EF-ON INC. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥4.92B
• Operating Income: ¥265M
• Net Income: ¥237M
• EPS: ¥5.03

Income Statement

Balance Sheet

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: Mixed-to-weak quarter—top-line grew double digits but profitability compressed and below-the-line items heavily diluted earnings. Revenue rose 10.7% YoY to 49.23, indicating volume/mix or tariff tailwinds in power and energy-efficiency businesses. Despite higher sales, operating income fell 22.7% YoY to 2.65, implying operating deleverage amid cost pressures. Gross margin stood at 11.7%, and operating margin declined to 5.4% from roughly 7.7% a year ago, a compression of about 233 bps. Ordinary income dropped 56.3% YoY to 1.29 as non-operating expenses (notably interest expense of 0.72) outweighed modest non-operating income (0.29). Profit before tax reached 2.96, implying significant special/extraordinary gains of roughly 1.67 above ordinary income, which cushioned bottom-line but are non-recurring in nature. Net income was 1.06, down 55.1% YoY, with EPS at 5.03 yen. Interest coverage (EBIT/interest) was 3.68x—adequate but not strong for a capital-intensive power business. Leverage is meaningful with long-term loans of 194.13 and total liabilities of 255.02 against equity of 186.17 (D/E by total liabilities: 1.37x). Liquidity is comfortable with a current ratio of 166.6% supported by cash and deposits of 54.13. ROE for the period is weak at 0.6% on a DuPont basis (NPM 2.1%, AT 0.112x, leverage 2.37x), reflecting thin margins and low capital turnover. ROIC is flagged at 0.7%, well below the 5% caution threshold, pointing to heavy capital tied up relative to returns. Earnings quality cannot be judged due to unreported cash flow data; OCF/NI is not calculable this quarter. Dividend sustainability looks stretched: calculated payout ratio is 163.3%, which appears unsustainably high given earnings compression and unreported FCF. Forward-looking, cost normalization, capacity factor improvements, and debt cost management will be key to restoring margins and ROIC; reliance on extraordinary gains this quarter is not a durable earnings driver.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 2.1% × Asset Turnover 0.112 × Financial Leverage 2.37x = ROE 0.6%. The largest adverse change versus last year appears to be margin deterioration: operating income fell 22.7% YoY despite revenue up 10.7%, driving operating margin down ~233 bps (from ~7.7% to ~5.4%). Business reason: cost-of-sales inflation (biomass fuel procurement, logistics, maintenance) and higher interest burden in non-operating items pressured ordinary income, while extraordinary gains temporarily boosted pre-tax income but do not enhance recurring profitability. Sustainability: the cost pressures may persist unless fuel procurement terms and operational efficiency improve; extraordinary gains are inherently one-off. Watch for SG&A discipline—SG&A is 2.32 (4.7% of sales); without YoY SG&A detail we cannot confirm, but the revenue/SG&A mix seems contained, with the main pressure in COGS and financing costs. Asset turnover is low (0.112x), typical of heavy asset power assets; improving it requires higher utilization/capacity factors rather than balance-sheet lightness. Overall, margin compression and financing costs are the core drivers suppressing ROE; leverage is already elevated and is not a lever to lift ROE prudently.

Growth Assessment

Revenue growth of 10.7% YoY to 49.23 indicates demand resilience or new capacity contribution. However, operating profit declined 22.7%, signaling negative operating leverage from rising input costs and possibly lower realized power prices or lower FIT/JEPX mix benefits. Ordinary income fell 56.3% due to increased non-operating expenses (interest) overshadowing modest non-operating income. The large gap between ordinary income (1.29) and pre-tax profit (2.96) suggests extraordinary gains supported the quarter—this is not a recurring growth driver. Profit quality is thus mixed: top-line is growing, but recurring earnings are under pressure. Outlook hinges on stabilizing fuel costs, improving availability/capacity factors at biomass plants, and refinancing or reducing interest burden. Absent cost relief, revenue growth alone may not translate into earnings growth. Management’s ability to maintain uptime and secure favorable biomass procurement will determine margin recovery.

