KIKUKAWA ENTERPRISE,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.82B
• Operating Income: ¥210M
• Net Income: ¥173M
• EPS: ¥143.31

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: Soft quarter with margin compression and low capital efficiency, cushioned by a very strong balance sheet and one-off gains. Revenue grew 3.0% YoY to 18.22, but operating income fell 23.0% YoY to 2.10 as cost pressure and/or higher SG&A diluted operating leverage. Gross profit was 8.43, implying a gross margin of 46.3%. Operating margin declined to 11.5% (2.10/18.22). Ordinary income of 2.51 (-18.4% YoY) benefitted from 0.37 in non-operating income, notably 0.21 from dividends. Profit before tax was 3.09, exceeding ordinary income by 0.58—implying material extraordinary gains in the period (details not disclosed). Net income declined 18.5% YoY to 1.73, with an effective tax rate of 30.8%. Operating margin compressed by approximately 388 bps YoY (prior ~15.4% to 11.5%), while net margin compressed roughly 250 bps YoY to 9.5% (derived). DuPont shows weak capital efficiency: NPM 9.5%, asset turnover 0.128, and financial leverage 1.14x yield a low ROE of 1.4%. ROIC is 3.1% (below the 5% warning threshold), signaling subpar returns on invested capital. Liquidity is exceptionally strong: current ratio 806%, cash and deposits 77.58 versus current liabilities 13.03, and equity ratio estimated at ~87.7% (125.14/142.69). Interest burden is negligible (interest expense ~0), giving an interest coverage of ~35,000x. Dividend capacity is unclear due to missing cash flow data, but a calculated payout ratio of 137.3% suggests potential overdistribution if sustained. Earnings quality is mixed: core operating earnings fell, net was supported by non-operating and likely extraordinary gains, and OCF is unreported. Forward-looking, management must restore operating margin and improve asset turnover to lift ROIC/ROE, while the cash-rich balance sheet provides flexibility to bridge near-term softness.

Profitability Analysis

ROE decomposition: ROE (1.4%) = Net Profit Margin (9.5%) × Asset Turnover (0.128) × Financial Leverage (1.14x). The largest drag is asset turnover at 0.128, indicating a sizable asset base relative to sales. The component that changed most versus last year is likely net margin (down ~250 bps by derivation) and operating margin (down ~388 bps), reflecting cost pressure and/or higher fixed costs that diluted operating leverage despite revenue growth. Business drivers: revenue rose 3% but operating income fell 23%, implying either gross margin contraction or SG&A increases outpacing sales; SG&A details are unreported, but SG&A of 5.71 equates to 31.3% of sales, which is heavy for mid-cycle machinery-like businesses. Non-operating support (0.37, mainly dividends 0.21) helped ordinary income, and an estimated 0.58 in extraordinary gains lifted PBT, masking the extent of core weakness at the bottom line. Sustainability: non-operating dividend income is recurring but volatile; extraordinary gains are by nature one-off. Without margin recovery or better asset utilization, the current ROE/ROIC levels are not sustainable for value creation. Concerning trends: operating income decline with top-line growth signals negative operating leverage; and with ROIC at 3.1% (<5%), capital efficiency is a notable weakness that needs remediation through margin expansion or asset base optimization.

Growth Assessment

Top-line growth was modest at +3.0% YoY, suggesting stable demand but not a strong cyclical upswing. Profit growth was negative: operating income -23.0% YoY and ordinary income -18.4% YoY, indicating margin pressure and reliance on non-operating items. The net income decline of -18.5% YoY occurred despite likely extraordinary gains (~0.58), implying core earnings underperformed. Revenue sustainability appears moderate, but improving profitability hinges on cost control and pricing discipline. Non-operating dividend income (0.21) provides some cushion but is not a controllable growth driver. Outlook: near-term profit visibility depends on restoring operating margin and reducing fixed-cost intensity; absent that, ROIC is likely to remain below the 5–7% comfort zone. With a strong cash position, the company can invest in productivity or selective growth, but execution on margin expansion remains the key swing factor.

