AKIKAWA FOODS & FARMS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.07B
• Operating Income: ¥15M
• Net Income: ¥-48M
• EPS: ¥4.70

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

Aikawa Bokuen (13800) reported FY2026 Q2 cumulative results with revenue of ¥4,073m, up 7.9% YoY, indicating healthy top-line momentum despite a challenging cost environment. Gross profit of ¥863.8m translates to a 21.2% margin, suggesting some improvement or stabilization in input cost pass-through, but operating income was only ¥15m, essentially flat YoY, implying continued operating margin compression. The operating margin stands at approximately 0.4%, highlighting limited operating leverage in the period. Ordinary income of ¥39m exceeded operating income, indicating reliance on non-operating items to support earnings, while interest expense of ¥13.8m kept operating interest coverage thin at about 1.1x. Net income rose 150% YoY to ¥19m, aided by a favorable tax line (effective tax rate near 0%), and a very low prior-year base. DuPont analysis shows a net margin of 0.47%, asset turnover of 0.590x, and financial leverage of 3.19x, yielding ROE of 0.88% for the period—modest and largely constrained by thin margins. Operating cash flow of ¥213.9m is strong versus net income (OCF/NI ~11.3x), supported by sizeable non-cash depreciation of ¥240.1m and likely working capital tailwinds; this suggests earnings quality is better than the P/L implies. However, liquidity is tight with a current ratio of 109% and quick ratio of 95%, and solvency pressure is evident with debt-to-equity of 2.28x. Based on reported totals, equity is ¥2,164m against assets of ¥6,907m, implying an equity ratio around 31.3% despite the disclosed 0.0% field, which appears to be unreported in XBRL rather than truly zero. Inventory is ¥378.4m, which seems reasonable relative to sales but leaves the company sensitive to demand fluctuations and input cost swings. The EBITDA margin is 6.3% (EBITDA ¥255.1m), and the wide gap between EBITDA and operating income underscores substantial depreciation burden typical for an asset-intensive agri/food processing model. No dividends were paid (DPS ¥0), consistent with conserving cash amid thin profitability and a leveraged balance sheet. Free cash flow cannot be assessed due to unreported investing cash flows; thus, capital intensity and future cash commitments remain key unknowns. Overall, the company delivered solid top-line growth and robust cash conversion, but profitability remains constrained at the operating level and financial flexibility is limited. The outlook hinges on further price/mix actions, cost normalization (especially feed and energy), and disciplined capex to preserve liquidity.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 0.47% × Asset turnover 0.590 × Financial leverage 3.19 = ROE 0.88%. The low net margin is the primary drag on ROE, despite moderate asset turnover and elevated leverage. Gross margin at 21.2% indicates decent value add, but the conversion to operating income is weak, pointing to elevated SG&A/overheads or persistent cost inflation not fully passed through. Operating margin around 0.4% leaves little buffer against volatility in input costs or demand. EBITDA margin of 6.3% suggests the core cash earnings capacity is stronger than the operating margin implies, but high depreciation (¥240m) compresses EBIT. Ordinary income exceeding operating income indicates reliance on non-operating gains/interest income or subsidies and exposes earnings to variability outside core operations. Interest coverage at ~1.1x on an operating basis is thin, providing minimal cushion if rates or borrowing costs rise. Operating leverage remains low-to-moderate: revenue grew 7.9% YoY but operating income was flat, implying that incremental gross profit was largely absorbed by operating costs. Margin quality is mixed—gross margin is acceptable, but the drop-off to EBIT highlights cost pressure and/or inefficiencies that need ongoing price/mix or productivity actions to repair.

Growth Assessment

Revenue growth of 7.9% YoY reflects resilient demand and/or successful pricing actions, likely in poultry/processed foods and related categories. The sustainability of this growth depends on maintaining price discipline against consumer sensitivity and competitor pricing, as well as volume resilience. Profit growth is of lower quality: operating income was flat despite higher sales, indicating cost pass-through remains incomplete or offset by increased logistics, labor, or utility costs. Net income rose 150% YoY to ¥19m from a low base, aided by non-operating factors and tax effects; this is not yet a sign of structural profit improvement. Depreciation of ¥240m suggests an asset-intensive model, where growth often requires ongoing capex—yet investing cash flow is unreported, leaving the growth capex trajectory unclear. With EBITDA at ¥255m, the company has some capacity to support growth initiatives, but thin EBIT and low interest coverage constrain risk appetite. Outlook hinges on further cost normalization (feed/energy), continued pricing/mix improvements, and efficiency measures to convert revenue growth into higher operating margins. Absent clearer visibility on capex and unit economics, we treat near-term profit growth as fragile.

