DAIWA TSUSHIN Co.,Ltd FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.22B
• Operating Income: ¥108M
• Net Income: ¥34M
• EPS: ¥20.41

Income Statement

Balance Sheet

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: FY2026 Q1 was a solid beat on profitability with meaningful margin expansion, albeit tempered by extraordinary losses and a still-tight liquidity profile. Revenue rose 5.7% YoY to 12.18, while operating income surged 50.6% YoY to 1.08, demonstrating strong operating leverage. Ordinary income increased 43.6% YoY to 1.05, but profit before tax fell to 0.65 due to an estimated extraordinary loss of roughly 0.40, indicating non-recurring headwinds this quarter. Net income climbed 64.7% YoY to 0.55, lifting net margin to 4.5%. Operating margin improved to 8.9% from roughly 6.2% a year ago, an expansion of about 265 bps, driven by disciplined SG&A and improved gross-to-operating conversion. Net margin expanded by approximately 162 bps YoY (to 4.5% from about 2.9%), despite a high effective tax rate of 48.1%. Gross profit was 4.12 (GPM 33.8%), indicating stable gross economics; the margin expansion largely came from SG&A discipline versus revenue growth. Earnings quality cannot be fully assessed because operating cash flow was not disclosed; thus, we cannot validate whether profit growth translated into cash. The DuPont profile shows ROE at 2.5% this quarter, with modest net margin, very low asset turnover (0.248), and moderate leverage (2.22x). ROIC stands at 1.7%, below the 5% warning threshold, highlighting ongoing capital efficiency challenges. The balance sheet is tight: current ratio is exactly 1.00 and quick ratio 0.55, with inventories elevated at 9.81 and short-term loans high at 13.39. Interest coverage is strong at 71x, indicating low immediate interest burden despite leverage. Equity/Assets is approximately 45%, a reasonable solvency buffer. Dividend disclosure is absent; a calculated payout ratio of 221.5% appears inflated on a quarterly basis and is not reliable for sustainability assessment without cash flow data. Forward-looking, the key swing factors are normalization of extraordinary losses, inventory efficiency, and sustaining the improved operating margin while managing liquidity risk.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.5% = Net Profit Margin 4.5% × Asset Turnover 0.248 × Financial Leverage 2.22x. The largest drag remains asset turnover (0.248), which is low for a distributor/integrator-driven business; leverage is moderate and margin improved. The business driver for the better ROE this quarter is operating margin expansion (operating income +50.6% on revenue +5.7%), reflecting SG&A discipline and improved operating efficiency. Extraordinary losses (~0.40) compressed profit before tax relative to ordinary income, muting the net margin uplift; the high effective tax rate (48.1%) further limited net carry-through. Sustainability: the operating margin improvement looks repeatable if cost discipline is maintained; however, extraordinary items appear one-time by nature and could reverse next quarter if absent, which would boost net margin optics. Watch for SG&A growth vs revenue; current SG&A was 3.40, and the gap between gross profit (4.12) and SG&A widened positively versus last year, indicating healthy operating leverage. Overall, margin-led ROE improvement is plausible, but low asset turnover tied to inventory intensity constrains structural ROE unless working capital turns improve.

Growth Assessment

Top-line grew 5.7% YoY to 12.18, suggesting steady demand. Profit growth was outsized: operating income +50.6% YoY to 1.08, ordinary income +43.6% to 1.05, and net income +64.7% to 0.55. Operating margin expanded roughly 265 bps YoY to 8.9%, evidencing cost control and a better gross-to-OI conversion. Non-operating impact was negligible (+0.01), but extraordinary losses (~0.40) materially reduced PBT, indicating non-recurring pressure. Profit quality: with OCF unreported, sustainability of earnings growth cannot be validated; inventory-heavy sales mix and high short-term borrowing suggest sensitivity to working capital swings. Outlook: if extraordinary losses normalize, net margin can rise toward ordinary-income levels; sustaining revenue growth and SG&A discipline would support further margin accretion. Key variables include inventory turns, pricing discipline, and avoidance of further one-time losses.

