TRUST Holdings Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥2.47B
• Operating Income: ¥-24M
• Net Income: ¥1M
• EPS: ¥-10.64

Income Statement

Balance Sheet

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: Weak Q1 with a swing to operating loss and very high leverage overshadowing otherwise stable topline. Revenue was 24.68 (100M JPY), down 0.5% YoY, indicating flat demand. Gross profit was 5.17 with a gross margin of 21.0%, roughly consistent with a low-20% profile for a labor/service-heavy business. SG&A was 4.86 (19.7% of revenue), leaving only 0.31 of gross profit after SG&A, yet operating income printed at -0.24, implying about 0.55 of other operating charges or negative operating items in the quarter. Operating income fell 88.6% YoY to -0.24, ordinary income fell 96.2% YoY to -0.48, and net income declined 99.0% YoY to -0.40, underscoring rapid margin erosion. Non-operating income was 0.09 vs non-operating expenses 0.31, mainly interest expense of 0.22, which pushed ordinary income deeper into loss. Despite ordinary loss, profit before tax was positive at 0.10, indicating the presence of sizable extraordinary gains (approximately 0.58) below ordinary income. However, bottom line was -0.40 with income tax of 0.08, implying additional below-the-line losses or non-controlling interest effects turning a small pre-tax profit into a net loss. Current operating margin is approximately -1.0% and net margin -1.6%; exact basis-point changes versus prior year are not measurable due to missing prior margin data. Interest coverage is -1.07x, highlighting that operating earnings do not cover interest costs this quarter. Leverage is very high with D/E at 7.35x, which amplifies earnings volatility and refinancing risk. Liquidity is adequate but not strong (current ratio 115.6%, quick ratio 115.1%), supported by 14.35 in cash against 23.63 in short-term loans. ROE via DuPont is -3.5% (net margin -1.6%, asset turnover 0.261, financial leverage 8.35x), clearly driven by profitability deterioration with leverage magnifying losses. ROIC is -0.3%, well below a typical cost of capital, implying value dilution if sustained. Operating cash flow and capex were not disclosed, preventing an OCF vs NI quality cross-check or FCF assessment this quarter. Forward-looking, stabilization hinges on restoring operating margin (tightening SG&A and mitigating other operating expenses) and reducing interest burden; absent improvement, high leverage will keep depressing earnings and equity returns.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -1.6% × Asset turnover 0.261 × Financial leverage 8.35x = ROE -3.5%. The dominant driver of the weak ROE is the negative net margin; asset turnover is modest and leverage is high, which magnifies the loss. Business reason: gross margin (21.0%) was nearly consumed by SG&A (19.7% of revenue), and additional operating items (~0.55) tipped operating income into the red; interest expense (0.22) further pressured ordinary income. Sustainability: the negative margin appears linked to cost pressure and other operating charges; unless SG&A discipline improves and non-recurring operating items abate, the margin drag can persist. Concerning trends: SG&A growth versus revenue cannot be quantified YoY due to missing prior-period SG&A, but the SG&A-to-sales ratio at ~20% leaves a very thin buffer given a 21% gross margin. Also, reliance on extraordinary gains to lift PBT while ordinary income is negative suggests low-quality earnings mix this quarter.

Growth Assessment

Revenue declined slightly (-0.5% YoY) indicating flat demand; no evidence of structural growth this quarter. Operating profit collapsed to -0.24 despite stable revenue, implying negative operating leverage: small topline softness combined with higher costs/other operating items drove large profit deterioration. Profit composition is skewed: ordinary income is negative while PBT is positive due to extraordinary gains (~0.58), which are non-recurring by nature. Non-operating expenses (0.31) exceeded non-operating income (0.09), with interest expense the main drag. Given ROIC at -0.3%, the current investment base is not earning its cost of capital; absent margin recovery, growth investments would likely be value-destructive. Outlook hinges on cost normalization, interest cost management, and elimination of extraordinary loss items; with limited revenue growth momentum evident, margin actions are the near-term lever.

