Restar Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥278.09B
• Operating Income: ¥4.91B
• Net Income: ¥2.08B
• EPS: ¥59.63

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

FY2026 Q2 was mixed: topline grew modestly but profitability compressed materially, resulting in a sharp YoY decline in earnings despite strong operating cash flow. Revenue rose 1.8% YoY to 2,780.9, while operating income fell 28.1% YoY to 49.1 and ordinary income declined 32.8% to 31.1. Net income dropped 61.8% YoY to 16.8, pulling the net margin down to 0.6%. We estimate the operating margin at 1.77%, down about 73 bps from roughly 2.50% a year ago, reflecting weaker operating leverage amid higher expense burden and/or softer gross spread. Ordinary income margin compressed to 1.12% from about 1.69% (down ~57 bps), with higher non-operating costs (notably interest expense of 14.1) weighing on below-OP lines. Gross profit reached 230.9, implying a gross margin of 8.3%, which appears thin for the segment and leaves little room for SG&A absorption (SG&A at 181.8, or 6.5% of sales). EBITDA was 66.0 (margin 2.4%), highlighting constrained cash earnings relative to sales scale. Earnings quality, however, looked solid this quarter: operating cash flow was 98.1, 5.86x net income, indicating robust cash conversion and likely working capital release. Liquidity remains adequate (current ratio 163.5%, quick ratio 124.2%), but leverage is elevated (D/E 2.11x) and interest coverage of 3.47x is middling, leaving the company more exposed to rate and credit conditions. ROE was low at 1.6% (net margin 0.6%, asset turnover 0.883x, leverage 3.11x), with margin deterioration the main driver of the YoY earnings decline. ROIC at 2.3% is below the 5% warning threshold, signaling that current returns are not covering the cost of capital. Non-operating expenses rose relative to non-operating income (23.8 vs 5.8), pressuring ordinary profit; interest expense (14.1) alone consumed about 21% of operating income. Despite OCF strength, estimated free cash flow after capex was only in the 70 range, limiting balance sheet deleveraging headroom given debt levels. The reported payout ratio of 215% appears inconsistent with current earnings power and would not be sustainable without relying on cash reserves or incremental leverage. Looking forward, recovery hinges on stabilizing gross spreads, tighter SG&A control, and lowering interest burden; absent these, earnings may remain subdued even if sales remain stable.

Profitability Analysis

ROE decomposition: ROE (1.6%) = Net Profit Margin (0.6%) × Asset Turnover (0.883x) × Financial Leverage (3.11x). The sharp YoY drop in net income versus modest revenue growth indicates the net profit margin component deteriorated the most. Business drivers likely include squeezed gross spreads in distribution/solutions, limited SG&A flexibility (SG&A at 6.5% of sales with sales up only 1.8%), and higher non-operating drag (interest expense 14.1; total non-op expenses 23.8 > non-op income 5.8). This pressure looks partly cyclical (end-demand softness, mix shifts in semiconductors/electronics) and partly financial (higher funding costs), making a full reversal unlikely without margin actions or deleveraging. Asset turnover at 0.883x reflects a working-capital-heavy model (AR 1,161 and inventories 591); without structural efficiency gains, AT is unlikely to be the near-term lever for ROE improvement. Financial leverage at 3.11x is elevated and amplifies small margin moves into large ROE swings; with interest coverage at 3.47x, incremental leverage is not a viable pathway to lift ROE. Concerning trend: operating income (-28.1% YoY) deteriorated despite revenue growth (+1.8%), implying negative operating leverage and/or SG&A growth outpacing gross profit growth.

Growth Assessment

Topline growth was modest (+1.8% YoY), suggesting stable demand or mix shifts rather than strong market expansion. Profit growth was negative across all levels (OP -28.1%, ordinary -32.8%, net -61.8%), reflecting margin compression and higher non-operating costs. Operating margin compressed to ~1.77% from ~2.50% (~73 bps), signaling weaker pricing or mix alongside limited SG&A flexibility. Non-operating drag intensified (interest expense 14.1; total non-op expenses 23.8), curbing ordinary profit to 31.1 despite positive non-op income of 5.8. EBITDA margin of 2.4% underscores thin cash earnings; any gross margin volatility can materially swing profits. Sustained revenue growth will need to be accompanied by tighter cost discipline and lower financing costs to translate into profit growth. Near-term outlook hinges on semiconductor/electronics cycle normalization, inventory management, and pass-through pricing to defend gross spreads.

