KITABO CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥821M
• Operating Income: ¥-34M
• Net Income: ¥-36M
• Earnings per Unit (EPU): ¥-1.35

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 (cumulative) was weak, with top-line growth failing to offset cost pressure, resulting in operating and net losses alongside negative operating cash flow. Revenue rose 6.8% YoY to 8.21, but gross profit of 1.37 could not cover SG&A of 1.71, driving an operating loss of -0.34 and ordinary loss of -0.33. Gross margin printed at 16.6%, operating margin at -4.1%, and net margin at -4.4%, underscoring limited pricing power and/or elevated input costs. Non-operating items were small (income 0.09, expense 0.08), providing negligible cushion to ordinary results. The effective tax rate appears distorted (-9.2%) due to loss-making status and minor tax accruals. ROE was -2.8% on DuPont metrics (NPM -4.4%, asset turnover 0.377x, leverage 1.69x), highlighting profitability as the main drag rather than leverage. ROIC of -2.6% is well below the 5% warning threshold, reflecting value destruction at current returns. Cash flow quality is a concern: operating CF of -1.68 was more negative than the accounting loss (-0.36), implying cash burn from working capital and/or weaker cash earnings. Financing CF of +0.86 suggests reliance on external funding to bridge operating deficits. Liquidity is adequate on paper (current ratio 181.6%, quick ratio 157.0%), but interest coverage is deeply negative (-5.4x), pointing to debt-service vulnerability if losses persist. The balance sheet shows negative retained earnings (-13.65) cushioned by substantial paid-in capital, keeping total equity at 12.88 and D/E at 0.69x. Working capital remains positive at 4.10, and cash of 4.14 provides a near-term buffer. However, short-term loans of 3.12 introduce refinancing risk if cash outflows continue. No dividend information was reported; given losses and negative OCF, distributions appear unlikely near term. Forward-looking, stabilization hinges on improving gross margin and scaling revenue to absorb fixed SG&A, or executing cost reductions; otherwise, further financing may be necessary.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-4.4%) × 0.377 × 1.69 ≈ -2.8%. The largest drag is the net profit margin turning negative, given gross margin (16.6%) was insufficient to cover SG&A (SG&A/Revenue ≈ 20.8%), leading to an operating margin of -4.1% and net margin of -4.4%. Asset turnover at 0.377x indicates low utilization of the asset base for a manufacturer of this scale, compounding the margin weakness. Financial leverage at 1.69x is moderate and not the key driver of ROE deterioration. Business drivers: elevated input costs, pricing pressure, and fixed-cost absorption likely weakened operating margin; non-operating items were neutral. Sustainability: absent price increases or cost cuts, the negative margin appears recurring rather than one-time. Concerning trends: SG&A exceeded gross profit (1.71 > 1.37), suggesting insufficient scale; and interest expense (0.06) is meaningful versus EBITDA (-0.24), worsening interest coverage.

Growth Assessment

Revenue growth of +6.8% YoY to 8.21 indicates some demand resilience, but profitability did not improve given gross margin at 16.6% and operating margin at -4.1%. The quality of growth is weak as higher sales did not translate into operating leverage; SG&A/Revenue remains elevated (~20.8%). No segment or price/mix detail is available; therefore, we cannot separate volume versus price effects. With non-operating income small (0.09), earnings depend primarily on core operations, which are loss-making. Outlook: near-term growth must be accompanied by gross margin recovery (input cost normalization, pricing actions) and SG&A discipline to restore positive operating margin. Without these, incremental sales may continue to dilute returns. Watch for inventory normalization and receivables turnover to support cash conversion.

