Daitobo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.92B
• Operating Income: ¥132M
• Net Income: ¥32M
• EPS: ¥1.06

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: FY2026 Q2 was a mixed quarter with resilient cash generation but pressured profitability and a stressed balance sheet. Revenue declined 4.0% YoY to 19.19, while operating income fell 22.9% YoY to 1.32, indicating margin pressure from higher costs and a heavier non-operating burden. Gross profit was 6.29 with a gross margin of 32.8%, but the operating margin compressed to 6.9%. Ordinary income dropped 50.7% YoY to 0.36, dragged by non-operating expenses (1.07) far exceeding non-operating income (0.11), largely reflecting interest costs (1.05). Net income was 0.31 (-17.1% YoY), implying a net margin of 1.6%. We estimate operating margin compressed by about 167 bps YoY (from ~8.6% to 6.9%), ordinary margin by ~178 bps (from ~3.7% to 1.9%), and net margin by ~26 bps (from ~1.9% to 1.6%). Earnings quality appears strong this quarter on a cash basis: operating CF of 2.69 was 8.7x net income, supported by sizable non-cash D&A (2.55) and likely working capital inflows. However, this cash strength contrasts with weak returns: ROE is only 0.6% and ROIC is 0.9%, well below cost of capital. The capital structure is the key concern: debt-to-equity is 3.13x, interest coverage is thin at 1.26x, and the current ratio is 0.45, signaling significant refinancing and liquidity risk. Short-term loans of 43.56 dwarf cash (11.15) and receivables (4.59), highlighting a maturity mismatch. Non-operating drag remains heavy, with interest expense nearly matching operating income, constraining ordinary profit and equity accretion. If the reported payout ratio (293.8%) reflects actual dividends, it is not supported by earnings and risks crowding out deleveraging; disclosure on DPS is limited. Forward-looking, stabilization requires continued cost control, improvement in operating leverage, and, critically, proactive balance sheet management to reduce short-term borrowing reliance. Monitoring refinancing, interest cost trajectory, and inventory discipline will be essential. Without a material upturn in margin or de-leveraging, returns are likely to remain subdued and vulnerable to rate or credit spread moves. Overall, cash conversion is a bright spot, but margin compression plus leverage and liquidity constraints dominate the near-term narrative.

Profitability Analysis

Step 1 (ROE decomposition): ROE (0.6%) = Net Profit Margin (1.6%) × Asset Turnover (0.095x) × Financial Leverage (4.13x). Step 2 (largest change): The most impactful driver YoY appears to be margin compression, as operating income fell 22.9% on a 4.0% revenue decline, while balance sheet scale (asset turnover) remains low and relatively stable. Step 3 (business reasons): Non-operating expenses—predominantly interest—eroded ordinary profit (0.36, -50.7% YoY), and cost pressure vs revenue softness reduced operating margin to 6.9%. Step 4 (sustainability): Elevated interest burden is structural until leverage is reduced; margin pressure may moderate with cost actions but is unlikely to reverse without topline recovery or mix improvement. Step 5 (flags): SG&A (4.97) held at 25.9% of sales; with revenue down, fixed-cost absorption likely worsened. Ordinary margin compressed by ~178 bps YoY, indicating that financial structure—not just operations—is suppressing returns. Net margin compressed by ~26 bps YoY, consistent with interest drag and a modest tax rate (12.4%). EBITDA was 3.87 (20.2% margin), but interest expense of 1.05 keeps interest coverage tight at 1.26x, limiting operating leverage benefits.

Growth Assessment

Revenue declined 4.0% YoY to 19.19, indicating soft demand or mix deterioration in core businesses. Operating income fell 22.9% to 1.32, reflecting weaker operating leverage and/or rising input or logistics costs. Ordinary income fell 50.7% to 0.36 as interest costs weighed heavily; non-operating income (0.11) was insufficient to offset expense (1.07). Net income of 0.31 (-17.1% YoY) shows some cushioning from low taxes, but earnings power remains weak at a 1.6% net margin. With asset turnover at 0.095x and ROIC at 0.9%, capital intensity is high and earnings sensitivity to small revenue changes is meaningful. Near-term growth sustainability depends on stabilizing volumes and improving mix; absent that, incremental profitability is likely constrained. Outlook: prioritize deleveraging to reduce interest drag, tight working capital control, and cost discipline to re-expand operating margin toward prior levels (~8.5%+).

