Musashino Kogyo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥632M
• Operating Income: ¥7M
• Net Income: ¥20M
• EPS: ¥312.32

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, Musashino Kogyo (9635) posted revenue of ¥632.0m, down 3.8% YoY, reflecting a soft topline environment. Gross margin remained robust at 50.8%, yet operating income was just ¥7.0m, implying a thin operating margin of about 1.1% and indicating limited operating leverage at current volumes. Ordinary income of ¥26.0m exceeded operating income, suggesting non-operating gains (e.g., subsidies, interest/dividend income, or other non-operating items) helped bridge weak core profitability. Net income surged to ¥326.0m (+423.4% YoY), creating a 51.6% net margin—clearly driven by extraordinary factors rather than recurring operations, given the large gap between ordinary and net income. The effective tax burden appears low relative to the scale of net profit, consistent with one-off gains, special factors, or timing effects. DuPont decomposition yields ROE of 8.27%, with net margin uplift from extraordinary items, low asset turnover at 0.101, and moderate financial leverage at 1.59x. EBITDA was ¥39.9m (6.3% margin), pointing to modest earnings power after gross profit once SG&A and fixed costs are absorbed. Cash generation from operations (OCF) was ¥48.2m, but the OCF/Net Income ratio of 0.15 highlights that earnings quality is weak this period due to non-cash or non-recurring items inflating net profit. Liquidity is strong with a current ratio of 249.9% and quick ratio of 249.6%, aided by low inventories and a conservative short-term liability profile. The capital structure is moderate with debt-to-equity of 0.62x, indicating room for financial flexibility. Working capital stands at ¥570.2m, providing a solid buffer against near-term volatility. Dividend payments are currently absent (DPS ¥0.00), and payout is 0%, which is consistent with the company conserving cash or awaiting a more stable earnings base. Reported cash and equivalents, investing cash flow, and some equity-related metrics show as zero, indicating items not disclosed rather than true zero balances; analysis focuses on available non-zero datapoints. The key narrative this quarter is a resilient gross margin, subdued operating profit, and headline net income dominated by extraordinary factors. Sustained improvement will likely depend on revenue recovery and cost discipline to lift operating margin, alongside normalization of one-off items. Overall, financial health appears sound from a liquidity and leverage standpoint, but core profitability needs to improve to validate current ROE without reliance on non-recurring gains.

Profitability Analysis

ROE is 8.27% via DuPont: Net Profit Margin 51.58% × Asset Turnover 0.101 × Financial Leverage 1.59. The very high net margin is non-recurring in nature given ordinary income of ¥26.0m vs net income of ¥326.0m; thus, underlying ROE from core operations is materially lower. Gross margin of 50.8% is solid, but operating margin is about 1.1% (¥7.0m/¥632.0m), indicating high SG&A intensity and limited operating leverage at current scale. EBITDA margin of 6.3% (¥39.9m) suggests some capacity to absorb fixed costs, yet conversion from EBITDA to operating income is weak. Interest coverage at 5.1x (operating income/interest expense) is acceptable but leaves limited cushion if operating profit softens further. Ordinary income exceeding operating income points to supportive non-operating contributions, but sustainability is uncertain. Overall, profitability quality is mixed: healthy gross margin, weak operating margin, and headline net margin boosted by one-offs. Sustained improvement requires revenue stabilization and SG&A control to expand operating margin and reduce dependence on non-operating/extraordinary items.

Growth Assessment

Revenue declined 3.8% YoY to ¥632.0m, indicating a challenging demand backdrop or softer throughput. Despite the topline dip, gross profit remained high relative to sales, but weak operating income suggests that cost efficiencies or scale benefits were not fully realized. Ordinary income improved vs operating income due to non-operating items, but these are not reliable drivers of structural growth. Net income surged (+423.4% YoY) due to extraordinary factors, not core growth; thus, profit quality is low this quarter. Sustainability hinges on recovering sales volume and improving operating leverage; otherwise, earnings will remain sensitive to one-offs. Near-term outlook is cautious given the combination of revenue softness and low operating margin, though strong liquidity provides runway for execution. Key watchpoints include same-facility revenue trends, price/mix, utilization, and progress in SG&A discipline.

