RESOL HOLDINGS Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.12B
• Operating Income: ¥1.49B
• Net Income: ¥1.35B
• EPS: ¥241.79

Income Statement

Balance Sheet

Cash Flow Statement

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

Verdict: Solid Q2 with double-digit profit growth and margin expansion, but liquidity remains tight. Revenue rose to 151.15 (100M JPY), up 8.6% YoY, while operating income increased 23.8% to 14.90, demonstrating good operating leverage. Gross profit was 106.65, implying a high gross margin of 70.6%, consistent with an asset-heavy hospitality/services mix. Operating margin improved to 9.9% from roughly 8.6% a year ago, an expansion of about 122 bps. Net income grew 29.3% to 13.43, aided by a light effective tax rate of 7.1%. Ordinary income of 14.00 was held back by net non-operating losses (mainly interest expense of 1.06 outweighing 0.83 non-op income). EBITDA reached 21.02, with an EBITDA margin of 13.9%; interest coverage is strong at 14.06x. Cash generation was robust: operating cash flow of 24.12 equates to 1.80x net income, signaling high earnings quality. Balance sheet leverage is moderate with D/E at 1.56x and Debt/EBITDA of 4.97x, but the current ratio at 0.87 highlights short-term liquidity pressure. Working capital is negative (-13.12), indicating reliance on short-term funding or quick cash conversion. ROE calculated at 7.9% is decent, driven primarily by improved margins and moderate leverage; ROIC at 5.8% trails the typical 7–8% target, suggesting scope for further efficiency gains. Non-operating items were a small drag, and results are largely operationally driven rather than one-off gains, enhancing quality. The implied payout ratio is 41.4%, likely sustainable given strong OCF, though comprehensive FCF is unreported. Key forward-looking watchpoints include maintaining ADR/occupancy, controlling SG&A, and managing refinancing amid low current liquidity. Overall, Q2 performance is positive with improving profitability and solid cash conversion, tempered by near-term liquidity tightness and moderate leverage.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.9% = Net Profit Margin 8.9% × Asset Turnover 0.348 × Financial Leverage 2.56x. The most notable improvement is in margin: operating income grew 23.8% on 8.6% revenue growth, implying operating margin expansion from ~8.64% to ~9.86% (+122 bps). Business drivers likely include higher occupancy/ADR and better mix/pricing in hospitality/membership businesses, while cost controls kept SG&A growth below revenue growth (SG&A ratio ~60.7%). Asset turnover remains structurally low at 0.348, consistent with an asset-intensive model; we lack YoY asset data to confirm improvement, but revenue outpaced typical asset base growth, suggesting stable-to-slightly-better turnover. Financial leverage at 2.56x supports ROE but also elevates risk; D/E at 1.56x is moderate for the sector. The margin gains appear operational rather than one-off, supported by low non-operating contribution (net non-op loss), suggesting some sustainability if demand holds. Watch for SG&A discipline: while the ratio is high, operating leverage worked this quarter; any SG&A growth exceeding revenue would quickly compress margins. Net profit margin of 8.9% benefited from a low 7.1% tax rate; if tax normalizes, NPM could moderate, slightly pressuring ROE.

Growth Assessment

Top-line growth of 8.6% YoY to 151.15 is healthy, likely driven by demand recovery, pricing, and utilization in hospitality/leisure. Operating income rose 23.8% to 14.90, indicating positive operating leverage and improved efficiency. Gross margin at 70.6% underscores strong value-add or membership/service components. Non-operating items were a mild headwind (net -0.89), so profit growth is fundamentally operational. Sustainability hinges on maintaining occupancy/ADR, membership renewals, and controlling labor and utility costs. With ROIC at 5.8%, returns are improving but below typical targets (7–8%); further capital efficiency or mix upgrades are needed to sustain profit growth. We see no evidence of one-off gains; the low tax rate could be partially non-recurring (loss carryforwards/credits), and normalization would temper net growth. Near-term outlook is constructive if demand remains resilient and the company manages cost inflation; liquidity constraints could limit aggressive growth investments without refinancing.

