DAIWA CYCLE CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥16.16B
• Operating Income: ¥1.30B
• Net Income: ¥838M
• EPS: ¥305.33

Income Statement

Balance Sheet

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 top-line growth with modest profit expansion, but margins likely compressed as costs outpaced sales growth and cash-flow visibility is limited. Revenue grew 13.7% year over year to 161.56, while operating income increased 4.3% to 13.02 and net income rose 7.8% to 8.38. Gross profit was 62.79, implying a gross margin of 38.9%. The operating margin was approximately 8.1% (13.02/161.56), and the net margin was about 5.2% (8.38/161.56). Using reported growth rates to infer last year’s base, the operating margin likely compressed by roughly 70 basis points (from about 8.8% to 8.1%), and the net margin contracted by roughly 30 basis points (from about 5.5% to 5.2%). Ordinary income was 13.17 (+5.4% YoY), with an ordinary income margin of about 8.2%. The effective tax rate was elevated at 37.8% (4.73 on 12.51 PBT), a headwind to net profit conversion. ROE is robust at 13.5%, driven by a 5.2% net margin, 1.791x asset turnover, and 1.46x financial leverage. Liquidity is strong with a current ratio of 205.5% and working capital of 31.46, and leverage is conservative with a D/E ratio of 0.49x. Interest coverage appears extremely high due to de minimis reported interest expense, but that figure may be distorted by rounding. Earnings quality cannot be validated because operating cash flow and free cash flow were not disclosed; OCF/NI is not calculable. The SG&A burden (50.30) grew sufficiently to compress operating margin despite solid sales growth, suggesting cost inflation or investment spend. Cash and deposits of 22.20 and receivables of 4.84 cover most current liabilities of 29.81, implying manageable near-term obligations. Dividend affordability looks comfortable with a 21.6% payout ratio, but FCF coverage cannot be assessed due to unreported cash flows. Forward-looking, sustaining double-digit sales growth while stabilizing SG&A intensity and normalizing the tax rate would be key to re-expanding margins and supporting higher ROE. Overall, the quarter shows healthy growth and returns, tempered by margin pressure and limited cash-flow disclosure.

Profitability Analysis

ROE decomposition (DuPont): ROE 13.5% = Net Profit Margin 5.2% × Asset Turnover 1.791 × Financial Leverage 1.46x. The largest change component versus last year appears to be net profit margin compression (estimated ~30 bps) and a modest decline in operating margin (estimated ~70 bps), while leverage stayed steady at 1.46x and asset turnover remained strong. The primary business driver of the margin change is SG&A growth outpacing revenue growth, likely reflecting wage, rent, and store-related costs or strategic investments. This cost pressure may be partially cyclical (inflation, wage adjustments) and partially structural (growth investments), implying only a portion is reversible in the near term. Watch for SG&A ratio stabilization and gross margin resilience given input cost and FX dynamics. A concerning trend is that operating income growth (+4.3%) lagged revenue growth (+13.7%), signaling negative operating leverage in the period. Tax rate elevation (37.8%) also reduced net conversion from ordinary profit to net income, further constraining ROE upside.

Growth Assessment

Revenue growth of 13.7% indicates healthy demand and/or store expansion, with ordinary income up 5.4% and net income up 7.8%. The growth mix suggests top-line expansion was partly offset by higher operating costs, diluting operating leverage. Sustaining growth will likely depend on same-store sales, store network development, merchandising, and pricing power to protect gross margin. Profit quality is mixed: ROE is strong at 13.5%, but margin pressure and a high effective tax rate curb earnings scalability. Outlook hinges on normalizing SG&A intensity and maintaining asset turnover near 1.8x; any deterioration in inventory turnover (not disclosed) or gross margin could challenge growth in profits.

Financial Health

Liquidity is solid: current ratio 205.5% and quick ratio 205.5% (inventories unreported), with 31.46 of working capital. No explicit warning triggers (current ratio well above 1.0; D/E at 0.49x, far below 2.0). Maturity mismatch risk appears manageable: current liabilities of 29.81 are largely covered by cash and deposits of 22.20 plus receivables of 4.84 (total 27.04), with the remainder likely covered by other current assets (not disclosed). Total liabilities are 30.62 against equity of 61.88, indicating a conservative capital structure. Interest-bearing debt was not disclosed; reported interest expense was effectively zero, implying minimal financial risk from borrowing. No off-balance sheet obligations were reported in the data provided.

Cash Flow Quality

Operating cash flow, free cash flow, and working capital detail were not disclosed, preventing direct assessment of earnings quality and cash conversion (OCF/NI not calculable). As a result, we cannot test whether OCF/Net Income exceeds the 0.8 threshold or evaluate FCF coverage of dividends and capex. Potential working capital swings (receivables, inventories, and payables) cannot be analyzed due to limited disclosures, so any seasonal inventory build or payables timing effects are unknown. With margin compression and cost pressures, maintaining positive free cash flow would hinge on disciplined capex and inventory management, but visibility is insufficient in this period.

Dividend Sustainability

The calculated payout ratio is 21.6%, which is comfortably below the 60% benchmark and suggests capacity to sustain dividends under normal conditions. However, FCF coverage is not calculable because cash flow data and capex are unreported. Balance sheet strength (D/E 0.49x, ample liquidity) provides an additional buffer for dividend continuity. Dividend growth potential will depend on restoring operating leverage, maintaining asset turnover, and avoiding a structurally higher tax rate.

Risk Assessment

Business Risks:

• Operating margin pressure from rising SG&A (wages, rents, store costs) outpacing sales growth
• Potential gross margin pressure from input costs and FX (if product mix includes imports)
• Execution risk in store expansion and format productivity (if growth is footprint-led)
• Seasonality and weather sensitivity affecting bicycle retail demand
• Supply chain and logistics disruptions impacting availability and lead times

Financial Risks:

• Limited cash flow disclosure impairs assessment of cash conversion and FCF sustainability
• High effective tax rate (37.8%) depresses net profit and cash generation
• Concentration of current liabilities vs. cash and receivables requires ongoing working capital discipline
• Interest coverage metric distorted by minimal reported interest expense; true coverage unknown

Key Concerns:

• Negative operating leverage this period (OI +4.3% vs revenue +13.7%)
• Potential inventory build risk not visible due to unreported inventories
• Uncertain dividend FCF coverage due to missing OCF and capex data

Investment Implications

Key Takeaways:

• Healthy double-digit sales growth but only mid-single-digit operating profit growth indicates margin squeeze
• ROE remains attractive at 13.5% on strong asset turnover and modest leverage
• Elevated tax rate reduces net conversion; normalization would be an upside lever
• Balance sheet strength and liquidity support resilience and dividend capacity
• Cash-flow transparency is a key gap; confirmation of OCF strength would improve quality assessment

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory
• Gross margin trends and FX/import cost pass-through
• OCF/Net income and inventory turns (once disclosed)
• Same-store sales growth and store economics
• Effective tax rate normalization
• Working capital (AR, AP, inventories) and capex outlays

Relative Positioning: Positioned as a conservative, asset-turnover-driven retailer with solid ROE and balance sheet strength, but currently facing cost-driven margin pressure and lacking cash-flow disclosure compared with best-in-class peers that demonstrate consistent operating leverage and transparent FCF.

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