TAIHEIYO KOUHATSU INCORPORATED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.03B
• Operating Income: ¥646M
• Net Income: ¥213M
• 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

Taiheiyo Kohatsu Co., Ltd. (Consolidated, JGAAP) delivered a solid first half for FY2026, with revenue of ¥22.03bn rising 18.0% YoY and operating income of ¥646m up 59.9% YoY, indicating meaningful operating leverage. Gross profit of ¥2.116bn translates to a gross margin of 9.6%, while operating margin improved to approximately 2.9%, signaling better cost discipline or favorable mix. Net income reached ¥364m, up 74.8% YoY, and EPS was ¥46.88. DuPont metrics show a net margin of 1.65%, asset turnover of 0.479x, and financial leverage of 2.84x, yielding a reported ROE of 2.24% for the period. Ordinary income (¥478m) fell below operating income due to non-operating costs, notably interest expense of ¥146m, reflecting the drag from leverage. EBITDA of ¥1.058bn (4.8% margin) and D&A of ¥412m suggest moderate asset intensity. Liquidity is tight: current ratio is 103% and quick ratio 58.7%, with inventories at ¥8.377bn constituting a key component of current assets. Operating cash flow was negative at -¥256m despite positive earnings, implying working capital absorption in the period. Financing cash inflow of ¥1.605bn likely supported liquidity amid negative OCF and potential WC needs; investing CF is unreported. Debt-to-equity of 1.95x and a financial leverage factor of 2.84 indicate a leveraged capital structure, though interest coverage of 4.4x provides an adequate but not generous buffer. The effective tax rate displayed as 0.0% appears to be a data limitation; using available figures (income tax ¥99m vs ordinary income ¥478m) implies a tax rate near 20–21%. Reported equity ratio of 0.0% is also a data limitation given total equity of ¥16.219bn. Dividends are unreported (DPS 0.00), and payout metrics listed as zero appear to reflect disclosure gaps rather than policy. Overall, profitability momentum is improving with positive operating leverage, but cash conversion is weak and liquidity relies on inventory and external financing. Data limitations (zeros for several items) constrain precision, so interpretations emphasize the non-zero figures provided.

Profitability Analysis

ROE of 2.24% decomposes into a 1.65% net margin, 0.479x asset turnover, and 2.84x financial leverage. Operating margin is about 2.9% (¥646m/¥22.03bn), up sharply versus revenue growth, evidencing operating leverage as operating income grew 59.9% vs revenue up 18.0%. Gross margin at 9.6% suggests limited pricing power or commodity-heavy mix; nonetheless, the gap between gross and operating margins tightened YoY (implied), indicating improved SG&A efficiency. EBITDA margin of 4.8% and D&A of ¥412m highlight moderate capital intensity; the EBITDA-to-operating income spread (¥1,058m vs ¥646m) is consistent with the depreciation load. Ordinary income (¥478m) below operating income reflects net non-operating costs led by ¥146m interest, constraining bottom-line scalability. Net margin of 1.65% remains thin but improved YoY (implied by net income growth). Interest coverage of 4.4x is serviceable but leaves less room for shocks. Overall profitability is improving on operating leverage and cost control, but leverage-related costs and thin gross margins cap returns.

Growth Assessment

Revenue expanded 18.0% YoY to ¥22.03bn, indicating healthy top-line demand. Operating income rose 59.9% YoY to ¥646m, implying strong operating leverage and/or improved mix. Net income growth of 74.8% YoY to ¥364m suggests incremental non-operating headwinds were contained relative to operating gains. Sustainability hinges on the quality of growth: gross margin at 9.6% points to a commodity/trading-heavy profile where volume and pricing volatility can be high. With ordinary income below operating income due to interest expense, further profit growth will be more sensitive to financing costs. The negative OCF (-¥256m) despite higher earnings suggests growth is currently working capital intensive, potentially tied to inventory build (inventories ¥8.377bn) or receivables expansion. Absent investing CF disclosure, capex trajectory is unclear, limiting visibility into future capacity-driven growth. Near-term outlook is cautiously constructive on margins given demonstrated operating leverage, but sustained performance will require improved cash conversion and disciplined working capital management.