Financial Health

Liquidity is sound: current ratio 163.5% and quick ratio 124.2% exceed healthy thresholds. No warning on current ratio (<1.0) and no acute maturity mismatch is evident, as current assets (2,457.4) comfortably exceed current liabilities (1,503.1), with cash (442.8) plus receivables (1,161.3) providing meaningful coverage of short-term loans (484.8) and accounts payable (819.1). Solvency is tighter: debt-to-equity is 2.11x (warning >2.0), and interest coverage at 3.47x is below the strong benchmark (>5x), indicating sensitivity to interest rates and earnings volatility. Long-term loans of 389.5 and noncurrent liabilities of 633.0 imply sustained leverage; deleveraging capacity depends on maintaining positive FCF. No off-balance sheet obligations were disclosed in the provided data. Equity stands at 1,013.0 (owners’ equity 866.1), but low ROE (1.6%) suggests limited capital efficiency at current earnings levels.

Cash Flow Quality

OCF was 98.1 versus net income of 16.8, yielding OCF/NI of 5.86x, a positive signal of cash earnings and likely working capital release. Using capex of 26.6 as a proxy for investing outflows, estimated FCF was roughly 71–72, sufficient to support modest deleveraging or dividends; however, full investing CF is unreported, so true FCF may differ. Cash conversion appears solid this quarter, but sustainability depends on maintaining disciplined inventory and receivables management; the working-capital-heavy model makes OCF volatile across cycles. No clear signs of aggressive working capital management are observable from a single period, but the scale of AR and inventories warrants monitoring for reversals in subsequent quarters. Financing CF was -87.8, suggesting net debt repayment and/or dividends, but dividend payments were unreported.

Dividend Sustainability

The reported payout ratio of 215.3% is inconsistent with current earnings capacity and would be unsustainable on a pure NI basis. While OCF covered capex with room to spare this quarter (implied FCF ~71–72), sustainability of distributions depends on the stability of OCF and visibility on investing cash flows and dividend amounts, both unreported. With leverage elevated (D/E 2.11x) and interest coverage modest (3.47x), prioritizing balance sheet resilience may constrain payout flexibility if earnings remain soft. Absent explicit DPS guidance and total dividends paid, we treat the payout ratio as indicative risk rather than a confirmed policy change.

Risk Assessment

Business Risks:

• Margin compression risk due to thin gross margin (8.3%) and limited operating leverage
• Demand cyclicality in semiconductors/electronics distribution affecting volumes and pricing
• Mix risk as higher-volume, lower-margin products pressure overall profitability
• Execution risk on SG&A control given revenue growth of only 1.8% YoY

Financial Risks:

• High leverage (D/E 2.11x) and moderate interest coverage (3.47x) amid rising funding costs
• Working capital intensity (AR 1,161 and inventories 591) increasing cash flow volatility
• Non-operating expense burden (23.8) outpacing non-operating income (5.8)

Key Concerns:

• ROIC at 2.3% below 5% warning threshold indicates sub-cost-of-capital returns
• Net margin fell to 0.6%, down ~100 bps YoY by our estimate
• Ordinary income sensitivity to interest expense (14.1 equals ~45% of ordinary income)

Investment Implications

Key Takeaways:

• Revenue resilience (+1.8% YoY) but significant operating margin compression (~73 bps) drove profit declines
• Earnings quality was strong this quarter (OCF/NI 5.86x), supporting near-term liquidity
• Leverage is elevated (D/E 2.11x), constraining flexibility; interest burden pressured ordinary profit
• ROE (1.6%) and ROIC (2.3%) are weak, implying low capital efficiency at current margins
• Estimated FCF (~71–72 after capex) provides limited buffer for deleveraging and dividends

Metrics to Watch:

• Gross margin and operating margin trajectory (target stabilization >2%)
• Interest coverage trend and effective funding costs
• Working capital turns (DSO/DIO/DPO) and OCF sustainability
• Capex and any M&A cash outflows affecting true FCF
• Debt levels (short-term vs long-term) and refinancing profile

Relative Positioning: Within Japan’s electronics distribution/solutions peers, the company exhibits average topline resilience but weaker profitability and capital efficiency, coupled with higher-than-comfortable leverage; near-term standing hinges on restoring margins and easing financing costs.

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