24.21bn implies D&A intensity of ~56% of EBITDA, indicating a capital-intensive base that can pressure operating margins when pricing power is limited.

Growth Assessment

Revenue grew 2.3% YoY to ¥409.1bn, a modest expansion that likely reflects stable volumes and/or pricing in core segments rather than robust cyclicality. The divergence between revenue growth and operating income (-33.3% YoY) points to deteriorating operating efficiency or cost inflation, implying growth quality is mixed. Net income rose 51.1% YoY to ¥20.3bn, driven predominantly by non-operating/extraordinary contributions and a very low effective tax impact in the period, which may not be repeatable. Asset turnover of 0.481x suggests moderate efficiency; to sustain growth, improvements in inventory turns and receivables collection could support stronger cash conversion. Given the H1 profile, full-year growth outlook hinges on margin recovery in H2, the persistence of non-operating gains, and normalization of the tax rate. Without investing cash flow detail (unreported), visibility on capacity expansion and future growth drivers is limited. Near-term, maintaining gross margin while containing SG&A should be the primary lever for restoring operating profit growth. If cost pass-through lags and input costs remain elevated, revenue growth may continue to translate poorly into operating profit.

Financial Health

Liquidity is adequate: current ratio 128.8% and quick ratio 103.0% indicate coverage of short-term obligations, with working capital of ¥73.5bn providing a buffer. Solvency profile appears sound: assets of ¥850.4bn and equity of ¥410.2bn imply an equity ratio around 48% (financial leverage 2.07x), despite the equity ratio being shown as 0.0% in the dataset (likely undisclosed rather than true). Debt-to-equity is 1.16x per the provided metric; interest coverage at 8.6x suggests current leverage is serviceable. The liability base of ¥475.8bn versus equity of ¥410.2bn indicates a balanced capital structure. Absent reported cash and equivalents (0 indicates unreported), we cannot precisely assess cash liquidity headroom; however, positive operating cash flow and a positive quick ratio are supportive. No details on long-term debt maturities or covenants are provided, so refinancing risk cannot be fully assessed. Overall, the company appears to maintain prudent leverage and sufficient short-term liquidity for operations.

Cash Flow Quality

Operating cash flow was ¥13.26bn, which is 0.65x net income (¥20.32bn), indicating weak cash conversion in H1; this often reflects working capital outflows (e.g., higher inventories or receivables) or timing effects. With investing cash flow unreported (0) and therefore free cash flow reported as 0 in the dataset, we cannot derive true FCF; based on OCF alone, pre-investment cash generation is positive but modest relative to EBITDA (¥24.21bn), suggesting cash conversion from EBITDA to OCF of ~55%. D&A of ¥13.46bn indicates maintenance capex could be material; without capex disclosure, FCF sustainability cannot be judged. Interest expense of ¥1.25bn is well-covered by EBITDA and OCF, supporting debt service. Working capital stood at ¥73.47bn; inventories are ¥65.79bn, but turns/days cannot be computed without period cost of sales cadence; still, the OCF/NI shortfall suggests a build in operating assets. Overall earnings quality is mixed: accounting earnings were buoyed by non-operating items while cash realization lagged, increasing the importance of H2 working capital normalization.

Dividend Sustainability

Annual DPS is shown as 0.00 and payout ratio 0.0%, which likely reflect undisclosed interim data rather than actual zero dividends. With OCF at ¥13.26bn in H1 and no capex data, we cannot establish FCF coverage of dividends. If a dividend were to be paid, coverage would depend on both H2 cash generation and actual capex intensity. Balance sheet capacity appears reasonable given an implied equity ratio near 48% and interest coverage of 8.6x, but sustainable distributions should align with normalized operating cash flow rather than non-operating gains. Policy outlook cannot be inferred from the provided data; no guidance or historical payout metrics are available in this dataset.

Risk Assessment

Business Risks:

• Operating margin compression due to input cost inflation and/or limited pass-through
• Dependence on non-operating/extraordinary gains to support net income in H1
• Demand cyclicality in industrial and energy-related end markets impacting volumes and mix
• Execution risk in cost control and SG&A efficiency to restore operating profitability
• Potential normalization of an unusually low effective tax rate

Financial Risks:

• Weaker cash conversion (OCF/NI 0.65) indicating working capital sensitivity
• Limited visibility on capex and investing cash flows, constraining FCF assessment
• Exposure to interest costs (¥1.25bn) if earnings weaken further, though coverage is currently adequate
• Refinancing and liquidity assessment limited by unreported cash balances
• Leverage at 1.16x D/E per dataset requires stable operating cash flows to remain comfortable

Key Concerns:

• Sustainability of net income outperformance versus operating income
• H2 operating margin recovery trajectory amid modest revenue growth
• Working capital normalization to improve OCF/NI towards 1.0x
• Potential tax rate normalization lifting the effective tax burden
• Data limitations (unreported equity ratio, cash, investing CF, share data) reducing analytical precision

Investment Implications

Key Takeaways:

• Topline grew modestly (+2.3% YoY) while operating profit fell sharply (-33.3% YoY), compressing operating margin to 2.6%
• Net income strength (+51.1% YoY) was driven by non-operating items and a very low tax impact
• ROE of 4.95% reflects moderate profitability amplified by leverage (2.07x)
• Liquidity is adequate (current ratio 129%, quick 103%) and interest coverage is comfortable at 8.6x
• Cash conversion is weak (OCF/NI 0.65), implying working capital pressure in H1
• Visibility on capex and FCF is limited due to unreported investing cash flows
• Balance sheet strength (implied equity ratio ~48%) supports resilience, but operating improvement is needed to underpin earnings quality

Metrics to Watch:

• Operating margin and SG&A ratio trend in H2
• OCF/NI ratio and working capital movements (inventories and receivables)
• Composition of non-operating income and any extraordinary items
• Effective tax rate normalization
• Interest coverage and debt metrics (including any changes in D/E)
• EBITDA margin progression and D&A intensity
• Inventory turns and days sales outstanding (once disclosed)

Relative Positioning: Within the Tokyo Stock Exchange universe, profitability (ROE 4.95%, operating margin 2.6%) appears below top-tier industrial peers that typically post mid-to-high single-digit operating margins and mid-to-low double-digit ROE in stable years; however, liquidity and solvency are comparatively sound, positioning the company as operationally pressured but balance-sheet-resilient pending margin recovery.

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