kaihan co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.61B
• Operating Income: ¥-570M
• Net Income: ¥-4.02B
• EPS: ¥-72.28

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: FY2026 Q2 was weak, marked by severe losses and strained liquidity despite 22% YoY revenue growth. Revenue reached 16.15, up 22.0% YoY, but operating income was -5.70 and ordinary income -6.26, culminating in a net loss of -40.14. Gross profit was 12.02 with a high gross margin of 74.4%, but SG&A of 17.72 overwhelmed gross profit, driving an operating margin of approximately -35.3%. Non-operating items netted to a loss of -0.56 (0.17 income vs 0.73 expenses), with interest expense of 0.71 pressuring ordinary earnings. Profit before tax was -39.72 and the effective tax rate appears distorted (-1.1%) due to losses. EPS was -72.28 JPY, and book value per share sits at a low 17.08 JPY, reflecting thin equity (total equity 9.70) against a high asset base (48.35). Operating cash flow was -1.63, substantially better than the net loss but still negative; estimated FCF, using disclosed CapEx, was approximately -9.53 (OCF -1.63 + CapEx -7.90). Liquidity is tight: current assets 13.38 vs current liabilities 28.67 (current ratio 0.47; quick ratio 0.45), with short-term loans of 10.44 and cash of only 3.81. Leverage is elevated with D/E 3.98x and total loans of 19.70 (short 10.44, long 9.26), producing an interest coverage ratio of about -8x and a ROIC of -22.3%. The DuPont-calculated ROE is -413.8%, driven by a deeply negative net margin (-248.5%), low asset turnover (0.334x), and high financial leverage (4.98x). Margins have clearly compressed at the operating and net levels versus a typical breakeven target, but precise bps changes versus the prior year cannot be computed due to missing comparative margin data. Earnings quality is weak with OCF/NI of 0.04x, although the smaller OCF loss than net loss suggests significant non-cash charges (e.g., impairments or special losses) below operating income. Forward-looking, the company must urgently right-size SG&A, improve store-level productivity, and secure liquidity via refinancing or equity to stabilize operations; otherwise, dilution and/or restructuring risk rises. The negative retained earnings of -66.01 and small equity base constrain financial flexibility and dividend capacity. Goodwill of 2.51 and intangible assets of 3.23 introduce further impairment risk if turnaround plans stall. Overall, the quarter highlights acute profitability and balance sheet pressures that overshadow top-line growth.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-248.5%) × 0.334 × 4.98 ≈ -413.8%. The most significant driver of the negative ROE is the deeply negative net profit margin, which swamps the effects of asset turnover and leverage. The business driver is an SG&A base (17.72) that exceeds gross profit (12.02) by 5.70, yielding an operating loss, with further pressure from interest expense (0.71) that widens ordinary losses. Asset turnover at 0.334x is low, indicating underutilized assets relative to sales, likely reflecting underperforming stores or excess fixed/intangible assets. Leverage at 4.98x amplifies equity returns negatively, as losses are magnified. Sustainability: the current margin profile is not sustainable; improvements would require meaningful SG&A reduction, price/mix improvement, and/or traffic recovery. Interest expense will continue to weigh on profits without deleveraging. Concerning trends include operating cost growth outpacing revenue growth (SG&A > gross profit), and negative operating leverage (revenue +22% YoY but still a larger operating loss).

Growth Assessment

Revenue grew 22.0% YoY to 16.15, signaling improved demand or store additions. However, growth quality is poor as operating margin is approximately -35.3% and net margin -248.5%, indicating revenue is not translating to earnings. Gross margin of 74.4% is strong on paper, but the cost structure (SG&A 17.72) is misaligned with scale, pointing to an urgent need for cost control and mix optimization. The gap between operating loss (-5.70) and net loss (-40.14) suggests large non-operating or extraordinary losses this period, which may not recur, but they highlight balance sheet and financing fragility. Without clear evidence of recurring profitability, revenue growth sustainability is questionable; store productivity and cost discipline are prerequisites. Outlook hinges on: (1) SG&A reduction and rent/labor renegotiations; (2) refinancing and deleveraging to lower interest burden; (3) avoidance of further impairments; and (4) stabilization of same-store sales.

