Kitahama Capital Partners Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥69M
• Operating Income: ¥-652M
• Net Income: ¥-602M
• EPS: ¥-1.26

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

Verdict: FY2026 Q2 was very weak, characterized by a collapse in revenue and outsized fixed costs driving deep operating losses despite a high reported gross margin. Revenue fell 83.8% YoY to 0.69, while gross profit was 0.54, implying a strong gross margin of 78.8% but on a sharply diminished base. SG&A of 7.07 exceeded gross profit by more than 13x, pushing operating income to -6.52 and ordinary income to -6.41. Net income was -5.95, translating to a net margin of -862.3% and EPS of -1.26 JPY. Cash burn was severe: operating cash flow was -14.98 versus net loss of -5.95, indicating cash outflows materially larger than accounting losses. Free cash flow was at least -16.86 when including reported capex of 1.88 (investing CF otherwise unreported). Liquidity remains ample for now with a current ratio of 467% and cash and deposits of 11.43 against short-term loans of 4.28. Leverage is modest with D/E of 0.23x and total interest-bearing loans of roughly 8.51 split between short and long term. Asset efficiency deteriorated markedly, with asset turnover at just 0.009, reflecting the very low sales base relative to assets of 73.06. ROE was -10.0% per DuPont, driven by the extremely negative net margin and negligible turnover, while financial leverage (1.23x) provided little cushion. ROIC was -11.5%, well below typical cost of capital, pointing to value destruction if conditions persist. The balance sheet shows 7.42 of goodwill and 7.44 of other intangibles, which heightens impairment risk if profitability does not recover. Retained earnings are deeply negative at -100.05, with equity supported by paid-in capital (capital stock 80.22; capital surplus 78.87), limiting room for distributions. With dividends unreported and free cash flow negative, near-term shareholder returns appear constrained. Forward-looking, the company must either restore revenue swiftly or resize its cost base; without such actions, ongoing cash burn could erode the current liquidity buffer over the next few quarters.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-862.3%) × 0.009 × 1.23 ≈ -10.0%. The largest driver of the negative ROE is the extraordinarily weak net margin, stemming from a steep revenue drop and SG&A that far exceed gross profit. Asset turnover of 0.009 indicates very low utilization of the asset base, further depressing returns; leverage at 1.23x is low and thus neither a significant enhancer nor a risk amplifier in the current period. Business drivers: the 83.8% YoY revenue decline suggests loss of transactions/projects or a cyclical downturn in the firm’s monetization engine, while SG&A rigidity implies a high fixed-cost structure that did not flex with volume. Sustainability: the current margin profile is unlikely to be sustainable as-is; either cost reductions or revenue normalization would be required to avoid continued deep losses. Concerning trends: SG&A of 7.07 versus revenue of 0.69 flags an adverse operating leverage dynamic; with revenue contracting dramatically, fixed overhead appears misaligned to scale.

Growth Assessment

Revenue sustainability looks challenged, given the 83.8% YoY decline to 0.69 and negligible asset turnover. The high gross margin (78.8%) hints that the underlying unit economics on delivered business may be acceptable, but the volume shortfall dwarfs that benefit. Operating profit of -6.52 and ordinary income of -6.41 confirm the weakness is not offset by non-operating gains (non-operating income only 0.16, largely interest income of 0.14). Profit quality is low due to fixed-cost absorption and negative operating leverage; absent volume recovery or cost cuts, losses may persist. Outlook hinges on pipeline recovery, client/project wins, or portfolio monetization; otherwise, the cost structure must be right-sized. We do not have segment or backlog data, limiting visibility on the pace of recovery.

Financial Health

Liquidity: healthy. Current assets 38.29 vs current liabilities 8.19 yield a current ratio of 467.4% and quick ratio of 467.4%; no warning (both > 1.0). Cash and deposits of 11.43 exceed short-term loans of 4.28, reducing near-term refinancing risk. Solvency: conservative. Total liabilities 13.61 vs equity 59.46 imply D/E of 0.23x. Long-term loans are 4.23, manageable relative to equity. Maturity mismatch risk appears low as current assets comfortably exceed short-term obligations. Off-balance sheet: none reported in the provided data. Note retained earnings are -100.05, but equity remains positive due to substantial paid-in capital.

