TAIHEIYO KOUHATSU INCORPORATED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.03B
• Operating Income: ¥646M
• Net Income: ¥361M
• EPS: ¥46.88

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 broad-based profit improvement and stronger cash generation, albeit on thin liquidity and low capital efficiency. Revenue rose 18.0% YoY to 220.3, while operating income grew 59.9% YoY to 6.46, driving operating margin up to 2.93%. Ordinary income advanced 71.5% YoY to 4.78, and net income increased 74.8% YoY to 3.64, implying a net margin of roughly 1.65%. Operating margin expanded by about 77 bps YoY (from ~2.16% to ~2.93%), while ordinary margin expanded by ~67 bps (from ~1.50% to ~2.17%). Net margin widened by roughly 54 bps YoY (from ~1.11% to ~1.65%), reflecting improved operating leverage despite higher non-operating expenses. Gross margin stood at 11.0% and EBITDA margin at 4.9%, indicating some improvement in cost absorption versus revenue growth. Earnings quality was strong: operating cash flow of 12.56 exceeded net income by 3.45x, suggesting robust cash conversion, likely supported by depreciation (4.37) and working capital tailwinds. Interest burden remains meaningful (interest expense 1.96; interest coverage 3.30x), and non-operating income (1.12) vs non-operating expenses (2.81) resulted in a net drag on ordinary income. Liquidity is tight (current ratio 105.4%, quick ratio 64.1%), given heavy short-term loans (99.04) relative to cash (59.63) and receivables (32.32). Leverage is elevated (D/E 1.84x) and Debt/EBITDA high at ~12.8x, constraining financial flexibility. ROE is low at 2.2%, and ROIC at 1.8% lags the 5% minimum warning threshold, underscoring limited capital efficiency. Dividend payout is high at a calculated 83.4%, which could pressure reinvestment capacity if sustained. Forward-looking, margin gains appear credible near term if cost pass-through and volume hold, but sensitivity to interest costs and commodity price volatility remains a key swing factor. With many items unreported (capex, investing CF, dividends paid), visibility into FCF durability and distribution capacity is limited. Overall, the quarter shows good operational progress and cash generation, but the balance sheet profile and low ROIC temper the quality of the improvement.

Profitability Analysis

DuPont (ROE = Net Profit Margin × Asset Turnover × Financial Leverage): 2.2% = 1.6% × 0.479 × 2.84x. The largest positive driver YoY appears to be net margin expansion, as revenue rose 18.0% while operating income rose 59.9% and net income 74.8%, indicating improved operating leverage and cost efficiency. Asset turnover at 0.479 is modest and likely little changed; financial leverage at 2.84x remains high but stable. Business drivers: stronger gross spread and SG&A efficiency (SG&A 17.78 vs gross profit 24.25) lifted operating margin to 2.93%, while depreciation (4.37) supported EBITDA (10.83), though higher interest (1.96) constrained gains at the ordinary income level. Sustainability: operating margin expansion could persist if volumes remain solid and cost pass-through continues; however, sensitivity to commodity prices (coal/fuels/construction materials) and interest costs could cap further margin gains. Watch for SG&A discipline; any SG&A outpacing revenue growth would erode margins. Note: non-operating income ratio of 30.8% points to a notable reliance on non-core items; interest expense partly offsets this, limiting ordinary margin.

Growth Assessment

Top-line growth was strong at +18.0% YoY to 220.3, suggesting healthy demand or better price realization. Operating income growth of +59.9% and net income +74.8% imply positive operating leverage. Operating margin at 2.93% and EBITDA margin at 4.9% indicate improved profitability, though absolute levels remain low for the risk profile. Revenue sustainability hinges on commodity-linked businesses (energy/coal, construction materials) and real estate activities; volatility in commodity prices and volumes is a key variable. Profit quality improved as OCF outpaced NI by 3.45x, suggesting underlying cash growth, but ordinary income remains burdened by interest costs. Outlook: modest margin tailwinds could continue if pricing discipline and mix hold; however, rising rates or higher funding costs and commodity normalization could compress spreads.

