Qol Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥142.23B
• Operating Income: ¥7.18B
• Net Income: ¥4.16B
• EPS: ¥94.51

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: A solid Q2 with double-digit topline growth and improved profitability, but liquidity remains tight and intangibles-heavy balance sheet elevates medium-term risk. Revenue rose 14.0% YoY to 1,422.3, while operating income increased 17.8% YoY to 71.82, evidencing positive operating leverage. Ordinary income was 72.57 (+16.7% YoY), and net income surged 192.7% YoY to 35.47, driven by better margin performance and likely normalization vs. a weak prior-year bottom line. Gross margin printed at 14.1% and operating margin at 5.05%, with the latter expanding as OI grew faster than sales. Based on reconstructed prior period levels, operating margin expanded by about 16 bps YoY (to 5.05%), ordinary margin by roughly 11 bps (to 5.10%), and net margin by approximately 153 bps (to 2.5%). EBITDA reached 98.13 (margin 6.9%), and interest coverage was a strong 40.6x, indicating ample ability to service debt. Operating cash flow of 61.86 exceeded net income (OCF/NI 1.74x), signaling high earnings quality in the period. Financing cash flow was a significant outflow (-136.83), suggesting active debt reduction and shareholder returns (share buybacks of 2.32), though dividend cash outflows were not disclosed. Liquidity is a clear weak point: current ratio was 0.75 and quick ratio 0.68, with working capital negative at -193.1. Leverage is moderate with D/E at 1.71x and Debt/EBITDA at 3.03x, acceptable but requiring attention given the short-term funding reliance. The balance sheet is intangibles-heavy (goodwill 372.9 and intangible assets 671.6), introducing impairment risk if earnings underperform. Effective tax rate was elevated at 41.7%, limiting the flow-through from operating gains to net profit. ROE calculated at 6.3% reflects improved net margins but remains mid-single-digit given modest asset turnover (0.933) and leverage of 2.71x. ROIC at 6.2% is below the typical 7–8% target range, suggesting further optimization is needed to exceed the cost of capital. Forward-looking, the company’s improving operating efficiency and solid cash generation support continued earnings momentum, but liquidity management (refinancing and working capital discipline) and careful M&A integration are critical given the intangibles load. Overall, Q2 shows healthy operational progress and cash conversion, with the main watchpoints being short-term liquidity, ROIC uplift, and any signs of margin pressure from regulatory or labor cost headwinds.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.3% = Net Profit Margin 2.5% × Asset Turnover 0.933 × Financial Leverage 2.71x. The biggest change YoY appears to be the net profit margin, which rose from an estimated ~1.0% in the prior year period to 2.5% (based on reconstructed prior net income), while asset turnover and leverage likely moved modestly. Operating margin expanded to 5.05%, up ~16 bps YoY as operating income grew faster than revenue (+17.8% vs +14.0%), indicating mild positive operating leverage. Business drivers: improved scale and mix benefits in dispensing/pharmacy services likely supported gross-to-operating margin flow-through, while net non-operating effects were small (non-operating income 3.94 vs expenses 3.19). The bottom-line outperformance versus prior year was also aided by a weak comparison, rather than one-off gains this quarter; the effective tax rate remains high at 41.7%, so税負担 is still a headwind. Sustainability: operating margin gains appear incremental and repeatable if store productivity and procurement efficiencies continue; however, wage inflation for pharmacists and dispensing fee revisions could cap further expansion. No evidence of SG&A growing faster than revenue; SG&A was 129.36, and with revenue up 14.0%, operating leverage was positive. Watch the gross margin at 14.1%—any decline from pricing pressure or reimbursement changes would quickly dilute ROE given leverage.

Growth Assessment

Topline growth of 14.0% YoY to 1,422.3 suggests both organic expansion and contribution from prior M&A/store additions. Operating income growth of 17.8% outpaced sales, signaling improved efficiency and mix. Ordinary income (+16.7%) tracked OI closely, with minimal drag from non-operating items (net +0.76). Net income growth (+192.7%) reflects margin gains and an easy prior-year comparison at the bottom line. EBITDA of 98.13 provides headroom for reinvestment; capex was modest at 5.55, indicating a capital-light period. Outlook: near-term growth should remain supported by script volume recovery, store network optimization, and cost control. Key swing factors are reimbursement/drug price revisions, wage costs, and timing of new store openings/closures. With ROIC at 6.2% (< target 7–8%), further growth should emphasize returns—disciplined M&A, store productivity, and procurement synergies—to lift ROIC above the cost of capital. Non-operating contributions were small this quarter, implying limited reliance on one-offs for growth quality.

