Kitazato Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.25B
• Operating Income: ¥2.77B
• Net Income: ¥1.80B
• EPS: ¥45.12

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: A strong and cash-generative Q2 with slight margin compression but continued double-digit return metrics and a fortress balance sheet. Revenue rose 8.3% YoY to 52.47, while operating income increased 5.9% YoY to 27.69 and net income rose 6.0% YoY to 18.04. Gross margin was a high 66.0%, operating margin stood at 52.8%, and net margin was 34.4%, underscoring high-value-added operations. Based on growth rates, operating margin likely compressed by roughly 120 bps YoY (from ~54.0% to 52.8%), and net margin by about 70 bps (from ~35.1% to 34.4%). SG&A intensity remains lean at 13.2% of sales, suggesting disciplined cost control despite revenue growth. Non-operating items were a small net drag (income 0.12 vs expenses 0.52), but ordinary income still grew 4.9% YoY to 27.28. Cash generation quality is solid: operating cash flow of 19.96 exceeds net income (OCF/NI 1.11x), indicating earnings are well backed by cash. Free cash flow, approximated as OCF minus capex, was about 18.53, comfortably covering financing outflows of -17.15. The balance sheet is exceptionally liquid with cash and deposits at 116.08, current assets of 149.57, and current liabilities of only 13.99, yielding a current ratio of 1069% and quick ratio of 1038%. Leverage is minimal (D/E 0.08x), and interest burden negligible (coverage 2,769x), limiting financial risk. DuPont shows ROE at 9.8%, driven by extraordinary margins and very low leverage; asset turnover is modest at 0.264 due to a large cash position. ROIC is reported at a standout 26.9%, implying strong economic returns on invested capital. Effective tax rate was 33.9%, a headwind that could swing results if tax items normalize differently ahead. Dividend payout is indicated at 90.9% (calculated), which looks high, though cash flows presently cover it; however, DPS itself is unreported. Forward-looking, management has room to enhance ROE via capital efficiency (deploying excess cash) or continued high-return reinvestment, while sustaining margins remains the key watchpoint. Overall, the company enters the second half with ample liquidity, high returns on capital, and resilient earnings quality despite modest margin normalization.

Profitability Analysis

ROE (9.8%) = Net Profit Margin (34.4%) × Asset Turnover (0.264) × Financial Leverage (1.08x). The largest YoY change appears in margins (operating up 5.9% vs revenue up 8.3%), implying operating margin compression of roughly 120 bps; asset turnover and leverage are largely stable given the cash-heavy balance sheet and modest asset growth. The core business remains highly profitable (gross margin 66.0%, SG&A ratio 13.2%), but a small non-operating net expense and a higher effective tax rate (33.9%) tempered bottom-line flow-through. The compression likely reflects mix effects or input cost normalization rather than structural deterioration, given continued revenue growth and controlled SG&A; it looks manageable and potentially reversible with pricing/mix discipline. Sustainability: high gross margins and low SG&A suggest underlying profitability is durable; however, the very high margins provide limited room for further expansion and are more likely to normalize slightly than to expand materially. Watch for any period where SG&A growth materially outpaces revenue—currently not the case.

Growth Assessment

Top-line grew 8.3% YoY to 52.47, with operating income rising 5.9% and net income 6.0%, indicating healthy underlying demand but slightly lower operating leverage than last year. Ordinary income growth (4.9%) lagged sales due to minor non-operating headwinds. Revenue quality looks strong given the 66.0% gross margin and contained SG&A, suggesting a value-added model rather than volume-driven growth. The slight margin compression indicates either pricing normalization or higher input costs; absent detailed segment data, we assume mix/inflation dynamics as primary drivers. With ROIC at 26.9%, reinvestment opportunities appear attractive if the firm can deploy capital without diluting returns. Near-term outlook hinges on maintaining pricing power and managing costs; if gross margins hold near current levels and SG&A stays disciplined, mid- to high-single-digit profit growth is achievable. Non-operating items and tax rate variability could add noise to quarterly growth.