Financial Health

Liquidity: current ratio 105.4% (above 1.0 but thin), quick ratio 64.1% (below the 1.0 healthy benchmark). No explicit warning trigger (current ratio is not <1.0), but liquidity headroom is limited. Short-term funding reliance is high: short-term loans 99.04 versus cash 59.63 and receivables 32.32; inventories 69.33 add execution risk to liquidity if market conditions weaken. Working capital is positive at 9.01, but the cushion is narrow versus current liabilities of 168.03. Solvency: D/E is 1.84x (elevated though below the 2.0 explicit warning threshold). Debt/EBITDA is ~12.78x, indicating high leverage relative to earnings capacity. Interest coverage at 3.30x is moderate; sustained improvement in EBITDA is needed to de-risk. Maturity mismatch risk: elevated, given the size of short-term loans versus liquid assets; refinancing risk should be monitored. Off-balance sheet obligations: not disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 3.45x, signaling high earnings quality for the period. OCF of 12.56 comfortably covers interest expense of 1.96 for the half, and depreciation of 4.37 supports the cash conversion. FCF cannot be assessed due to unreported investing cash flows and capex. Potential working capital effects (inventories/receivables/payables) could be aiding OCF; without prior-period balances we cannot confirm sustainability. No clear signs of aggressive working capital management can be inferred from the snapshot, but the reliance on inventories and payables typical of trading businesses warrants monitoring.

Dividend Sustainability

The calculated payout ratio is high at 83.4%, implying limited retained earnings accretion relative to earnings. With OCF exceeding NI this period, cash coverage appears adequate near term, but absence of capex and investing CF data prevents a robust FCF coverage assessment. Given low ROE (2.2%) and ROIC (1.8%), a high payout could constrain reinvestment to lift returns unless asset recycling or deleveraging is pursued. Policy outlook: stable-to-cautious; sustainability likely depends on maintaining current OCF strength and managing leverage/refinancing risk. Dividend amounts and payments are unreported, limiting precision.

Risk Assessment

Business Risks:

• Commodity price volatility (coal, fuels, construction materials) impacting spreads and volumes
• Demand cyclicality in construction and real estate-related segments
• Supply chain and sourcing risk for imported resources (country risk: Australia/Indonesia, logistics disruptions)
• Execution risk in inventory management given sizable inventories (69.33)

Financial Risks:

• High leverage: D/E 1.84x and Debt/EBITDA ~12.78x
• Liquidity tightness: current ratio 105.4%, quick ratio 64.1%, heavy short-term loans (99.04)
• Interest rate/refinancing risk with significant short-term debt and interest expense (1.96), interest coverage 3.30x
• Ordinary income sensitivity to non-operating items and interest costs

Key Concerns:

• Low capital efficiency: ROE 2.2%, ROIC 1.8% (<5% benchmark)
• High payout ratio (83.4%) may limit deleveraging and reinvestment
• Non-operating income ratio of 30.8% indicates reliance on non-core contributions while non-operating expenses are higher
• Data gaps (capex, investing CF, dividends paid) obscure FCF and capital allocation clarity

Investment Implications

Key Takeaways:

• Strong YoY profit growth with operating margin expansion (~+77 bps) and solid cash conversion (OCF/NI 3.45x)
• Balance sheet constraints: elevated leverage and high short-term debt reliance
• Low ROE/ROIC point to capital efficiency headwinds despite improved profitability
• Interest costs remain a key drag on ordinary income; rising rates would be a headwind
• Visibility on FCF and dividend affordability is limited due to unreported investing flows

Metrics to Watch:

• Operating margin and gross margin trajectory
• OCF to NI ratio and working capital movements (inventories, receivables, payables)
• Short-term loans and refinancing schedule; weighted average interest rate
• Debt/EBITDA and interest coverage
• ROIC by segment (if disclosed) and capex intensity
• Dividend policy disclosures and FCF coverage

Relative Positioning: Within resource- and materials-linked trading peers, profitability improved this quarter but capital efficiency and leverage are weaker than conservative peers; earnings quality is better-than-average for the period, yet the funding mix and low ROIC weigh on overall quality.

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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