Financial Health

Liquidity is tight: current ratio 109% and quick ratio 95% indicate limited short-term headroom, though positive working capital of ¥245m provides some buffer. Total assets are ¥6,907m; total liabilities ¥4,939m; equity ¥2,164m, implying an equity ratio around 31.3% (calculated), a moderate capitalization for an asset-heavy business. Leverage is elevated with debt-to-equity at 2.28x, increasing sensitivity to earnings volatility and interest rates. Interest expense of ¥13.8m versus operating income of ¥15m yields a thin 1.1x coverage, suggesting the need to improve EBIT or deleverage to strengthen resilience. Inventory is ¥378m, manageable but a potential working capital swing factor if demand or prices shift. Ordinary income exceeds operating income, which may reflect financial income or subsidies; reliance on such items is not a substitute for strengthening core EBIT. Overall solvency is adequate given the equity base, but short-term liquidity and coverage ratios are weak and warrant close monitoring.

Cash Flow Quality

Operating cash flow of ¥213.9m is robust relative to net income of ¥19m (OCF/NI 11.3x), indicating strong cash conversion helped by non-cash depreciation (¥240m) and likely working capital contributions. EBITDA of ¥255.1m supports the OCF result and signals that cash earnings are materially better than accounting profit at the operating line. Working capital position is positive (¥245m), but with quick ratio below 100%, the cash generation may be needed to meet near-term obligations; sustainability will depend on stable collections and inventory management. Free cash flow cannot be assessed because investing cash flows are unreported (0 indicates not disclosed), and there is no capex detail; as such, true FCF coverage of obligations remains unknown. Financing cash flow of ¥71.2m suggests net inflows (possibly borrowings), which indicates reliance on external funding alongside OCF. Overall, earnings quality appears better than the P/L suggests, but without capex data, long-term cash sufficiency remains uncertain.

Dividend Sustainability

No dividends were paid (DPS ¥0; payout ratio 0%). Given thin operating margins and elevated leverage, retaining earnings to fortify the balance sheet is consistent with financial prudence. FCF coverage cannot be evaluated due to unreported investing cash flows; therefore, even if dividends were contemplated, coverage visibility is insufficient. The company’s immediate priority likely remains improving operating margin and interest coverage while maintaining liquidity. Any future dividend policy would need to be anchored on sustained EBIT recovery, clearer capex requirements, and consistent positive FCF.

Risk Assessment

Business Risks:

• Feed and raw material price volatility impacting gross margins
• Energy and logistics cost inflation pressuring operating margins
• Disease and biosecurity risks in livestock/poultry operations
• Price competition and private-label pressure in retail channels
• Demand elasticity to pricing actions amid consumer sensitivity
• Labor availability and wage inflation in processing and distribution
• Supply chain disruptions affecting procurement and delivery
• Regulatory and food safety compliance costs

Financial Risks:

• Thin operating interest coverage (~1.1x) heightens sensitivity to rate increases
• Elevated leverage (D/E ~2.28x) constrains flexibility and raises refinancing risk
• Tight liquidity (quick ratio ~95%) increases short-term funding risk
• Potential working capital swings tied to inventory and receivables
• Dependence on non-operating income to support ordinary income

Key Concerns:

• Sustainability of operating margin recovery despite higher revenue
• Ability to pass through input cost increases without volume erosion
• Visibility on capex and true free cash flow generation
• Deleveraging path and improvement in interest coverage

Investment Implications

Key Takeaways:

• Top-line growth is solid (+7.9% YoY), but operating profit is stagnant, signaling weak operating leverage.
• Cash generation is strong relative to accounting profit (OCF/NI ~11x), supported by large non-cash charges.
• Liquidity and coverage metrics are tight (current ratio ~109%, interest coverage ~1.1x), necessitating EBIT improvement or deleveraging.
• Equity ratio is roughly 31% by calculation, providing some solvency cushion despite elevated leverage.
• Lack of disclosed investing cash flows limits visibility on FCF and capital intensity.

Metrics to Watch:

• Operating margin and SG&A ratio trend versus gross margin
• Interest coverage (EBIT/interest) and net debt trajectory
• Price/mix realization versus feed and energy cost indices
• Working capital turns (inventory days, receivable/payable days)
• Capex disclosures and investing cash flows to assess FCF
• EBITDA margin progression and conversion to OCF

Relative Positioning: Within Japan’s agri/food processing space, the company exhibits healthy revenue growth and solid cash conversion but lags on operating margin resilience and financial flexibility versus peers with stronger pricing power and lower leverage.

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