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AI Financial Analysis
Executive Summary
ICDA Holdings reported FY2026 Q2 consolidated results under JGAAP with modest top-line growth but softer profitability. Revenue grew 1.4% YoY to ¥18.75bn, while operating income declined 12.2% YoY to ¥0.918bn, indicating margin pressure despite stable sales. Gross profit was ¥3.549bn, translating to an 18.9% gross margin, and operating margin stood at approximately 4.9%, both consistent with a low-margin retail/distribution profile. Ordinary income reached ¥0.95bn and net income was ¥0.629bn, implying a net margin of 3.35%. DuPont metrics show ROE of 5.56%, driven by a 3.35% net margin, 0.916x asset turnover, and 1.81x financial leverage—suggesting moderate leverage and modest efficiency are not enough to offset thin margins. Operating cash flow was strong at ¥3.366bn, resulting in an OCF/Net Income ratio of 5.35x, pointing to conservative accruals and substantial working-capital release in the period. Investing cash flow was not disclosed, and free cash flow is not available from the provided data; however, depreciation of ¥0.481bn suggests ongoing reinvestment needs. Financing cash flow was an outflow of ¥0.823bn, consistent with debt repayment or other financing uses, given DPS is reported at zero. The balance sheet shows total assets of ¥20.462bn, liabilities of ¥8.577bn, and equity of ¥11.309bn; this implies an equity ratio of roughly 55% (computed from disclosed assets and equity), indicating a solid capital base. Liquidity is adequate but tight for a distribution business with high inventory: the current ratio is 112% and the quick ratio is 35%, reflecting reliance on inventory conversion. Interest expense is minimal at ¥15.3m and interest coverage is very strong at 60.1x, highlighting low financial risk. While operating leverage worked against the company this quarter, cost discipline will be key to stabilizing margins as volume growth is subdued. The effective tax rate, inferred from reported income tax and net income, is approximately 35–36%, consistent with typical statutory levels in Japan. Dividend per share is reported at zero with a 0% payout ratio, suggesting a focus on internal retention or simply a no-dividend policy at this stage. Overall, the quarter shows resilient cash conversion and a strong balance sheet but weaker operating profitability, with growth momentum modest and margin restoration the key swing factor for returns. Data limitations exist where items are shown as zero, indicating non-disclosure rather than true zeros, so certain conclusions (e.g., free cash flow, cash balance) are constrained.
Profitability Analysis
ROE of 5.56% is the product of a 3.35% net margin, 0.916x asset turnover, and 1.81x financial leverage. The ROE level is modest, and the decomposition indicates that thin margins and only average asset turns are the primary constraints, rather than leverage. Gross margin is 18.9% with an operating margin of ~4.9%, implying an SG&A burden of roughly 14.0% of sales; the 12.2% YoY decline in operating income on 1.4% sales growth points to negative operating leverage. Ordinary income of ¥0.95bn slightly exceeds operating income, suggesting non-operating gains or financial income offsetting low interest expense. Net margin of 3.35% is typical for a volume-driven business where pricing and mix shifts can materially affect earnings. Interest coverage is very strong at 60.1x (EBITDA basis), indicating that financing costs are not a drag on profitability. The compressed operating income YoY suggests either gross margin contraction (procurement cost pressure or mix) or higher SG&A (labor, logistics, marketing). With depreciation at ¥0.481bn and EBITDA margin at 7.5%, underlying cash profitability is healthier than EBIT but still constrained by low structural margins. Overall profitability quality is acceptable, but operating leverage is currently unfavorable and requires either volume recovery or cost normalization to improve.
Growth Assessment
Top-line growth of 1.4% YoY to ¥18.75bn is modest and likely volume- rather than price-driven, given tight gross margins. The decline in operating income (-12.2% YoY) indicates that current growth is not translating into earnings growth, reflecting cost inflation or adverse mix effects. Ordinary income remained resilient relative to operating income, but sustainable EPS growth will require operating margin recovery. Revenue sustainability hinges on inventory turnover and supply normalization; with inventories at ¥5.135bn, sales conversion efficiency will be a key determinant of near-term growth. The net margin at 3.35% suggests limited pricing power, so growth likely needs to come from volume, mix improvement, and SG&A productivity. OCF strength this period appears driven by working-capital movements; without visibility on capex, it is difficult to assert structural improvement in cash-based growth. Outlook: stable-to-slight growth in revenue is plausible, but near-term profit growth depends on restoring gross margin and controlling SG&A. Absent a change in mix or cost tailwinds, earnings growth may lag revenue growth.