Financial Health

Liquidity is sound: current assets 91.76 vs current liabilities 55.07 yields a current ratio of 166.6% (above the 150% healthy benchmark). Quick ratio equals current ratio at 166.6%, given limited inventory disclosure and sizable cash (54.13). Solvency: total liabilities 255.02 vs equity 186.17 implies a D/E (total liabilities/equity) of 1.37x—within but toward the upper end of a conservative range for utilities; long-term loans of 194.13 indicate high structural leverage. Interest coverage at 3.68x is moderate; below the 5x comfort threshold, leaving limited buffer if EBIT weakens or rates rise. No explicit warning triggers: Current Ratio > 1.0 and D/E < 2.0. Maturity mismatch risk appears manageable given high proportion of noncurrent liabilities (199.94) vs current liabilities (55.07); cash and receivables (76.63) cover current liabilities comfortably. Off-balance sheet obligations are not disclosed in the data; none can be assessed from provided items.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be computed and earnings quality cannot be validated this quarter. Free cash flow is also unreported; thus, we cannot confirm coverage of dividends and capex. Given capital intensity and interest burden, stable positive OCF is crucial; the reliance on extraordinary gains to lift PBT raises caution about cash conversion. Working capital appears positive (36.69), and cash on hand (54.13) supports short-term needs. Without OCF detail, we cannot rule out working capital swings (receivables timing, fuel prepayments) impacting cash conversion—monitor for any quarter-end collections or payables stretching.

Dividend Sustainability

The calculated payout ratio is 163.3%, which is above the <60% sustainability benchmark and appears stretched against current earnings. With FCF unreported, we cannot confirm cash coverage of dividends; however, given declining operating/ordinary income and moderate interest coverage, maintaining such a high payout would likely depend on balance-sheet flexibility rather than internally generated cash. Policy clarity is unreported; if the company targets stable dividends, near-term coverage risk rises unless profitability rebounds. We would watch for management commentary on payout guidance versus investment needs (maintenance capex for plants) and debt amortization.

Risk Assessment

Business Risks:

• Biomass fuel procurement cost volatility (pellets/chips) compressing gross margins
• Generation availability/capacity factor risk impacting asset turnover and revenue capture
• Electricity price volatility (FIT expiration mix; JEPX exposure if applicable)
• Maintenance outage scheduling and unplanned downtime
• Execution risk on efficiency services projects (if applicable to segment mix)

Financial Risks:

• Interest rate and refinancing risk with 194.13 in long-term loans and 3.68x interest coverage
• Potential covenant constraints under project finance structures
• Earnings sensitivity to non-operating items; reliance on extraordinary gains this quarter
• Dividend coverage risk given a 163.3% calculated payout ratio and unreported FCF

Key Concerns:

• ROIC at 0.7% indicates significant value dilution versus capital employed
• Operating margin compression of ~233 bps YoY despite double-digit revenue growth
• Ordinary income down 56.3% YoY, highlighting pressure in recurring profitability
• Lack of OCF data inhibits assessment of earnings quality and dividend safety

Investment Implications

Key Takeaways:

• Top-line growth (+10.7% YoY) did not translate into profit growth; operating income fell 22.7%
• Operating margin compressed to 5.4% (~233 bps YoY), driven by COGS and financing pressures
• Ordinary income weakness (−56.3% YoY) underscores recurring earnings pressure
• Extraordinary gains lifted PBT to 2.96; not a sustainable driver
• Leverage is meaningful (total liabilities/equity 1.37x) with moderate interest coverage (3.68x)
• Liquidity is adequate (current ratio 166.6%), providing near-term cushion
• ROE 0.6% and ROIC 0.7% signal low capital efficiency
• Dividend payout (calculated 163.3%) appears unsustainably high versus current earnings

Metrics to Watch:

• Fuel cost per MWh and biomass procurement terms
• Plant availability/capacity factor and unplanned outage rates
• Realized power price mix (FIT vs market) and any changes in regulation
• OCF and FCF trends; OCF/NI ratio (target >1.0)
• Interest expense run-rate and refinancing terms; interest coverage
• Debt amortization schedule vs cash generation
• Operating margin trajectory and SG&A discipline
• Any repeat of extraordinary gains/losses affecting PBT

Relative Positioning: Within domestic independent power and biomass operators, the company shows adequate liquidity but weaker recurring profitability and capital efficiency this quarter, with leverage and interest coverage metrics that are mid-pack to slightly stretched given recent margin pressure.

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