KAGA ELECTRONICS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥288.96B
• Operating Income: ¥13.05B
• Net Income: ¥15.23B
• EPS: ¥293.86

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 solid FY2026 Q2 with revenue and operating profit growth and notable net margin expansion, tempered by weaker cash conversion. Revenue rose 11.5% YoY to 2,889.59, while operating income increased 13.5% YoY to 130.49, and ordinary income climbed 19.2% YoY to 134.43. Net income surged 89.3% YoY to 150.33, lifting EPS to 293.86 yen. Gross profit reached 395.44, implying a 13.7% gross margin. Operating margin stands at 4.5% (130.49/2,889.59), with ordinary income margin at 4.7% and net margin at 5.2%. Based on revenue (+11.5%) and operating income (+13.5%) growth rates, operating margin likely expanded by roughly 9 bps YoY to about 4.5%. Net margin expanded materially by about 214 bps YoY (from roughly 3.1% to 5.2%), aided by lower effective tax (22.8%) and modest non-operating tailwinds. EBITDA was 155.34 (margin 5.4%), and interest coverage is strong at 34.25x, indicating low interest burden risk. ROE is calculated at 8.7% via DuPont (5.2% margin × 0.884 asset turnover × 1.89x leverage). ROIC is 7.4%, at the lower end of typical target ranges but broadly in line with management norms for trading-oriented electronics distributors. Liquidity is robust with a current ratio of 211.8% and quick ratio of 173.1%, and the company holds a sizable net cash position (cash 732.17 versus total loans 357.43). However, operating cash flow of 96.76 trails net income of 150.33 (OCF/NI 0.64x), flagging earnings quality concerns likely linked to working capital needs during growth. Financing cash outflows of -138.38 were driven by share repurchases of -144.47, exceeding estimated FCF (OCF - capex) of about 76.42. While buybacks are covered by the cash buffer in the short term, this pace would not be sustainable if cash conversion remains subdued. Forward-looking, margin discipline and ROIC near 7–8% are constructive, but normalization of OCF and careful management of working capital will be critical to fund shareholder returns without eroding balance sheet strength.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.7% = Net Profit Margin 5.2% × Asset Turnover 0.884 × Financial Leverage 1.89x. The largest YoY change appears in the net profit margin, as net income grew 89.3% versus revenue +11.5%, while operating income +13.5% suggests only mild operating margin expansion. Business drivers: net margin benefited from a lower effective tax rate (22.8%), tight interest burden (34.25x coverage), and positive non-operating contributions (non-operating income 13.13 vs expenses 9.19), while core operations delivered slight operating leverage. Sustainability: modest operating leverage can be sustainable if mix and SG&A discipline hold; the tax rate benefit may normalize, and non-operating gains may not repeat, suggesting the net margin uplift is partially one-time. Gross margin at 13.7% remains within a typical distributor band; operating margin at ~4.5% indicates incremental scale benefits but limited pricing power. Asset turnover at 0.884 is consistent with a high working-capital business; further improvement hinges on inventory and receivables turns. Financial leverage at 1.89x is conservative for the model and not a major ROE driver. No evidence that SG&A grew faster than revenue; operating income outpaced sales, implying positive operating leverage and controlled overheads.

Growth Assessment

Top-line growth of 11.5% indicates healthy demand and/or mix improvement in electronics distribution. Operating profit growth of 13.5% outpaced revenue, pointing to improved operating efficiency and slight margin expansion. Net profit growth of 89.3% reflects both operational execution and below-the-line support (lower tax, non-operating). Revenue sustainability will depend on end-market demand in semiconductors, EMS, and industrial/automotive electronics; current mix likely aided gross margin stability at 13.7%. Profit quality is mixed: operating metrics improved modestly, but cash conversion lagged (OCF/NI 0.64x), implying working capital absorption amid growth. Near-term outlook is constructive if receivables and inventory normalize and if gross margin holds; ordinary income margin at 4.7% provides a buffer. ROIC at 7.4% is near management targets; pushing above 8% will likely require further working-capital efficiency and steady operating margin. Non-operating income remains a small contributor relative to operating profit, reducing reliance on one-off items.

