WASHINGTON HOTEL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.06B
• Operating Income: ¥2.00B
• Net Income: ¥1.70B
• EPS: ¥141.73

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

Washington Hotel Co., Ltd. (single-entity, JGAAP) delivered a strong FY2026 Q2 performance with revenue of ¥12.06bn, up 19.0% YoY, and operating income of ¥2.00bn, up 132.9% YoY, evidencing powerful operating leverage in a recovering hotel demand environment. Net income reached ¥1.70bn (+129.8% YoY), translating to EPS of ¥141.73 and a reported ROE of 15.67%, supported by a DuPont mix of 14.12% net margin, 0.364x asset turnover, and 3.05x financial leverage. EBITDA was ¥2.56bn (21.2% margin), and the interest coverage ratio was a comfortable 9.8x, indicating improved debt service capacity despite ¥203m of interest expense. The provided gross margin metric is 10.2%, and operating income exceeding reported gross profit suggests meaningful other operating income or cost reclassifications that lifted operating profitability. Ordinary income of ¥1.72bn came in below operating income due to non-operating costs (including interest), but bottom-line strength was further aided by a net tax credit (income tax of -¥102m), resulting in an effective tax rate of ~0%. Liquidity appears solid with a current ratio of 166% and working capital of ¥3.18bn, providing a buffer against seasonal swings in hotel operations. On solvency, total equity is ¥10.87bn against total assets of ¥33.15bn, implying an equity ratio around 33% (the disclosed equity ratio field shows 0% but appears unreported) and a debt-to-equity ratio of 2.22x, indicating moderate leverage for an asset-heavy lodging business. Operating cash flow was ¥1.16bn, yielding an OCF/Net Income ratio of 0.68, which points to some earnings-to-cash conversion lag, potentially from working capital movements or non-cash items. Investing cash flow is unreported in the dataset (shown as 0), so free cash flow cannot be reliably derived; the displayed FCF of 0 should be treated as unknown. Financing cash flow was -¥697m, likely reflecting net debt service or lease repayments, consistent with deleveraging amid stronger earnings. No dividend was paid (DPS ¥0), with a payout ratio of 0%, suggesting a conservative stance while cash generation normalizes and balance sheet strength is rebuilt. The pronounced jump in profitability relative to revenue underscores favorable operating leverage as occupancy and ADR/RevPAR recover, but sustainability will depend on the persistence of demand, price discipline, and cost control, particularly labor and utilities. Interest burden remains manageable given current coverage, though refinancing terms and rates remain key watch points. Overall, momentum is clearly positive, but data gaps (notably cash, capex, and share count) require caution when interpreting cash flow durability, capital intensity, and per-share metrics.

Profitability Analysis

ROE at 15.67% is consistent with DuPont drivers: 14.12% net profit margin, 0.364x asset turnover, and 3.05x financial leverage, indicating returns are primarily margin-led with modest balance sheet efficiency and moderate leverage. The operating income surge (+132.9% vs +19.0% revenue) highlights strong operating leverage typical of hotel businesses as fixed costs are spread over higher revenue. EBITDA margin at 21.2% and interest coverage at 9.8x reflect improved operating quality and resilience to financing costs. The reported gross margin of 10.2% is low for hotels on a narrow definition of cost of sales; operating income exceeding reported gross profit implies materially positive net other operating items (e.g., fees, subsidies, or cost reclassifications), lifting operating margin. Ordinary income (¥1.72bn) trails operating income due to net non-operating expenses, mainly interest (¥203m), but the drag is contained given higher operating profits. The effective tax rate is ~0% due to a net tax credit (-¥102m), which boosts net margin and ROE in this period but is unlikely to be recurring at the same magnitude. Depreciation and amortization of ¥553m against EBITDA of ¥2.555bn implies healthy EBIT flow-through; asset intensity remains meaningful but manageable. Overall margin quality is good at the operating level but partly aided by non-recurring or non-cash tax effects; sustainability should be evaluated against normalized tax and non-operating income/expense.

Growth Assessment

Top-line rose 19.0% YoY to ¥12.06bn, consistent with broad travel recovery and pricing power in domestic lodging. Operating income rose 132.9% YoY to ¥2.00bn, underscoring significant operating leverage as occupancy and ADR/RevPAR expand. Net income (+129.8% YoY) benefitted from operating strength and a tax credit; excluding the tax benefit, underlying growth is still robust but likely lower than reported. Revenue sustainability hinges on maintaining occupancy, corporate travel recovery, and ability to hold ADR amid increasing supply and consumer sensitivity. Profit quality is supported by EBITDA margin of 21.2% and interest coverage of 9.8x; however, OCF/NI at 0.68 signals some cash conversion drag, likely from working capital rebuild as volumes rise or timing effects. Outlook is constructive near term if demand conditions persist, with scope for further efficiency gains in labor scheduling and energy management. Key watch items for sustainability include the mix between leisure and business demand, weekday occupancy, and any reliance on subsidies or one-off operating gains observed in the P&L structure.

