EIWA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.22B
• Operating Income: ¥1.14B
• Net Income: ¥775M
• EPS: ¥122.41

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Solid top-line and operating performance with resilient cash generation, but a softer bottom line due to a higher tax drag keeps ROE and ROIC only middling. Revenue grew 5.1% YoY to 212.17, supported by steady demand, driving gross profit to 36.86 and operating income to 11.40 (+4.9% YoY). Ordinary income rose 5.0% YoY to 11.73, with limited reliance on non-operating items (non-op income 0.37; 4.8% of operating income). Net income declined 6.7% YoY to 7.74 as an elevated effective tax rate of 34.0% compressed the bottom line despite stable operating performance. Gross margin held at 17.4%, consistent with a stable mix and pricing environment. Operating margin was 5.37%, essentially flat YoY (about 4 bps compression on our derivation), indicating controlled SG&A (25.45) relative to gross profit. Net margin compressed by roughly 47 bps YoY to 3.65%, primarily tax driven rather than operational deterioration. Earnings quality was healthy: OCF of 9.21 exceeded net income (OCF/NI 1.19x), and EBIT covered interest by 934x, underscoring minimal financial risk. Balance sheet strength is clear: current ratio 204%, quick ratio 187%, net cash of about 65.5 (cash 67.04 minus debt 1.55), and low total liabilities to equity (D/E ~0.76x based on total liabilities). ROE calculated at 4.4% reflects modest margins and moderate asset turnover (0.69x) with conservative leverage (1.76x). ROIC at 6.9% sits just below the 7–8% management benchmark range, hinting that incremental efficiency or mix improvements are needed. Working capital looks broadly normal for a specialist trading/distribution model; our annualized view implies a cash conversion cycle near the high-80 days, acceptable for the sector. Dividend payout is calculated at 66.9%, slightly above a typical 60% sustainability threshold, but cash generation appears sufficient to fund dividends alongside modest capex (0.55). Forward-looking, stable operating trends and strong liquidity provide downside protection, but improving ROIC above 7–8% and lifting net margin will be key for re-rating. Watch tax rate normalization, order momentum into H2, and any FX-driven cost pass-through dynamics.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.4% = Net Profit Margin 3.6% × Asset Turnover 0.690 × Financial Leverage 1.76x. The component that changed the most YoY is the net margin, which we estimate fell by ~47 bps (from ~4.12% to 3.65%), while operating margin was essentially flat (about -4 bps). Business reasons: the effective tax rate at 34.0% weighed on net income, offsetting steady operating performance; non-operating items were small and stable (dividends 0.17, interest income 0.03, expenses 0.01). Asset turnover of 0.69x is typical for a specialty trading/distribution model with meaningful receivables; no evidence suggests a structural change this quarter. Sustainability: operating margin stability appears sustainable given controlled SG&A (25.45) and stable gross margin (17.4%); the lower net margin looks more one-time/tax-driven than structural. Flags: SG&A growth vs revenue is not disclosed at component level, but operating income grew in line with sales, indicating no clear operating deleverage this quarter.

Growth Assessment

Revenue rose 5.1% YoY to 212.17, in line with the +4.9% growth in operating income, indicating balanced growth rather than margin-driven expansion. Ordinary income increased 5.0% YoY, with only modest help from non-operating income (0.37), suggesting core operations are the main driver. Net income declined 6.7% YoY due to a higher effective tax rate (34.0%), not due to weakening operations. Gross margin held at 17.4%, implying stable pricing/mix. With depreciation only 0.45 and capex 0.55, the business remains asset-light, supporting steadier free cash flow. Outlook: With net cash and strong liquidity, the company is well positioned to support working capital for H2 seasonality. Sustained mid-single digit revenue growth appears achievable if demand in core end-markets holds; upside to profit growth will likely require either mix improvement or operating efficiency gains to lift ROIC above 7%. Key swing factors include FX (import costs), customer capex trends in electronics/FA, and any tax rate normalization in H2.

