TACHIBANA ELETECH CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥103.12B
• Operating Income: ¥3.06B
• Net Income: ¥2.69B
• EPS: ¥118.03

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: FY2026 Q2 was a soft quarter with margin compression and lower operating profit, partially cushioned by solid non-operating income and healthy liquidity. Revenue declined 3.4% YoY to 1,031.2, while operating income fell 23.1% YoY to 30.58, driving ordinary income down 5.7% to 34.74 and net income down 4.6% to 26.89. Gross profit was 135.08, implying a gross margin of 13.1%, and SG&A was 104.50, for an SG&A ratio of about 10.1%. Operating margin contracted to roughly 3.0% (30.58/1,031.2), from an estimated ~3.7% a year ago, indicating about 76 bps of compression. Ordinary margin was about 3.4%, helped by non-operating income of 5.39 (notably dividend income 3.24 and interest income 1.27) offset by non-operating expenses of 1.23. Net margin was 2.6%, with an effective tax rate of 31.7%. Cash generation lagged profit: operating cash flow (OCF) was 21.52 vs net income of 26.89, yielding an OCF/NI of 0.80x, a caution flag on earnings quality. The balance sheet remains solid with a current ratio of 233.6% and quick ratio of 169.1%, and leverage appears moderate with a reported D/E of 0.69x and strong interest coverage of 56.6x. Working capital intensity remains high (receivables 632.5 and inventories 344.1), which likely weighed on OCF. Non-operating contributions are meaningful (non-operating income is ~20% of operating income), highlighting sensitivity to financial income from sizable investment securities (316.7). Capital efficiency is weak: ROE is 2.7% and ROIC is 2.4%, both below common targets, signaling underutilized capital. Capex was modest at 6.54, suggesting limited capital burden near term. The calculated payout ratio of 93.1% looks elevated relative to earnings momentum and cash conversion. Forward-looking, the key swing factors are demand normalization in factory automation/electronics channels, working capital normalization to lift OCF, and stability of financial income (dividends/interest) amid market and rate moves. Overall, the quarter underscores resilient financial footing but subdued profitability and low capital returns, with improvement hinging on margin recovery and better cash conversion.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.7% = Net Profit Margin (2.6%) × Asset Turnover (0.620) × Financial Leverage (1.69x). The most pronounced deterioration appears in the margin component: operating income fell 23.1% on a 3.4% revenue decline, implying operating margin contraction of ~76 bps YoY (from ~3.73% to ~2.97%). Business driver: weaker top line in distribution/FA electronics likely compressed gross profit while SG&A proved relatively sticky (SG&A ratio ~10.1%), limiting operating leverage. Non-operating support (dividends/interest) mitigated the drop at the ordinary income level, but not enough to offset the operating shortfall. Asset turnover of 0.620 remains subdued given large working capital (AR 632.5, inventory 344.1) and likely softened with the revenue decline, further dragging ROE. Leverage is stable/moderate (reported D/E 0.69x), offering little ROE uplift. Sustainability assessment: the non-operating income (dividends/interest) looks recurring given the 316.7 of investment securities and 222.8 of cash, but is inherently market/interest-rate sensitive; operating margin recovery depends on demand and mix improvement, not guaranteed near term. Concerning trends: SG&A growth outpacing revenue would be a flag, but SG&A detail is unreported; still, the ~10% SG&A ratio against a 13.1% gross margin leaves a thin operating spread (~3.0%), making profitability sensitive to small gross margin moves.

Growth Assessment

Revenue declined 3.4% YoY to 1,031.2, reflecting softer demand in the core distribution channels. Operating income decreased 23.1% YoY to 30.58, with operating margin compressing to ~3.0%, indicating negative operating leverage. Ordinary income was more resilient (-5.7% YoY) thanks to dividend and interest income, underscoring reliance on financial income to stabilize earnings. Net income fell 4.6% YoY to 26.89, with net margin at 2.6%. The gross margin is 13.1%, and the SG&A ratio is ~10.1%, leaving a narrow cushion. Near-term growth hinges on order trends in factory automation/semiconductor-related customers, which are not disclosed here; absent a topline reacceleration or mix improvement, margin expansion could be limited. Non-operating income should remain a partial buffer but is subject to market conditions. Outlook: a gradual recovery is possible if inventory digestion improves and pricing stabilizes, but low ROIC (2.4%) and subdued asset turnover point to constrained organic value creation without structural efficiency gains.

