FUJITA CORPORATION Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.46B
• Operating Income: ¥39M
• Net Income: ¥15M
• EPS: ¥4.08

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: A marginally improved but still fragile quarter, with slight margin expansion offset by very high leverage and tight liquidity. Revenue grew 3.6% YoY to 24.62, and operating income rose 13.1% YoY to 0.39, indicating some operating leverage despite elevated SG&A. Gross profit was 14.60, implying a solid gross margin of 59.3%, while operating margin stood at 1.58%. Ordinary income was flat YoY at 0.31, reflecting a drag from non-operating items where expenses (0.83) exceeded income (0.75), including interest expense of 0.25. Net income increased 9.3% YoY to 0.14, yielding a thin net margin of 0.57–0.60%. Based on growth rates, operating margin expanded by roughly 13 bps YoY (from ~1.45% to ~1.58%), and net margin expanded by ~3 bps (from ~0.54% to ~0.57%). EBITDA was 1.07, with an EBITDA margin of 4.4%, underscoring limited cushion against financing costs. Earnings quality was strong this quarter, with OCF of 0.60 equating to 4.29x net income, indicating cash-backed earnings. However, implied free cash flow appears negative when considering capex of 0.92 against OCF of 0.60, constraining internal funding capacity. The balance sheet is strained: current ratio 0.79, quick ratio 0.75, D/E 11.21x, and interest coverage of 1.56x, all pointing to elevated refinancing and liquidity risk. Equity is only 2.29 versus assets of 27.97, implying an equity ratio near the high single digits and leverage driving a 6.1% ROE rather than strong fundamentals. ROIC at 1.5% is well below typical cost of capital benchmarks, suggesting value dilution if not improved. Non-operating items are material relative to operating income, adding volatility to ordinary income. The reported payout ratio is 49.0%, but with implied negative FCF, dividend headroom is limited without improved cash generation. Forward-looking, modest top-line growth and incremental margin gains are encouraging, but deleveraging, interest burden reduction, and working capital repair are imperative to sustain profitability. Absent visible improvement in cash returns or balance sheet strength, earnings remain vulnerable to small shocks (rate, wage, or input cost).

Profitability Analysis

ROE decomposition (DuPont): ROE 6.1% = Net Profit Margin (0.6%) × Asset Turnover (0.880x) × Financial Leverage (12.21x). The largest driver is the extremely high financial leverage; margins are razor-thin and asset turnover is sub-1x. YoY, operating income grew faster than revenue (+13.1% vs +3.6%), implying a modest operating margin expansion (~13 bps), while net margin improved slightly (~3 bps) despite non-operating drag. Business drivers: gross margin remains strong (59.3%), but SG&A intensity keeps operating margin low; financing costs (interest expense 0.25) erode ordinary income. Sustainability: leverage-driven ROE is fragile; with ROIC at 1.5%, returns do not currently cover a typical cost of capital, making the uplift from leverage risky rather than durable. Concerning trends: interest coverage at 1.56x and D/E of 11.21x indicate earnings are highly sensitive to financing costs; any SG&A growth outpacing revenue would quickly compress margins given the narrow operating margin base.

Growth Assessment

Revenue grew 3.6% YoY to 24.62, indicating modest demand resilience. Operating income rose 13.1% to 0.39, suggesting some operating leverage from cost controls or mix, despite elevated SG&A. Ordinary income was flat due to higher non-operating expenses than income (notably interest), muting the translation of operating gains to bottom-line. Net income increased 9.3% to 0.14; however, the absolute level remains low, leaving little buffer. Current operating margin is 1.58% and EBITDA margin 4.4%, both thin for absorbing shocks. Non-operating line remains a swing factor, with expenses (0.83) exceeding income (0.75); improving financing terms or reducing debt would directly aid growth translation into profit. Outlook: near-term growth sustainability hinges on maintaining gross margin amid cost inflation and lifting throughput (asset turnover). With ROIC at 1.5%, incremental growth should focus on higher-return projects and pruning underperforming assets to raise capital efficiency.