Financial Health

Liquidity is exceptionally strong: current ratio 805.8% and quick ratio 805.8%, with cash and deposits of 77.58 covering current liabilities of 13.03 nearly 6x. No warning on current ratio (<1.0) or leverage (D/E >2.0): total liabilities/equity is ~0.18x, and interest-bearing debt is unreported but interest expense is near zero, suggesting minimal debt. Estimated equity ratio is ~87.7% (125.14/142.69), indicating a highly conservative capital structure. Maturity mismatch risk is low given cash 77.58 and receivables 17.55 versus current liabilities 13.03. Off-balance sheet obligations are not disclosed; data limitations prevent assessment of commitments/guarantees.

Cash Flow Quality

Operating cash flow is unreported; therefore OCF/Net Income cannot be calculated and earnings quality cannot be validated via cash conversion. Free cash flow (FCF) is also unreported, limiting our ability to assess coverage of dividends and capex. Working capital signals: cash is high and accounts receivable are modest (17.55), with current liabilities low; absent OCF details, potential working capital timing effects (e.g., collection delays or inventory build) cannot be evaluated. The presence of non-operating and likely extraordinary gains supporting PBT/NI elevates the risk that accrual earnings overstate recurring cash earnings in this quarter.

Dividend Sustainability

Reported DPS and dividends paid are unreported; however, a calculated payout ratio of 137.3% suggests dividends exceeded earnings in the period. Without OCF/FCF data, coverage from cash generation cannot be assessed. Balance sheet cash (77.58) provides short-term capacity to fund dividends, but persistent payout above earnings would be unsustainable and could erode cash if not backed by future earnings/OCF. Policy outlook cannot be inferred from disclosures; watch for management guidance on payout targets and use of cash.

Risk Assessment

Business Risks:

• Margin pressure with operating income down 23% despite +3% revenue, indicating negative operating leverage.
• Reliance on non-operating (dividend) and likely extraordinary gains to support bottom line.
• Low ROIC at 3.1% (<5% warning), signaling weak capital efficiency.
• Potential pricing and input cost volatility impacting gross margin (details unreported).
• Execution risk in improving utilization/asset turnover (0.128).

Financial Risks:

• Dividend sustainability risk given calculated payout ratio of 137.3% and lack of OCF visibility.
• Equity market exposure via investment securities (15.21), which may introduce valuation and income volatility.
• Data gaps on interest-bearing debt and cash flows limit assessment of covenant/liquidity stress (though cash is high).

Key Concerns:

• Earnings quality: PBT exceeded ordinary income by ~0.58, implying one-off gains; core profitability is weaker than headline NI.
• SG&A intensity (31.3% of sales) with limited visibility on YoY trend due to unreported breakdown.
• Capital efficiency: ROE 1.4% and ROIC 3.1% are well below typical cost of capital.

Investment Implications

Key Takeaways:

• Core profitability softened: operating margin compressed ~388 bps YoY to 11.5%.
• Net income -18.5% YoY despite likely extraordinary gains; core trend is weaker.
• Non-operating dividend income (0.21) provided cushioning but is less controllable.
• Balance sheet strength is a clear positive: equity ratio ~88%, cash 77.58 vs CL 13.03.
• Capital efficiency needs improvement: ROIC 3.1%, ROE 1.4%, asset turnover 0.128.
• Dividend sustainability in question if the 137.3% payout persists without OCF support.

Metrics to Watch:

• Operating margin recovery and SG&A-to-sales ratio trend.
• OCF and FCF conversion versus net income (target OCF/NI > 1.0).
• Extraordinary gains/losses disclosure and recurrence.
• Asset turnover improvement (sales growth relative to asset base).
• Dividend policy guidance and payout ratio normalization.
• Volatility in non-operating income (dividend income from securities).

Relative Positioning: Financially conservative with abundant liquidity and low leverage, but currently underperforming on profitability and capital efficiency versus typical industrial peers; improvement in core margins and asset utilization is needed to move closer to sector norms.

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