Financial Health

Liquidity is tight: current ratio is 1.00 and quick ratio 0.55 (warning level), reflecting heavy inventory (9.81) and limited liquid assets versus short-term obligations. Short-term loans are 13.39 versus cash of 7.49 and accounts receivable of 4.10, leaving little buffer; working capital is effectively neutral at 0.01. Solvency is acceptable with Debt-to-Equity at 1.22x and an estimated equity ratio near 45%, but reliance on short-term funding increases refinancing and rollover risk. Interest coverage is strong at 71x, mitigating immediate interest burden risk. Maturity mismatch risk is present: significant short-term borrowings fund inventories, exposing the firm to inventory liquidation risks and potential cash flow timing gaps. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF and FCF were not disclosed, preventing direct assessment of earnings-to-cash conversion (OCF/NI not calculable). Given elevated inventories and modest payables (1.12), working capital appears a likely consumer of cash absent rapid inventory turns. With capex unreported, FCF sustainability for dividends and debt service cannot be verified. No clear signs of deliberate working capital manipulation are visible from the limited data, but the dependence on short-term loans to bridge inventory suggests sensitivity to sales timing and inventory management.

Dividend Sustainability

Dividend data were not disclosed. The calculated payout ratio of 221.5% appears distorted by using quarterly earnings as the denominator and should not be used to judge policy sustainability. Without OCF and FCF, coverage cannot be assessed. Given tight liquidity (current ratio 1.00, quick ratio 0.55) and reliance on short-term debt, a conservative dividend stance would be prudent until cash generation is evidenced. Monitor full-year guidance, interim dividend announcements, and cash flow in subsequent quarters.

Risk Assessment

Business Risks:

• Inventory risk: high inventory (9.81) relative to sales and payables increases markdown and obsolescence risk.
• Execution risk on cost control: sustaining expanded operating margins requires continued SG&A discipline.
• Extraordinary items volatility: ~0.40 loss this quarter indicates potential for non-recurring swings in PBT.
• Demand sensitivity: modest revenue growth suggests exposure to macro and end-market demand fluctuations.

Financial Risks:

• Liquidity risk: current ratio 1.00 and quick ratio 0.55 indicate limited short-term cushion.
• Refinancing risk: short-term loans of 13.39 create rollover and interest-rate exposure.
• Capital efficiency risk: ROIC 1.7% (<5%) highlights weak returns on invested capital.
• Tax rate volatility: effective tax rate of 48.1% depresses net profit and may fluctuate with item mix.

Key Concerns:

• Tight working capital with near-zero working capital balance (0.01).
• Dependence on inventory financing via short-term debt.
• Earnings quality cannot be validated due to missing OCF/FCF data.
• Extraordinary losses obscuring the underlying improvement in ordinary earnings.

Investment Implications

Key Takeaways:

• Clear margin-driven profit beat: operating margin up ~265 bps YoY to 8.9%.
• Net margin improved to 4.5% despite a high tax rate and extraordinary losses.
• Liquidity remains tight with current ratio 1.00 and quick ratio 0.55; inventory heavy balance sheet.
• Leverage moderate (D/E 1.22x) with strong interest coverage (71x).
• ROIC of 1.7% flags structural efficiency issues that need improvement.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Inventory days and inventory-to-sales ratio
• OCF/Net income and free cash flow
• Short-term loan balance and interest rate sensitivity
• Extraordinary gains/losses and effective tax rate
• ROIC trajectory and asset turnover

Relative Positioning: Within small-cap ICT/distribution peers, profitability execution improved this quarter, but capital efficiency (low ROIC, low asset turnover) and liquidity tightness place the company in the middle-to-lower tier on quality of earnings and balance sheet resilience.

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