KYOKUTO KAIHATSU KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥74.18B
• Operating Income: ¥3.70B
• Net Income: ¥3.09B
• EPS: ¥-38.64

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

Kyokuto Kaihatsu Kogyo (TSE:7226) delivered solid top-line and operating performance in FY2026 Q2, with revenue up 15.9% year over year to ¥74.18bn and operating income up 35.1% to ¥3.70bn. Gross profit was ¥10.71bn, implying a gross margin of 14.4%, while operating margin expanded to roughly 5.0%, indicating effective cost pass-through and/or mix benefits. EBITDA reached ¥5.45bn (7.4% margin), and interest expense remained minimal at ¥46m, yielding a very strong interest coverage ratio of 80.5x. Ordinary income of ¥3.69bn was positive; however, the company reported a net loss of ¥1.49bn (EPS -¥38.64), implying sizable below-the-line negative items (likely extraordinary losses and/or minority interest effects) and tax expense that outweighed operating gains. Based on ordinary income of ¥3.69bn and income taxes of ¥1.47bn, the implied net extraordinary and minority impact is approximately -¥3.71bn, pointing to non-recurring or non-operational headwinds. Liquidity remains strong with a current ratio of 186% and quick ratio of 182%, underpinned by ¥44.91bn of working capital. The balance sheet is conservative: total equity of ¥111.74bn versus liabilities of ¥70.48bn implies low leverage and ample solvency headroom; the stated equity ratio is unreported in the data extract, but the structure indicates a majority equity base. Operating cash flow was positive at ¥2.55bn despite the net loss, supported by add-backs (notably ¥1.75bn depreciation) and likely working capital dynamics. Reported free cash flow and cash balances are unreported in this dataset, constraining full cash coverage analysis. DuPont deconstruction shows a negative net margin (-2.0%) overwhelming otherwise acceptable asset turnover (0.39x) and modest leverage (1.70x), resulting in ROE of -1.33%. The divergence between healthy operating results and negative net income suggests one-off factors rather than deterioration in core fundamentals. The order environment for specialty vehicles and industrial equipment appears to support revenue growth, but normalization of extraordinary items will be key for net profitability recovery. Dividend data show DPS as unreported in this extract; given the interim loss, a conservative payout posture is plausible until earnings visibility improves. Overall, fundamentals at the operating level are resilient, balance sheet quality is high, and near-term investor focus will center on the nature, magnitude, and persistence of the below-the-line losses. Data limitations (e.g., unreported investing cash flows, cash balances, and some common equity-per-share items) warrant cautious interpretation.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -2.00% × Asset turnover 0.390 × Financial leverage 1.70 = ROE -1.33% (matches reported). Margin quality: Gross margin 14.4% and operating margin ~5.0% indicate a ~9.4% SG&A-to-sales ratio (SG&A ≈ ¥7.01bn), showing reasonable overhead control. EBITDA margin at 7.4% versus operating margin ~5.0% suggests D&A burden of roughly 2.4% of sales, consistent with capital intensity typical for specialty vehicle/body manufacturing. Operating leverage is evident: operating income growth (+35.1% YoY) outpaced revenue growth (+15.9% YoY), implying incremental margins from pricing, mix, and cost efficiencies. Ordinary income positive at ¥3.69bn affirms core profitability; however, net loss reflects significant non-operating/extraordinary charges and tax effects. Interest burden is negligible (interest expense ¥46m), supporting strong coverage (80.5x) and confirming that financing costs are not a drag on earnings. Overall, core profitability is improving, but reported bottom line is temporarily depressed by below-the-line items.

Growth Assessment

Revenue growth of 15.9% YoY to ¥74.18bn indicates healthy demand across end markets, likely supported by municipal and private-sector capex for environmental and construction equipment. Operating income growth of 35.1% YoY demonstrates favorable operating leverage and improved cost pass-through compared with the prior-year period. The quality of growth appears solid at the operating level, with gross and EBITDA margins consistent with cyclical upturn dynamics. The negative net income is inconsistent with the operating trend and is likely driven by non-recurring factors (e.g., impairment, investment securities valuation, or other extraordinary losses) under JGAAP. Sustainability hinges on backlog conversion, order intake, and the company’s ability to maintain pricing amid input cost fluctuations. With ordinary income positive and leverage low, the outlook for a rebound in reported net income should improve if extraordinary and tax effects normalize. Absent detailed segment disclosures in this extract, we infer growth breadth from topline momentum and operating margin expansion rather than segment-specific drivers.

