Polaris Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.99B
• Operating Income: ¥1.94B
• Net Income: ¥1.10B
• EPS: ¥4.69

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: Solid top-line rebound with positive operating leverage but margin compression and sub-target ROIC temper the quality of the beat. Revenue surged to 229.88, up 122.7% YoY, lifting operating income to 19.40 (+55.8% YoY) and net income to 10.96 (+23.2% YoY). Gross profit reached 220.76, implying a very high gross margin of 96.0%, likely reflecting net revenue recognition characteristics in the business model. Operating margin stands at 8.44% (19.40/229.88), while net margin is 4.77% (10.96/229.88). Given revenue growth outpaced operating profit growth, operating margin compressed by roughly 362 bps YoY (from ~12.06% to 8.44%). Net margin likely compressed by about 385 bps YoY (from ~8.62% to 4.77%). Ordinary income totaled 13.53 (+40.7% YoY), with non-operating expenses (6.53) exceeding non-operating income (0.66), and interest expense (6.20) the main drag. Cash generation was strong: operating cash flow of 25.65 exceeds net income by 2.34x, signaling high earnings quality. Liquidity is healthy with a current ratio of 165% and working capital of 52.02; financing cash flow was -19.00, suggesting deleveraging or lease repayments. The balance sheet is intangibles-heavy (goodwill 250.98; intangible assets 251.75), creating medium-term impairment risk and depressing ROIC (4.4%, below the 5% warning threshold). Interest coverage at 3.13x is adequate but below best-in-class (>5x), leaving some sensitivity to rate increases or earnings volatility. Debt-to-equity of 1.33x is within conservative bounds but bears monitoring given the large long-term loan balance (145.90). Free cash flow cannot be fully assessed due to unreported investing CF, but low capex (-1.04) and strong OCF indicate flexibility for debt service. Dividend details are not disclosed; a calculated payout ratio of 64% appears borderline versus typical sustainability benchmarks (<60%). Forward-looking, the key swing factors are margin normalization as scale effects settle, cost discipline in SG&A, and managing the impairment and refinancing risks embedded in the intangibles-heavy, moderately leveraged capital structure. Overall, the quarter shows a sharp recovery with quality cash conversion, offset by margin compression and capital efficiency concerns.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 4.8% × Asset Turnover (AT) 0.346 × Financial Leverage (FL) 2.33x = ROE 3.8% (matches reported). The component most clearly deteriorating YoY is NPM: despite revenue +122.7% YoY, net income rose only +23.2%, implying ~385 bps net margin compression (from ~8.62% to 4.77%). Operating margin also compressed by ~362 bps (from ~12.06% to 8.44%), driven by SG&A growth outpacing operating profit (SG&A at 201.35 is high versus gross profit 220.76). Business drivers: rapid topline expansion likely came with higher variable operating costs, pre-opening/scale-up costs, or promotional activities, while interest expense of 6.20 reduced ordinary income leverage despite EBITDA growth. Asset turnover at 0.346 remains low, reflecting a capital-heavy asset base dominated by goodwill/intangibles; it may have improved modestly with revenue growth, but prior asset levels are not disclosed to confirm the change. Sustainability: Margin compression looks partly cyclical/scale-related and could normalize if occupancy, ADR (if hotel-related), and cost control improve; however, interest costs and depreciation (8.67) are structural headwinds. Concerning trends: SG&A at 91% of gross profit indicates limited operating leverage this quarter; and non-operating expense burden diluted ordinary income growth.

Growth Assessment

Top-line growth of +122.7% YoY is the standout, suggesting strong recovery or consolidation effects. Operating income grew +55.8% and net income +23.2%, lagging revenue as margins compressed, indicating growth quality skewed to volume over profitability. EBITDA of 28.07 implies some operating scale benefits, but interest costs absorbed a meaningful share of operating gains. Revenue sustainability will hinge on demand normalization and retention of pricing power; without segment detail, durability is uncertain. Profit quality is supported by cash conversion (OCF/NI 2.34x), suggesting earnings are not purely accrual-driven. Near-term outlook depends on SG&A discipline and interest cost management; low capex (-1.04) gives flexibility, but ROIC at 4.4% signals that incremental growth must be higher-return to create value. Non-operating items were a small net negative; limited reliance on such income is a positive for recurring earnings quality.