Financial Health

Liquidity is weak: current ratio 0.79 and quick ratio 0.75 both signal a short-term funding gap; working capital is negative at -1.81. Explicit warning: current ratio < 1.0. Short-term debt (3.19) is sizable relative to cash (3.38) and current assets (6.96) vs current liabilities (8.77), indicating maturity mismatch risk and reliance on rollovers. Solvency risk is elevated: D/E is 11.21x (explicit warning: > 2.0). Total loans (short + long) are 18.85 against total equity of 2.29, and implied debt/EBITDA is very high (~17.6x), constraining financial flexibility. Equity base is thin (owners' equity 2.29), implying an equity ratio in the high single digits; small losses could materially impact capital. No off-balance sheet obligations are reported in the data provided; note the lack of lease detail or guarantees disclosure limits full assessment.

Cash Flow Quality

Earnings quality appears strong this quarter: OCF of 0.60 is 4.29x net income, indicating good cash conversion (helped by working capital movements and/or non-cash D&A of 0.68). However, implied FCF is likely negative given capex of 0.92 vs OCF of 0.60 (approx. -0.32), though full investing cash flow details are unreported. The sustainability of OCF depends on maintaining gross margins and managing working capital; with a current ratio of 0.79, there is limited room to elongate payables or draw down inventories further. No overt signs of working capital manipulation are evident from the limited snapshot, but the negative working capital position suggests the model relies on supplier credit; any tightening could pressure OCF.

Dividend Sustainability

Reported payout ratio is 49.0% based on current earnings; absolute dividend amounts are unreported. With implied negative FCF (OCF 0.60 vs capex 0.92), dividend coverage from internal cash generation looks tight this period and likely dependent on cash balance or new borrowing. High leverage and low interest coverage reduce headroom for distributions without compromising deleveraging needs. Policy outlook: sustaining dividends at current payout levels would be more credible if operating margins can lift and capex normalizes lower; otherwise, prioritizing balance sheet repair may be warranted. Data limitations: actual DPS, timing, and total dividends paid are unreported.

Risk Assessment

Business Risks:

• Thin operating margin (1.58%) leaves limited buffer against cost inflation or demand softness.
• Dependence on non-operating line volatility (non-operating expenses > income) can dilute ordinary income.
• Low ROIC (1.5%) indicates value dilution risk if capital allocation does not improve.
• Potential labor cost and input price inflation compressing gross-to-operating margin spread.

Financial Risks:

• Liquidity risk: current ratio 0.79 and negative working capital (-1.81).
• High leverage: D/E 11.21x; loans totaling 18.85 versus EBITDA 1.07 (~17.6x).
• Debt service strain: interest coverage 1.56x; sensitivity to interest rate increases.
• Refinancing/maturity mismatch: short-term loans 3.19 vs tight current assets.

Key Concerns:

• Equity base is very thin (owners' equity 2.29), magnifying earnings volatility to capital.
• Ordinary income flat YoY despite operating improvement, due to financing burden.
• Implied negative FCF this period limits self-funded growth and dividends.
• Data gaps (investing CF, SG&A breakdown, dividend amounts) constrain full risk visibility.

Investment Implications

Key Takeaways:

• Modest top-line growth (+3.6% YoY) translated into small operating margin expansion (~+13 bps).
• Net margin improved slightly (~+3 bps), but remains below 1%, keeping profit fragile.
• Cash conversion strong (OCF/NI 4.29x), yet implied FCF negative given capex.
• Balance sheet risk is elevated: current ratio 0.79, D/E 11.21x, interest coverage 1.56x.
• ROIC at 1.5% vs leverage-driven ROE at 6.1% highlights structural return gap.

Metrics to Watch:

• Operating margin and SG&A ratio trajectory.
• Interest coverage and average borrowing rate.
• Current ratio and working capital movements (AR, AP, inventories).
• Capex run-rate versus OCF (implied FCF).
• ROIC improvement via asset turnover or NOPAT uplift.

Relative Positioning: Within small-cap consumer/restaurant peers, profitability remains subscale with sub-1% net margin and high financial leverage. Liquidity and leverage metrics are weaker than typical peers, making the equity more sensitive to operational or macro shocks unless deleveraging and margin improvement materialize.

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