Financial Health

Liquidity: Current ratio 0.75 and quick ratio 0.68 are below healthy thresholds—explicit warning for current ratio <1.0. Working capital is negative at -193.1, indicating reliance on short-term liabilities to fund operations. Maturity mismatch: current liabilities 761.0 exceed current assets 567.9; short-term loans are 144.0 versus cash 183.0 and receivables 261.8—near-term refinancing and collection discipline are important. Solvency: D/E 1.71x—moderate and above our conservative 1.5x benchmark, but below the 2.0x red-flag threshold. Debt/EBITDA is 3.03x, acceptable. Interest coverage is strong at 40.6x, suggesting manageable interest burden despite leverage. Balance sheet quality: high intangibles (goodwill 372.9, intangible assets 671.6) elevate impairment risk and reduce tangible buffer. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income is 1.74x (>1.0), indicating robust cash conversion and no immediate red flags. With capex at 5.55, implied FCF (analytical: OCF − capex) is approximately 56.3, ample relative to current shareholder returns (buybacks 2.32; dividends not disclosed). Financing cash outflow of -136.83 likely reflects debt repayments and shareholder distributions; this exceeds implied FCF, indicating balance sheet cash/debt movements rather than operating shortfall. Working capital: given high receivables (261.8) and payables (344.2), monitoring DSO/DPO is key; we do not see evidence of aggressive working capital pulls this quarter based on OCF strength. No signs of OCF/NI <0.8; thus, no quality warning.

Dividend Sustainability

Payout ratio (calculated) is 37.3%, comfortably below the 60% cautionary threshold. With OCF/NI at 1.74x and implied FCF of ~56.3, dividends appear well covered by cash generation in this period. Share repurchases were modest at 2.32 and also covered by implied FCF. The key constraint is liquidity (current ratio 0.75) rather than cash generation; sustained dividends should be fine if working capital is managed and short-term debt is rolled or termed out. Policy outlook: absent explicit guidance, a stable-to-modestly increasing dividend trajectory seems supported by cash metrics, contingent on maintaining ROIC improvements and avoiding impairment shocks.

Risk Assessment

Business Risks:

• Regulatory/reimbursement risk: potential reductions or structural changes in dispensing fees and drug price revisions.
• Labor cost inflation and pharmacist/staffing shortages pressuring SG&A and store productivity.
• Execution risk from M&A/store integration given sizable goodwill and intangibles.
• Competition in pharmacy/dispensing services affecting pricing and script volumes.
• Supply chain and procurement pressure impacting gross margin (e.g., drug shortages or price volatility).

Financial Risks:

• Liquidity risk: current ratio 0.75 and negative working capital (-193.1) create refinancing and rollover dependence.
• Leverage risk: D/E 1.71x and short-term loans 144.0 increase sensitivity to credit conditions.
• Impairment risk: large goodwill (372.9) and intangibles (671.6) could lead to non-cash charges if performance weakens.
• Interest rate risk: rising rates could increase borrowing costs, though current interest coverage is strong.
• Dividend and buyback flexibility risk if FCF declines or refinancing becomes costly.

Key Concerns:

• Sustaining margin gains amid regulatory fee revisions and wage pressures.
• Refinancing and working capital discipline given short-term liability concentration.
• Maintaining ROIC above cost of capital; current ROIC at 6.2% trails 7–8% target.
• Avoiding impairment events that could hit equity and covenant headroom.

Investment Implications

Key Takeaways:

• Operational momentum: revenue +14.0% YoY and operating income +17.8% with ~16 bps operating margin expansion.
• High cash conversion: OCF/NI 1.74x and implied FCF ~56.3 support internal funding.
• Balance sheet quality risk: high intangibles and negative working capital despite strong interest coverage.
• Returns improving but sub-target: ROE 6.3%, ROIC 6.2% below 7–8% benchmark.
• Liquidity is the primary near-term constraint; leverage acceptable but needs careful management.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio for further operating leverage.
• ROIC progression toward ≥7–8%.
• Current ratio and short-term debt rollover/terming-out activities.
• DSO/DPO and inventory turns to monitor working capital efficiency.
• Goodwill/intangible impairment indicators and store-level profitability.
• Effective tax rate trajectory and any non-operating/extraordinary items.

Relative Positioning: Within Japan’s pharmacy/healthcare retail peers, the company shows above-peer cash conversion this quarter and acceptable leverage with strong interest coverage, but sits below best-in-class on ROIC and carries higher liquidity risk due to negative working capital and sizable short-term borrowings.

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
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