Financial Health
Total assets are ¥20.462bn, liabilities ¥8.577bn, and equity ¥11.309bn, implying an equity ratio around 55% and debt-to-equity of 0.76x—both indicative of a solid capital structure with moderate leverage. Liquidity is adequate but inventory-dependent: current assets of ¥7.475bn vs. current liabilities of ¥6.675bn yield a current ratio of 112%, while the quick ratio of 35% underscores reliance on inventory monetization. Working capital is ¥0.800bn, leaving a narrow buffer relative to sales scale, but the strong OCF this period alleviates near-term pressure. Interest expense is very low at ¥15.3m, and the 60.1x interest coverage points to minimal refinancing risk under current conditions. The negative financing cash flow of ¥0.823bn suggests deleveraging or other financing outflows, consistent with balance sheet strengthening. Overall solvency is strong, with ample equity cushion; liquidity is serviceable but sensitive to inventory turnover and payable timing.
Cash Flow Quality
Operating cash flow of ¥3.366bn vs. net income of ¥0.629bn yields an OCF/NI ratio of 5.35x, indicating robust cash conversion and likely working-capital inflows (e.g., inventory reduction or increased payables). Depreciation of ¥0.481bn supports cash earnings quality and suggests recurring reinvestment needs. Investing cash flow and cash balances were not disclosed (shown as zero), so free cash flow cannot be reliably calculated from the provided data. Given EBITDA of ¥1.399bn and strong OCF, underlying cash generation appears solid for the half, but sustainability depends on whether working-capital benefits are repeatable. Working capital is sizable with inventories at ¥5.135bn; efficient inventory management is crucial to maintaining positive OCF. Without capex data, we assume maintenance capex roughly in line with depreciation, implying that OCF would more than cover maintenance needs this period, but this is an assumption due to data gaps.
Dividend Sustainability
Reported annual DPS is ¥0.00 and payout ratio is 0.0%, indicating no dividends for the period. With no dividend outflow, coverage metrics are not applicable. If a dividend policy were to be introduced or reinstated, the strong OCF this period would support moderate distributions, assuming maintenance capex is near depreciation; however, this is contingent on sustained cash generation and remains uncertain given undisclosed investing cash flows. Current stance appears to prioritize balance sheet strength and reinvestment over payouts.
Risk Assessment
Business Risks:
Margin compression from procurement cost inflation and adverse sales mix
Dependence on inventory turnover; slow-moving stock can pressure liquidity
Low structural operating margins typical of volume-driven retail/distribution
Competitive pricing dynamics limiting pass-through of costs
Potential demand volatility tied to macro conditions and consumer sentiment
Financial Risks:
Liquidity sensitivity due to low quick ratio (35%) and high inventory share
Operating income down 12.2% YoY despite revenue growth, indicating negative operating leverage
Sustainability of strong OCF given likely working-capital tailwinds
High inventory base (¥5.135bn) relative to current assets and current liabilities
Investment Implications
Key Takeaways:
Top-line grew 1.4% YoY, but operating profit fell 12.2% YoY, pointing to margin pressure
ROE at 5.56% reflects thin margins and average asset turnover rather than leverage usage
Strong OCF (¥3.366bn) vs. NI (¥0.629bn) suggests healthy cash conversion this period
Balance sheet is solid with ~55% equity ratio (computed) and minimal interest burden
Liquidity is adequate but inventory-dependent; quick ratio at 35% requires prudent working-capital management
Metrics to Watch:
Gross margin and SG&A-to-sales ratio for signs of margin recovery
Inventory days and turnover to gauge liquidity and sales conversion
OCF/NI and working-capital movements to assess cash flow sustainability
Capex vs. depreciation to infer maintenance vs. growth investment
Debt/EBITDA and interest coverage as financing conditions evolve
Relative Positioning:
Within domestic retail/distribution peers, ICDA exhibits modest growth, thin but typical margins, strong interest coverage, and a conservative capital structure; near-term performance hinges on inventory efficiency and margin stabilization.
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
