TOKAI Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥114.46B
• Operating Income: ¥6.25B
• Net Income: ¥3.69B
• EPS: ¥27.64

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: Solid Q2 performance with double-digit profit growth and visible margin expansion, albeit with weak short-term liquidity and sub-target ROIC. Revenue rose 3.0% YoY to 1,144.6, while operating income grew 34.1% YoY to 62.5, driving operating leverage. Net income increased 51.1% YoY to 36.1, reflecting stronger core performance and a small net contribution from non-operating items. Operating margin improved to 5.46%; based on back-calculated prior-year figures, we estimate operating margin expanded by roughly 127 bps YoY. Net margin is 3.16%, and we estimate it expanded by about 101 bps YoY given the revenue and net income growth rates. Gross margin printed at 38.9%, indicating stable to improving pricing/ mix versus cost trends, though full YoY comparison is constrained by limited disclosures. Ordinary income margin stands at 5.66%, up an estimated 126 bps YoY. Earnings quality is strong this quarter: operating cash flow of 96.8 is 2.68x net income, indicating robust cash conversion. Interest coverage is ample at 25.9x, providing cushion against rate or earnings volatility. That said, the current ratio is 0.89 and quick ratio 0.80, highlighting near-term liquidity pressure and a working capital deficit of 59.9. Leverage is moderate with D/E at 1.12x and Debt/EBITDA at 3.42x, within comfortable ranges for diversified utilities/consumer services. ROE is 3.7% per DuPont (margin 3.1%, asset turnover 0.55x, leverage 2.12x), which is modest relative to domestic benchmarks. ROIC of 2.8% is below the 5% warning threshold, suggesting returns remain below the likely cost of capital and improvement is needed. The reported payout ratio of 131.5% flags potential pressure on dividend sustainability unless cash flows remain strong and capex needs are manageable; however, dividend cash flow disclosures are missing. Looking forward, continued SG&A discipline and pricing actions will be key to sustaining the improved margins amidst input price and rate volatility. Overall, the quarter demonstrates operational improvement and strong cash generation, but liquidity and capital efficiency remain the principal constraints.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.7% = Net Profit Margin 3.1% × Asset Turnover 0.55× × Financial Leverage 2.12×. The most significant driver of YoY improvement is the net profit margin, given revenue growth of 3.0% versus net income growth of 51.1%, implying substantial margin uplift. Business rationale: stronger operating leverage as operating income outpaced revenue (+34.1% vs +3.0%), aided by cost control and relatively stable non-operating items (net +2.26) with a normalized tax rate of 36.3%. Asset turnover appears broadly stable given limited data on average assets; the revenue increase likely outpaced any substantial asset base expansion within the half-year. Leverage (2.12x) is not the primary swing factor and remains moderate. Sustainability: the operating margin expansion (estimated +127 bps YoY to 5.46%) could be partly sustainable if cost discipline and mix improvements persist; however, sensitivity to energy and logistics costs remains. Watch for any outsized SG&A growth in H2; we note a potential risk if SG&A growth were to reaccelerate faster than revenue, given the relatively thin margin base.

Growth Assessment

Top-line growth of 3.0% YoY to 1,144.6 indicates steady demand across core businesses. Profit growth is outsized versus revenue (OP +34.1%, NI +51.1%), implying positive operating leverage and likely improved pricing or mix. Gross margin of 38.9% and operating margin of 5.46% support the quality of growth this quarter, though lack of YoY gross profit detail limits granular attribution. Non-operating contributions are modest, with dividend income of 2.36 and interest expense of 2.41 resulting in limited distortion to recurring earnings. EBITDA of 144.5 (12.6% margin) provides ballast for future investments, though ROIC at 2.8% signals that incremental growth must be more capital efficient. Outlook hinges on maintaining cost control and pricing discipline into H2, alongside managing working capital to alleviate liquidity pressure. Near-term catalysts would be confirmation of stable margins despite input price fluctuations and any updates on capex intensity. Overall, revenue growth appears sustainable near term; margin sustainability will depend on cost inflation trends and competitive dynamics.

