YAGI & CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥39.54B
• Operating Income: ¥1.38B
• Net Income: ¥1.68B
• EPS: ¥199.49

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

Verdict: Solid earnings beat on profit with margin expansion, but cash flow quality weak due to working capital drag. Revenue grew 0.6% YoY to 395.41, while operating income rose 26.6% YoY to 13.79 and ordinary income climbed 58.6% to 17.14. Net income surged 134.4% YoY to 16.75, lifting net margin to 4.2%. Gross profit was 112.43, implying a gross margin of 28.4%. Operating margin improved to 3.5% (13.79/395.41), and ordinary margin to 4.3% (17.14/395.41). Net margin expanded by approximately 242 bps YoY (from ~1.8% to 4.2%), and operating margin expanded by about 72 bps (from ~2.8% to 3.5%). Ordinary margin expanded roughly 158 bps YoY (from ~2.7% to 4.3%). Non-operating income of 4.10 (24.5% of operating profit level) supported bottom line, driven by dividend income of 2.38 and interest income of 0.32. Effective tax rate was low at 11.3%, further boosting net income. ROE calculated at 3.7% (NPM 4.2% × AT 0.497 × Leverage 1.78x), but ROIC of 2.5% signals subpar capital efficiency. Liquidity is strong with a current ratio of 234.6% and quick ratio of 184.5%; D/E of 0.78x is conservative for the sector. However, operating cash flow was -13.22 despite net income of 16.75 (OCF/NI -0.79x), indicating earnings quality concerns and working capital absorption. Capex was modest at 2.76, but negative OCF implies negative pre-investing FCF this half. Dividend payout ratio is 49.1% (calculated), seemingly manageable on earnings but not covered by cash generation in the period. Forward-looking, the key swing factor is the normalization of receivables and inventories in H2 to convert profits into cash, alongside sustaining the improved operating margin without relying disproportionately on non-operating income.

Profitability Analysis

ROE decomposition: ROE 3.7% = Net Profit Margin 4.2% × Asset Turnover 0.497 × Financial Leverage 1.78x. The largest YoY contributor appears to be net margin expansion: net income +134.4% on revenue +0.6% implies significant margin improvement. Business drivers likely include better gross mix/pricing and tight SG&A, plus a boost from non-operating income (dividends) and a low effective tax rate. Asset turnover is modest at 0.50x for a trading-oriented business, likely little changed YoY given flat revenue and a relatively stable asset base. Leverage at 0.78x D/E looks stable and not the main driver. Sustainability: margin gains tied to non-operating items and low taxes are less repeatable; operating margin improvement (about +72 bps) could be sustained if gross margin holds and SG&A discipline continues. Watch that SG&A does not re-accelerate; we lack YoY SG&A data, but the gap between gross profit (112.43) and SG&A (98.63) implies limited buffer. Concerning trend flags: reliance on non-operating income (24.5% of operating profit level) and ROIC at 2.5% (<5% warning).

Growth Assessment

Top-line growth was modest at +0.6% YoY to 395.41, indicating stable demand but no strong volume growth. Profit growth was outsized: operating income +26.6% and net income +134.4%, reflecting a combination of margin expansion, higher non-operating income, and low taxes. EBITDA reached 17.23 (margin 4.4%), supporting improved operating performance. Revenue sustainability looks moderate; absent segment disclosure, growth likely stems from mix rather than broad-based volume. Profit quality is mixed: operating margin improved, but a notable portion of the YoY delta stems from non-operating income and tax rate effects. Outlook hinges on maintaining gross margin near 28–29%, controlling SG&A below gross profit growth, and reducing working capital to translate earnings into cash in H2. Key watch items: customer demand in apparel/textiles, FX-driven pricing, and stability of dividend income from investment securities.

Financial Health

Liquidity is strong: current ratio 234.6% and quick ratio 184.5% far exceed benchmarks; no warning on current ratio or quick ratio. Solvency is comfortable with D/E at 0.78x and interest coverage at 49.25x, indicating ample capacity to service debt. Total assets 795.76 vs total liabilities 348.14, equity 447.61. Maturity profile appears manageable: current assets 536.56 comfortably cover current liabilities 228.67; short-term loans 33.11 are modest relative to cash 69.41 and receivables 233.23. Accounts payable (93.58) and inventories (114.64) are broadly balanced, limiting immediate liquidity strain. No off-balance sheet obligations were reported in the provided data. Overall, balance sheet resilience is high despite weak ROIC.

Cash Flow Quality

Earnings quality is weak this quarter: OCF -13.22 versus net income 16.75 yields OCF/NI of -0.79x (<0.8 threshold). The shortfall likely reflects working capital absorption (receivables/inventory build relative to payables) given positive earnings. Free cash flow cannot be fully computed due to unreported investing CF, but OCF plus capex suggests at least -16.0 pre-investing FCF, indicating dividends and debt service depended on cash on hand or financing. Financing CF was -18.04, implying net outflows (likely debt repayment and/or dividends) without OCF support. No obvious signs of aggressive working capital manipulation are visible, but the magnitude of receivables versus payables suggests seasonal cash usage typical for trading businesses; reversal in H2 is critical.

Dividend Sustainability

Calculated payout ratio is 49.1%, within the <60% benchmark and supported by earnings. However, with OCF negative this period, cash coverage of dividends was weak; FCF coverage is not calculable but likely insufficient in H1. Balance sheet liquidity (cash 69.41 and strong current ratios) provides buffer to maintain policy in the near term. Medium term sustainability depends on normalizing OCF and lifting ROIC above 5%. Given dependence on non-operating income and a low tax rate this quarter, caution is warranted on extrapolating the current EPS run-rate.

Risk Assessment

Business Risks:

• Demand cyclicality in apparel/textiles affecting volumes and pricing
• Gross margin sensitivity to input costs (e.g., cotton, chemicals) and FX
• Inventory obsolescence risk with fashion seasonality
• Customer concentration risk (not disclosed, but common in trading niches)

Financial Risks:

• Negative OCF despite profit, indicating working capital absorption
• Low ROIC at 2.5% (<5% warning), risking value dilution on growth investments
• Earnings reliance on non-operating income (dividends) and low effective tax rate
• Interest rate risk on 115.56 of loans (short-term 33.11, long-term 82.45)

Key Concerns:

• OCF/NI at -0.79x flags earnings quality
• Non-operating income ratio 24.5% elevates volatility of bottom line
• Potential reversal of low 11.3% tax rate could compress net margin
• Asset turnover at 0.497 is modest for a trading model, capping ROE

Investment Implications

Key Takeaways:

• Profit beat driven by margin expansion and non-operating income; revenue nearly flat
• Operating margin up ~72 bps YoY to 3.5%; net margin up ~242 bps to 4.2%
• Cash conversion weak with OCF -13.22 vs NI 16.75; watch H2 normalization
• Balance sheet strong (CR 234.6%, D/E 0.78x) providing cushion
• ROIC of 2.5% remains below threshold; structural improvement needed

Metrics to Watch:

• OCF/Net Income (>1.0 target)
• Working capital days (receivables and inventory turns)
• Gross margin and SG&A ratio trajectory
• Non-operating income (dividends) stability and composition
• ROIC trend toward >5% near term and >7% medium term
• Effective tax rate normalization

Relative Positioning: Versus domestic textile/trading peers, Yagi shows stronger balance sheet liquidity and low financial risk, but trails on capital efficiency (ROIC 2.5%) and relies more on non-operating income to achieve current net margins.

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
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