Financial Health

Liquidity: current ratio 181.6% and quick ratio 157.0% are healthy, with cash and deposits at 4.14 providing a buffer. Solvency: D/E at 0.69x is moderate, and total equity of 12.88 remains positive despite retained losses; there is no explicit warning threshold breach (D/E < 2.0, Current Ratio > 1.0). Maturity profile: short-term loans of 3.12 are significant versus current assets (9.13), but coverage by cash (4.14), receivables (2.17), and inventories (1.24) appears adequate in the near term. Interest coverage is a key weakness at -5.40x, indicating debt service risk if losses persist. No off-balance sheet obligations were disclosed in the provided data. Accumulated deficits (retained earnings -13.65) constrain financial flexibility despite large paid-in capital.

Cash Flow Quality

OCF of -1.68 versus net income of -0.36 indicates weaker cash generation than accrual earnings; the OCF/NI ratio reads 4.68x due to both values being negative, but the qualitative takeaway is unfavorable (cash burn exceeds accounting loss). Free cash flow is not reported; based on provided capex (-0.07), implied FCF is approximately -1.75 (OCF - capex), signaling that the business did not self-fund operations and maintenance investment. Financing inflows (+0.86) likely bridged part of the cash deficit. Working capital detail is limited, but negative OCF alongside rising sales suggests potential cash absorption in receivables and/or inventories; we cannot confirm the magnitudes without a cash flow breakdown. No signs of aggressive working capital improvement are evident; rather, the inverse is likely this period.

Dividend Sustainability

Dividend data were not reported. Given net loss (-0.36), negative operating cash flow (-1.68), and implied negative FCF, the capacity to pay dividends appears constrained near term. Payout and FCF coverage ratios are not calculable from disclosures. With retained earnings at -13.65, policy flexibility is limited under JGAAP unless backed by distributable amounts from capital surplus as permitted; no such policy specifics were disclosed. Until core profitability and cash generation turn positive, sustaining or initiating dividends would likely require drawing on financial reserves or additional financing.

Risk Assessment

Business Risks:

• Gross margin pressure from input costs (fibers, chemicals, energy) and limited pricing power (GPM 16.6% vs SG&A 20.8%).
• Scale inefficiency: SG&A exceeds gross profit, implying insufficient operating leverage at current revenue.
• Demand volatility in textile/industrial materials end-markets; small revenue base (8.21 cumulative) heightens sensitivity.
• FX risk on imported raw materials and energy if costs are foreign currency-linked.

Financial Risks:

• Negative operating cash flow (-1.68) and implied negative FCF (~-1.75), creating funding needs.
• Interest coverage is deeply negative (-5.40x), increasing debt-service vulnerability.
• Short-term loans of 3.12 introduce refinancing risk if cash burn continues.
• Accumulated deficits (retained earnings -13.65) constrain capital policy flexibility.

Key Concerns:

• ROIC at -2.6% (<5% warning) indicates value destruction.
• Net margin -4.4% and ROE -2.8% reflect structural profitability issues.
• OCF worse than NI suggests weak cash earnings and/or working capital absorption.
• Lack of detailed disclosures (segment, YoY cost breakdown) limits visibility into drivers and remediation.

Investment Implications

Key Takeaways:

• Top-line grew 6.8%, but margins remained negative with operating margin -4.1% and net margin -4.4%.
• Cash burn is material: OCF -1.68 versus NI -0.36; financing inflows (+0.86) were required.
• Liquidity is adequate (current ratio 181.6%) but coverage of interest is problematic (-5.40x).
• ROIC -2.6% and ROE -2.8% underscore low returns; profitability is the primary lever to fix ROE.
• Balance sheet strength rests on paid-in capital; retained earnings are significantly negative.

Metrics to Watch:

• Gross margin progression and SG&A ratio to revenue.
• Operating margin and EBITDA turning positive.
• Operating cash flow and working capital movements (receivables/inventory turns).
• Interest coverage and net debt trend, especially short-term borrowings.
• Order intake/pricing actions and any cost pass-through to customers.

Relative Positioning: Relative to domestic textile/specialty materials peers, the company operates at smaller scale with weaker profitability and returns (negative ROIC/ROE) and inferior interest coverage, albeit with moderate balance-sheet leverage and acceptable near-term liquidity.

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