RUNSYSTEM CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.36B
• Operating Income: ¥99M
• Net Income: ¥27M
• EPS: ¥6.46

Income Statement

Balance Sheet

Cash Flow Statement

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

FY2026 Q2 was a modest top-line quarter with strong operating leverage but persistent balance-sheet fragility. Revenue grew 1.2% YoY to 33.63, while operating income rose 54.7% YoY to 0.99, evidencing meaningful cost discipline and mix benefits. Gross profit was 5.82, implying a gross margin of 17.3%. SG&A was 4.82, translating to an SG&A ratio of 14.3%. Operating margin expanded to 2.9% from roughly 1.9% a year ago, an estimated improvement of about 100 basis points. Ordinary income increased 41.9% YoY to 0.86, but profit before tax fell to 0.26, indicating significant one-off items below ordinary income (extraordinary losses likely) that compressed pre-tax earnings. Net income was 0.27 (+19.6% YoY), supported by a negative effective tax rate (-3.8%), likely reflecting tax credits or reversals. Earnings quality was strong: operating cash flow of 1.73 exceeded net income by 6.4x, indicating solid cash conversion and favorable working capital movements. Free cash flow was approximately 0.07 after capex of 1.66, suggesting tight but positive funding for investments. Liquidity remains a key concern: current ratio is 0.64 and working capital is negative (-7.67), highlighting reliance on short-term funding and supplier credit. Leverage is elevated with D/E at 14.26x (equity base of 2.47 against total liabilities 35.22), and interest coverage at 4.53x is only moderate. ROE of 10.9% is being driven primarily by high financial leverage rather than robust margins (net margin 0.8%). Depreciation and amortization of 1.15 indicates sizable non-cash costs supporting EBITDA of 2.14 (6.4% margin). Forward-looking, sustaining the improved operating margin while addressing liquidity and refinancing risk will be critical, particularly if extraordinary losses recur. The quarter’s cash generation provides a near-term cushion, but the capital structure remains a strategic vulnerability if rates rise or lenders tighten terms.

Profitability Analysis

ROE decomposition (DuPont): ROE 10.9% = Net Profit Margin (0.8%) × Asset Turnover (0.892x) × Financial Leverage (15.26x). The biggest driver is financial leverage at 15.26x; margin remains thin and asset turnover is under 1x, indicating capital intensity or underutilized assets. Operating margin improved to 2.9% (0.99/33.63), roughly +101 bps YoY, implying cost containment and/or pricing improvements. The gap between ordinary income (0.86) and profit before tax (0.26) suggests one-off extraordinary losses that reduced statutory profitability; therefore, the headline ROE benefits from leverage, while underlying recurring profitability improved but remains fragile. Sustainability: the operating margin gains could persist if SG&A discipline is maintained; however, extraordinary items appear one-time and could either normalize positively or recur as a risk. Watch for SG&A growth outpacing revenue; current signals imply positive operating leverage (OP +54.7% vs revenue +1.2%), but absence of YoY SG&A detail limits precision.

Growth Assessment

Revenue growth of 1.2% YoY indicates a stable but low-growth environment. Operating income growth of 54.7% YoY significantly outpaced revenue, evidencing operating leverage and improved cost efficiency. Ordinary income growth (+41.9% YoY) corroborates core improvement, but the drop to profit before tax (0.26) implies non-recurring losses that partially mask operational gains. Net income grew 19.6% YoY to 0.27, aided by a negative tax expense. EBITDA of 2.14 (6.4% margin) and D&A of 1.15 show that non-cash costs meaningfully bridge EBIT to cash earnings. Sustainability depends on maintaining the expanded operating margin in the face of potential cost inflation (labor, energy) and on avoiding further extraordinary losses. Outlook: low-single-digit revenue growth with focus on margin management seems plausible; the key will be cash discipline and refinancing strategy given leverage.

