TOKAI Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥114.46B
• Operating Income: ¥6.25B
• Net Income: ¥2.45B
• 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

TOKAI Holdings (3167) reported FY2026 Q2 consolidated results under JGAAP showing steady top-line growth and meaningful earnings leverage. Revenue rose 3.0% year over year to ¥114.5bn, supported by a 37.2% gross margin and improved operating efficiency. Operating income increased 34.1% YoY to ¥6.25bn, lifting the operating margin to approximately 5.5%, indicating stronger cost control and/or improved mix. Ordinary income reached ¥6.48bn, and net income grew 51.1% YoY to ¥3.61bn, translating to a net margin of 3.15%. DuPont decomposition yields a ROE of 3.67% based on a 3.15% net margin, 0.55x asset turnover, and 2.12x financial leverage. EBITDA was ¥14.35bn, implying a 12.5% margin and a robust interest coverage of 32.7x on ¥191m of interest expense. Operating cash flow was ¥9.78bn, resulting in a strong OCF-to-net-income ratio of 2.71x, suggesting high earnings quality and favorable cash conversion in the period. Liquidity metrics are tighter, with a current ratio of 0.89x and negative working capital of ¥6.63bn, while solvency remains reasonable with total liabilities of ¥115.3bn against equity of ¥98.5bn (debt-to-equity 1.17x). The effective tax rate calculated from disclosed figures is approximately 28–29% (¥1.85bn tax on roughly ¥6.48bn pre-tax), despite the tabulation showing 0.0%, which appears to reflect an undisclosed metric rather than the actual rate. Investing cash flow and cash balance were not disclosed (shown as zero placeholders), limiting assessment of capex intensity and free cash flow. Dividend per share and payout ratio are also shown as zero, which should be treated as undisclosed rather than no dividend; EPS of ¥27.64 confirms profitability and implies capacity for shareholder returns, subject to capex and policy. Overall, the quarter demonstrates resilient profitability, notably improved operating leverage, and strong cash generation, offset by tighter short-term liquidity and incomplete disclosure of investing and dividend data. The business profile (multi-utility and service mix) typically requires ongoing capex, making the absence of investing cash flow data a key limitation for free cash flow assessment. Balance sheet leverage looks moderate, and high interest coverage reduces near-term financial stress. Key watch points include sustainability of the margin gains, working capital discipline, and clarity on capex and dividend policy in the second half. Data limitations constrain precision on free cash flow and per-share balance sheet metrics, but the available figures indicate a healthier earnings trajectory versus the prior year.

Profitability Analysis

ROE decomposition: Net profit margin 3.15% × asset turnover 0.55× × financial leverage 2.12× = c. 3.67% ROE. Operating margin stands at about 5.46% (¥6.25bn OI on ¥114.46bn revenue), up sharply YoY alongside a 12.5% EBITDA margin, reflecting improved operating leverage and cost control. Gross margin of 37.2% provides a solid buffer; the spread from gross to operating margin (~31.7pp) indicates notable SG&A/other operating costs that are being better managed YoY. Ordinary margin of 5.66% exceeds operating margin slightly, indicating small positive non-operating contributions. Interest burden is very light (interest expense ¥191m; coverage 32.7x), so financing costs are not constraining profitability. The effective tax rate inferred from disclosed income tax and pre-tax earnings is roughly 28.5%, consistent with statutory levels, suggesting limited unusual tax effects. Overall profitability quality is improving, with operating leverage evident in OI growth of 34.1% on 3.0% revenue growth.

Growth Assessment

Revenue grew 3.0% YoY to ¥114.5bn, indicating stable topline momentum. Operating income growth of 34.1% and net income growth of 51.1% outpaced sales, evidencing margin expansion and cost efficiencies rather than purely volume-driven growth. The step-up in EBITDA to ¥14.35bn supports improved recurring earnings power. Given the multi-segment nature of TOKAI's business mix, sustained growth will depend on customer base expansion, ARPU improvements, and effective fuel cost pass-through; however, segment detail was not provided. The quality of profit appears solid as OCF (¥9.78bn) exceeds net income (¥3.61bn), reducing concern about accrual-driven earnings. Outlook hinges on sustaining SG&A discipline, maintaining gross margin amid input price fluctuations, and execution on cross-selling within the customer base. Without guidance or segment data, revenue sustainability is assumed moderate near term, with operating leverage offering additional upside if cost controls persist. Clarity on second-half seasonality and contract price resets will be key to assessing trajectory.