Financial Health

Liquidity is tight: current ratio 0.89 and quick ratio 0.80 fall below healthy thresholds; explicit warning warranted. Working capital is negative at -59.9, and current liabilities (551.2) exceed current assets (491.3), indicating reliance on short-term funding. Short-term loans are 169.2 against cash of 41.3, offset partly by receivables of 273.3 and inventories of 51.2; there is a maturity mismatch risk if collections slow. Solvency is acceptable: D/E 1.12x and Debt/EBITDA 3.42x are within prudent ranges; interest coverage is strong at 25.9x. Long-term loans total 324.4, providing some tenor balance, but refinancing and rate risks should be monitored. No off-balance sheet obligations were disclosed in the provided data. Total assets are 2,082.7 and equity 984.6, implying financial leverage of 2.12x consistent with DuPont inputs. Overall: liquidity is the main weakness; balance sheet leverage is moderate.

Cash Flow Quality

OCF/Net Income at 2.68x indicates high-quality earnings and robust cash conversion. Operating CF of 96.8 comfortably exceeds net income of 36.1, suggesting favorable working capital movements and/or solid non-cash charges (D&A 82.0). Free cash flow cannot be determined due to missing investing CF and capex disclosures; dividend and debt service coverage cannot be fully assessed. No direct signs of working capital manipulation can be concluded from the data provided; however, the negative working capital position underscores the need for disciplined receivables and inventory management. Financing CF of -20.9 includes share repurchases of -2.0; dividend cash flows are unreported, limiting visibility on shareholder returns funded by cash versus debt.

Dividend Sustainability

The calculated payout ratio of 131.5% is above the <60% benchmark and, if accurate on a comparable basis, would be unsustainable without strong and consistent FCF. However, dividend per share and total dividends paid are unreported, and investing CF/capex is missing, so true FCF coverage cannot be assessed. OCF strength this quarter is supportive, but liquidity constraints (current ratio 0.89) and low ROIC (2.8%) argue for caution on aggressive payouts. Policy outlook likely depends on H2 cash generation and capex cadence; maintaining dividends may be feasible if OCF remains strong and capex is moderate, but scope for increases appears limited without improved capital efficiency. Monitor official guidance, payout policy, and any mid-term plan targets for shareholder returns.

Risk Assessment

Business Risks:

• Margin sensitivity to energy and input cost inflation given relatively thin operating margin (5.46%).
• Competitive pressure in utility/telecom/CATV segments that could compress pricing and ARPU.
• Execution risk on cost control and SG&A discipline needed to sustain recent operating leverage.
• Customer credit risk affecting collections given reliance on receivables (273.3) amid tight liquidity.

Financial Risks:

• Low liquidity: current ratio 0.89 and quick ratio 0.80 with working capital deficit of 59.9.
• Refinancing and interest rate risk with short-term loans of 169.2 and total loans of ~493.6.
• ROIC at 2.8% below cost of capital, risking value dilution if capex/investments do not earn higher returns.
• Potential dividend strain if payout ratio (131.5%) reflects actual cash distributions without FCF support.

Key Concerns:

• Sustaining margin gains into H2 amid cost volatility.
• Managing the maturity gap between short-term obligations and liquid assets.
• Visibility on capex and investing CF is limited, obscuring FCF durability.
• Any slowdown in OCF could quickly pressure liquidity and dividends.

Investment Implications

Key Takeaways:

• Strong Q2 profit growth with estimated 127 bps operating margin expansion and 101 bps net margin expansion.
• High-quality earnings as OCF/NI = 2.68x; interest coverage a robust 25.9x.
• Liquidity is the weak link: current ratio 0.89, quick ratio 0.80, negative working capital.
• Capital efficiency remains subpar with ROIC at 2.8%, below warning threshold.
• Dividend sustainability unclear given a calculated payout ratio of 131.5% and missing FCF data.

Metrics to Watch:

• H2 operating margin and SG&A trend versus revenue growth.
• Working capital turns (DSO/DIO) and net working capital trajectory.
• Capex and investing cash flows to assess FCF and dividend coverage.
• Debt maturity profile and average interest rate amid potential rate volatility.
• ROIC progression versus internal targets and segment returns.

Relative Positioning: Versus domestic multi-utility/consumer service peers, TOKAI shows stronger cash conversion and adequate leverage but weaker near-term liquidity and below-peer capital efficiency; sustained margin discipline and improved ROIC are needed to close the gap.

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