KUDO CORPORATION FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥6.34B
• Operating Income: ¥345M
• Net Income: ¥175M
• EPS: ¥155.02

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: A solid topline-driven quarter with strong operating leverage, but elevated leverage and thin net margins keep quality mixed. Revenue rose 27.8% YoY to 63.42, while operating income surged 73.8% YoY to 3.45, evidencing effective cost control and/or favorable project mix. Ordinary income nearly doubled (+97.7% YoY) to 3.27, though net income grew a more modest 10.0% to 1.92, reflecting higher non-operating costs and taxes. Operating margin expanded to 5.44%, up an estimated 144 bps from about 4.0% in the prior-year quarter. Ordinary margin improved to 5.16%, up roughly 183 bps YoY. Net margin settled at 3.03%, implying about 48 bps compression YoY as interest and other non-operating items weighed on bottom line. Gross margin is 12.0% based on reported gross profit of 7.60; note an internal line-item inconsistency between reported cost of sales and gross profit, so we rely on the provided gross profit and margin. SG&A ratio was 8.84% (5.61/63.42), suggesting operating leverage given revenue growth outpaced expense growth implied by operating income expansion. Interest coverage remained comfortable at 14.5x (operating income/interest expense), but balance-sheet leverage is high with D/E at 2.61x. Liquidity is adequate but not robust: current ratio at 1.14x and cash (27.33) below short-term loans (37.37) implies ongoing refinancing/rollover dependence. ROE calculated at 3.5% reflects low net margin and modest asset turnover despite high financial leverage (assets/equity 3.61x). ROIC at 2.8% falls below the 5% warning threshold, signaling capital efficiency challenges. Cash flow data are unreported, so earnings quality cannot be validated via OCF; payout sustainability is unclear with a high calculated payout ratio of 81.1%. Goodwill (6.57) and intangibles (7.25) present potential impairment sensitivity if profitability normalizes. Forward-looking, maintaining operating margin gains while reducing leverage and improving cash conversion will be key to derisking the story. Absent OCF insight, we view the quarter as operationally strong but financially constrained, with focus on funding structure and order conversion.

Profitability Analysis

ROE decomposition: ROE (3.5%) = Net Profit Margin (3.0%) × Asset Turnover (0.322) × Financial Leverage (3.61x). The largest YoY change appears in the margin component at the operating/ordinary level: operating margin expanded by ~144 bps and ordinary margin by ~183 bps, while net margin compressed by ~48 bps due to higher non-operating costs (net non-operating loss of ~0.34 = 0.06 income − 0.40 expenses) and a 24.5% effective tax rate. Business drivers likely include better project pricing/mix and SG&A discipline, partially offset by higher interest expense (0.24) and other non-operating items. Asset turnover at 0.322 improved alongside revenue growth, but leverage (assets/equity 3.61x) remains the primary contributor to ROE magnitude rather than underlying efficiency. Sustainability: operating margin gains may be sustainable if order quality and cost pass-through hold; however, net margin will remain capped if financing costs stay elevated. Watch for any SG&A growth reacceleration relative to revenue; current SG&A ratio is 8.84%, and the strong operating leverage implies SG&A grew slower than revenue this quarter.

Growth Assessment

Top-line growth of +27.8% was robust, translating to outsized operating income growth of +73.8% via improved operating leverage and/or mix. Ordinary income growth of +97.7% signals strength in core earnings despite non-operating headwinds, while net income growth of +10.0% lagged due to finance and other non-operating expenses. Revenue sustainability hinges on construction order backlog conversion and real estate market conditions; no segment/backlog data were reported, limiting visibility. Margin sustainability depends on cost control amid material/labor inflation and ability to pass through costs in contracts. With non-operating expense (0.40) exceeding non-operating income (0.06), further profit growth will require either operating margin expansion or lower financing costs. Near-term outlook: cautious optimism on operating performance, with balance-sheet de-risking a prerequisite for sustained EPS growth.