Financial Health

Total assets were ¥208.27bn against total liabilities of ¥115.26bn and total equity of ¥98.46bn, yielding leverage (liabilities/equity) of 1.17x. Liquidity is tight: current assets ¥54.96bn versus current liabilities ¥61.58bn produce a current ratio of 0.89x and quick ratio of 0.81x, with negative working capital of ¥6.63bn. While negative working capital can reflect a subscription/advance-billing model in some service lines, it still concentrates short-term refinancing/collection risk. Interest expense is low (¥191m) relative to EBITDA and EBIT, minimizing near-term interest rate sensitivity. The reported equity ratio field shows 0.0%, but based on disclosed totals, equity/asset ratio approximates 47%—the 0.0% should be treated as undisclosed. Overall solvency appears sound with moderate leverage and high interest coverage, but near-term liquidity management (receivables, payables, short-term debt) remains a focus.

Cash Flow Quality

Operating cash flow of ¥9.78bn versus net income of ¥3.61bn yields an OCF/NI ratio of 2.71x, indicating strong cash conversion. Accruals are negative (NI − OCF ≈ −¥6.17bn), typically a positive signal, though the contribution from working capital changes is not disclosed in detail. Depreciation and amortization at ¥8.10bn align with capital intensity of the business and reconcile to EBITDA (EBIT + D&A). Investing cash flow is shown as zero, which should be interpreted as not disclosed; therefore, free cash flow cannot be reliably calculated for the period despite the table showing 0. Financing cash flow of −¥1.03bn likely reflects net debt repayment and/or shareholder returns, but dividends/buybacks are not disclosed here. Earnings quality is supported by cash generation in the period, but the absence of investing CF data is a material limitation for assessing sustainable FCF after maintenance capex. Working capital management appears to have supported cash flows given the OCF strength, yet specific drivers (receivables, payables, inventories) are not provided.

Dividend Sustainability

Annual DPS and payout ratio are shown as 0.00, which we treat as undisclosed for this period rather than actual zeros. With EPS at ¥27.64 and robust OCF, capacity for distributions exists in principle, subject to capex needs and balance sheet priorities. Given the business’s capex requirements (implied by D&A of ¥8.10bn) and the absence of investing CF data, we cannot determine FCF coverage of dividends. Without disclosed DPS or a stated policy update, payout sustainability cannot be quantified this quarter. Key factors for dividend outlook include maintenance/growth capex plans, working capital seasonality, and leverage targets.

Risk Assessment

Business Risks:

• Input cost and energy price volatility affecting gross margins and pass-through timing
• Customer churn and ARPU pressure in communications and multi-utility services
• Regulatory and tariff changes impacting pricing and profitability
• Weather and seasonality affecting energy demand
• Execution risk in cross-selling and customer acquisition strategies
• Potential M&A/integration risks across diversified service lines

Financial Risks:

• Tight liquidity with current ratio at 0.89x and negative working capital of ¥6.63bn
• Refinancing and short-term funding risk if working capital swings adverse
• Interest rate risk on floating-rate borrowings despite currently low interest burden
• Capex intensity potentially pressuring free cash flow (investing CF undisclosed)
• Dependence on non-cash charges (D&A) for EBITDA, requiring ongoing asset reinvestment

Key Concerns:

• Lack of disclosure on investing cash flows and cash balance, limiting FCF visibility
• Undisclosed dividend data, obscuring shareholder return policy assessment
• Sustainability of recent margin expansion amid input cost fluctuations
• Short-term liquidity management given sub-1.0x current ratio

Investment Implications

Key Takeaways:

• Solid top-line growth (+3.0% YoY) with strong operating leverage (+34.1% OI).
• Improved profitability: 5.5% operating margin, 12.5% EBITDA margin, 3.15% net margin.
• Healthy ROE of 3.67% driven by margin gains and moderate leverage (2.12x).
• High cash conversion (OCF/NI 2.71x) supports earnings quality.
• Tight near-term liquidity (current ratio 0.89x, negative working capital).
• Incomplete disclosure on investing cash flows and dividends constrains FCF and payout analysis.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• OCF generation versus net income and working capital movements
• Capex and investing cash flows to derive sustainable FCF
• Leverage (liabilities/equity) and interest coverage
• Customer metrics (net adds, churn, ARPU) and pass-through timing for input costs
• Dividend policy updates and capital allocation (debt repayment vs. shareholder returns)

Relative Positioning: Versus domestic diversified utility/service peers, TOKAI exhibits mid–single-digit operating margins, strong interest coverage, and moderate leverage, but comparatively tighter liquidity; cash conversion is strong, yet visibility on capex/FCF is currently lower due to undisclosed investing cash flows.

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