Kyowa Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.71B
• Operating Income: ¥786M
• Net Income: ¥373M
• EPS: ¥79.60

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

Kyowa Corporation (TSE:6570) delivered solid FY2026 Q2 results with clear operating leverage and robust cash generation. Revenue rose 18.7% YoY to ¥9.713bn, while operating income grew 27.4% to ¥0.786bn, lifting the operating margin to roughly 8.1%. Net income increased 27.1% to ¥0.474bn, driving an EPS of ¥79.60 and a DuPont-based ROE of 8.88%. Margin quality looks healthy: gross margin is approximately 45.0% and EBITDA margin about 18.0%, reflecting a depreciation-heavy but cash-generative model typical of store-based amusement assets. Ordinary income (¥0.777bn) closely tracks operating income, and interest expense is modest at ¥15.5m, resulting in a strong interest coverage of 50.8x. Cash flow from operations of ¥0.851bn exceeds net income by 1.8x, indicating good earnings quality supported by non-cash D&A and working-capital discipline. The balance sheet shows total assets of ¥16.409bn and total equity of ¥5.336bn, implying financial leverage (assets/equity) of 3.08x and a debt-to-equity ratio of 1.97x; solvency appears acceptable given strong operating cash flow. Liquidity metrics (current ratio ~121%) look serviceable, though reported cash and equivalents are undisclosed, which tempers visibility on near-term liquidity buffers. Asset turnover of 0.592 and a net margin of 4.88% combine to deliver an ROE consistent with the reported 8.88%, an improvement consistent with operating leverage benefits. The effective tax rate in the calculated section shows 0.0%, but using disclosed tax expense (¥239m) and ordinary income (¥777m) suggests an implied tax rate of approximately 31%, which is more realistic under JGAAP. No dividends are indicated (DPS 0, payout 0%), leaving internal reinvestment as the primary capital allocation path at this stage. Key data limitations include unreported investing cash flows, cash balance, and inventory and share count disclosures (zeros indicate not disclosed rather than true zero), which constrains free cash flow coverage and per-share balance sheet analysis. Overall, fundamentals point to improving profitability, solid cash conversion, and manageable leverage, but the absence of investing cash flow detail and cash balance disclosure warrants monitoring given the capex- and lease-intensive nature of amusement operations.

Profitability Analysis

ROE of 8.88% is consistent with DuPont: net profit margin 4.88% × asset turnover 0.592 × financial leverage 3.08 = 8.88%. Operating margin is approximately 8.1% (¥786m/¥9,713m), up YoY given operating income grew faster than sales (+27.4% vs +18.7%), indicating positive operating leverage. Gross margin of about 45.0% suggests effective prize cost and direct operating cost control; EBITDA margin near 18.0% reflects a depreciation-heavy model (¥967m D&A), typical for store fixtures and equipment. Ordinary income is close to operating income, indicating limited non-operating drag; interest expense is low (¥15.5m), supporting high interest coverage (50.8x). The implied effective tax rate, recalculated from disclosed numbers, is approximately 31% (¥239m/¥777m), in line with statutory norms, despite a 0.0% figure in the calculated table. Overall profitability is improving with modest margin expansion and strong cost discipline, while high D&A indicates a capital-intensive base but aids cash conversion.

Growth Assessment

Top-line growth of 18.7% YoY (to ¥9.713bn) appears strong and likely reflects solid traffic, improved unit economics in crane/prize games, and potential contributions from store openings or renovations. Operating income growth of 27.4% outpaced sales, evidencing positive operating leverage and fixed-cost absorption. Net income growth of 27.1% mirrors operating trends, with limited non-operating headwinds. The sustainability of revenue growth will depend on same-store performance, seasonality, competitive dynamics with other amusement operators, and consumer discretionary trends. Margin durability will hinge on prize procurement costs, labor cost management (including minimum wage pressures), and electricity and occupancy expenses. With EBITDA at ¥1.753bn and OCF at ¥0.851bn for the half, profit quality appears sound; however, lack of investing CF disclosure limits visibility on net store additions and maintenance capex, which are key for sustaining growth. Outlook: continued operating leverage is plausible if sales momentum persists and cost pressures remain contained, but growth normalization vs post-pandemic rebound effects and macro softness in consumption are risk factors.

