Inabata & Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥412.89B
• Operating Income: ¥14.05B
• Net Income: ¥12.44B
• EPS: ¥222.15

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: A resilient quarter with modest profit growth despite a slight revenue decline, aided by margin discipline and positive cash conversion. Revenue fell 2.1% YoY to 4,128.9, but operating income rose 1.3% YoY to 140.5 and ordinary income increased 5.9% YoY to 148.1. Net income grew 3.2% YoY to 119.5, with EPS of 222.15 JPY. Gross profit was 416.7, implying a gross margin of 10.1%. Operating margin printed at 3.40% and net margin at 2.90%. Based on the YoY changes, we estimate operating margin expanded by roughly 11 bps and net margin by about 14 bps. Non-operating items were supportive: non-operating income of 19.1 (notably dividend income 6.9 and interest income 4.6) exceeded non-operating expenses of 11.5, lifting ordinary income. Cash flow quality was solid with OCF of 127.8, equating to an OCF/Net Income ratio of 1.07x, indicating earnings were backed by cash. The balance sheet remains conservative: current ratio 216%, quick ratio 168%, interest coverage 18.7x, and net cash position when comparing cash (661.9) to interest-bearing debt (short- and long-term loans total 530.5). However, ROIC at 4.8% is below the 7–8% trading company benchmark and triggers a capital efficiency warning. Non-operating income accounted for an estimated 16% of operating income, signaling some reliance on financial/affiliate income, though equity-method contributions are unreported. Working capital intensity remains high (AR 1,769 and inventories 834), consistent with the trading business model and a drag on ROIC. Free cash flow before M&A is likely positive (OCF 127.8 less capex 43.4 ≈ 84.4), supporting dividends and part of buybacks, though total shareholder returns likely required some use of on-hand cash. Looking ahead, sustaining margin gains amid soft topline will require continued SG&A discipline and gross spread management. FX and commodity price volatility remain key external swing factors for earnings and inventory valuation. Overall, stable profitability, healthy liquidity, and decent cash conversion offset capital efficiency concerns and cyclical exposure.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.2% = Net Profit Margin 2.9% × Asset Turnover 0.892 × Financial Leverage 2.03x. The most notable driver this quarter is a modest improvement in profit margin, evidenced by net margin expansion (+14 bps YoY) and operating margin expansion (+11 bps YoY) despite lower revenue. Business rationale: improved pricing/mix and/or procurement discipline likely supported gross profit per unit, while SG&A was contained enough to allow operating income to grow against a declining topline. Asset turnover appears subdued at 0.892, reflecting a high working capital base typical for trading companies and possibly slower volume/price dynamics in chemicals/electronics. Leverage is moderate at 2.03x and stable; interest coverage at 18.7x indicates no incremental stress or need to lever for growth. Sustainability: margin improvements should be partially sustainable if driven by pricing discipline and mix, but are vulnerable to commodity price normalization and demand cycles. Watch for SG&A growth outpacing revenue; while not disclosed, the fact that operating income rose against lower sales suggests SG&A was at least controlled in the period. Ordinary income outpaced operating income growth (5.9% vs 1.3%), indicating a one-step lift from non-operating sources (dividends, interest), which may be more volatile.

Growth Assessment

Revenue declined 2.1% YoY to 4,128.9, indicating softer demand and/or lower commodity prices in key categories (chemicals/resins, electronics). Operating income increased 1.3% YoY to 140.5, signaling better operating leverage from pricing/mix and SG&A control. Ordinary income grew 5.9% YoY to 148.1, aided by higher non-operating income (dividends 6.9, interest 4.6). Net income rose 3.2% to 119.5, with an effective tax rate of 26.8% in line with historical norms. EBITDA was 162.3 (margin 3.9%), indicating modest capital intensity and thin unit economics typical for trading. Profit quality is acceptable: cash conversion (OCF/NI 1.07x) suggests earnings are not reliant on accruals this quarter. Outlook hinges on demand recovery in electronics/auto supply chains, resin spread stability, and FX tailwinds; absent a topline rebound, further profit growth will depend on maintaining gross spreads and tight SG&A. Management focus should be on ROIC uplift from working capital efficiency and portfolio mix shift to higher-margin solution/marketing businesses.

