Eternal Hospitality Group Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥12.57B
• Operating Income: ¥888M
• Net Income: ¥429M
• EPS: ¥66.52

Income Statement

Balance Sheet

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

Eternal Hospitality Group (31930) delivered solid top-line and earnings growth in FY2026 Q1, with revenue of ¥12,567 million (+14.9% YoY) and operating income of ¥888 million (+21.9% YoY). Net income rose sharply to ¥767 million (+78.9% YoY), indicating meaningful operating and below-the-line improvements, with EPS at ¥66.52. Gross profit was ¥7,638 million, implying a gross margin of 60.8%, which is robust for a hospitality/services mix and suggests healthy pricing and/or favorable mix. The operating margin of approximately 7.1% (¥888 million operating income / ¥12,567 million revenue) indicates improving operating leverage against fixed costs as revenue scaled. Ordinary income of ¥905 million vs. operating income of ¥888 million indicates minor positive non-operating contributions net of interest. Interest expense was modest at ¥5.6 million, and the interest coverage ratio was a very strong 158.7x, reflecting low financial burden and ample cushion. On the balance sheet, total assets were ¥21,506 million and total equity was ¥10,290 million, implying financial leverage (assets/equity) of 2.09x, broadly aligned with the DuPont inputs. Liquidity appears adequate with current assets of ¥10,468 million versus current liabilities of ¥7,842 million, yielding a current ratio of 133.5% and quick ratio of 130.8%. Working capital stood at ¥2,626 million, supporting short-term operating flexibility. The DuPont-based ROE is calculated at 7.45%, driven by a 6.10% net margin, 0.584x asset turnover, and 2.09x financial leverage. Cash flow data were not disclosed this quarter (operating, investing, and financing cash flows are shown as zero), limiting assessment of earnings-to-cash conversion and free cash flow. Dividend information indicates no dividend payment for the period (DPS ¥0; payout ratio 0%), and coverage metrics that rely on FCF are not assessable due to unreported cash flows. A data presentation inconsistency exists between reported cost of sales and gross profit, which may reflect classification differences rather than an error; conclusions herein rely on the stated gross profit and margin. Overall, the company shows improving profitability, strong coverage of interest obligations, and adequate liquidity, though the absence of cash flow disclosures and share count data constrains a full quality-of-earnings and per-share analysis. The outlook hinges on the sustainability of revenue momentum, mix, and cost discipline, while maintaining balance sheet prudence.

Profitability Analysis

ROE decomposition (DuPont): Reported net profit margin 6.10%, asset turnover 0.584x, and financial leverage 2.09x yield a calculated ROE of 7.45%, consistent with the reported figure. Margin quality: A 60.8% gross margin (¥7,638 million / ¥12,567 million) is high for the sector and suggests strong mix/pricing; however, the cost of sales figure provided (¥3,299 million) does not reconcile with revenue to the reported gross profit, implying possible classification or disclosure differences—analysis relies on the stated gross profit. Operating margin of roughly 7.1% (¥888 million / ¥12,567 million) improved faster than revenue (+21.9% OI vs. +14.9% sales), indicating positive operating leverage. Below the operating line, ordinary income (¥905 million) slightly exceeded operating income, implying small net non-operating gains despite ¥5.6 million interest expense; the effective tax rate and D&A are not disclosed, limiting margin normalization. Interest burden is immaterial (interest coverage 158.7x), so profitability is primarily driven by core operations and scale. The uplift in net income (+78.9% YoY) vs. operating income (+21.9% YoY) signals added support from non-operating factors and/or lower tax burden YoY, though tax expense of ¥312 million is reported without a corresponding pre-tax figure to compute a clean rate.

Growth Assessment

Revenue growth of +14.9% YoY to ¥12,567 million indicates solid demand recovery and/or footprint expansion. Operating income growth of +21.9% YoY outpaced sales, evidencing operating leverage benefits from scale and cost control. Net income growth of +78.9% YoY substantially exceeded operating growth, suggesting supportive non-operating items and/or a lighter effective tax drag versus the prior year. The sustainability of growth will depend on maintaining high gross margins and cost discipline amid wage and utility cost pressures commonly faced in hospitality/services. Asset turnover at 0.584x (as provided) indicates moderate efficiency; improving utilization of asset base could further support earnings compounding. With no quarterly cash flow data, we cannot validate whether growth is cash-generative; sustained growth quality would be reinforced by positive operating cash flow and disciplined capex. Outlook hinges on continued demand normalization, potential price/mix retention, and the company’s ability to manage fixed costs to preserve operating leverage through seasonality. Monitoring booking trends, average spend per customer, and occupancy/throughput (if applicable) will be critical to assess sustainability.

