Quick View
| Metrics | Current Period | Prior-year period | YoY |
|---|---|---|---|
| Revenue | ¥79.1B | ¥80.0B | −1.0% |
| Operating Income | ¥2.8B | ¥3.0B | −6.4% |
| Ordinary Income | ¥2.9B | ¥3.0B | −2.5% |
| Net Income | ¥1.6B | ¥1.7B | −5.2% |
| ROE | 2.3% | 2.4% | - |
Executive Summary
FY2026 Q3 consolidated results were: Revenue ¥79.1B (YoY -¥0.9B -1.0%), Operating Income ¥2.8B (YoY -¥0.2B -6.4%), Ordinary Income ¥2.9B (YoY -¥0.1B -2.5%), and Net Income ¥1.6B (YoY -¥0.1B -5.2%). While revenue slightly declined, the gross margin remained at 44.7%, indicating a solid earnings base; however, SG&A of ¥32.6B (41.1% of revenue) stayed elevated, limiting the operating margin to 3.5%. The effective tax rate was 43.7%, and the heavy tax burden weighed on net income. The full-year outlook calls for Revenue of ¥104.2B (YoY +1.0%), Operating Income of ¥3.7B (YoY +4.3%), and Net Income of ¥2.6B, expecting profit growth; based on Q3 results, achieving this will hinge on SG&A control and improving the tax burden.
Key Financial Metrics
[Profitability] ROE 2.2% (our Q3 figure) significantly trails the industry median of 4.0%, highlighting profitability challenges. By DuPont’s three factors, Net margin is 2.1%, Total asset turnover 0.65x, and Financial leverage 1.66x; the weak net margin is the primary drag. The operating margin of 3.5% exceeds the industry median of 2.8%, but the heavy SG&A ratio of 41.1% and an effective tax rate of 43.7% pressured net income, leaving the net margin at roughly the industry median of 1.8%. ROA of 1.3% is below the industry median of 2.2%. Interest coverage of 8.46x indicates adequate debt-servicing capacity. [Cash Quality] Cash and deposits were ¥39.99B, ensuring ample liquidity. Accounts payable declined sharply YoY by -35.6% (¥9.89B → ¥6.37B), suggesting earlier cash outflows for working capital. As Operating Cash Flow is not disclosed, verification is needed for the cash backing of earnings. [Investment Efficiency] Total asset turnover of 0.65x is standard within the industry but has room for improvement. [Financial Soundness] Equity Ratio 60.1% (above the industry median of 47.3%), Current ratio 243.0%, and Quick ratio 197.7% together indicate strong safety metrics. Interest-bearing debt is ¥23.3B, with a Debt/Capital ratio of 24.1% and a debt-to-equity ratio of 0.66x, reflecting restrained financial leverage. However, with a short-term liabilities ratio of 72.3% and short-term borrowings of ¥16.9B, dependence on short-term debt is high, warranting attention to refinancing risk. Cash-to-short-term liabilities coverage is 2.37x, indicating sufficient short-term liquidity.
Cash Flow Analysis
As detailed disclosures for Operating CF, Investing CF, and Financing CF are not provided, we infer funding movements from balance sheet trends. Cash and deposits stood at ¥39.99B, maintaining ample liquidity during the period. Within working capital, accounts payable fell markedly YoY by -¥3.52B (-35.6%), suggesting increased cash outflows due to earlier payments to suppliers or changes in purchasing terms. Meanwhile, accounts receivable of ¥21.37B and inventories of ¥14.52B remained relatively stable, concentrating working capital changes in the compression of accounts payable. Short-term liabilities were ¥34.57B, including short-term borrowings of ¥16.85B; cash and deposits covered this by 1.16x, limiting short-term liquidity risk. Based on Operating Income of ¥2.8B and Net Income of ¥1.6B, operating-level profit generation continues, but the quality of conversion to cash requires confirmation once Operating CF is available. The sustainability of the dividend burden (a planned year-end dividend of ¥85.0) also depends on the actual Operating CF.
Quality of Earnings
With Ordinary Income at ¥2.9B and Operating Income at ¥2.8B, net non-operating income was limited at roughly ¥0.1B. Non-operating income of ¥0.54B mainly comprised dividend income of ¥0.17B and interest income of ¥0.06B, while non-operating expenses included interest expense of ¥0.33B, resulting in a slightly positive financial balance. Non-operating income is small at about 0.7% of revenue, indicating reliance on the core business for profits. Gross profit of ¥35.33B (gross margin 44.7%) demonstrates a stable earnings base, but heavy operating expenses, including SG&A of ¥32.56B, compressed the operating margin to 3.5%. The effective tax rate of 43.7% is high, with corporate taxes of ¥1.3B reducing current-period profit, suggesting room to optimize the tax structure. While Operating CF disclosure is absent and cash backing of earnings remains unverified, ongoing recording of Operating Income indicates continued recurring profit generation.
Risk Factors
Risk of SG&A rigidification: SG&A of ¥32.6B is high at 41.1% of revenue; if structurally fixed, limited revenue growth will mute operating leverage and hinder margin improvement. Short-term debt dependence risk: With a short-term liabilities ratio of 72.3% and short-term borrowings of ¥16.9B, reliance on short-term debt is high, posing risks of higher refinancing costs or funding difficulties if financial market conditions deteriorate. Risk of persistently high tax burden: If the high effective tax rate of 43.7% continues, improvements at the operating profit level may not fully translate into net income, constraining shareholder return capacity.
