KAGA ELECTRONICS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥288.96B
• Operating Income: ¥13.05B
• Net Income: ¥7.75B
• 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

For FY2026 Q2 (consolidated, JGAAP), Kaga Electronics posted solid topline and operating momentum alongside unusually strong bottom-line growth. Revenue rose 11.5% YoY to ¥288.96bn, with operating income up 13.5% YoY to ¥13.05bn, indicating mild positive operating leverage. Gross profit reached ¥34.13bn, translating to an 11.8% gross margin, while operating margin stood at 4.5%, reflecting stable execution in a low-margin electronics trading/EMS model. Ordinary income of ¥13.44bn exceeded operating income by roughly ¥0.39bn, implying positive net non-operating contributions. Net income surged 89.3% YoY to ¥15.03bn, far outpacing operating growth and lifting net margin to 5.2%; this likely reflects extraordinary gains and/or tax effects rather than purely recurring operating drivers. DuPont decomposition shows ROE of 8.7%, built on a 5.2% net margin, 0.884x asset turnover, and 1.89x financial leverage—an efficiency-led, conservatively leveraged profile. Liquidity remains strong with a current ratio of 218.5% and quick ratio of 188.0%, supported by ample working capital of ¥139.46bn and modest inventories at ¥35.91bn. The balance sheet appears healthy, with implied equity/assets of roughly 53% (based on equity and total assets), despite the Equity Ratio field being unreported in XBRL. Operating cash flow of ¥14.93bn nearly fully covered net income (OCF/NI ≈ 0.99), pointing to good earnings cash conversion for the period. Interest expense of ¥0.40bn is well covered (32.4x by operating income), underscoring limited near-term refinancing pressure. While reported metrics present a strong operating picture, the dramatic net income growth versus operating growth suggests material non-recurring items; therefore, the sustainability of bottom-line expansion warrants scrutiny. Investment and cash balances are unreported this period, limiting free cash flow and cash buffer analysis; accordingly, FCF is not inferable from the disclosed data. Dividend data is also unreported this quarter, so payout assessments rely on historical policy rather than current disclosures. Overall, fundamentals reflect a strongly liquid, moderately leveraged trading company with solid operating performance and high cash conversion, but with bottom-line uplift that may include non-recurring drivers. Key monitoring items include gross margin resilience, working capital efficiency, and the nature of extraordinary items influencing net income.

Profitability Analysis

ROE of 8.7% decomposes into a 5.2% net margin, 0.884x asset turnover, and 1.89x financial leverage. Operating margin is 4.5% (¥13.05bn/¥288.96bn), up faster than revenue (+13.5% vs +11.5%), indicating modest positive operating leverage. Gross margin at 11.8% and EBITDA margin at 5.2% (EBITDA ¥15.14bn) are consistent with an electronics trading/EMS model that relies on volume and working capital efficiency rather than high margins. Ordinary income exceeded operating income by ~¥0.39bn, suggesting supportive non-operating items (e.g., FX gains, equity-method income, or financial income net of interest), while interest expense was manageable at ¥0.40bn. Net income of ¥15.03bn exceeded ordinary income, pointing to favorable extraordinary items and/or tax effects; hence, period net margin may be inflated versus core earnings power. Effective tax rate shown as 0.0% is not economically meaningful given reported income tax expense and the unusual relationship between net and ordinary income; tax normalization is advisable for forward-looking profitability. Overall, profitability quality is good at the operating level with healthy coverage of financing costs, but the bottom line includes likely non-recurring tailwinds.

Growth Assessment

Topline growth was +11.5% YoY to ¥288.96bn, illustrating resilient demand across distribution/EMS channels. Operating income growth of +13.5% YoY outpaced revenue, indicating some scale benefits and disciplined SG&A. Net income surged +89.3% YoY to ¥15.03bn, a magnitude that almost certainly reflects extraordinary, non-recurring factors beyond core operations. Non-operating gains (ordinary income > operating income) were supportive but modest relative to the uplift in net income. Revenue sustainability depends on end-market mix (industrial, automotive, consumer, and semiconductor cycles), with margin sensitivity to product mix and FX. Given thin structural margins, small mix or price shifts can disproportionately affect operating income; thus, the +13.5% OI growth may not be linearly repeatable without continued volume expansion and cost control. With OCF tracking net income closely, earnings quality appears sound, but normalization of the tax and extraordinary line could moderate EPS growth going forward. Outlook hinges on inventory discipline and demand visibility; the current inventory level (¥35.91bn) appears manageable versus sales scale. If book-to-bill and backlog (not disclosed) remain healthy, mid-single-digit revenue growth with stable margins appears plausible; absent that, revenue could flatten alongside the cycle. Overall, core growth is steady, but headline EPS growth is likely to fade as one-off benefits subside.