Financial Health

Liquidity: Current ratio 1.14x and quick ratio 1.14x are above 1.0 but below the 1.5x comfort threshold; warn level not breached but cushion is modest. Solvency: D/E is 2.61x (warning >2.0), indicating high leverage; total interest-bearing debt approximates 66.25 (short-term 37.37 + long-term 28.88). Maturity mismatch: Current assets 96.44 exceed current liabilities 84.77, delivering positive working capital of 11.67, but cash (27.33) is below short-term loans (37.37), implying rollover/refinancing dependency. Interest coverage at ~14.5x is solid currently; however, rising rates or earnings volatility could tighten coverage given leverage. Off-balance sheet: no disclosures provided; contingent liabilities (e.g., construction guarantees) not reported.

Cash Flow Quality

OCF, investing CF, and FCF are unreported, preventing direct assessment of earnings-to-cash conversion. Consequently, OCF/Net Income cannot be evaluated against the >1.0 benchmark, and FCF coverage of dividends and capex cannot be assessed. With net non-operating expenses and meaningful debt service needs, positive OCF will be important to validate earnings quality. Working capital behavior cannot be analyzed without sub-ledgers (receivables, inventories, payables) or OCF detail; no signs of manipulation can be inferred from the limited data.

Dividend Sustainability

The calculated payout ratio is 81.1%, above the <60% benchmark for comfort and likely elevated relative to current earnings power. Without OCF or FCF disclosure, we cannot confirm cash coverage of dividends; given leverage (D/E 2.61x) and short-term debt dependence, excess payouts could constrain deleveraging. Policy outlook is unclear in the absence of guidance; prudence would argue for aligning dividends with sustainable FCF and balance-sheet priorities. We cannot quantify DPS or total dividends paid due to unreported items.

Risk Assessment

Business Risks:

• Construction order variability and backlog conversion risk affecting revenue visibility
• Cost inflation (materials, subcontracting, labor) pressuring gross margins
• Execution risk on fixed-price contracts and project delays
• Real estate market cyclicality if exposure exists (inventory/land not disclosed)
• Goodwill/intangible impairment risk (goodwill 6.57; intangibles 7.25)

Financial Risks:

• High leverage (D/E 2.61x) increasing interest rate and refinancing risk
• Short-term funding reliance (ST loans 37.37 > cash 27.33)
• Non-operating expense burden (0.40) exceeding non-operating income (0.06)
• Margin sensitivity to interest costs (interest expense 0.24; coverage ~14.5x)

Key Concerns:

• ROIC at 2.8% below 5% warning threshold, signaling weak capital efficiency
• Net margin compression YoY despite stronger operating performance
• Limited disclosure on cash flows and working capital impedes quality assessment
• Line-item inconsistency between cost of sales and gross profit; analysis relies on reported gross profit/margin

Investment Implications

Key Takeaways:

• Strong operating leverage drove a 73.8% increase in operating profit on 27.8% revenue growth
• Operating and ordinary margins expanded materially, but net margin compressed on higher non-operating costs
• Leverage is high (D/E 2.61x) with short-term loans exceeding cash, elevating refinancing risk
• ROIC at 2.8% flags sub-par capital efficiency; ROE (3.5%) is largely leverage-driven
• Earnings quality and dividend safety cannot be validated without OCF/FCF; payout ratio looks high at 81.1%

Metrics to Watch:

• Order intake/backlog and book-to-bill for construction
• Operating margin progression and SG&A ratio
• OCF and FCF to confirm earnings conversion and dividend coverage
• Net debt trajectory and short-term debt rollover vs cash
• ROIC improvement (targeting >5% initially, path toward 7–8%)

Relative Positioning: Versus domestic construction peers, the quarter shows above-average operating momentum but below-average balance-sheet strength and capital efficiency; absent cash flow disclosure, risk-adjusted positioning skews cautious despite solid execution.

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