Higashimaru Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.71B
• Operating Income: ¥204M
• Net Income: ¥157M
• EPS: ¥21.14

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

For FY2026 Q2, Higashimaru (20580, consolidated, JGAAP) reported revenue of ¥6.711bn, down 8.5% YoY, yet achieved operating income of ¥204m, up 20.1% YoY, indicating effective cost control and/or improved mix despite top-line pressure. Gross profit was ¥1.334bn, implying a gross margin of 19.9%, while the operating margin improved to roughly 3.0%. Ordinary income of ¥220m exceeded operating income, supported by modest non-operating items after covering interest expense of ¥24m. Net income came in at ¥83m (EPS ¥21.14), down 47.0% YoY, translating to a thin net margin of 1.24%. DuPont decomposition yields ROE of 1.59%, driven by low net margin and modest asset turnover of 0.465, partially offset by financial leverage of 2.77x. EBITDA was ¥420m, for a 6.3% margin, supporting an interest coverage of 8.5x on operating income, which is adequate. Liquidity appears serviceable with a current ratio of 124.8% and quick ratio of 109.6%; working capital stands at ¥1.343bn. Total assets are ¥14.439bn with total equity of ¥5.207bn (implying an equity ratio around 36% based on reported balances), and total liabilities of ¥9.091bn. Operating cash flow was negative at ¥-558m, a key weakness relative to the reported profit level (OCF/NI of -6.72), suggesting significant working capital outflows and/or timing effects. Financing cash flow of ¥+751m likely bridged the operating deficit, pointing to reliance on external funding in the period. Dividend data are not disclosed (DPS and payout show as zero), so policy and distributions for the period remain unclear in the provided dataset. Several line items are marked as zero in the dataset (e.g., equity ratio, cash and equivalents, investing CF, share counts), which should be interpreted as not disclosed rather than actual zero values. The effective tax burden appears present given income tax expense of ¥55m, although the automated “effective tax rate” metric provided as 0.0% is not representative of the period’s tax cost. Overall, profitability improved sequentially at the operating level despite revenue contraction, but cash generation is weak and leverage utilization increased to fund operations, keeping ROE subdued.

Profitability Analysis

ROE of 1.59% decomposes into net margin 1.24% × asset turnover 0.465 × financial leverage 2.77. The main drag is the low net margin; asset turnover is modest, and leverage adds some lift but not enough to offset margin pressure. Gross margin is 19.9%, and operating margin is ~3.0%, indicating meaningful SG&A intensity (SG&A roughly ¥1.13bn implied). Operating income grew 20.1% YoY despite an 8.5% revenue decline, evidencing favorable operating leverage via cost controls and/or pricing/mix gains. Ordinary income (¥220m) exceeded operating income due to non-operating balance, while interest burden remains manageable (8.5x coverage on operating income). EBITDA margin at 6.3% supports the view of modest but improving operating efficiency. Net margin at 1.24% remains thin, leaving limited buffer against input cost inflation or further demand softness. The margin structure suggests incremental improvements at the operating line may not fully translate to the bottom line unless financial and tax effects are neutral and one-off items are limited.

Growth Assessment

Revenue declined 8.5% YoY to ¥6.711bn, indicating demand softness and/or deliberate pricing/portfolio actions. Despite this, operating income rose 20.1% YoY, implying improved mix, pricing adherence, and expense discipline. Gross profit of ¥1.334bn and operating income of ¥204m suggest tighter cost management; sustained gains will depend on maintaining price realization versus raw material and logistics costs. Net income fell 47.0% YoY to ¥83m, highlighting pressure below the operating line and/or non-recurring factors; with reported income tax expense of ¥55m, the bottom line is more volatile than operating profit. Given negative OCF (¥-558m), profit quality appears weaker in the near term, likely influenced by working capital movements; without investing cash flow detail, the durability of earnings-to-cash conversion is uncertain. Forward-looking growth will depend on stabilizing volumes, maintaining pricing power, and normalizing working capital cycles. In the near term, management’s ability to sustain operating margin improvements amid lower sales will be critical for earnings momentum.

