ktk INC. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥4.71B
• Operating Income: ¥105M
• Net Income: ¥83M
• EPS: ¥15.26

Income Statement

Balance Sheet

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: Solid top-line growth with improved profitability, but overall returns remain low and refinancing concentration in short-term debt elevates financial risk. Revenue grew 8.5% YoY to 47.15, driving operating income up 62.5% to 1.05 and net income up 47.6% to 0.83. Gross profit reached 11.79 with a gross margin of 25.0%. Operating margin expanded by approximately 76 bps YoY to 2.2%, aided by operating leverage despite SG&A at 10.74. Net margin improved by roughly 47 bps YoY to 1.8% as non-operating income of 0.34 (notably 0.12 in dividend income) offset 0.03 of interest expense. Ordinary income rose 44.0% YoY to 1.35, with an ordinary margin of 2.9%. The DuPont 3-factor ROE stands at 1.8% (Net Margin 1.8% × Asset Turnover 0.476 × Financial Leverage 2.16x), which is below industry benchmarks and indicates capital is under-earning. DuPont extended shows a low tax burden (0.602) and an interest burden above 1.0 driven by positive non-operating income, highlighting reliance on non-core gains. Liquidity is adequate (current ratio 140%) with strong cash (28.91) relative to short-term loans (12.48), but debt is heavily short-term (98% of total), implying notable refinancing risk. Balance sheet strength is reasonable (equity estimated at ~46% of assets), and interest coverage is high at 37.6x, reducing near-term solvency concerns. Dividend policy implies a payout ratio of about 117%, which likely exceeds internally generated cash in a typical quarter and may not be sustainable without stronger OCF (unreported). Earnings quality cannot be fully assessed due to missing cash flow data; OCF/NI and accrual metrics are not available. The quarter’s improvements are encouraging but occur off a low base, and structural profitability (EBIT margin 2.2%, ROIC 2.1%) remains weak. Forward-looking, sustaining margin gains will require tighter SG&A control and mix improvements; managing short-term debt exposure and aligning dividends with FCF are key to de-risking. Overall, the company is moving in the right direction on growth and operating leverage, but low capital efficiency and elevated refinancing concentration temper the outlook.

Profitability Analysis

ROE decomposition (DuPont 3-factor): ROE 1.8% = Net Profit Margin (1.8%) × Asset Turnover (0.476x) × Financial Leverage (2.16x). The most notable driver of YoY improvement is Net Profit Margin, which rose roughly 47 bps (from ~1.3% to ~1.8%), underpinned by operating margin expansion (~76 bps to 2.2%) and positive non-operating income. Asset turnover at 0.476x reflects modest utilization of a relatively asset-light balance sheet; no prior-period asset base is available to gauge change, but revenue growth outpaced any observable asset expansion. Financial leverage at 2.16x is moderate; the firm is not over-levered, but leverage is not high enough to offset low margins. Business reasons for margin expansion include revenue growth in the core business and better operating leverage (SG&A grew slower than gross profit), alongside non-operating tailwinds (dividend income). Sustainability: operating margin gains could be partially sustainable if cost discipline continues; however, reliance on non-operating income is less durable. Concerning trends: absolute EBIT margin remains low at 2.2% (below the 5% concern threshold), and the effective tax burden is heavy (tax burden factor 0.602), which caps after-tax profitability.

Growth Assessment

Top-line growth of 8.5% YoY indicates healthy demand or improved sales execution. Operating income growth of 62.5% and net income growth of 47.6% reflect operating leverage and helpful non-operating items. Gross margin is 25.0%; prior-period gross margin is not disclosed, limiting deeper mix analysis. Ordinary income grew 44.0% YoY, suggesting broad-based improvement beyond core operations. With EBIT margin at 2.2%, profitability remains thin; further scale or mix shifts are needed for sustainable earnings growth. Outlook hinges on sustaining revenue momentum and improving cost efficiency; room remains to optimize SG&A and reduce tax drag.