Financial Health

Liquidity is strained: current ratio 0.45 and quick ratio 0.30 both flag immediate liquidity risk. Explicit warning: current ratio is below 1.0. Short-term loans of 43.56 far exceed cash (11.15), receivables (4.59), and even cash+AR+inventory (23.69), indicating a maturity mismatch that relies on continuous refinancing. Working capital is negative at -29.20. Solvency is weak: debt-to-equity 3.13x (explicit warning: >2.0), with total loans of ~96.58 (short 43.56, long 53.02). Interest coverage is 1.26x, leaving little cushion for rate increases or operating volatility. Noncurrent assets (177.79) dominate the balance sheet, depressing asset turnover and limiting liquidation flexibility. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF was 2.69 versus net income 0.31, yielding an OCF/NI of 8.68x, which suggests strong cash conversion this quarter. The high OCF is supported by non-cash D&A (2.55), and likely by favorable working capital movements; detailed WC components were not disclosed. Free cash flow is unreported, so durability versus capex and dividends cannot be fully assessed. Financing CF was -0.13, indicating minor net repayments or distributions; with high short-term debt, refinancing risk remains despite positive OCF. Potential manipulation signs are not evident from the limited disclosure, but reliance on non-cash add-backs (D&A) is high; sustainability depends on maintaining operating cash margins and avoiding inventory/AR rebuilds.

Dividend Sustainability

Dividend disclosure is limited (DPS and total dividend unreported), but the provided calculated payout ratio of 293.8% would be unsustainable if accurate relative to current earnings. With ROE at 0.6%, interest coverage at 1.26x, and a current ratio of 0.45, financial flexibility for cash returns is constrained. OCF was strong this quarter, but without FCF (capex unreported) it is unclear if recurring cash covers both maintenance investment and dividends. Policy outlook should prioritize balance sheet repair and interest burden reduction over distributions until profitability and leverage normalize.

Risk Assessment

Business Risks:

• Margin pressure from input costs and weak operating leverage (operating margin 6.9%, down ~167 bps YoY).
• Low asset turnover (0.095x) reflecting high capital intensity and depressed returns.
• Demand softness evidenced by -4.0% YoY revenue.

Financial Risks:

• Liquidity risk: current ratio 0.45 and quick ratio 0.30 with negative working capital (-29.20).
• Refinancing/maturity mismatch risk: short-term loans 43.56 exceed liquid assets.
• High leverage: D/E 3.13x and Debt/EBITDA ~25x, with thin interest coverage of 1.26x.
• Earnings sensitivity to interest rates given interest expense of 1.05 nearly equals operating income.

Key Concerns:

• Ordinary income down 50.7% YoY due to non-operating burden.
• ROIC at 0.9% is far below cost of capital, risking value dilution.
• If the calculated payout ratio (293.8%) reflects actual policy, dividend outlays are inconsistent with earnings capacity.
• Data gaps on capex, FCF, and DPS obscure assessment of long-term funding needs.

Investment Implications

Key Takeaways:

• Profitability deteriorated with operating and ordinary margin compression despite only modest revenue decline.
• Cash conversion was strong this quarter, aided by D&A and likely working capital inflows.
• Balance sheet risk is elevated: high leverage, low liquidity, and tight interest coverage.
• Returns remain sub-par with ROE 0.6% and ROIC 0.9%, implying limited value creation absent structural improvements.
• Near-term priority should be deleveraging and refinancing to mitigate interest drag.

Metrics to Watch:

• Operating margin and SG&A ratio trend vs sales.
• Interest coverage and average borrowing cost trajectory.
• Short-term debt balance vs cash and receivables (refinancing progress).
• Working capital turns (inventory and receivables) and OCF sustainability.
• Capex and FCF disclosure to assess dividend capacity.
• ROIC progression toward >5% as a minimum threshold.

Relative Positioning: Within domestic small-cap industrials/textiles, the company screens weaker on leverage, liquidity, and ROIC, with average-to-below-average operating margin resilience but above-average OCF conversion this quarter; overall financial risk profile is elevated versus 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