Financial Health

Liquidity is strong: current ratio 211.8% and quick ratio 173.1%, with working capital of 1,424.82. No warning triggers (Current Ratio < 1.0: No; D/E > 2.0: No—D/E is 0.89x). The company holds net cash (cash 732.17 vs short- and long-term loans totaling 357.43), mitigating refinancing risk. Maturity mismatch risk is low: short-term loans 272.35 are well covered by cash on hand and liquid receivables (1,081.16). Total assets 3,270.37 are supported by a sizable equity base of 1,728.51 (owners' equity 1,638.43). Interest coverage at 34.25x indicates ample buffer against rate increases. No off-balance sheet obligations are disclosed in the provided data; none assessed.

Cash Flow Quality

OCF/Net Income is 0.64x, below the 0.8 threshold—this is a potential earnings quality issue. The gap likely stems from working capital absorption (higher receivables/inventory consistent with growth), though period-on-period movements are not disclosed to confirm. Estimated FCF is approximately 76.42 (OCF 96.76 minus capex 20.34), positive but below the level of shareholder returns executed this period. With financing CF at -138.38 (share repurchases -144.47), cash returns exceed internally generated FCF and rely on the existing cash buffer. Working capital manipulation signs are not evident from the data; however, monitoring DSO/DIO trends is warranted given the cash conversion shortfall. Depreciation of 24.85 and EBITDA 155.34 suggest non-cash components align reasonably with accrual earnings.

Dividend Sustainability

Payout ratio (calculated) is 57.6%, within the generally sustainable <60% benchmark. While total dividends paid are unreported, the executed share repurchases of 144.47 exceed estimated FCF of ~76.42, indicating aggregate shareholder returns outpaced internal cash generation this period. Given net cash and strong liquidity, the current dividend level appears fundable; however, sustaining elevated buybacks would require either stronger OCF or deployment of the cash balance, which may not be prudent if cash conversion remains weak. Policy outlook: with ROE at 8.7% and ROIC at 7.4%, management has room to continue balanced returns, but improved OCF/NI toward ≥1.0x would enhance confidence in maintaining both dividends and buybacks.

Risk Assessment

Business Risks:

• Cyclical demand in electronics components and EMS affecting revenue visibility
• Gross margin pressure from pricing competition and product mix shifts
• Supply chain volatility impacting inventory availability and obsolescence risk
• Customer concentration risk typical for distributors (not disclosed but industry-common)

Financial Risks:

• Weak cash conversion (OCF/NI 0.64x) indicating working capital absorption
• Shareholder returns (buybacks) exceeding FCF, potentially drawing down cash
• FX volatility (yen) affecting purchasing costs and translation of overseas trade
• Potential normalization of the currently favorable effective tax rate

Key Concerns:

• Sustainability of the large YoY net margin expansion given non-operating/tax contributions
• Receivables and inventory management needed to improve cash conversion
• Ordinary margin resilience if end-market demand softens

Investment Implications

Key Takeaways:

• Healthy top-line growth (+11.5%) with slight operating margin expansion (~+9 bps YoY)
• Net margin inflected sharply to 5.2% (+~214 bps YoY) aided by lower tax and modest non-operating income
• ROE of 8.7% and ROIC of 7.4% indicate improving but not yet best-in-class returns
• Balance sheet strength with net cash and strong liquidity (current ratio 212%)
• Earnings quality watch: OCF/NI at 0.64x and buybacks exceeding FCF

Metrics to Watch:

• OCF/Net Income ratio and working capital turns (DSO, DIO)
• Gross and operating margin trajectory versus mix and pricing
• ROIC progression toward or above 8%
• Pace of share repurchases relative to FCF
• Effective tax rate normalization and non-operating income run-rate

Relative Positioning: Within Japanese electronics trading/distribution peers, the company demonstrates solid scale, robust liquidity, and mid-pack returns (ROE ~9%, ROIC ~7%), with a stronger balance sheet than many and room to improve cash conversion to close the gap with best-in-class operators.

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
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