Maruhachi Holdings Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.78B
• Operating Income: ¥770M
• Net Income: ¥1.07B
• EPS: ¥68.99

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

Verdict: Solid operating performance with margin expansion, but headline net profit declined on a higher tax burden and profits remain heavily supported by financial (non-operating) income. Revenue was 57.84, down 2.5% YoY, while operating income rose 7.3% YoY to 7.70, indicating good cost control and/or mix improvement. Gross profit was 39.96, implying a strong gross margin of 69.1%. SG&A was 32.26, equivalent to 55.8% of sales, allowing operating leverage despite a top-line dip. Operating margin improved to 13.3% vs roughly 12.1% a year ago (about +120 bps), reflecting efficiency gains. Ordinary income increased 27.5% YoY to 15.95, aided by sizable non-operating income of 8.54 (interest income 5.52 and dividends 1.16 being the key drivers). Profit before tax was 16.58, but net income fell 11.7% YoY to 10.69 due to a 35.5% effective tax rate and an unfavorable YoY comparison (prior-year tax or one-off factors likely more favorable). Cash generation lagged earnings as operating cash flow was 5.60, only 0.52x net income, flagging earnings quality risk this quarter. The balance sheet is exceptionally liquid with cash and deposits of 281.61 and current ratio of 441.5%, while leverage is conservative on a D/E basis (0.36x) despite a high gross Debt/EBITDA of 10.1x. Capital efficiency remains weak: ROE is 1.9% and ROIC 1.3%, reflecting low asset turnover (0.076) and a large financial asset base. Non-operating income accounts for a large share of profit (non-operating income ratio 79.9%), implying heightened sensitivity to interest rate trends and financial market returns. EBITDA was 10.26 (margin 17.7%), and interest coverage is strong at 27.3x, underscoring low near-term solvency risk. Working capital is abundant (working capital 266.92), and maturity mismatch risk appears low given minimal payables and high cash. Dividend capacity looks adequate on a payout ratio basis (46.5%) and implied FCF coverage appears reasonable if we proxy FCF as OCF minus capex; however, ongoing OCF softness is a watch point. Forward-looking, sustaining higher operating margins while reducing reliance on financial income is key to improving ROIC/ROE; interest rate normalization or lower financial returns could pressure ordinary income. Overall, the quarter shows resilient core profitability and fortress liquidity, but weak capital efficiency and cash conversion temper the quality of earnings.

Profitability Analysis

ROE decomposition: ROE 1.9% = Net Profit Margin (18.5%) × Asset Turnover (0.076) × Financial Leverage (1.36x). The most constraining factor is asset turnover at 0.076, reflecting a sizable cash and investment securities position (cash 281.61; investment securities 225.52) relative to revenues. Net margin is elevated in part because non-operating income (interest/dividends) boosts ordinary income and, ultimately, net income. Financial leverage is modest (1.36x), limiting ROE amplification from gearing. Business drivers: the operating margin improved to 13.3% as SG&A discipline offset a small revenue decline, but ordinary income growth depended materially on higher interest income (5.52), likely benefiting from higher rates on a large cash balance. Sustainability: operating margin gains could be sustainable if mix and cost efficiencies persist, but the non-operating contribution is sensitive to rate movements and investment income volatility. Watch for SG&A growth relative to sales; in this quarter, operating income rose despite lower sales, signaling positive operating leverage, but persistent revenue softness could eventually pressure margins.

Growth Assessment

Top line contracted 2.5% YoY to 57.84, suggesting demand softness or portfolio pruning. Operating income rose 7.3% YoY to 7.70, indicating improved mix and/or SG&A control. Ordinary income jumped 27.5% YoY to 15.95, driven by non-operating income of 8.54 (notably 5.52 interest income), which may not be a durable growth source if rates normalize. Net income declined 11.7% YoY to 10.69 due to a higher effective tax rate of 35.5% and potential absence of prior-year one-off benefits. EBITDA margin of 17.7% reflects decent core profitability relative to revenue size. Near-term growth outlook hinges on stabilizing sales, sustaining the improved operating margin, and maintaining financial income tailwinds. Without a sales rebound or further efficiency gains, earnings growth will be reliant on external rate conditions and portfolio returns.

