GSI Creos Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥84.42B
• Operating Income: ¥1.76B
• Net Income: ¥1.35B
• EPS: ¥109.77

Income Statement

Balance Sheet

Cash Flow Statement

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 mixed quarter with resilient top-line growth and strong cash generation, but weaker operating margin and low capital efficiency offset by higher non-operating gains lifting ordinary income and net profit. Revenue rose 6.0% YoY to 844.17, while operating income slipped 2.3% YoY to 17.64, indicating some margin pressure at the core business. Gross profit reached 89.82, yielding a gross margin of 10.6%. Ordinary income increased 20.2% YoY to 20.17, helped by a solid net non-operating contribution of 2.53 (non-op income 4.00 less non-op expenses 1.47). Net income rose 8.9% YoY to 13.47, with EPS at 109.77 yen. Operating margin compressed to about 2.09% from roughly 2.27% a year ago (approximately -18 bps), reflecting higher SG&A relative to gross profit. Net margin improved modestly to 1.60% from about 1.55% a year ago (about +5 bps), thanks to non-operating gains (notably dividend income 1.31 and interest income 0.57) more than offsetting the weaker core margin. Cash flow quality was strong: operating cash flow of 42.73 was 3.17x net income, indicating high earnings convertibility. Liquidity remained sound with a current ratio of 144% and quick ratio of 115%; however, headline leverage (D/E 1.75x) is above our conservative benchmark, though interest coverage is robust at 16.5x. Capital efficiency remains a concern: ROIC is 3.1%, below the 5% warning threshold and well under the 7–8% target typical for trading companies. The quarter shows increasing reliance on non-operating income (non-operating income ratio 29.7%), which is supportive near term but less durable than operating earnings. Working capital appears well managed (working capital 215.02), helping OCF, but detailed drivers (AR/AP/inventory deltas) are not disclosed. The effective tax rate was elevated at 40.3%, which limited the flow-through from ordinary income to net income. Dividend sustainability looks tight on earnings (payout ratio 91%), but comfortable on cash generation this period; full-year visibility remains limited given unreported dividend cash data. Forward-looking, preserving gross margin and controlling SG&A will be key to stabilizing operating margin, while reducing dependence on non-operating income would improve earnings quality. Given ROIC below the cost of capital proxies, capital allocation discipline and mix shift to higher-return segments are critical. Overall, the company delivered good cash and net profit outcomes despite softer core margin, but must improve capital efficiency and core profitability to sustain momentum.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.4% = Net Profit Margin 1.6% × Asset Turnover 1.007 × Financial Leverage 2.75x. The most notable movement this quarter appears in margins: operating margin compressed (approx. -18 bps YoY to 2.09%), while net margin expanded slightly (+~5 bps) due to higher non-operating gains offsetting core pressure. Business drivers: revenue growth (+6.0% YoY) outpaced operating income (-2.3% YoY) as SG&A of 72.18 consumed a larger share of gross profit (89.82), compressing operating leverage; non-operating income (dividends 1.31, interest 0.57) and lower net non-operating expenses supported ordinary and net income. Sustainability: reliance on dividend/interest income is less controllable and may fluctuate with market yields and portfolio performance; without operating margin recovery, the net margin expansion may not be sustainable. Concerning trends: operating margin compression despite revenue growth suggests SG&A growth outpacing gross profit growth; ROIC at 3.1% underscores low returns on invested capital. Watch for any continued rise in SG&A intensity and limited gross margin expansion, which would cap ROE absent higher leverage.

Growth Assessment

Top-line growth was solid at +6.0% YoY to 844.17, indicating demand resilience across key businesses. Operating income declined 2.3% YoY to 17.64, signaling that growth was not accompanied by proportional profit expansion. Ordinary income strength (+20.2% YoY to 20.17) was driven by non-operating income (net +2.53), not core operations. Net income rose 8.9% to 13.47, aided by non-operating items but partly offset by a high effective tax rate (40.3%). Revenue quality is acceptable given broad-based trading activity, but profit quality is mixed due to margin pressure at the operating level. Near-term outlook hinges on improving gross margin (10.6% currently) and SG&A control; otherwise, further top-line gains may not translate into operating profit growth. With ROIC at 3.1%, incremental growth that does not lift margins will remain value-dilutive versus typical cost-of-capital thresholds. Absent disclosures on segment mix and equity-method contributions, sustaining the current non-operating income run-rate is uncertain. Net financial income may normalize if interest rates or dividend receipts change. Overall growth sustainability improves if the company executes price/mix upgrades, shifts toward higher-margin segments, and tightens overhead leverage.