Financial Health

Liquidity is adequate with a current ratio of 124.8% and a quick ratio of 109.6%, supported by working capital of ¥1.343bn. Total assets are ¥14.439bn versus total equity of ¥5.207bn, implying an equity ratio around 36% (based on balances) even though the equity ratio line item is undisclosed in the dataset. Debt-to-equity is shown at 1.75x, indicating a moderately leveraged profile for a food/consumer staples company. Interest coverage is comfortable at 8.5x on operating income, suggesting manageable near-term servicing capacity. Financing cash inflows of ¥751m likely offset negative operating cash flow, implying increased reliance on debt or other financing sources during the period. Inventory stands at ¥822m; detailed turnover metrics are not available, but inventory management will be important given the negative OCF. Overall solvency looks acceptable on balance sheet metrics, but cash flow-based indicators warrant close monitoring.

Cash Flow Quality

Operating cash flow was ¥-558m versus net income of ¥83m, yielding an OCF/NI ratio of -6.72, signaling weak earnings-to-cash conversion this period. The negative OCF likely reflects working capital outflows (receivables build and/or inventory/timing effects), but detailed drivers are not disclosed. Investing cash flow is undisclosed in the dataset (shown as zero), limiting visibility on maintenance versus growth capex; consequently, free cash flow cannot be reliably computed, though negative OCF suggests FCF pressure. EBITDA of ¥420m and depreciation/amortization of ¥216m indicate reasonable non-cash buffers at the operating level, but these did not translate into positive OCF in the period. Financing CF of ¥+751m covered the operating deficit, pointing to external funding reliance; sustainability depends on normalization of working capital. Earnings quality is mixed: operating profit improved, but cash realization was weak, elevating execution risk.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed in the dataset (zeros denote undisclosed, not actual zero amounts). With net income positive but operating cash flow materially negative, internal coverage of dividends from free cash flow appears constrained for this period. Absent investing cash flow details, we cannot compute a reliable FCF coverage ratio; however, reliance on financing inflows suggests limited near-term headroom for distributions without drawing on the balance sheet. Policy outlook cannot be inferred from the provided data; future capacity will depend on the normalization of working capital, stable operating margins, and capex requirements. Monitoring announced dividend guidance, payout targets, and cash generation in subsequent quarters is essential.

Risk Assessment

Business Risks:

• Input cost volatility (raw materials, energy, and logistics) that could compress margins given thin net profitability
• Price competition and promotional intensity in domestic food markets
• Demand softness or downtrading impacting volumes and mix
• Supply chain disruptions affecting procurement and delivery timelines
• Regulatory and food safety compliance requirements increasing fixed costs

Financial Risks:

• Negative operating cash flow necessitating external financing in the period
• Moderate-to-elevated leverage (Debt-to-Equity 1.75x) increasing sensitivity to credit conditions
• Refinancing and interest rate risk if financing needs persist
• Working capital volatility impacting cash conversion
• Potential covenant constraints if profitability weakens

Key Concerns:

• Sustained negative OCF despite positive operating profit
• Low ROE (1.59%) driven by thin net margins
• Revenue decline (-8.5% YoY) raising questions on demand resilience
• Dependence on financing inflows (¥+751m) to bridge operating deficits

Investment Implications

Key Takeaways:

• Top line contracted 8.5% YoY, but operating income improved 20.1% YoY on cost control/mix gains
• Margins remain thin (OPM ~3.0%, NPM 1.24%), limiting earnings buffer
• ROE at 1.59% is subdued; margin enhancement is the primary lever
• Liquidity acceptable (current ratio 124.8%), but OCF of ¥-558m is a notable weakness
• Leverage utilization increased (Financing CF ¥+751m) to support operations
• Interest coverage is comfortable at 8.5x, supporting near-term debt service

Metrics to Watch:

• Working capital movements and OCF recovery in subsequent quarters
• Gross and operating margin sustainability amid input cost changes
• Revenue trajectory (price/mix vs. volume) after the -8.5% YoY decline
• Net debt and interest coverage as financing needs evolve
• Capex and investing cash flows once disclosed to assess true FCF

Relative Positioning: Versus domestic mid-cap food peers, profitability and ROE appear below sector medians (net margin thin, ROE 1–2%), liquidity is adequate, leverage is somewhat higher, and cash flow conversion is weaker this period; execution on working capital normalization and sustained margin discipline will be key to closing the gap.

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