Financial Health

Liquidity is strong: current ratio 218.5%, quick ratio 188.0%, and working capital of ¥139.46bn provide ample cushion against demand variability. Total assets are ¥327.04bn and equity is ¥172.85bn, implying an equity ratio of ~52.9% (despite the unreported Equity Ratio field), which indicates a solid solvency position. Debt-to-equity is reported at 0.81x; while debt composition is not provided, interest coverage is very robust at 32.4x, suggesting manageable leverage. Inventories at ¥35.91bn are modest relative to sales, reducing obsolescence risk; the larger component of working capital likely resides in receivables, typical for the business model. Cash and equivalents are unreported this period, limiting immediate liquidity buffer analysis beyond accounting ratios. Overall solvency and liquidity appear conservative, with balance sheet capacity to absorb cyclical swings.

Cash Flow Quality

Operating cash flow of ¥14.93bn is nearly equal to net income of ¥15.03bn (OCF/NI ≈ 0.99), indicating solid earnings-to-cash conversion in the half. Depreciation and amortization of ¥2.09bn alongside EBITDA of ¥15.14bn reconcile well with operating income, suggesting no unusual add-backs. Working capital discipline appears adequate given the OCF strength despite growth; however, detailed movements in receivables/payables/inventory are not disclosed. Investing cash flow is unreported, so free cash flow cannot be reliably calculated; the FCF figure shown as 0 should not be interpreted as actual zero. Financing cash flow was an outflow of ¥3.82bn, consistent with debt reduction, dividends, or share repurchases, but the components are not specified. Overall, cash flow quality is good, but capex and investment outlays are opaque this period due to disclosure limitations.

Dividend Sustainability

Dividend data (DPS, payout ratio) is unreported in this dataset, so current-period payout assessment cannot be made from the provided figures. Earnings capacity appears sufficient at the operating level, and OCF/NI ≈ 0.99 suggests cash earnings support; however, without capex/investing cash flows and cash balance disclosure, FCF coverage cannot be assessed. Financing CF outflow may include dividend payments, but breakdown is unavailable. Policy outlook should reference the company’s stated shareholder return policy and historical payout tendencies, which are not provided here. In the absence of investing and dividend details, sustainability cannot be quantified this quarter; monitoring upcoming disclosures (capex plans, dividend declarations, year-end guidance) is essential.

Risk Assessment

Business Risks:

• Cyclical demand across electronics, semiconductor, and industrial end-markets
• Thin structural margins expose earnings to mix and pricing pressure
• Customer concentration risk typical in EMS/distribution relationships
• Inventory obsolescence and rapid product lifecycle changes
• Supply chain disruptions and lead-time volatility
• FX volatility impacting both margins and non-operating results
• Geopolitical/China exposure across components and manufacturing ecosystems

Financial Risks:

• Working capital intensity driving cash flow volatility across quarters
• Interest rate and credit spread risk on any floating-rate borrowings
• Receivables collection risk during downturns
• Potential normalisation of tax/extraordinary items reducing net income
• Limited visibility on capex and investment commitments due to unreported investing CF

Key Concerns:

• Sustainability of net income given outsized YoY growth vs operating income
• Dependence on favorable mix and FX to sustain margins in a low-margin business
• Data gaps on cash, investing cash flows, and dividend details limiting FCF assessment

Investment Implications

Key Takeaways:

• Core operations strengthened: revenue +11.5% YoY and operating income +13.5% YoY
• ROE at 8.7% driven by solid asset turnover (0.884x) and moderate leverage (1.89x)
• Interest coverage is strong at 32.4x; balance sheet appears conservatively financed
• OCF/NI ≈ 0.99 indicates good earnings cash conversion
• Net income growth (+89.3% YoY) likely includes non-recurring or tax-related factors
• Liquidity robust: current ratio 218.5%, quick ratio 188.0%, working capital ¥139.46bn
• Inventory level (¥35.91bn) looks proportionate, aiding risk management
• Data limitations on investing CF, cash, and dividends constrain FCF and payout analysis

Metrics to Watch:

• Gross and operating margin trajectory vs prior year/plan
• Ordinary to operating income gap (to gauge recurring vs non-recurring drivers)
• OCF/NI ratio and working capital turns (DSO/DPO/DIO)
• Inventory levels and obsolescence provisioning
• Capex and investing CF disclosure to derive true FCF
• FX impacts and hedging effectiveness
• Book-to-bill/backlog and demand indicators across key verticals
• Tax rate normalization and extraordinary items in the second half

Relative Positioning: Within Japan’s electronics trading/EMS peer group, Kaga Electronics exhibits typical low-teens gross margins and mid-single-digit operating margins, balanced by high asset turnover and moderate leverage. Liquidity and solvency appear stronger than average, while ROE at 8.7% is solid but could lag peers in upcycles where higher leverage or margin expansion lifts returns.

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
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