Financial Health

Liquidity is exceptionally strong: current ratio 1069.1% and quick ratio 1037.8% (well above benchmarks), with cash and deposits of 116.08 vs current liabilities of 13.99. No warning on current ratio (<1.0) or D/E (>2.0); D/E is a very conservative 0.08x. Maturity mismatch risk is negligible given current assets of 149.57 far exceed current liabilities of 13.99. Interest expense is minimal (0.01), and interest coverage is 2,769x, implying de minimis financial stress. Noncurrent liabilities are only 0.81, underscoring low solvency risk. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not rule them out, but nothing material is indicated.

Cash Flow Quality

OCF/Net Income is 1.11x, indicating high-quality earnings with cash conversion in line with accruals. Free cash flow, approximated as OCF (19.96) minus capex (1.43), is about 18.53, ample relative to financing outflows (-17.15). Working capital indicators (AR 11.02, inventory 4.38, AP 2.00) are modest versus cash, but lack of period-to-period deltas limits assessment of timing effects; no signs of aggressive working capital tactics are evident from point-in-time figures alone. Given strong cash balances and low capex, FCF sustainability appears solid near term, barring a step-up in investment or a downturn in profitability.

Dividend Sustainability

The calculated payout ratio of 90.9% appears elevated versus the <60% benchmark, but DPS and total dividends paid are unreported, so this figure should be treated cautiously. Financing cash outflows (-17.15) were covered by estimated FCF (~18.53), implying current distributions are cash-flow covered. With a large cash buffer (116.08) and minimal leverage, the company can sustain distributions tactically even at a high payout, though such a policy could constrain flexibility for growth capex or M&A if pursued. Policy outlook: absent explicit guidance, we expect management to balance high shareholder returns with selective reinvestment, and there is scope to tune payouts depending on growth pipeline and capital allocation priorities.

Risk Assessment

Business Risks:

• Margin normalization risk from input costs or pricing pressure (noted ~120 bps operating margin compression YoY).
• Potential tax rate volatility (effective tax 33.9%) affecting net income.
• Execution risk in deploying excess cash at returns consistent with current ROIC (26.9%).
• Customer/mix concentration risk cannot be assessed due to limited disclosure.

Financial Risks:

• Low asset turnover (0.264) combined with a large cash position depresses ROE relative to ROIC.
• Interest rate risk on large cash holdings (earnings sensitivity to deposit yields).
• Dividend sustainability risk if payout remains near ~90% and capex/strategic investments rise.

Key Concerns:

• Slight but broad-based margin compression (operating and net).
• High implied payout ratio versus typical sustainability benchmarks.
• Limited visibility on investing CF and dividend amounts due to unreported items.

Investment Implications

Key Takeaways:

• Healthy top-line growth (+8.3% YoY) with best-in-class margins (gross 66%, operating ~53%).
• Earnings quality robust (OCF/NI 1.11x) and strong FCF (~18.53) covering financing outflows.
• Balance sheet extremely liquid and under-levered (current ratio ~10.7x, D/E 0.08x).
• ROIC is outstanding (26.9%), suggesting attractive reinvestment economics.
• ROE at 9.8% is constrained by low leverage and a large cash balance; capital efficiency is the lever.

Metrics to Watch:

• Operating margin trajectory (bps change QoQ/YoY).
• SG&A growth vs revenue growth.
• OCF/Net income and working capital movements (AR, inventory, AP turns).
• Capex pipeline and ROIC by project/segment (if disclosed).
• Dividend policy clarity (DPS, payout, buybacks) and financing CF composition.
• Effective tax rate trends.

Relative Positioning: Within its peer set, the company appears superior on margins, cash generation, liquidity, and ROIC, but exhibits lower capital efficiency (asset turnover) and a potentially high payout stance; overall risk is low given the balance sheet, with upside tied to capital deployment discipline and margin resilience.

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