Premium Water Holdings,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥40.35B
• Operating Income: ¥6.74B
• Net Income: ¥3.94B
• EPS: ¥132.52

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 solid FY2026 Q2 with double‑digit operating profit growth and strong cash generation, offset by elevated leverage and a high cash payout stance. Revenue rose 3.7% year over year to 403.47, while operating income grew 12.3% to 67.37, evidencing operating leverage. Gross margin stood at 85.9% and operating margin at 16.7%, implying margin expansion versus last year. Back-solving from growth rates indicates operating margin widened by roughly 130 bps (from ~15.4% to 16.7%). Net income increased 25.8% to 39.36, with net margin at 9.8% and an estimated expansion of about 180 bps YoY. SG&A of 279.34 implies an SG&A-to-sales ratio of 69.2%, high but improving absolute profitability. Cash conversion was strong: operating cash flow was 110.86, 2.82x net income, and free cash flow of 43.41 comfortably funded dividends (16.31) and buybacks (4.75). ROE is 14.1% per DuPont, supported more by high financial leverage (4.40x) than by asset turnover (0.329), with ROIC at a healthy 15.7%. Equity method income was negative (-2.93), and non-operating income ratio was -7.4%, modestly diluting below-the-line. The balance sheet shows an equity ratio of 22.7% and D/E of 3.40x, indicating high leverage that constrains flexibility despite robust OCF. Effective tax rate (35.0%) is on the high side, tempering net margin gains. Dividend payout ratio (calculated) is 76.1%, above a conservative benchmark, though cash coverage looks acceptable given current FCF. Liquidity ratios are unreported; hence, short-term refinancing and maturity mismatch risks cannot be fully assessed. Overall, the quarter shows improving profitability and very good cash conversion, but sustainability hinges on controlling SG&A, maintaining churn and acquisition costs in check, and managing leverage amid rate and credit cycles.

Profitability Analysis

ROE Decomposition (DuPont): ROE 14.1% = Net Profit Margin (9.8%) × Asset Turnover (0.329) × Financial Leverage (4.40x). The leverage component is elevated and a key driver of ROE, while asset turnover is low, typical for asset-heavy or subscription/logistics models. Margin dynamics: operating margin is 16.7% this quarter; based on reported growth rates, prior-year operating margin was ~15.4%, implying ~+130 bps expansion YoY. Net margin improved from 8.0% to 9.8% (+180 bps), aided by operating leverage and strong cost control relative to revenue growth. The largest effective change appears in net margin (benefiting from operating leverage) rather than turnover or leverage, as the latter are point-in-time balance-sheet based and less likely to move sharply within a quarter. Business drivers: modest top-line growth (+3.7%) combined with SG&A discipline enabled operating profit to outpace sales. Equity-method losses (-2.93) and a relatively high tax rate (35%) partially offset bottom-line gains. Sustainability: margin gains can be sustainable if customer acquisition costs, delivery/logistics efficiency, and churn remain favorable; however, equity-method swings and tax rate normalization are potential dampeners. Watch for SG&A growth exceeding revenue growth in future periods; at 69.2% of sales, SG&A remains heavy, leaving limited buffer if growth slows.

Growth Assessment

Revenue growth of 3.7% indicates steady but not rapid expansion, consistent with a mature subscription base with incremental customer adds and ARPU/mix effects. Operating income growth of 12.3% demonstrates operating leverage, likely from mix optimization and cost discipline. Net income growth of 25.8% outpaced revenue and operating profit, helped by margin expansion; however, a high tax rate and negative equity-method results tempered potential upside. EBITDA of 129.93 implies a 32.2% EBITDA margin, supporting an improving profit quality profile. Looking ahead, sustainability depends on acquisition costs, churn control, delivery cost inflation (fuel, logistics), and packaging input prices; continued SG&A control is crucial to preserve the current margin delta versus growth. With ROIC at 15.7%, reinvestment returns are attractive, suggesting capacity to fund growth and shareholder returns if cash flow remains robust.