Financial Health

Liquidity: Current ratio is 0.87 (<1.0 warning) and quick ratio equals 0.87, indicating tight short-term liquidity and a reliance on ongoing cash generation or rolling short-term debt. Working capital is negative at -13.12. Maturity mismatch: current liabilities 102.89 exceed current assets 89.77; short-term loans are 24.00 against cash 36.52, which partially mitigates but does not eliminate risk. Solvency: Total liabilities 265.01 vs equity 169.75 (D/E 1.56x), a moderate leverage profile; long-term loans 80.42 and total interest-bearing debt implied at ~104.42. Debt/EBITDA at 4.97x is within common thresholds but leaves less room for shocks. No off-balance sheet obligations are reported in the provided data. Explicit warning: Current ratio < 1.0.

Cash Flow Quality

OCF/Net Income is 1.80x, signaling strong cash conversion and high earnings quality. Operating CF of 24.12 comfortably covers interest expense (1.06) and supports maintenance capex. While full investing CF is unreported, a proxy FCF (OCF − Capex) is approximately 14.87, suggesting capacity to fund dividends and some debt reduction; this is an estimate given incomplete investing CF data. Working capital details are not disclosed, but strong OCF relative to NI suggests no aggressive working capital pull-forward this quarter. No signs of earnings quality issues based on available metrics.

Dividend Sustainability

The payout ratio is 41.4%, within a conservative range and likely sustainable given strong OCF. Implied total dividends, if applied to net income of 13.43, are approximately 5.56 (100M JPY), though reported dividend cash flows are unreported. Proxy FCF of ~14.87 (OCF − Capex) would cover the implied dividend with room for deleveraging or reinvestment. Policy visibility is limited due to unreported DPS figures; if management targets a stable or progressive dividend, current cash generation appears supportive, subject to maintaining demand and managing liquidity.

Risk Assessment

Business Risks:

• Demand volatility in hospitality/leisure (occupancy and ADR sensitivity to macro and tourism trends).
• Cost inflation (labor, utilities, maintenance) potentially compressing margins.
• Execution risk on renovations/capex to sustain asset quality and pricing power.

Financial Risks:

• Low current ratio (0.87) and negative working capital indicating short-term refinancing/liquidity risk.
• Moderate leverage (D/E 1.56x, Debt/EBITDA 4.97x) increases sensitivity to interest rate and cash flow shocks.
• Interest rate risk on floating-rate debt potentially pressuring interest coverage if rates rise.

Key Concerns:

• Tax rate sustainability: effective tax of 7.1% may normalize upward, reducing net margins.
• Non-operating drag (net -0.89) from interest expense could increase with higher debt costs.
• ROIC at 5.8% below 7–8% target range, implying limited value creation buffer if growth stalls.

Investment Implications

Key Takeaways:

• Strong operational quarter with 23.8% YoY operating profit growth and ~122 bps operating margin expansion.
• High earnings quality: OCF is 1.80x net income; proxy FCF likely positive after capex.
• Liquidity is the primary weak point: current ratio at 0.87 and negative working capital.
• Leverage moderate but manageable: D/E 1.56x, Debt/EBITDA 4.97x, interest coverage 14.06x.
• ROE at 7.9% supported by margin gains and leverage; ROIC at 5.8% suggests room for efficiency improvements.

Metrics to Watch:

• Occupancy/ADR or membership metrics driving revenue per available unit (not disclosed here).
• SG&A ratio and wage/utility inflation trends.
• Current ratio and short-term debt rollover, including cash balance trajectory.
• Interest coverage and average borrowing cost trends.
• Tax rate normalization effects on NPM and ROE.
• Capex intensity versus OCF to sustain positive FCF.

Relative Positioning: Within Japan’s hospitality/leisure peers, profitability trajectory is favorable with visible operating leverage and solid cash conversion, but the balance sheet shows tighter near-term liquidity than many peers. Returns are improving yet ROIC remains below best-in-class operators, highlighting a need for continued efficiency gains and disciplined capital deployment.

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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