KFC Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.28B
• Operating Income: ¥265M
• Net Income: ¥95M
• EPS: ¥29.26

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

KFC (3420) delivered a solid FY2026 Q2 performance, with revenue of ¥12.284bn, up 5.2% year on year, indicating steady demand in its core businesses. Gross profit reached ¥2.832bn, translating to a gross margin of 23.1%, which provides a reasonable cushion for overheads in a project- and materials-linked business. Operating income rose sharply to ¥265m (+255.1% YoY), implying strong operating leverage from modest topline growth—suggesting either improved pricing/mix, tighter cost control, or normalization from a low base. Ordinary income of ¥319m exceeded operating income by ¥54m, indicating positive non-operating contributions (likely interest/dividend income or other non-operating gains) more than offsetting the reported interest expense of ¥5.254m. Net income improved to ¥215m (+126.3% YoY), implying a net margin of 1.75% for the first half. DuPont decomposition shows net margin of 1.75%, asset turnover of 0.429x, and financial leverage of 1.35x, producing a reported ROE of 1.02% for the period. While this ROE is modest, the YoY profit inflection and low leverage profile suggest room for improvement if margin gains prove durable. Liquidity is strong, with a current ratio of 261% and quick ratio of 216%, supported by ¥18.72bn in current assets and ¥7.16bn in current liabilities; working capital stands at ¥11.56bn. Balance sheet conservatism is notable: total liabilities of ¥7.59bn against equity of ¥21.17bn implies a debt-to-equity of 0.36x and an implied equity ratio of about 74% (equity/assets), despite the reported equity ratio field showing 0.0% due to disclosure limitations. Interest coverage is healthy at ~50x, consistent with low financial risk. Cash flow statement items (OCF, investing CF, financing CF, and cash) are unreported in this dataset; accordingly, cash flow-based quality and dividend coverage cannot be evaluated from this release. Depreciation is also unreported, resulting in a mechanically zero EBITDA figure in the calculated metrics; this should not be interpreted as true operating cash profitability. The effective tax rate printed as 0.0% in the calculated metrics conflicts with the reported income tax expense of ¥55.5m; using ordinary income as a proxy for pretax income suggests an implied tax rate of roughly 17–18%, acknowledging potential differences between ordinary and pretax under JGAAP. Inventory is ¥3.25bn (about 17% of total assets), and quick liquidity remains ample even excluding inventory, indicating manageable working capital risk at midyear. EPS is ¥29.26, but share count and book value per share are unreported in this dataset, limiting per-share trend analysis. Overall, the first-half results demonstrate tangible profitability recovery, robust liquidity, and low leverage, with the key outstanding question being the sustainability of margin improvement and conversion to operating cash flow in the second half.

Profitability Analysis

ROE_decomposition: ROE ≈ Net margin (1.75%) × Asset turnover (0.429x) × Financial leverage (1.35x) = ~1.02% for the half-year period. ROA (NI/Assets) is ~0.75% for the half-year. Ordinary income margin is ~2.6% and operating margin is ~2.2%, pointing to a modest uplift from non-operating items. margin_quality: Gross margin is 23.1% (¥2,831.9m/¥12,284.0m). SG&A is inferred at ~¥2,566.9m, or ~20.9% of sales, leaving an operating margin of ~2.2%. The sharp YoY operating income increase versus a 5.2% revenue rise indicates improved operating efficiency and/or normalization from a weak prior-year base. The gap between operating and ordinary income (+¥54m) suggests recurring non-operating income partly underpins profit, while interest expense is small (¥5.3m). operating_leverage: Operating income +255% on +5.2% revenue implies high incremental margins in the period, likely from SG&A containment and possibly better pricing/mix. Sustainability will depend on backlog quality, input cost trends (e.g., steel), and project execution in 2H.

Growth Assessment

revenue_sustainability: Topline growth of 5.2% YoY appears steady, consistent with stable demand. Without order backlog or segment detail, the durability of this growth into 2H is uncertain. profit_quality: Net margin at 1.75% is still low but improving. Ordinary income benefits from net non-operating gains (~¥54m), so pure operating profit quality should be judged primarily on the ~2.2% OPM and gross margin trajectory. Depreciation is unreported, preventing EBITDA assessment. outlook: Assuming stable construction demand and disciplined cost control, margins could remain improved versus the prior year. Key sensitivities are material costs, competitive pricing, and project timing into fiscal 2H. Confirmation via OCF and backlog trends is needed to underpin the earnings recovery.