Financial Health

Liquidity is weak: current ratio 0.64 (<1.0 warning) and quick ratio 0.59 indicate constrained short-term coverage; working capital is negative (-7.67). Cash and deposits are 7.80 vs current liabilities of 21.00, signaling reliance on ongoing cash generation and rollovers. Maturity mismatch risk exists, though short-term loans are modest at 0.50; however, payables (1.43) and other current liabilities likely drive near-term obligations. Solvency is stretched: D/E at 14.26x (>2.0 warning) reflects a thin equity cushion (equity 2.47 vs liabilities 35.22). Interest-bearing debt disclosed totals at least 7.92 (ST 0.50 + LT 7.42), yielding a Debt/EBITDA around 3.7x (within typical thresholds but high for low-margin businesses). Interest coverage (EBIT/interest) is 4.53x—adequate but sensitive to earnings volatility. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF of 1.73 vs net income of 0.27 yields an OCF/NI of 6.41x, indicating strong cash conversion and likely favorable working capital movements and non-cash charges (D&A 1.15). Estimated free cash flow is approximately 0.07 (OCF 1.73 – capex 1.66), positive but narrow, implying limited headroom for additional discretionary outlays without incremental funding. There are no clear signs of working capital manipulation from the data, but the negative working capital base necessitates ongoing vigilance, especially if revenue growth slows. Given the high leverage and low liquidity, sustaining positive OCF is crucial to service debt and maintain operations.

Dividend Sustainability

Dividends were unreported this period, so payout ratios cannot be calculated. With estimated FCF of ~0.07 and financing CF at -0.58 (debt service/shareholder returns), any dividend would need to be modest to be sustainable. Given the low equity base and liquidity constraints, a conservative distribution stance is implied until liquidity strengthens. Policy outlook cannot be inferred from the data; monitor management guidance and year-end dividend announcements.

Risk Assessment

Business Risks:

• Thin operating margin (2.9%) and net margin (0.8%) leave little buffer against shocks.
• Potential recurrence of extraordinary losses that reduced PBT materially this quarter.
• Cost inflation risk (labor, utilities, rent) that could erode recent margin gains.
• Demand volatility in core services leading to underutilization of assets and lower asset turnover.

Financial Risks:

• Low liquidity: current ratio 0.64 and negative working capital (-7.67) indicate refinancing/rollover risk.
• High leverage: D/E 14.26x increases vulnerability to earnings or cash flow shocks.
• Interest rate risk: interest coverage 4.53x could compress if rates rise or EBIT dips.
• Covenant risk potential due to thin equity and moderate coverage metrics.

Key Concerns:

• Gap between ordinary income (0.86) and PBT (0.26) suggests sizeable one-offs not detailed in disclosures.
• Dependence on ongoing cash conversion to fund operations given limited liquidity buffer.
• Equity base is small (2.47), magnifying volatility in ROE and solvency metrics.
• Data limitations: lack of segment detail and extraordinary item breakdown obscures normalized profitability.

Investment Implications

Key Takeaways:

• Solid operating leverage: OP +54.7% on +1.2% revenue shows effective cost control.
• Operating margin expanded roughly 100 bps YoY to 2.9%, but absolute margins remain thin.
• Cash conversion robust with OCF/NI at 6.4x; FCF narrowly positive after capex.
• Balance sheet weakness persists: current ratio 0.64, D/E 14.26x—key constraints on flexibility.
• Extraordinary losses reduced PBT, masking stronger ordinary earnings trajectory.

Metrics to Watch:

• Operating margin and SG&A ratio trend versus revenue growth.
• OCF sustainability and FCF after maintenance capex.
• Current ratio and short-term debt rollover profile.
• Interest coverage and effective tax rate normalization (one-offs).
• Any disclosure on extraordinary items and capex pipeline.

Relative Positioning: Within low-margin service operators, profitability improved sequentially/YoY via cost control, but capital structure and liquidity are weaker than typical peers; the investment case hinges on maintaining cash conversion while de-risking the balance sheet.

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