Financial Health

Liquidity is weak: current ratio 0.47 and quick ratio 0.45 (explicit warning), with current liabilities 28.67 versus current assets 13.38. There is a material maturity mismatch: short-term loans of 10.44 and accounts payable 2.93 exceed cash (3.81) and receivables (1.80), creating refinancing risk. Working capital is negative at -15.29, constraining day-to-day operations. Solvency is pressured: D/E is 3.98x (explicit warning), with total liabilities 38.65 against equity 9.70. Interest-bearing debt totals 19.70 (short 10.44, long 9.26), while interest coverage is -7.98x, indicating inability to service interest from operating earnings. Intangibles (goodwill 2.51, other intangibles 3.23) increase asset quality risk if performance deteriorates. No off-balance sheet obligations were reported, but absence of disclosure may understate lease or guarantee exposures typical in F&B operations.

Cash Flow Quality

OCF was -1.63 versus net income -40.14, yielding OCF/NI of 0.04x, which flags weak earnings quality. The divergence indicates significant non-cash charges or extraordinary losses below operating income contributing to net loss. Estimated FCF was approximately -9.53, calculated as OCF (-1.63) plus disclosed CapEx (-7.90); full investing cash flows were not disclosed, so this is a conservative estimate. With negative FCF and limited cash (3.81), the company relied on financing cash inflows of 14.01 to fund operations and investments, increasing leverage and refinancing dependence. Working capital dynamics are not fully disclosed, but negative OCF alongside a sharp net loss reduces confidence; no clear signs of positive working capital release are evident. Sustainability is weak without operational turnaround and capex discipline.

Dividend Sustainability

Dividend data were unreported, and retained earnings are deeply negative at -66.01, implying no capacity to pay dividends under a conservative policy. With net loss (-40.14), negative OCF (-1.63), and estimated negative FCF (~-9.53), any dividend would be economically unsustainable. D/E of 3.98x and interest coverage of -7.98x necessitate cash preservation and deleveraging rather than distributions. Policy outlook: suspension or maintenance of zero dividend appears most consistent with balance sheet repair until profitability and FCF turn positive.

Risk Assessment

Business Risks:

• Turnaround execution risk as SG&A exceeds gross profit, requiring rapid cost restructuring
• Traffic and sales volatility risk in the food & beverage sector affecting same-store sales
• Input cost inflation (food, utilities) and wage pressure compressing margins
• Potential store closure and impairment risk given weak profitability
• Goodwill (2.51) and intangibles (3.23) impairment risk if results do not recover

Financial Risks:

• Liquidity risk with current ratio 0.47 and negative working capital (-15.29)
• Refinancing risk due to short-term loans of 10.44 versus cash of 3.81
• High leverage (D/E 3.98x) and negative interest coverage (-7.98x)
• Potential covenant breach and going-concern uncertainty if losses persist
• Dilution risk from potential equity issuance given small equity base (9.70) and large losses

Key Concerns:

• Extraordinary or non-operating losses driving net loss to -40.14 despite operating loss of -5.70
• OCF/NI of 0.04x indicating weak earnings quality
• ROIC of -22.3% signaling value destruction
• Dependence on financing cash inflows (14.01) to sustain operations
• Limited disclosure on SG&A breakdown and investing cash flows, reducing transparency

Investment Implications

Key Takeaways:

• Top-line grew 22% YoY to 16.15, but profitability collapsed with operating margin ~-35% and net margin -249%
• Cost structure is misaligned: SG&A (17.72) exceeds gross profit (12.02) by 5.70
• Liquidity is tight (current ratio 0.47; cash 3.81 vs short-term loans 10.44), elevating refinancing risk
• Leverage is high (D/E 3.98x), with interest burden (0.71) widening losses
• Estimated FCF ~-9.53, implying reliance on external financing (financing CF 14.01)
• ROE -413.8% driven by negative margins, low asset turnover (0.334x), and high leverage (4.98x)
• Balance sheet quality risk from goodwill/intangibles totaling 5.74

Metrics to Watch:

• Operating margin improvement and SG&A run-rate trend
• OCF trajectory and FCF after maintenance CapEx
• Liquidity headroom: cash balance, undrawn facilities, and short-term debt rollovers
• Interest expense and debt mix shift (short vs long term)
• Impairment charges and extraordinary loss items
• Same-store sales and average ticket/traffic metrics

Relative Positioning: Versus small-cap domestic F&B peers, the company exhibits weaker liquidity, higher leverage, and larger net losses despite revenue growth, placing it in a more challenged position requiring urgent restructuring and financing actions.

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
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