Financial Health

liquidity: Current ratio 261.4% and quick ratio 216.1% reflect strong short-term liquidity. Current assets: ¥18.72bn; current liabilities: ¥7.16bn; inventory: ¥3.25bn. Working capital: ¥11.56bn. solvency: Total liabilities ¥7.59bn versus equity ¥21.17bn (debt-to-equity 0.36x). Implied equity ratio ≈ 73.9% (21.171/28.627), despite the reported equity ratio field showing 0.0% due to disclosure limitations. capital_structure: Low leverage and high interest coverage (~50x) indicate ample headroom. Financial flexibility appears strong for capex and potential strategic investments, subject to cash flow generation not provided in this dataset.

Cash Flow Quality

earnings_quality: Operating CF and investing/financing CF are unreported (recorded as zero), so we cannot corroborate earnings with cash generation. Depreciation is also unreported, limiting assessment of accrual intensity. FCF_analysis: Free cash flow cannot be derived due to missing OCF and capex. As such, FCF conversion and sustainability of the earnings rebound remain unverified. working_capital: Inventory is ¥3.25bn (≈17% of total assets). Given strong quick liquidity, near-term WC risk appears contained, but without OCF and turnover metrics (AR/AP days), we cannot assess cash conversion or potential 2H WC build.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are reported as 0.00 and 0.0%, but dividend data may be undisclosed rather than truly zero. With EPS at ¥29.26 for 1H, capacity exists for distributions if policy permits; however, true payout cannot be evaluated from this dataset. FCF_coverage: FCF is unreported, so coverage of any dividend is indeterminable. We cannot assess cash returns to shareholders without OCF/capex figures. policy_outlook: No policy details are provided. Given historically conservative capital structures in the sector, an emphasis on balance sheet strength is likely; confirmation requires company guidance.

Risk Assessment

Business Risks:

• Project timing and order backlog volatility affecting quarterly revenue recognition
• Input cost inflation (e.g., steel) compressing gross margins under fixed-price contracts
• Competitive pricing pressure in construction-related fasteners/components
• Execution risk on large projects impacting margins and warranty costs
• Demand cyclicality tied to public works, infrastructure, and private construction cycles

Financial Risks:

• Potential working capital swings (inventory and receivables) not visible without OCF data
• Non-operating income dependence for part of ordinary profit
• Interest rate shifts modestly affecting financing costs (albeit low leverage)
• Unreported cash balance limits visibility on immediate liquidity buffers

Key Concerns:

• Sustainability of margin improvements beyond 1H absent detailed cost/mix disclosure
• Lack of cash flow disclosure prevents validation of earnings quality and FCF
• Discrepancy in calculated effective tax (0.0%) vs. reported tax expense suggests calculation limitations in provided metrics

Investment Implications

Key Takeaways:

• Topline grew 5.2% YoY to ¥12.284bn with a clear profit inflection (OP +255% YoY).
• Gross margin at 23.1% and OPM ~2.2% indicate improved operating efficiency.
• Ordinary income exceeded operating income by ¥54m, implying supportive non-operating gains.
• Balance sheet is conservative: D/E 0.36x; implied equity ratio ~74%; interest coverage ~50x.
• Liquidity is robust: current ratio 261%, quick ratio 216%, working capital ¥11.56bn.
• Cash flow figures are unreported; earnings-to-cash conversion remains unverified.
• ROE is modest at ~1.0% for 1H; further improvement hinges on sustained margin gains and asset turnover.

Metrics to Watch:

• Order backlog and book-to-bill to assess revenue visibility for 2H
• Gross margin and SG&A ratio trends to confirm operating leverage durability
• Operating cash flow and free cash flow to validate earnings quality
• Inventory and receivables turnover (days) for working capital discipline
• Ordinary vs. operating income mix to gauge reliance on non-operating items
• Capex and depreciation (once disclosed) to assess reinvestment needs and EBITDA
• Effective tax rate normalization relative to pretax income

Relative Positioning: Within construction-related manufacturing, KFC exhibits strong balance sheet resilience and improving profitability, but near-term visibility on cash generation and the durability of margin gains is limited by unreported cash flow details.

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