Financial Health

Liquidity is strong: current ratio 216% and quick ratio 168% comfortably exceed benchmarks; no warning on current ratio. Solvency is conservative: debt-to-equity 1.03x is within norms, and interest coverage at 18.7x is strong. Balance sheet shows cash and deposits of 661.9 versus short-term loans 273.1 and long-term loans 257.4, implying a net cash position (~+131), reducing refinancing risk. Maturity mismatch risk appears low: current assets 3,707 significantly exceed current liabilities 1,714. Working capital is sizable (AR 1,769; inventories 834; AP 1,234), consistent with the business model but ties up capital and dampens ROIC. No off-balance sheet obligations were reported in the data; note that trading companies may have guarantees or purchase commitments not visible here.

Cash Flow Quality

OCF/Net Income is 1.07x, clearing the 0.8x threshold and indicating acceptable earnings quality. Operating CF of 127.8 comfortably covered reported capital expenditures of 43.4, implying pre-M&A free cash flow of roughly 84.4. Financing CF was -29.6, including share repurchases of 32.2; dividend cash outflow is unreported, but the calculated payout ratio (56.2%) implies dividend payments on the order of ~67 if fully paid during the period, suggesting total shareholder returns may exceed period FCF and be supplemented by cash on hand. Working capital movements are not detailed; however, elevated receivables and inventories relative to sales are typical and warrant monitoring for potential inventory losses if prices fall. No signs of aggressive working capital manipulation are evident from the limited data; cash generation broadly matches accrual profits.

Dividend Sustainability

The calculated payout ratio is 56.2%, within the <60% benchmark for sustainability. With estimated pre-M&A FCF of ~84.4 and implied dividend need around the mid-60s (based on payout ratio and NI), dividends appear covered by internally generated cash in this period. Share repurchases of 32.2 likely required partial use of existing cash balances, but net cash and strong liquidity mitigate near-term constraints. Policy outlook: trading companies often target stable or progressive dividends; sustainability will depend on maintaining OCF above 100 and controlling working capital. A low-ROIC profile (4.8%) argues for disciplined capital returns over aggressive expansion until returns improve.

Risk Assessment

Business Risks:

• Commodity and petrochemical price volatility impacting sales, gross spreads, and inventory valuation
• End-market cyclicality in electronics/automotive affecting volumes and pricing
• Supply chain disruptions and freight cost volatility
• Customer credit risk concentrated in industrial clients (AR 1,769)

Financial Risks:

• FX volatility (USD/JPY and Asian currencies) affecting transaction and translation results
• Interest rate risk on floating-rate borrowings, though mitigated by net cash
• Working capital intensity depressing ROIC (4.8%) and tying up liquidity
• Volatility in non-operating income (dividends, interest, affiliate gains) that lifted ordinary income

Key Concerns:

• ROIC at 4.8% below the 7–8% target range for trading companies
• Thin operating margin (3.40%) leaves little buffer against adverse shocks
• Dependence on non-operating items (~16% of operating income) to support ordinary income
• Potential inventory risk if chemical/resin prices decline further

Investment Implications

Key Takeaways:

• Resilient profitability with operating and net margin expansion despite a 2.1% revenue decline
• Healthy cash conversion (OCF/NI 1.07x) and strong liquidity underpin near-term stability
• Capital efficiency below target (ROIC 4.8%) due to working capital intensity and thin margins
• Non-operating income provided incremental support; sustainability of this tailwind is uncertain
• Net cash position offers flexibility to fund dividends/buybacks while navigating cycles

Metrics to Watch:

• ROIC progression toward >7%
• Operating margin vs gross spread trends
• Working capital days (DSO, DIO, DPO) and inventory levels
• FX sensitivity and hedging effectiveness
• Breakdown of non-operating income, especially equity-method contributions
• Capex discipline and cash conversion (OCF/NI and FCF)

Relative Positioning: Within specialized Japanese trading companies, Inabata displays conservative liquidity and strong coverage but lags top-tier sogo shosha on capital efficiency and ROE. Its margin stability and net cash are positives, while lower ROIC and higher working capital dependence position it mid-to-lower on efficiency versus peers focused on higher-ROIC solution businesses.

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