Financial Health

Liquidity: Current ratio 140.3% (adequate but slightly below the 150% benchmark); Quick ratio 127.1% indicates healthy near-cash coverage. Working capital is 19.36. Solvency and capital structure: Estimated equity ratio ~46% (45.75/98.97), indicating a reasonably strong balance sheet. Reported D/E is 1.16x (below the 2.0x warning threshold); interest-bearing debt to equity is modest (~0.28x by calculation). Interest coverage is strong at 37.63x. Maturity profile: Short-term debt ratio is 98.3%, indicating concentration of funding in the short end; however, cash/short-term debt is 2.32x, mitigating near-term rollover risk. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

Operating cash flow data is unreported, preventing OCF/NI assessment and accruals analysis. Given thin EBIT margins and a working-capital-intensive model (AR 30.28, AP 16.75, inventories 6.33), quarterly OCF can be volatile; inability to verify OCF/NI >1.0 is a monitoring gap. Free cash flow is unreported, so we cannot confirm coverage of dividends and any capex needs. No clear signs of working capital manipulation can be inferred from the limited balance sheet snapshot; however, attention should be paid to AR trends versus revenue to ensure timely collections.

Dividend Sustainability

Declared Q2 and year-end DPS of 8.5 each (total 17.0) imply a payout ratio of ~117.3% on FY2026 Q1 run-rate earnings, which exceeds the <60% sustainable benchmark. With FCF unreported, coverage cannot be verified; given low EBIT margins and likely working capital needs, outsized payouts could pressure cash if OCF underperforms. Cash on hand (28.91) and low net debt provide near-term flexibility, but medium-term sustainability requires either higher earnings/OCF or recalibration of payout policy.

Risk Assessment

Business Risks:

• Structural low-margin profile (EBIT margin 2.2%) leaves limited buffer against demand or cost shocks.
• Dependence on non-operating income (dividends) to augment earnings may be volatile.
• Potential pricing pressure and mix shifts in core office-related supplies/services could compress gross margins.
• Execution risk in cost control; SG&A must remain contained to sustain margin gains.

Financial Risks:

• Refinancing concentration: 98% of debt is short-term, exposing the company to rollover and interest rate risk.
• Dividend payout above earnings (~117%) may strain cash if OCF is weak.
• Working capital intensity (high AR) could tie up cash and pressure OCF if collections slow.

Key Concerns:

• Low ROIC at 2.1% indicates sub-par capital efficiency versus 5–8% benchmarks.
• High effective tax burden (tax burden factor 0.602; ETR ~39.6%) limits net profitability.
• Data gaps on cash flows and capex reduce visibility on earnings quality and FCF sustainability.

Investment Implications

Key Takeaways:

• Revenue growth of 8.5% translated into outsized operating profit growth (+62.5%), evidencing operating leverage.
• Profitability remains thin (EBIT margin 2.2%; net margin 1.8%), keeping ROE at a low 1.8%.
• Non-operating income provided a meaningful boost; core margin uplift must continue to reduce reliance on non-core items.
• Liquidity is adequate and cash coverage of short-term loans is strong, but heavy short-term debt mix heightens refinancing risk.
• Dividend payout (~117%) appears aggressive relative to earnings and unknown FCF.

Metrics to Watch:

• OCF/Net income ratio (target >1.0) once disclosed.
• EBIT margin progression toward >5%.
• AR days and inventory turns to gauge working capital discipline.
• Short-term debt reliance and average borrowing costs.
• ROIC trend toward >5% near-term, >7–8% medium-term.
• Tax rate management and effective tax burden.

Relative Positioning: Within small-cap Japanese B2B distributors/services, the company shows improving growth and leverage on costs but lags peers on structural profitability and capital efficiency; balance sheet is comparatively sound, though debt maturity concentration is a relative weakness.

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