Financial Health

Liquidity: Current assets ¥10,468 million and current liabilities ¥7,843 million yield a current ratio of 133.5% and a quick ratio of 130.8%, indicating adequate short-term liquidity. Working capital of ¥2,626 million provides buffer for operational needs and seasonality. Solvency: Total liabilities ¥11,608 million vs. total equity ¥10,290 million implies a liabilities-to-equity (debt-to-equity proxy) of 1.13x and assets/equity of 2.09x; leverage is moderate and supported by strong interest coverage (158.7x). The reported equity ratio field shows 0.0% but simple calculation indicates approximately 47.8% (¥10,290m / ¥21,506m), suggesting the reported 0.0% is an unreported placeholder. Capital structure appears balanced, with sufficient equity underpinning and limited interest burden. Cash and equivalents were not disclosed this quarter, preventing a precise net debt assessment.

Cash Flow Quality

Earnings quality cannot be fully assessed due to unreported operating, investing, and financing cash flows for the quarter (zeros represent nondisclosure). With OCF/Net Income shown as 0.00 and Free Cash Flow unreported, we cannot validate cash conversion or working-capital intensity from the statement of cash flows. Given revenue growth, we would typically examine receivables and contract liabilities for advance bookings or deposits, along with inventory movements (reported inventories ¥210 million appear modest), but the balance sheet detail is limited. Depreciation and amortization are unreported, which also affects comparability of EBITDA-based measures (EBITDA shown as 0 due to nondisclosure). In the absence of CF data, we assume operating income is the primary driver of earnings, but we cannot confirm cash realization or capex requirements; future disclosure of OCF and capex will be critical to judge free cash flow durability.

Dividend Sustainability

The company reported DPS of ¥0 for the period, with a payout ratio of 0.0%. With free cash flow unreported, FCF coverage of dividends cannot be assessed this quarter. Capital allocation appears focused on reinvestment or balance sheet reinforcement given earnings growth and no dividends declared. Sustainability of future dividends (if any) would depend on consistent positive operating cash flow, controlled capex, and maintenance of the current liquidity position. Without a stated dividend policy or historical DPS trend for this period, we cannot infer a near-term payout trajectory; monitoring management guidance and full-year cash flow will be important.

Risk Assessment

Business Risks:

• Demand volatility and seasonality in hospitality/services impacting occupancy, ADR, or customer spend
• Cost inflation (labor, utilities, food and beverage inputs) pressuring margins
• Potential sensitivity to economic cycles, inbound tourism flows, and discretionary spending
• Competitive intensity leading to pricing pressure and marketing spend requirements
• Operational execution risk in scaling service quality across locations/formats

Financial Risks:

• Limited visibility on cash generation due to unreported cash flows in the quarter
• Potential working-capital swings affecting near-term liquidity despite current ratio >1.3x
• Exposure to interest rate changes on floating-rate liabilities (interest expense currently low)
• Data presentation inconsistencies (e.g., cost of sales vs. reported gross profit) reducing analytical precision

Key Concerns:

• Absence of operating and free cash flow disclosure prevents validation of earnings quality
• Unreported D&A and EBITDA reduce comparability of profitability to peers
• Reconciling gross profit to cost of sales suggests classification differences that should be clarified

Investment Implications

Key Takeaways:

• Strong start to FY2026 with double-digit revenue growth and faster operating income growth
• High gross margin (60.8%) and improving operating leverage support profitability
• Balance sheet appears sound with moderate leverage and robust interest coverage
• Cash flow nondisclosure is the main analytical gap; confirmation of OCF/FCF is needed
• ROE at 7.45% reflects moderate leverage and stable asset efficiency; scope to improve via turnover gains

Metrics to Watch:

• Operating cash flow and free cash flow in subsequent quarters
• Trend in gross and operating margins versus input cost inflation
• Asset turnover and capital intensity (capex and D&A once disclosed)
• Working capital indicators (receivables days, payables days, and customer deposits if relevant)
• Ordinary-to-operating income gap and interest expense trajectory

Relative Positioning: Based on available data, the company exhibits stronger-than-average margin performance and operating leverage within hospitality/services, supported by moderate balance sheet leverage and high interest coverage; however, incomplete cash flow disclosure and certain line-item inconsistencies limit comparability and visibility versus fully transparent peers.

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