CAPITA Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.06B
• Operating Income: ¥13M
• Net Income: ¥112M
• EPS: ¥31.28

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

Verdict: FY2026 Q2 was weak at the core with heavy topline contraction and thin operating profit, but bottom-line surged on non-recurring items and strong operating cash flow. Revenue fell 46.4% YoY to 10.56, and operating income dropped 77.5% YoY to 0.13, underscoring pressure on the core business. Ordinary income decreased 87.3% YoY to 0.06, confirming limited contribution from recurring non-operating gains. In sharp contrast, net income increased 169.8% YoY to 1.12, supported by material below-ordinary items (profit before tax 0.54 vs. ordinary 0.06 suggests sizable extraordinary gains and/or tax effects). Gross profit was 4.93, implying a gross margin of 46.7%, while operating margin was just 1.2%, highlighting SG&A rigidity against the revenue decline. Net margin stood at 10.6%, far above the operating margin, indicating one-time drivers rather than sustainable profitability. Margin expansion/compression in basis points vs. prior year cannot be quantified due to lack of prior-period margin disclosure, but current profile shows gross margin resilience and operating margin compression implied by the revenue fall and sticky SG&A. Earnings quality from a cash perspective is strong this quarter: operating cash flow was 5.24, about 4.7x net income, reflecting favorable working capital and cash conversion. Liquidity is adequate with a current ratio of 139% and cash of 6.05 against short-term loans of 6.00, though interest coverage at 2.02x hovers just above the warning threshold. Leverage is moderate with D/E of 0.85x, but capital efficiency is weak (ROIC 0.5% vs. a 5% warning threshold), pointing to underutilized assets. DuPont ROE is 7.0%, primarily propped up by non-recurring net margin and moderate financial leverage, with very low asset turnover (0.274). The discrepancy between ordinary income (0.06) and net income (1.12) implies reliance on extraordinary gains and/or tax credits, which may not recur. Dividend affordability looks manageable with a low payout ratio of 22% and robust OCF, though DPS data is unreported. Forward-looking, core earnings need recovery (revenue stabilization and better operating leverage) to sustain ROE without one-time support. Key watch items include revenue trajectory, operating margin improvement, and the nature/recurrence of extraordinary gains.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.0% = Net Profit Margin 10.6% × Asset Turnover 0.274 × Financial Leverage 2.41x. The most influential component appears to be the net margin, which is unusually high relative to the very thin operating margin (1.2%), suggesting one-off boosts below operating line. Business driver: a sizable gap between ordinary income (0.06) and profit before tax (0.54), plus a tax effect, indicates extraordinary gains and/or tax credits underpinning net income. Sustainability: low. With operating income down 77.5% YoY and ordinary income down 87.3% YoY, the underlying earnings power is weak; absent further one-time items, net margin should normalize lower. Asset turnover at 0.274 is low, reflecting subdued sales against the asset base; improving utilization is necessary for sustainable ROE. Financial leverage at 2.41x is moderate; it helps ROE but introduces interest coverage sensitivity (2.02x is thin). Concerning trends: SG&A (4.32) absorbed almost the entire gross profit (4.93), leaving only 0.61 for operating earnings before D&A, compressing operating margin; given revenue fell 46.4% YoY, SG&A rigidity likely exceeded revenue decline, implying negative operating leverage.

Growth Assessment

Revenue contracted 46.4% YoY to 10.56, signaling demand weakness and/or strategic downsizing. Operating income fell 77.5% YoY to 0.13, and ordinary income fell 87.3% YoY to 0.06, pointing to deteriorating core profitability. Net income rose 169.8% YoY to 1.12; however, this growth is not reflective of core trends and appears driven by extraordinary items and tax effects. Gross margin held at 46.7%, suggesting mix or pricing supported unit economics despite volume decline. EBITDA was 0.24 (EBITDA margin 2.3%), evidencing limited operating scale benefits. With asset turnover at 0.274 and ROIC at 0.5%, the current growth profile is inefficient in capital terms. Outlook hinges on restoring topline and improving operating leverage; absent that, earnings will likely revert closer to ordinary levels. Near-term catalysts would include cost restructuring, recovery in end-market demand, and monetization/optimization of underperforming assets.