Financial Health

Liquidity is healthy: current ratio 143.9% and quick ratio 114.7% exceed benchmarks, with working capital of 215.02. Solvency is mixed: D/E at 1.75x is above our conservative 1.5x threshold, though interest coverage is strong at 16.49x, indicating manageable debt service. Short-term loans total 106.77 against cash and deposits of 81.46, suggesting some maturity mismatch but broadly covered by large current assets (705.08). Long-term loans are modest at 10.05, limiting long-dated refinancing risk. Calculated equity ratio is approximately 36.4% (equity 305.12 / assets 838.15), indicating a moderate capitalization. No explicit off-balance sheet obligations are disclosed in the data; absence of disclosure does not imply absence of such obligations. Overall, liquidity buffers are adequate, but elevated leverage versus benchmark warrants monitoring, particularly if operating margin stays thin.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income is 3.17x (OCF 42.73 vs NI 13.47), comfortably above the 0.8–1.0 threshold. Free cash flow after capex (proxy) appears robust at about 41.54 (OCF 42.73 minus capex 1.19), though full investing CF is unreported and could include other uses. Working capital appears to have contributed positively to OCF, given the sizable gap between OCF and NI, but itemized AR/AP/inventory changes are not provided to confirm. Interest coverage of 16.49x corroborates ample cash earnings relative to interest expense (1.07). No clear signs of working capital manipulation are evident from available data, but limited disclosures constrain verification. Overall, cash conversion was a key strength this quarter.

Dividend Sustainability

The calculated payout ratio is 91.0%, which is high relative to our <60% benchmark, suggesting limited cushion on an earnings basis. Cash coverage appears adequate this quarter given proxy FCF of ~41.54, implying headroom to fund dividends and modest capex (1.19), but total dividend cash paid is unreported. With operating margin under pressure and ROIC at 3.1%, sustaining a high payout could constrain reinvestment needed to lift returns. Policy outlook depends on full-year earnings trajectory and cash generation consistency; absent operating margin recovery, maintaining a ~90% payout may reduce flexibility. Near-term, strong OCF supports the dividend, but medium-term sustainability would improve with stronger core profitability or a lower payout ratio.

Risk Assessment

Business Risks:

• Operating margin compression despite revenue growth (operating margin ~2.09%, -~18 bps YoY).
• Dependence on non-operating income (non-operating income ratio 29.7%) to support ordinary and net income.
• Low ROIC at 3.1%, below 5% warning threshold, signaling value-dilutive growth if not improved.
• Potential pricing pressure and mix shifts in traded goods undermining gross margin (10.6%).
• Execution risk in SG&A control given SG&A of 72.18 versus gross profit of 89.82.

Financial Risks:

• Leverage above benchmark (D/E 1.75x) with reliance on short-term loans of 106.77.
• Maturity mismatch risk: short-term debt exceeds cash (81.46), requiring continued rollover.
• High effective tax rate (40.3%) reduces net income resilience to shocks.
• Dividend payout ratio at 91% limits financial flexibility if earnings soften.

Key Concerns:

• Sustainability of non-operating gains (dividends 1.31, interest income 0.57) that lifted ordinary/net income.
• Thin core operating margin and potential inability to translate revenue growth into profit growth.
• Capital efficiency below targets for trading companies (ROIC 3.1%).
• Data limitations on investing CF, dividend cash outflow, and equity-method contributions.

Investment Implications

Key Takeaways:

• Solid revenue growth (+6.0% YoY) but operating income decline (-2.3% YoY) shows core margin pressure.
• Ordinary income +20.2% YoY and NI +8.9% YoY benefited from higher non-operating income.
• OCF/NI of 3.17x indicates strong cash conversion; proxy FCF after capex ~41.54.
• Leverage is elevated versus benchmark (D/E 1.75x) but serviceability is strong (interest coverage 16.5x).
• ROIC at 3.1% remains the primary structural weakness.
• Operating margin compressed ~18 bps; net margin expanded ~5 bps due to non-operating tailwinds.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-gross profit ratio.
• Gross margin stability (currently 10.6%).
• Non-operating income sustainability (dividends, interest) and any equity-method income disclosure.
• Working capital turns (AR, inventory, AP) and OCF consistency.
• Leverage mix (short-term vs long-term) and refinancing needs.
• ROIC improvement toward >5% first, then 7–8% target range.

Relative Positioning: Within specialized trading peers, the company demonstrates satisfactory liquidity and strong cash conversion but lags on capital efficiency (ROIC 3.1%) and core margin quality, and shows higher reliance on non-operating income to support earnings, positioning it defensively near term but with below-average structural profitability.

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