CHUCO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.70B
• Operating Income: ¥25M
• Net Income: ¥13M
• EPS: ¥0.76

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: A weak FY2026 Q2 with severe profit compression despite modest topline growth, cushioned by robust operating cash flow. Revenue grew 4.0% YoY to 56.99, but operating income collapsed 73.5% YoY to 0.25, driving operating margin down to just 0.44%. Ordinary income fell 68.5% YoY to 0.32 and net income plunged 88.7% YoY to 0.05, with a razor-thin net margin of 0.09%. Gross profit was 26.66, implying a solid gross margin of 46.8%, but SG&A of 26.40 (46.3% of sales) absorbed almost all gross profit, leaving minimal operating leverage. Operating margin compressed by roughly 128 bps YoY (from ~1.72% to 0.44%) given revenue growth of +4% and operating income decline of -73.5%. Net margin compressed by roughly 72 bps YoY (from ~0.81% to 0.09%). Ordinary margin similarly contracted by ~129 bps (from ~1.85% to 0.56%). Profit before tax (0.60) exceeded ordinary income (0.32), indicating likely extraordinary gains, which, together with a very high effective tax rate of 78.2%, distorted period earnings. Despite weak reported profits, operating cash flow was strong at 1.26, equating to an OCF/Net Income ratio of 25.1x, reflecting favorable working capital and/or timing effects rather than underlying earnings strength. Free cash flow is estimated at 0.72 (OCF 1.26 minus capex 0.54), providing some buffer for debt service and potential dividends. Liquidity is adequate with a current ratio of 147% and cash of 18.92 exceeding short-term borrowings of 6.80. Balance sheet leverage is moderate (D/E 1.54x), while ROE is very low at 0.2% and ROIC is weak at 0.9%, underscoring subpar capital efficiency. Interest coverage at ~5x is just on the cusp of comfort and could weaken further if operating earnings do not recover. Earnings quality is mixed: cash conversion is strong this quarter, but heavy reliance on non-recurring items (gap between ordinary income and PBT) and an elevated tax rate undermine quality of reported net profit. The quarter suggests cost discipline and margin restoration are urgent priorities, with particular focus on SG&A efficiency. Forward-looking, stabilizing margins, avoiding one-off dependence, and normalizing the effective tax rate are key to restoring double-digit returns on capital.

Profitability Analysis

ROE decomposition: ROE (0.2%) = Net Profit Margin (0.09%) × Asset Turnover (1.078) × Financial Leverage (2.54x). The largest deterioration came from the Net Profit Margin component, as operating income fell 73.5% YoY and net income fell 88.7% despite sales growth. Asset turnover remains reasonable at 1.078 for this footprint and did not drive the decline, while financial leverage at 2.54x is broadly stable and not the source of pressure. The margin decline stems from SG&A nearly matching gross profit (26.40 vs 26.66), leaving minimal operating income (0.25), and from a very high effective tax rate (78.2%) that compressed net income. Additionally, the gap between ordinary income (0.32) and PBT (0.60) implies reliance on extraordinary gains, which do not support recurring margin. Sustainability: Without structural SG&A savings or gross margin enhancement, current operating margin (0.44%) is not sustainable for acceptable returns; the high tax rate should normalize, but one-time gains are by definition non-recurring. Concerning trends: SG&A intensity at 46.3% of sales is elevated relative to the 46.8% gross margin, indicating almost zero operating spread; with revenue only +4.0% YoY, fixed-cost absorption weakened significantly, driving negative operating leverage.

Growth Assessment

Revenue grew 4.0% YoY to 56.99, indicating modest topline momentum. However, profit growth was negative across all tiers: operating income -73.5%, ordinary income -68.5%, and net income -88.7%, reflecting acute margin compression. Current margins are thin: operating margin 0.44%, ordinary margin 0.56%, PBT margin 1.05%, and net margin 0.09%. The deterioration appears driven by SG&A running nearly equal to gross profit, suggesting either elevated personnel/marketing costs or cost timing effects. The very high effective tax rate magnified the drop in net income and should not be extrapolated as structural without management guidance. Profit before tax exceeded ordinary income, indicating one-off income items that are unlikely to recur; absent these, profitability would have been even weaker. Near-term outlook hinges on cost controls (especially SG&A), maintaining gross margin near ~47%, and stabilizing the tax rate. With ROIC at 0.9%, investment returns on growth initiatives appear suboptimal; management likely needs to prioritize efficiency over expansion until margins normalize. Cash generation (OCF 1.26) supports operations, but translating this into sustainable profit growth requires operating improvements rather than working-capital-driven cash. Overall growth quality is low this quarter.