Financial Health

Liquidity is exceptionally strong: current ratio 441.5% and quick ratio 420.3%; explicit warning thresholds are not breached (well above 1.0). Working capital is 266.92 with cash and deposits of 281.61 exceeding total current liabilities (78.15) by a wide margin, indicating minimal maturity mismatch risk. Solvency is conservative: D/E 0.36x and interest coverage 27.27x; however, gross Debt/EBITDA is high at 10.08x due to modest EBITDA versus long-term loans (103.50). Net leverage is likely far lower when netting the large cash balance, but net debt is not explicitly provided. No off-balance sheet obligations are reported in the provided data. Overall, the balance sheet can comfortably absorb near-term shocks.

Cash Flow Quality

OCF was 5.60 versus net income of 10.69, yielding an OCF/NI of 0.52x, which signals weak cash conversion this period. Drivers are not disclosed, but the combination of high cash balances and modest receivables/inventories suggests potential timing effects in working capital or tax payments; further disclosure would be needed to isolate causes. Capex was 1.14; using OCF minus capex as a proxy, implied FCF is about 4.46, but full investing cash flows are unreported, so this is an approximation. Financing CF was a sizable inflow of 30.35, implying reliance on external funding or balance sheet optimization despite a large cash position (details unreported). Dividend and share repurchase cash outflows are unreported, limiting full coverage analysis. Quality flag: OCF/NI below 0.8 suggests earnings quality risk if repeated; monitor for normalization over the next quarters.

Dividend Sustainability

The calculated payout ratio is 46.5%, which is within a generally sustainable range (<60%). On an implied basis, OCF of 5.60 less capex of 1.14 suggests roughly 4.46 of FCF available; while total dividends paid are unreported, this indicates potential coverage if dividends are moderate. The robust cash balance (281.61) provides an additional buffer for dividends even if OCF volatility persists. Key watch points are the persistence of non-operating income supporting earnings and the OCF/NI shortfall; a sustained gap could challenge dividend growth, though current payout appears manageable.

Risk Assessment

Business Risks:

• Revenue decline of 2.5% YoY indicates demand softness or share loss risk.
• Operating performance partly offset by non-operating income; core growth needs strengthening.
• Potential margin pressure if sales remain weak and efficiency gains taper.

Financial Risks:

• Earnings reliance on interest/dividend income (non-operating income 8.54) exposes profits to interest rate and market return volatility.
• OCF/Net Income at 0.52x highlights cash conversion risk; potential working capital timing or structural issues.
• High gross Debt/EBITDA of 10.1x, although mitigated by large cash (net leverage likely low).
• Concentration in financial assets (cash 281.61; investment securities 225.52) raises mark-to-market and reinvestment risks.

Key Concerns:

• Low capital efficiency: ROE 1.9% and ROIC 1.3% well below common targets.
• Effective tax rate at 35.5% contributed to net income decline; if sustained, it dampens bottom-line growth.
• Data limitations on investing CF, dividend cash outflows, and SG&A breakdown obscure deeper diagnostics.

Investment Implications

Key Takeaways:

• Core margin improved: operating margin ~13.3% (+~120 bps YoY) despite lower sales.
• Ordinary income growth is non-operating led (interest/dividend income), heightening rate sensitivity.
• Cash conversion weak (OCF/NI 0.52x); needs normalization to underpin dividend resiliency.
• Balance sheet strength (current ratio 441%, D/E 0.36x) reduces solvency risk.
• Capital efficiency is the main weakness (ROE 1.9%, ROIC 1.3%).

Metrics to Watch:

• OCF/Net Income (>1.0 target) and working capital movements.
• Composition of ordinary income: interest/dividend vs operating.
• ROIC improvement trajectory and asset turnover (use of large cash/securities).
• Operating margin sustainability and SG&A as a % of sales.
• Interest rate trends and reinvestment yields on cash/securities.
• Debt maturity profile and any changes in net leverage.

Relative Positioning: Versus domestic household goods/textile peers, the company exhibits far stronger liquidity and lower balance-sheet risk, but weaker capital efficiency and a higher dependence on financial income to support profit growth.

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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