Financial Health

Liquidity: Current ratio 139% (slightly below the 150% comfort benchmark but above 100%), quick ratio 139% given limited inventory disclosure; no explicit warning. Cash 6.05 covers short-term loans of 6.00, mitigating near-term refinancing risk. Working capital is positive at 3.11. Solvency: D/E 0.85x is moderate; long-term loans are 2.59 and total liabilities 13.65 vs. equity 15.97. Interest coverage at 2.02x is just above the 2x warning threshold, indicating limited cushion if rates rise or EBIT weakens further. Maturity mismatch: short-term borrowings (6.00) are sizable but broadly matched by cash and receivables (cash 6.05 + AR 2.00). Off-balance sheet: none disclosed. No explicit red flags on current ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

OCF/Net Income is 4.67x (>1.0), indicating high-quality earnings this quarter and strong cash conversion, likely aided by favorable working capital movements. With CapEx of 0.08, an OCF-minus-CapEx proxy for FCF is roughly 5.16 (investing CF otherwise unreported), comfortably covering likely dividend needs and debt service in the near term. There is no sign of aggressive working capital management from the disclosed line items, but limited granularity (inventories, payables details unreported) constrains assessment. Sustainability caution: Given ordinary income is very low, sustained high OCF will require stabilization of the core business; one-time cash inflows may not recur.

Dividend Sustainability

Payout ratio is a modest 22%, implying room to maintain dividends under current earnings. Cash coverage appears strong with OCF of 5.24 and low CapEx of 0.08, although DPS and total dividend paid are unreported. On a cash basis, dividends look serviceable even if earnings normalize downward, provided OCF does not sharply deteriorate. Policy outlook cannot be assessed due to missing DPS history; however, moderate leverage and positive working capital support maintenance capacity.

Risk Assessment

Business Risks:

• Sharp revenue contraction (-46.4% YoY) indicating demand weakness or loss of business.
• Operating margin compression to 1.2% due to SG&A rigidity and negative operating leverage.
• Dependence on extraordinary gains/tax effects to achieve net profit growth, masking weak core.
• Low asset turnover (0.274) and very low ROIC (0.5%), suggesting inefficient capital use.
• Potential customer concentration or channel risk (not disclosed) consistent with large revenue swings.

Financial Risks:

• Interest coverage at 2.02x near warning threshold; vulnerable to rate increases or EBIT declines.
• Short-term loans of 6.00 require ongoing rollover, though presently covered by cash 6.05.
• Moderate leverage (D/E 0.85x) could become strained if cash flow weakens.
• Unreported investing cash flows limit visibility on capital commitments or asset sales reliance.

Key Concerns:

• Quality of earnings: net income (1.12) far exceeds ordinary income (0.06), implying non-recurring support.
• Sustainability of cash flow strength given weak ordinary profitability.
• Capital efficiency flagged (ROIC 0.5% < 5% warning) constraining long-term value creation.
• Data gaps (DPS, inventory, detailed SG&A, extraordinary items) limit risk detection.

Investment Implications

Key Takeaways:

• Core profitability deteriorated materially; operating income -77.5% YoY and ordinary income -87.3% YoY.
• Net income up 169.8% YoY is non-core, driven by below-ordinary items and/or tax effects.
• Cash generation is strong this quarter (OCF 5.24; OCF/NI 4.67x), providing liquidity headroom.
• Leverage moderate (D/E 0.85x) but interest coverage thin (2.02x).
• ROE of 7.0% is not underpinned by core returns; ROIC at 0.5% highlights efficiency challenge.
• Dividend capacity looks covered by cash flow with a 22% payout ratio, but DPS data is missing.
• Near-term equity story depends on revenue stabilization and SG&A discipline to restore operating margins.

Metrics to Watch:

• Revenue run-rate and order intake to gauge demand recovery.
• Operating margin and SG&A trend versus sales to assess operating leverage.
• Ordinary income versus net income gap to monitor one-off dependency.
• Interest coverage and effective borrowing costs amid rate environment.
• Working capital movements (AR, AP, inventory) once disclosed.
• CapEx and investing cash flows for signs of asset sales or step-up investments.

Relative Positioning: Not a sogo shosha; compared with small-cap distributors, the company exhibits above-average cash generation this quarter but weaker core profitability and capital efficiency. Balance sheet is acceptable, yet operating leverage risk is elevated given the sharp revenue decline.

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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