Financial Health

Liquidity: Current ratio 115.6% and quick ratio 115.1% indicate adequate near-term liquidity, though below the 1.5x comfort benchmark. Cash and deposits are 14.35 versus short-term loans of 23.63; while current assets (62.59) exceed current liabilities (54.12), cash coverage of short-term debt is modest, requiring ongoing rollover or cash generation. Solvency: D/E is 7.35x (warning: >2.0), signaling high leverage risk. Interest coverage is -1.07x, meaning operating earnings do not cover interest costs this quarter. Maturity mismatch: short-term borrowings are sizable; over-reliance on short-term debt elevates refinancing risk in a higher-rate environment unless liquidity buffers improve. Off-balance sheet: no disclosures provided; inability to assess guarantees or contingent liabilities.

Cash Flow Quality

Operating cash flow was not disclosed; therefore OCF/Net Income cannot be evaluated and FCF cannot be calculated. With net loss (-0.40) and negative operating income, cash conversion risk is elevated unless working capital release or non-cash items offset. Receivables of 2.67 versus quarterly revenue of 24.68 (≈11%) appear reasonable, suggesting no obvious receivables build; inventories are minimal (0.28). Interest expense (0.22) consumes cash in the absence of operating profit, constraining internal funding. Dividend and capex cash outflows are unreported; thus, sustainability of any shareholder returns or growth investments cannot be assessed this quarter.

Dividend Sustainability

DPS and total dividends paid were not disclosed. The calculated payout ratio of -247.2% is not meaningful given negative earnings. Without OCF and capex data, FCF coverage of dividends cannot be evaluated. Given negative operating income and weak interest coverage, near-term capacity for cash dividends would depend on cash on hand (14.35) and incremental borrowing; this is not a durable source. Policy outlook cannot be inferred from the data; monitoring guidance and full-year cash flow will be essential.

Risk Assessment

Business Risks:

• Margin compression with gross margin (21.0%) nearly offset by SG&A (19.7%), leaving little operating buffer
• Dependence on extraordinary gains to support pre-tax profit while ordinary income is negative
• Cost inflation (labor/other operating items) squeezing operating margin despite stable revenue
• Execution risk on cost controls needed to restore positive operating margin

Financial Risks:

• High leverage (D/E 7.35x) increases sensitivity to earnings volatility
• Negative interest coverage (-1.07x) and sizable short-term loans (23.63) elevate refinancing and covenant risks
• Liquidity buffer modest relative to short-term debt (cash 14.35 vs short-term loans 23.63)
• Potential effective tax rate volatility (85.9%) complicates net profit predictability

Key Concerns:

• ROIC at -0.3% indicates value dilution if sustained
• Ordinary loss despite small PBT gain suggests one-time items driving results
• Limited visibility on cash flows, capex, and dividends due to unreported items
• Any interest rate increases would further pressure earnings given debt load

Investment Implications

Key Takeaways:

• Q1 swung to operating loss (-0.24) despite flat revenue, driven by other operating charges and interest burden
• Leverage is elevated (D/E 7.35x), with negative interest coverage, heightening refinancing and earnings risk
• Profit quality is weak: ordinary income negative, PBT aided by extraordinary gains
• ROE (-3.5%) and ROIC (-0.3%) are depressed, reflecting margin issues and leverage drag
• Liquidity adequate but not robust; reliance on rolling short-term debt persists

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Ordinary income vs extraordinary items mix
• Interest coverage (EBIT/interest) and debt maturity profile
• Operating cash flow and working capital movements
• ROIC progression relative to cost of capital

Relative Positioning: Within small-cap, service-oriented peers, the company currently screens weak on profitability (negative operating and ordinary income) and balance-sheet resilience (high D/E, negative interest coverage). Any near-term improvement would need to come from cost containment and deleveraging rather than topline growth, which appears flat.

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
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