Financial Health

Equity ratio is 22.7% and D/E is 3.40x (warning threshold >2.0), indicating high leverage. Current ratio and quick ratio are unreported; therefore short-term liquidity cannot be quantified, and maturity mismatch risk cannot be fully assessed. Total assets are 1,228.05 against total equity of 278.95, consistent with financial leverage of ~4.4x assets/equity. Interest-bearing debt amounts and interest expense are unreported; interest coverage cannot be calculated, which is a key limitation given the high leverage. Accounts receivable of 124.49 vs inventories of 8.90 suggest low inventory risk; however, payables at 166.27 indicate supplier financing plays a role. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not confirm absence of such commitments (e.g., leases, purchase commitments). Explicit warning: D/E > 2.0 flags elevated financial risk.

Cash Flow Quality

OCF of 110.86 vs net income of 39.36 yields OCF/NI of 2.82x, signaling very high earnings quality with strong cash conversion. Free cash flow, defined here as OCF + Investing CF, is 43.41, positive after investing outflows of 67.45. Capital expenditures were 18.27; the gap between investing cash outflow and capex suggests other investment activities (e.g., financial investments or M&A-related intangibles) drove the remainder. Working capital appears well managed given strong OCF; no signs of aggressive working capital pull-forward are evident from the limited disclosures. With financing CF of -18.45 and cash & equivalents at 344.04, liquidity from cash generation appears solid, contingent on unknown debt maturities and interest burdens.

Dividend Sustainability

Calculated payout ratio is 76.1%, above the <60% conservative benchmark, which suggests a relatively high distribution policy. Cash dividends paid in the period were 16.31, covered by FCF of 43.41 (FCF coverage 1.45x as provided), and also comfortably covered by OCF after capex. Share repurchases of 4.75 further increased cash outflows to shareholders, still covered by FCF in this period. The discrepancy between the calculated payout ratio (76.1%) and period cash dividends (16.31) likely reflects timing (interim vs full-year basis) and/or calculation methodology; we rely on the provided ratios but note this nuance. Sustainability outlook: near-term sustainable given current OCF strength and ROIC; medium-term depends on maintaining margin gains and managing leverage and potential interest expense increases.

Risk Assessment

Business Risks:

• Customer acquisition cost and churn risk in a subscription-driven model impacting SG&A intensity and LTV/CAC.
• Logistics and delivery cost inflation (fuel, labor), potentially compressing margins.
• Packaging and input price volatility (e.g., resin/plastics for bottles) affecting COGS and SG&A.
• Water source reliability and quality control risks impacting supply continuity and brand.
• Negative equity-method income (-2.93) indicating affiliate performance volatility.

Financial Risks:

• High leverage (D/E 3.40x) increases sensitivity to interest rate rises and refinancing conditions.
• Unknown debt maturity profile and interest coverage due to unreported interest expense elevate refinancing and liquidity assessment risk.
• Potential working capital swings in receivables/payables could alter cash conversion.
• Tax rate sensitivity (35% effective rate) to changes in tax regimes or recognition timing.

Key Concerns:

• Leverage above comfort thresholds may constrain strategic flexibility.
• SG&A ratio at 69.2% leaves limited buffer if top-line growth slows.
• Non-operating losses and equity-method volatility can dilute net profit despite operating improvement.
• Data gaps (current liabilities, interest expense) hinder full liquidity and coverage analysis.

Investment Implications

Key Takeaways:

• Operating margin expanded to 16.7% on modest sales growth, delivering 12.3% OP growth.
• Net margin improved to 9.8%, with net income up 25.8% YoY.
• OCF/NI at 2.82x indicates high cash earnings quality; FCF positive at 43.41.
• ROE 14.1% supported by high leverage (4.40x assets/equity) and improved margins; ROIC strong at 15.7%.
• Capital returns (dividends + buybacks) covered by FCF this period but payout ratio is elevated.
• Balance sheet leverage (D/E 3.40x) is a key overhang given limited visibility on interest burden.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio (currently 69.2%).
• OCF/NI and FCF trends to validate earnings quality.
• Debt maturity schedule, effective interest rate, and interest coverage once disclosed.
• Churn, ARPU, and acquisition cost metrics to gauge sustainability of growth and margins.
• Input and logistics cost indices (fuel, resin) for margin sensitivity.
• Equity-method income trajectory and any affiliate restructuring.

Relative Positioning: Within consumer staples/water delivery peers, profitability and cash conversion are strong this quarter, but balance sheet leverage is higher than conservative benchmarks, making the name more sensitive to rate and credit conditions compared to lower-levered peers.

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