Cash Flow Quality

Earnings quality is weak from a cash perspective: OCF of -14.98 is notably worse than net income of -5.95; although the provided OCF/NI ratio reads 2.52x, the negative signs imply operating cash burn exceeds the accounting loss, which is a red flag. Free cash flow is at least -16.86 (OCF -14.98 plus capex 1.88), indicating internal funding shortfall without additional financing or asset sales. Financing CF of 41.14 partially offset cash burn this period, implying reliance on external capital or equity-related inflows. Working capital likely deteriorated (details unreported), contributing to negative OCF; we do not see explicit manipulation, but the scale of burn versus revenue suggests stress. Sustainability: current OCF trajectory cannot support capex or potential dividends; stabilization requires swift revenue recovery and/or cost reductions.

Dividend Sustainability

Dividends are unreported for the period, and payout ratios are not calculable. Given negative free cash flow of at least -16.86 and retained earnings of -100.05, capacity to fund dividends from earnings is limited. While cash and liquidity are currently adequate, returning capital would likely rely on paid-in capital or incremental financing, which is not prudent if losses persist. Policy outlook: with profitability negative and ROIC at -11.5%, we expect a conservative stance on distributions until operating cash flow turns positive.

Risk Assessment

Business Risks:

• Demand/volume risk: 83.8% YoY revenue decline indicates project or client loss risk.
• Cost structure rigidity: SG&A of 7.07 on revenue of 0.69 creates severe negative operating leverage.
• Intangible asset impairment risk: goodwill 7.42 and other intangibles 7.44 could face impairment if performance does not recover.
• Execution risk on turnaround: dependency on rapid revenue recovery or cost rightsizing.

Financial Risks:

• Cash burn risk: OCF -14.98 and FCF at least -16.86 require financing or asset monetization.
• Refinancing/liquidity risk if cash burn continues: despite current ratio 467%, persistent deficits could erode cash.
• Covenant/credit risk: not disclosed, but ongoing losses could tighten funding access.
• Retained earnings deficit (-100.05) constrains shareholder return optionality.

Key Concerns:

• ROIC -11.5% and ROE -10.0% indicate value destruction.
• Asset turnover 0.009 highlights underutilization of a 73.06 asset base.
• Ordinary income remains negative despite minor non-operating income (0.16), limiting offset to operating losses.
• Data gaps (no segment detail, no investing CF breakdown, no dividend data) reduce visibility.

Investment Implications

Key Takeaways:

• Severe top-line contraction (-83.8% YoY) with high gross margin but overwhelmed by fixed SG&A.
• Deep operating loss (-6.52) and net loss (-5.95); net margin -862.3%.
• OCF significantly worse than NI (OCF -14.98), producing FCF of at least -16.86.
• Balance sheet liquidity is currently strong (current ratio 467%, net cash versus short-term loans), leverage low (D/E 0.23x).
• Efficiency and returns are poor (ROIC -11.5%, ROE -10.0%, asset turnover 0.009).
• Intangibles (total ~14.9) raise impairment risk if loss-making persists.

Metrics to Watch:

• Quarterly revenue run-rate and order/pipeline indicators.
• SG&A trend and cost-reduction actions; operating break-even level.
• Operating cash flow trajectory and working capital movements.
• Impairment testing outcomes for goodwill and intangibles.
• Liquidity buffer: cash balance vs. cash burn; financing CF dependency.
• ROIC and asset turnover recovery.

Relative Positioning: Relative to small-cap peers, the company exhibits weaker profitability and cash generation but maintains an above-average liquidity cushion and low leverage; near-term positioning hinges on restoring volumes or resizing the cost base to stem cash burn.

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