Financial Health

Liquidity: current ratio of 121.4% and quick ratio of 121.4% (inventory undisclosed) indicate adequate near-term coverage; working capital stands at ¥1.178bn. Cash and equivalents are not disclosed, so immediate liquidity buffers cannot be precisely assessed. Solvency: total liabilities of ¥10.525bn vs equity of ¥5.336bn yields a debt-to-equity ratio of 1.97x; financial leverage is 3.08x (assets/equity). Interest burden is light, with interest coverage at 50.8x, suggesting low refinancing pressure on current debt levels. Capital structure appears balanced for a store-based operator, though lease liabilities (commonly material in this sector) are not separately disclosed here and may influence leverage metrics under JGAAP presentation. Overall, solvency looks sound, but absence of cash and lease detail is a monitoring point.

Cash Flow Quality

OCF of ¥850.9m vs net income of ¥474.0m yields an OCF/NI ratio of 1.80, indicating healthy earnings quality supported by non-cash D&A (¥966.9m) and presumably disciplined working capital. EBITDA of ¥1.753bn provides a substantial cash earnings base relative to operating profit (¥786m). Free cash flow cannot be reliably calculated because investing cash flows are undisclosed (reported as 0 indicates not reported). Given the capital-intensive nature of amusement operations (store openings, refurbishments, machine purchases), actual maintenance and growth capex could be significant; thus, true FCF after capex may be materially lower than OCF. Working capital appears positive with current assets exceeding current liabilities by ¥1.178bn; however, the composition (e.g., receivables vs cash) is not visible due to undisclosed cash and inventory. Overall cash conversion looks solid, but visibility on capex outlays and cash balances is limited.

Dividend Sustainability

No dividends are indicated for the period (DPS 0; payout ratio 0%). With EPS at ¥79.60 and OCF of ¥850.9m, capacity exists to consider distributions, but the lack of investing CF detail and potential capex needs for store network development argue for caution in assessing sustainable payouts. FCF coverage cannot be calculated without capex information (reported FCF of 0 reflects lack of data, not actual zero). Policy outlook is unclear from the data provided; if the company prioritizes growth capex and store refurbishments, internal reinvestment likely remains the focus in the near term.

Risk Assessment

Business Risks:

• Demand sensitivity to consumer discretionary trends and real income
• Competition from other amusement operators and alternative leisure activities
• Input cost volatility for prizes and equipment affecting gross margin
• Labor cost inflation, staffing shortages, and minimum wage increases
• Energy and utility cost fluctuations impacting operating expenses
• Lease terms, rent escalations, and location dependency
• Regulatory scrutiny of prize games and content IP/licensing risks
• Seasonality and event-driven traffic variability

Financial Risks:

• Leverage of 1.97x liabilities-to-equity and potential lease liabilities not detailed
• Capex intensity for openings/renovations could pressure free cash flow
• Unreported cash balance reduces visibility on near-term liquidity buffers
• Interest rate increases could modestly raise finance costs, albeit from a low base
• Working capital swings tied to prepayments, prize inventory procurement, and deposits

Key Concerns:

• Investing cash flows and capex not disclosed, obscuring true FCF
• Cash and equivalents undisclosed, limiting liquidity assessment
• Inventory and detailed current asset composition not visible
• Effective tax rate shown as 0.0% in calculated metrics conflicts with implied ~31%; reliance on recalculation is necessary

Investment Implications

Key Takeaways:

• Strong top-line growth (+18.7% YoY) with operating leverage (+27.4% OI) supports margin expansion
• Healthy margins: ~45% gross, ~18% EBITDA, ~8% operating
• Robust earnings quality with OCF/NI of 1.80 aided by high D&A
• Sound solvency with high interest coverage (50.8x) despite moderate leverage (1.97x D/E)
• Visibility gaps in cash, capex, and lease details temper conviction on FCF and liquidity
• ROE at 8.88% reflects balanced profitability, asset use, and leverage
• Tax burden appears normal (~31%) despite a misleading 0.0% calculated figure

Metrics to Watch:

• Same-store sales growth and customer traffic
• Store count, openings/closures, and renovation cadence
• Capex (maintenance vs growth) and full investing cash flows
• OCF/NI ratio and working-capital movements
• EBITDA margin and prize cost/labor cost/utility cost ratios
• Lease liabilities and rent-to-sales ratio
• Debt levels, interest expense trend, and cash balance
• Effective tax rate consistency

Relative Positioning: Within Japan’s amusement and family entertainment sector, Kyowa appears smaller than major peers (e.g., Bandai Namco’s amusement operations, Round One, AEON Fantasy) but demonstrates competitive margins and strong cash conversion. Its leverage is manageable and interest burden low, suggesting operational resilience; however, scale advantages and brand draw of larger peers may challenge traffic and pricing, making disciplined cost control and selective store investments key to sustaining performance.

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