Financial Health

Liquidity: Current ratio 147.3% and quick ratio 146.1% indicate adequate short-term coverage; no explicit warning triggered (both > 1.0). Cash and deposits of 18.92 exceed short-term loans of 6.80, reducing near-term refinancing risk. Working capital stands at 11.56. Solvency: Debt-to-equity of 1.54x is slightly above a conservative 1.5x benchmark but below the 2.0x warning level; long-term loans total 5.44, with total liabilities 32.01 vs equity 20.85. Interest coverage at ~4.95x is borderline to comfortable; any further earnings pressure could push it below the 5x comfort threshold. Maturity mismatch risk appears limited given cash > short-term borrowings and current assets (35.99) > current liabilities (24.43). No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF/Net Income at 25.13x is well above the 0.8 threshold, but this is partly a function of unusually low net income; still, cash conversion is strong this quarter. Estimated free cash flow is positive at 0.72 (OCF 1.26 minus capex 0.54), supporting basic financial commitments. With investing cash flows otherwise unreported, capex appears modest relative to OCF. No clear signs of working capital manipulation are visible from the snapshot, though OCF strength alongside weak earnings suggests favorable receivables collection and/or payables timing. Given thin operating margins, maintaining positive FCF will require consistent working capital discipline; reliance on one-off items for PBT is a quality risk.

Dividend Sustainability

Reported dividend data are largely unreported; the calculated payout ratio of 1690.6% indicates that any interim dividend would far exceed earnings for the period, driven by depressed EPS (0.76 JPY). On cash terms, estimated FCF of 0.72 could cover modest dividend outflows, but sustainability on an earnings basis is weak until margins recover. Absent full-year guidance and actual dividends paid, we cannot calculate FCF coverage precisely. Policy-wise, if the company targets stable dividends, near-term coverage may rely on cash on hand and OCF rather than earnings; a normalization of the effective tax rate and restoration of operating margin would be necessary to bring payout back toward sub-60% norms.

Risk Assessment

Business Risks:

• Margin squeeze from SG&A nearly equaling gross profit (SG&A 46.3% of sales vs gross margin 46.8%)
• Dependence on one-off gains (PBT exceeding ordinary income) to support pre-tax profit
• Potential cost inflation (personnel, media, or rent) outpacing revenue growth of 4.0%
• Execution risk in restoring operating leverage given thin operating margin (0.44%)

Financial Risks:

• Elevated effective tax rate (78.2%) depressing net income and increasing earnings volatility
• Interest coverage at ~4.95x, vulnerable to further EBIT declines
• Moderate leverage (D/E 1.54x) with risk of deterioration if profits remain weak
• ROIC at 0.9% well below cost of capital, risking value dilution

Key Concerns:

• Earnings quality mixed: strong OCF vs weak NI and reliance on non-recurring items
• Profitability collapse: operating income -73.5% YoY and net income -88.7% YoY
• Sensitivity to revenue shortfalls given minimal operating spread
• Data gaps (dividends paid, detailed SG&A breakdown, investing CF) limit full assessment

Investment Implications

Key Takeaways:

• Topline grew modestly (+4.0%), but operating and net profits collapsed due to SG&A intensity
• Operating margin compressed by ~128 bps YoY to 0.44%; net margin compressed by ~72 bps to 0.09%
• OCF was strong (1.26) and FCF positive (0.72), providing liquidity despite weak earnings
• Capital efficiency is poor (ROE 0.2%, ROIC 0.9%), requiring margin and asset-utilization improvements
• Effective tax rate abnormally high; normalization would materially aid net profit recovery

Metrics to Watch:

• SG&A as a percentage of sales (currently 46.3%) and trajectory versus revenue growth
• Operating margin recovery toward >2% in the near term
• Ordinary income vs PBT gap to gauge reliance on one-off items
• Effective tax rate normalization toward historical levels
• OCF sustainability and receivables/payables trends

Relative Positioning: Relative to domestic small-cap marketing/advertising peers, revenue growth is modest but profitability is weak with near-zero operating spread; liquidity is adequate, leverage is moderate, and cash conversion is currently favorable but not yet supported by recurring earnings.

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