Financial Health

Liquidity: Current ratio 164.9% and quick ratio 164.9% are healthy; working capital 52.02 provides cushion. No warning thresholds breached (Current Ratio > 1.0). Solvency: Debt-to-equity 1.33x is within a conservative zone (<1.5x), but interest coverage at 3.13x is only moderate, implying sensitivity to earnings swings. Capital structure: Long-term loans 145.90 dominate; current liabilities 80.18 are well-covered by current assets 132.20, limiting maturity mismatch risk in the near term. Cash and deposits 74.24 plus receivables 39.97 roughly cover current liabilities, even with unreported short-term debt. Off-balance sheet: None disclosed in the provided data; lease or guarantee commitments (if any) are not available and could alter leverage optics.

Cash Flow Quality

OCF/Net income at 2.34x indicates high-quality earnings with strong cash realization. With capex at only -1.04, pre-dividend free cash flow appears positive, though full FCF cannot be calculated due to unreported investing CF (e.g., acquisitions/disposals). Financing CF of -19.00 suggests net repayments or distribution outflows; combined with positive OCF, leverage is likely trending down or stable. No clear signs of working capital manipulation are visible from the limited disclosures; receivables and payables detail are insufficient to diagnose timing effects. Overall, cash flow quality supports ongoing operations and modest balance sheet de-risking.

Dividend Sustainability

Dividend disclosures are unreported; the calculated payout ratio is 64%, modestly above a conservative <60% benchmark. Assuming the payout ratio applies to net income 10.96, implied dividends would be ~7.0, which is well-covered by OCF 25.65 in this period. Given capex is minimal (-1.04), there appears to be capacity to fund dividends and debt service concurrently this period. However, with ROIC at 4.4% and interest coverage only 3.13x, a higher payout may limit deleveraging and investment in margin improvement if macro conditions soften. Policy outlook cannot be inferred without management guidance; we view sustainability as acceptable near term given cash generation, but dependent on maintaining OCF strength.

Risk Assessment

Business Risks:

• Margin compression despite strong revenue growth (operating margin down ~362 bps YoY).
• High SG&A intensity (SG&A ~91% of gross profit) limiting operating leverage.
• Intangibles-heavy balance sheet (goodwill 250.98; intangibles 251.75) raising impairment risk.
• Demand volatility risk in core end-market (e.g., hospitality/travel exposure if applicable).

Financial Risks:

• Moderate interest coverage (3.13x) with interest expense 6.20; earnings sensitivity to rate increases.
• ROIC at 4.4% below the 5% warning threshold, indicating capital efficiency risk.
• Refinancing and covenant risk tied to long-term loans (145.90) if performance weakens.
• Potential maturity concentration not visible due to limited debt tenor disclosure.

Key Concerns:

• Sustained net margin compression (~385 bps YoY) reducing earnings resilience.
• Reliance on non-operating income is low, but non-operating expenses (notably interest) dilute ordinary income.
• Data gaps (capex detail, investing CF, dividend cash outflow, short-term debt composition) constrain full risk assessment.
• Impairment charges could materially affect equity and ROE given large goodwill.

Investment Implications

Key Takeaways:

• Strong revenue rebound (+122.7% YoY) with positive cash conversion (OCF/NI 2.34x).
• Margin compression evident: operating margin ~8.44% vs ~12.06% YoY; net margin ~4.77% vs ~8.62% YoY.
• Capital efficiency below par (ROIC 4.4%); intangibles-heavy assets pressure returns and increase impairment sensitivity.
• Leverage moderate (D/E 1.33x); interest coverage 3.13x warrants monitoring amid rate/earnings volatility.
• Liquidity comfortable (current ratio ~165%; cash 74.24) supporting operations and debt service.

Metrics to Watch:

• Operating margin and SG&A-to-revenue ratio for signs of cost discipline.
• Interest coverage (EBIT/interest) and any refinancing actions.
• ROIC progression and asset write-downs (goodwill impairment tests).
• OCF trends and working capital turnover (receivables collection, payables).
• Dividend policy disclosures and actual cash dividend outflow vs OCF.

Relative Positioning: Within its peer set, the company exhibits strong near-term growth and cash conversion but lags on capital efficiency and margin durability; balance sheet liquidity is solid, while leverage and interest burden are middling versus best-in-class.

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