Financial Health

Liquidity is strong: current ratio 233.6% and quick ratio 169.1% comfortably exceed benchmarks; no warning for current ratio (<1.0) is needed. Solvency is conservative to moderate with a reported D/E of 0.69x and interest coverage of 56.6x, indicating ample debt service capacity. Maturity profile appears sound: current liabilities of 533.19 are well covered by current assets of 1,245.73; short-term loans are 27.05 vs cash of 222.82 and receivables of 632.52, limiting maturity mismatch risk. Accounts payable of 415.23 is substantial but balanced by receivables and inventories; working capital management remains a key focus area. Off-balance sheet obligations are not reported; no specific contingent liabilities disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 0.80x, which is at the caution threshold (<0.8 would be a flag), suggesting earnings were not fully converted to cash—likely due to working capital build in receivables and/or inventory. Free cash flow is not fully disclosed; investing CF is unreported, but capex was modest at 6.54, implying a simple FCF proxy (OCF - capex) of ~15.0 if no large other investing uses exist. Given the sizable working capital base (AR 632.5, inventory 344.1), cash generation is sensitive to sales timing and inventory turnover; no explicit signs of manipulation, but the OCF shortfall vs NI warrants monitoring. With strong liquidity and low interest burden, near-term cash needs are manageable; sustaining higher OCF will require improved collections and inventory normalization.

Dividend Sustainability

The calculated payout ratio is 93.1%, which is elevated relative to the <60% benchmark and earnings trajectory. With OCF/NI at 0.80x and a proxy FCF of ~15.0 (OCF 21.52 minus capex 6.54), dividend coverage could be tight if the full-year payout aligns with this ratio, especially if non-operating income or working capital swings normalize negatively. Financing CF was -28.60, suggesting outflows likely related to dividends and/or share repurchases, but specific amounts are unreported. Policy outlook is unclear from the data; sustaining a high payout would likely require either improved operating cash conversion or continued reliance on financial income, which carries market-related volatility.

Risk Assessment

Business Risks:

• Demand softness in factory automation/electronics distribution leading to margin pressure
• High working capital intensity (large AR and inventory) increasing cash flow volatility
• Thin operating margin (~3.0%) amplifying sensitivity to small gross margin changes
• Reliance on non-operating financial income (dividends/interest) to support ordinary profit

Financial Risks:

• OCF/NI at 0.80x indicating weaker cash conversion
• Potential dividend coverage shortfall if payout remains high and OCF lags
• Market/interest-rate risk on investment securities (316.7) affecting financial income and comprehensive income
• Tax rate variability (effective tax rate 31.7%) impacting net income

Key Concerns:

• Low capital efficiency: ROE 2.7% and ROIC 2.4% (quality alert)
• Operating margin compression (~76 bps YoY) amid falling revenue
• Inventory and receivable management critical to sustaining OCF
• Data gaps (no segment detail, SG&A breakdown, investing CF, dividend cash amount) limit visibility

Investment Implications

Key Takeaways:

• Quarter characterized by lower revenue and notable operating margin compression
• Ordinary profit cushioned by recurring-like financial income (dividends/interest)
• Earnings quality mixed: OCF trails NI at 0.80x; working capital likely the drag
• Balance sheet resilient with ample liquidity and strong interest coverage
• Capital efficiency weak (ROIC 2.4%), signaling need for margin and turnover improvements
• Payout ratio at 93.1% looks high relative to cash conversion and growth profile

Metrics to Watch:

• Order momentum and backlog in FA/electronics channels
• Gross margin trend and SG&A discipline (operating margin trajectory)
• Receivable days and inventory turns (OCF recovery)
• Non-operating income trajectory vs market rates and dividend receipts
• ROIC and asset turnover improvements
• Effective tax rate normalization

Relative Positioning: Within Japanese electronics/FA distributors, the company shows stronger-than-average liquidity and low funding risk but trails on profitability and capital efficiency (low ROE/ROIC, thin operating margin). Dependence on financial income partially offsets cyclicality but introduces market sensitivity.

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