Financial Health

Liquidity is solid: current assets ¥7.98bn vs current liabilities ¥4.80bn produce a current ratio of 166% and positive working capital of ¥3.18bn, reducing short-term refinancing risk. Cash and equivalents are shown as 0 but are unreported; nonetheless, operating cash inflow of ¥1.16bn supports near-term liquidity. Solvency appears balanced: total equity ¥10.87bn against assets ¥33.15bn implies an equity ratio around 32.8% (the reported 0% is an unreported placeholder), while the debt-to-equity ratio is 2.22x, consistent with an asset-heavy hotel operator. Interest expense of ¥203m is covered 9.8x by operating income, offering a cushion against rate volatility. Financing cash outflow of -¥697m suggests net repayments or dividend abstention to prioritize balance sheet strengthening. Overall capital structure is moderately leveraged but improving as earnings recover.

Cash Flow Quality

OCF of ¥1.16bn versus net income of ¥1.70bn yields an OCF/NI ratio of 0.68, indicating partial cash realization of earnings, potentially due to working capital investments (e.g., receivables timing, prepaid items) or non-cash gains/tax credits. D&A of ¥553m represents ~22% of EBITDA, reflecting meaningful non-cash expense consistent with hotel asset intensity. Investing cash flow is unreported (shown as 0), preventing a reliable free cash flow calculation; the displayed FCF of 0 should be interpreted as not available rather than zero. Financing cash flow of -¥697m aligns with debt service or lease repayments, which, alongside positive OCF, implies some internal funding capacity for obligations. Working capital is positive at ¥3.18bn and current ratios are healthy, but the sub-1.0 OCF/NI ratio suggests monitoring of cash conversion as activity scales. Overall, earnings quality is improving but requires confirmation through sustained OCF in subsequent quarters and clarity on capex.

Dividend Sustainability

The company paid no dividend (DPS ¥0) and posted a payout ratio of 0%, consistent with a cautious capital allocation stance during recovery. With investing cash flows unreported, free cash flow coverage cannot be assessed; the displayed FCF of 0 is not informative. On earnings capacity, EPS of ¥141.73 and strong operating income would theoretically allow for distributions, but sustainability depends on normalized OCF and required maintenance/growth capex. Given the debt-to-equity ratio of 2.22x and ongoing deleveraging (financing CF -¥697m), retaining earnings to strengthen the balance sheet appears prudent. Policy outlook likely leans toward dividend resumption only after consistent positive FCF and clearer visibility on demand and capex needs.

Risk Assessment

Business Risks:

• Demand cyclicality and sensitivity to macro conditions impacting occupancy and ADR/RevPAR
• Potential normalization of one-off operating items or subsidies that boosted operating income
• Labor cost inflation and tight labor market affecting service levels and margins
• Energy and utility cost volatility impacting operating expenses
• Competitive pressure from new hotel supply and alternative accommodations
• Geographic/event concentration risks affecting weekday corporate demand

Financial Risks:

• Moderate leverage (D/E 2.22x) increasing sensitivity to earnings volatility
• Refinancing and interest rate risk despite current 9.8x coverage
• Cash conversion risk (OCF/NI 0.68) amid working capital swings
• Capex intensity typical of hotel assets; investing CF not disclosed in this dataset
• Tax normalization risk given a temporary tax credit this period

Key Concerns:

• Sustainability of margin expansion as one-off benefits fade
• Visibility on capex and true free cash flow given unreported investing CF
• Maintaining occupancy and pricing amid competitive and macro headwinds

Investment Implications

Key Takeaways:

• Strong operating leverage: revenue +19% drove operating income +133% and ROE 15.7%
• Healthy operating metrics: EBITDA margin 21.2%, interest coverage 9.8x
• Liquidity solid with current ratio 166% and ¥3.18bn working capital
• Moderate leverage (approx. 33% equity ratio implied; D/E 2.22x) remains a monitoring point
• Earnings-to-cash conversion moderate (OCF/NI 0.68); FCF not ascertainable due to unreported capex
• Tax credit boosted net margin; normalized tax could reduce bottom-line
• No dividend; capital allocation appears focused on balance sheet and flexibility

Metrics to Watch:

• Occupancy, ADR, and RevPAR trends by weekday/weekend mix
• Labor cost ratio and utility cost per available room
• Operating cash flow trajectory and OCF/NI ratio
• Capex (maintenance and renovation) and resulting free cash flow
• Net debt and interest expense run-rate; refinancing terms
• Non-operating income/expense items and any government subsidies
• Effective tax rate normalization

Relative Positioning: Positioned as a domestic hotel operator benefiting from Japan’s travel recovery with improving operating leverage and adequate liquidity; leverage is moderate and manageable, but cash conversion and capex visibility lag peers with fuller disclosure.

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