Financial Health

Liquidity is tight: current assets of ¥19.451bn vs current liabilities of ¥18.878bn yield a current ratio of 103%, with a quick ratio of 58.7% reflecting heavy reliance on inventories for liquidity. Working capital stands at a modest ¥573m, leaving little buffer for shocks. Total assets are ¥45.982bn and total equity ¥16.219bn; debt-to-equity of 1.95x indicates a leveraged balance sheet. The financial leverage factor of 2.84 aligns with this assessment. Interest expense of ¥146m and interest coverage of 4.4x suggest obligations are currently manageable but limit headroom. Reported equity ratio of 0.0% appears to be a disclosure limitation, not an economic indicator, given the non-zero equity. Financing CF of ¥1.605bn likely supplemented liquidity amid negative OCF, implying reliance on external funding in the period. Overall solvency is acceptable but leverage is elevated, and liquidity is constrained by inventory dependence.

Cash Flow Quality

Earnings quality is mixed: positive earnings contrast with negative operating cash flow (-¥256m), yielding an OCF/net income ratio of -0.70, which indicates profits did not translate into cash in the period. The shortfall likely reflects working capital absorption, consistent with significant inventories (¥8.377bn) and tight current metrics; however, item-level WC movements are not disclosed. EBITDA of ¥1.058bn provides cash earnings capacity, but cash conversion is currently weak. Free cash flow is unreported (0 placeholder), and investing CF is also unreported, limiting an assessment of maintenance vs growth capex. Given negative OCF, FCF is likely negative if any capex occurred, though we lack the data to quantify. Financing CF of ¥1.605bn suggests external funding bridged cash needs, underscoring dependence on capital markets or banks when WC expands.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0.00, which likely reflects non-disclosure rather than an actual zero payout. With net income of ¥364m but negative OCF and tight liquidity, internal coverage of dividends from free cash flow appears constrained for the period, though investing CF is unreported and thus FCF cannot be confirmed. Interest coverage is adequate at 4.4x, but leverage (D/E 1.95x) and working capital needs may take priority over distributions depending on policy. Without disclosed DPS or historical payout policy in this dataset, we cannot infer a firm payout trajectory. Near-term sustainability of any dividend would hinge on improved cash conversion and stabilization of working capital.

Risk Assessment

Business Risks:

• Thin gross and operating margins (9.6% and ~2.9%) leave limited buffer against pricing and cost volatility
• Working capital intensity and inventory risk (inventories ¥8.377bn) can pressure cash flows
• Potential exposure to commodity price swings and FX if involved in import/export trading
• Operational leverage to volume; downturns could quickly compress earnings
• Counterparty risk in receivables (not disclosed) typical for trading-oriented businesses

Financial Risks:

• Elevated leverage (D/E 1.95x; financial leverage 2.84) increases sensitivity to earnings volatility
• Tight liquidity (current ratio 103%, quick ratio 58.7%) heightens short-term refinancing/rollover risk
• Negative operating cash flow (-¥256m) despite profitability increases reliance on external funding
• Interest expense ¥146m; interest coverage 4.4x provides limited cushion against rate hikes

Key Concerns:

• Negative OCF to net income ratio (-0.70) indicates weak cash conversion
• Dependence on financing CF (¥1.605bn) to support operations and working capital
• Data gaps (cash and equivalents, investing CF, dividend details) limit visibility on FCF and policy

Investment Implications

Key Takeaways:

• Top-line up 18.0% YoY and operating income up 59.9% YoY demonstrate strong operating leverage
• Margins remain thin (operating ~2.9%, net 1.65%), capping ROE at 2.24% for the period
• Liquidity is tight with heavy inventory reliance; current ratio 103%, quick ratio 58.7%
• Negative OCF (-¥256m) contrasts with positive earnings, implying working capital absorption
• Leverage is elevated (D/E 1.95x) but interest coverage of 4.4x is acceptable
• Non-operating drag from interest keeps ordinary income below operating income

Metrics to Watch:

• Operating cash flow and OCF/NI conversion ratio
• Inventory days and turnover; receivables/payables cycles (if disclosed)
• Operating margin progression vs gross margin (cost control and mix)
• Interest coverage and effective borrowing costs
• Net debt and D/E trajectory; availability of committed credit lines (if disclosed)
• Capex and investing CF to gauge maintenance vs growth needs
• DPS/payout policy disclosures for clarity on distributions

Relative Positioning: Within Japan’s trading/industrial distribution peer set, the company shows improving operating leverage but maintains thinner margins and tighter liquidity than diversified sogo shosha or higher-margin niche distributors; leverage is comparatively high and cash conversion currently weaker, leaving the name more exposed to working capital swings and financing conditions.

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