Financial Health

Liquidity is strong: current ratio 186.3% and quick ratio 181.6%, with working capital of ¥44.91bn providing a sizeable cushion for seasonal swings. Solvency is robust: total equity ¥111.74bn versus liabilities ¥70.48bn suggests conservative gearing; the reported debt-to-equity ratio of 0.63x aligns with this structure. Interest expense is minimal (¥46m), and interest coverage is very high (80.5x), implying limited refinancing or rate-risk pressure. Total assets are ¥190.17bn, with an implied equity ratio near 58–59% based on liabilities and equity (notwithstanding the unreported equity ratio field). Inventory reported at ¥2.47bn appears low for the business model, likely reflecting classification differences in this dataset; nonetheless, overall current assets of ¥96.93bn support strong liquidity. The balance sheet quality provides flexibility to weather extraordinary losses and to fund working capital for growth.

Cash Flow Quality

Operating cash flow of ¥2.55bn is positive despite a net loss of ¥1.49bn, yielding an OCF/NI ratio of -1.72; this indicates cash generation is better than accrual earnings, consistent with non-cash extraordinary charges and depreciation add-backs. EBITDA of ¥5.45bn and D&A of ¥1.75bn support the cash conversion narrative at the operating level. Free cash flow is unreported here because investing cash flows are not disclosed in this extract; therefore, FCF assessment cannot be completed from the provided data. Working capital management appears supportive of cash flow given the positive OCF alongside growth, though detailed drivers (receivables, payables, inventory) are not disclosed. Financing cash flow of ¥4.48bn suggests either debt movements or shareholder returns/treasury activity, but without the cash balance and detailed CFS breakdown, we cannot determine net cash position changes. Overall, earnings quality looks better than headline net income due to likely one-off, below-the-line, partially non-cash items.

Dividend Sustainability

Annual DPS is unreported in this dataset (shown as 0.00), and payout ratio is consequently shown as 0.0%; these should not be interpreted as actual distributions. With reported net loss and incomplete cash flow data, near-term payout capacity assessment relies on balance sheet strength and OCF. The company’s strong equity base and positive OCF provide flexibility, but the absence of investing cash flow disclosure prevents a robust free cash flow coverage analysis. If extraordinary losses normalize and operating momentum persists, dividend capacity would primarily be a function of recurring operating cash flows and capital expenditure needs. Policy outlook cannot be inferred from the provided data; monitoring management guidance and historical payout practices is recommended.

Risk Assessment

Business Risks:

• Cyclical demand in construction and municipal equipment affecting order intake and utilization
• Input cost volatility (steel, components) impacting gross margins if not fully passed through
• Supply chain constraints (e.g., components, semiconductors) that could delay deliveries
• Competitive pricing pressure in specialty vehicle/body markets
• Project mix shifts that could dilute margins
• Regulatory and emissions-related specification changes affecting product costs and demand

Financial Risks:

• Potential for further extraordinary losses (impairments, securities valuation losses) under JGAAP
• Tax expense volatility despite fluctuating pretax results due to deferred tax adjustments and local taxes
• Working capital swings tied to large project deliveries affecting OCF timing
• Limited visibility on investing cash flows and net cash position from the current dataset

Key Concerns:

• Magnitude and nature of the ~¥3.7bn below-the-line negative impact driving the net loss
• Sustainability of recent margin gains amid input cost and competitive dynamics
• Order backlog quality and conversion timing to sustain double-digit revenue growth

Investment Implications

Key Takeaways:

• Core operations strengthened: revenue +15.9% YoY; operating income +35.1% YoY; operating margin ~5.0%
• Bottom-line weakness is non-operational: net loss of ¥1.49bn despite ¥3.69bn ordinary income implies sizable extraordinary/minority impacts
• Cash generation is resilient: OCF ¥2.55bn despite negative net income, supported by EBITDA and likely non-cash charges
• Balance sheet is robust: low leverage and strong liquidity (current ratio 186%, interest coverage 80.5x)
• Data gaps (investing CF, cash balance, DPS details) constrain full FCF and payout analysis

Metrics to Watch:

• Details of extraordinary losses and any impairments or investment security revaluations
• Order intake, backlog, and book-to-bill to gauge demand sustainability
• Gross margin and SG&A-to-sales ratio for evidence of continued cost pass-through
• Operating cash flow and working capital turns (receivables and inventory days)
• Capex and investing cash flows to restore full FCF visibility
• Effective tax rate trajectory and deferred tax movements

Relative Positioning: Within Japan’s specialty vehicle/body manufacturers, the company exhibits solid operating momentum and a conservative balance sheet, positioning it favorably on solvency and interest coverage while margins appear mid-tier with improving operating leverage.

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