Financial Health

Liquidity is strong with current ratio at 249.9% and quick ratio at 249.6%, supported by minimal inventories (¥1.2m). Working capital totals ¥570.2m, providing a healthy buffer. Solvency is moderate: debt-to-equity is 0.62x (total liabilities ¥2,456.3m vs equity ¥3,943.0m), implying manageable leverage. Interest expense is low at ¥1.37m, and coverage of 5.1x (using operating income) indicates ability to service debt under current conditions, albeit with limited headroom if operating earnings deteriorate. Total assets are ¥6,257.0m, and financial leverage from DuPont is 1.59x, consistent with a balanced capital structure. Reported equity ratio shows as 0.0% due to non-disclosure; based on available totals, equity/asset ratio approximates 63%, indicating a solid capital base. Overall, the balance sheet provides resilience, though sustained operating improvement is necessary to preserve coverage metrics.

Cash Flow Quality

Operating cash flow of ¥48.2m is modest relative to net income of ¥326.0m, resulting in an OCF/Net Income ratio of 0.15, which signals low earnings quality this period due to non-cash or extraordinary gains inflating net profit. EBITDA (¥39.9m) is close to OCF, suggesting cash conversion from core operations is reasonable before working capital and non-cash extraordinary items. Free cash flow is shown as 0 due to unavailable investing cash flow disclosures; thus, true FCF cannot be assessed from the provided dataset. Working capital appears well-managed given low inventories and strong liquidity, but the limited operating margin constrains cash generation capacity. Financing cash flow was a small outflow (¥-2.64m), indicating minimal balance sheet stress this quarter. Overall, cash flow quality is weaker than headline earnings and should improve if operating margin recovers and extraordinary items normalize.

Dividend Sustainability

No dividend was declared (DPS ¥0.00), with a payout ratio of 0.0%. Given OCF of ¥48.2m and unreported investing cash flows, FCF coverage of dividends cannot be accurately evaluated, though current DPS implies no cash requirement. With operating profitability thin and net income inflated by non-recurring factors, maintaining a conservative dividend stance is prudent until stable FCF is demonstrated. Future dividend capacity will depend on improving operating income, visibility on capex needs (unreported in this period), and consistent OCF generation.

Risk Assessment

Business Risks:

• Revenue softness (-3.8% YoY) indicating demand or utilization risk
• Reliance on non-operating and extraordinary items to support bottom line
• Thin operating margin (~1.1%) exposing earnings to small revenue/cost shocks
• Potential fixed-cost rigidity limiting operating leverage
• Execution risk in cost control and revenue recovery

Financial Risks:

• Earnings quality risk (OCF/Net Income at 0.15) amid large one-off gains
• Interest coverage of 5.1x provides limited cushion if operating income declines
• Visibility on capex and investing cash flows is limited (items unreported)
• Potential taxation volatility given low effective tax relative to net income

Key Concerns:

• Large gap between ordinary income (¥26.0m) and net income (¥326.0m) suggests non-recurring drivers
• Sustained low operating margin undermines core earnings power
• Limited disclosure on investing cash flows and cash balances constrains FCF assessment

Investment Implications

Key Takeaways:

• Headline ROE (8.27%) is supported by extraordinary gains; core ROE is materially lower
• Gross margin strong at 50.8%, but operating margin weak at ~1.1%
• Liquidity robust (current ratio ~2.5x) and leverage moderate (D/E 0.62x)
• OCF modest vs net income (0.15x), indicating low earnings quality this quarter
• Ordinary income exceeds operating income, highlighting reliance on non-operating items

Metrics to Watch:

• Trajectory of operating income and operating margin
• Ordinary income vs net income gap (one-off normalization)
• OCF/Net Income and OCF/EBITDA conversion
• Revenue growth and utilization/same-facility trends
• Capex and investing cash flows to gauge sustainable FCF
• Interest coverage and leverage stability

Relative Positioning: Within small-cap leisure/ services profiles on TSE, the company exhibits strong liquidity and moderate leverage but weaker core profitability and earnings quality; headline profit metrics are currently flattered by non-recurring items.

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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