Financial Health

Liquidity is strong: current ratio 204.2% and quick ratio 186.7% indicate ample short-term coverage; no warning triggers (CR <1.0) or leverage spikes (D/E >2.0). Solvency: total liabilities/equity ~0.76x; interest-bearing debt is minimal (short-term 0.50, long-term 1.05) against cash of 67.04, yielding sizable net cash (~65.5). Maturity mismatch risk is low given current assets 264.44 vs current liabilities 129.52, with accounts receivable 132.19 and cash 67.04 comfortably exceeding payables 50.07 and short-term loans 0.50. No off-balance sheet obligations are reported in the provided data. Overall financial flexibility is high.

Cash Flow Quality

OCF of 9.21 exceeds net income of 7.74 (OCF/NI 1.19x), indicating good earnings quality and cash conversion. We estimate proxy FCF at about 8.66 (OCF 9.21 minus capex 0.55), as investing CF details are unreported. Working capital appears reasonably managed: based on annualized figures, DSO ~114 days, DIO ~24 days, DPO ~52 days, implying a CCC around 86 days—typical for a specialty trading model and not suggestive of aggressive revenue recognition. No signs of working capital manipulation are evident from the limited data. Cash flow should comfortably support modest capex and ordinary dividends.

Dividend Sustainability

The calculated payout ratio is 66.9%, slightly above the <60% benchmark, implying limited buffer if earnings dip; however, cash coverage looks adequate given proxy FCF of ~8.66 and net cash of ~65.5. Dividends paid and DPS specifics are unreported, limiting precision. With stable operating cash generation and low capex needs, the dividend appears serviceable in the near term, but medium-term sustainability depends on lifting ROIC above 7% and maintaining OCF/NI ≥1.0. Policy outlook: likely continuation of a stable to modestly progressive dividend if earnings stabilize and tax rate normalizes; large hikes would require improved margin/ROIC.

Risk Assessment

Business Risks:

• End-market demand softness in electronics/factory automation impacting order flow and pricing.
• FX volatility (yen depreciation/appreciation) affecting import costs and gross margins.
• Customer concentration risk typical of specialty distributors (not disclosed but common).
• Supply chain disruptions leading to delivery delays or expedited costs.

Financial Risks:

• ROIC at 6.9% sits just below the 7–8% target, limiting value creation headroom.
• Dividend payout ratio at 66.9% reduces flexibility if earnings weaken.
• Tax rate volatility (34.0% this quarter) can swing net income despite steady operations.

Key Concerns:

• Net margin compression (~47 bps YoY) driven by a higher effective tax rate.
• Asset turnover at 0.69x suggests reliance on working capital; a sudden demand slowdown could elongate cash conversion.
• Limited disclosure on SG&A components and investing cash flows may mask cost or capital intensity shifts.

Investment Implications

Key Takeaways:

• Core operations stable: operating margin essentially flat YoY with solid OCF.
• Bottom-line softness is tax-driven rather than operational—potentially reversible.
• Balance sheet in robust net cash, enabling resilience and opportunistic inventory/working capital support.
• ROIC at 6.9% slightly below target; improvement in mix/efficiency needed for re-rating.
• Dividend payout moderately high but likely covered by cash generation.

Metrics to Watch:

• Effective tax rate trajectory in H2 and full-year.
• Gross and operating margin trends vs FX moves and input costs.
• Order backlog and receivables trend (DSO) as indicators of demand quality.
• ROIC progress toward >7–8% and ROE vs 5%+ threshold.
• OCF/NI ratio sustainability and FCF after working capital swings.

Relative Positioning: Among Japan specialty trading/distribution peers, the company sits in a conservative financial position with net cash, average asset turnover, and mid-single-digit operating margins; profitability (ROE ~4–5%, ROIC ~7%) is respectable but not standout, leaving upside contingent on margin mix and capital efficiency gains.

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