Industry Benchmarks (Reference; Our Estimates)
[Position within Industry] (Reference Information; Our Estimates) Compared with the industry median for Wholesale Trade in 2025 Q3, the Equity Ratio of 60.1% exceeds the industry median of 47.3% by +12.8pt, indicating strong financial safety. The Current ratio of 243.0% also significantly surpasses the industry median of 184%, reflecting solid short-term liquidity. The operating margin of 3.5% is +0.7pt above the industry median of 2.8%, placing it around to slightly above average within the industry. Conversely, ROE of 2.2% is -1.8pt below the industry median of 4.0%, highlighting issues with return efficiency. Net margin of 2.1% is comparable to the industry median of 1.8%, but ROA of 1.3% is below the industry median of 2.2%, indicating inferior total asset efficiency. Revenue growth of -1.0% lags the industry median of +1.1%, showing delays in expanding earnings. The Net Debt/EBITDA multiple versus the industry median of -2.14 suggests the company holds substantial cash and is estimated to be near a net-cash position, indicating high soundness. Overall, financial soundness and safety are superior within the industry, but there is room for improvement in earnings growth and capital efficiency. (Industry: Wholesale Trade, Comparison: 2025 Q3, Source: our aggregation, N=14 companies)
Key Takeaways from Results
Despite a high gross margin of 44.7%, the operating margin remains at 3.5% due to a high SG&A ratio of 41.1%; progress in SG&A control is key to improving profitability going forward. The effective tax rate of 43.7% places a heavy burden and weighs on net income, indicating scope for tax optimization as a potential earnings tailwind. With a Payout Ratio of 103.7%, dividends exceed net income; note that dividend sustainability assumes confirmation of Operating CF performance and achievement of the full-year guidance.
This report is an automatically generated earnings analysis based on XBRL earnings release data processed by AI. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm from publicly available financial results. Investment decisions are your own responsibility. Consult a professional as needed before making any investment decisions.
AI Financial Analysis
Executive Summary
FY2026 Q3 performance was modestly weaker year on year, with lower sales and operating profit, although the company remains financially liquid. Revenue declined 1.0% YoY to ¥7.913bn. Operating income decreased 6.4% to ¥277m, underperforming the sales trend. Ordinary income fell a milder 2.5% to ¥292m, supported by higher non-operating income. Net income declined 5.2% to ¥164m, equivalent to EPS of ¥92.78. Gross profit decreased 2.3% to ¥3.533bn, faster than the revenue decline. Consequently, gross margin contracted by approximately 60bp YoY to 44.7%. SG&A expense declined 2.0% to ¥3.256bn, partially offsetting the gross-profit pressure. The SG&A-to-sales ratio improved by roughly 40bp, but this was insufficient to prevent operating-margin compression. Operating margin declined by around 20bp YoY to 3.5%, remaining below the 5% efficiency benchmark. Net margin decreased by approximately 9bp to 2.1%, reflecting the lower operating result and a 43.7% effective tax rate. Dividend income of ¥17m and interest income of ¥6m supported non-operating income, while interest expense was ¥33m. The annualized ROE was 3.0%, indicating limited current earnings power relative to the equity base. Balance-sheet liquidity is strong, with cash of ¥3.999bn, a 243.0% current ratio, and cash covering 2.37x short-term loans. However, working-capital intensity is elevated, with receivable days of 74, inventory days indicated at 91-98, and a 132-day cash conversion cycle. Q3 sales progress reached 76.0% of the full-year forecast, slightly ahead of the 75% seasonal benchmark, while operating-income progress was 74.9% and broadly on track. Net-income progress was 64.6% of the full-year target, 10.4 percentage points below the standard Q3 pace, making tax normalization and final-quarter profitability central to delivering the forecast.
Profitability Analysis
The annualized DuPont ROE is 3.0%, composed of a 2.1% net profit margin, 0.866x asset turnover, and 1.66x financial leverage. The low net margin is the primary constraint on shareholder returns, rather than excessive leverage. Operating profitability weakened as gross margin fell to 44.7% from approximately 45.3% in the prior-year period, a contraction of about 60bp. SG&A declined to ¥3.256bn from ¥3.321bn, and the SG&A ratio improved by roughly 40bp, demonstrating some cost containment. Nevertheless, the gross-profit decline exceeded the SG&A saving, causing operating income to fall 6.4% and operating margin to compress to 3.5% from about 3.7%. The 3.5% EBIT margin is below the 5% operating-efficiency threshold and is a material quality alert because modest sales or gross-margin fluctuations can have an outsized effect on earnings. Financial leverage of 1.66x and D/E of 0.66x are moderate, so balance-sheet leverage is not the main explanation for low ROE. The tax burden factor was 0.561, corresponding to a 43.7% effective tax rate, versus a more normalized level implied by the benchmark tax-burden factor above 0.70. This high tax burden reduced the conversion of ¥293m of pre-tax profit into ¥164m of net income. Interest burden was 1.056 because non-operating income exceeded net interest expense in the cumulative period, while interest coverage remained a sound 8.46x. The quality alert for ROIC of 3.7% is consistent with the low operating margin and indicates that returns on the capital committed to the operating asset base are below the 5% warning threshold. Sustained improvement requires either gross-margin recovery, faster asset utilization, or both; financial leverage should not be viewed as the appropriate route to materially higher returns.
Growth Assessment
Revenue of ¥7.913bn was down 1.0% YoY, indicating a broadly stable but not expanding top line through Q3. The sales decline was accompanied by a 6.4% reduction in operating income, showing negative operating leverage at the current margin level. Gross profit fell 2.3% YoY, faster than revenue, which points to weaker gross-profit conversion as the immediate driver of earnings pressure. Cost discipline was constructive, with SG&A falling 2.0% YoY, but did not fully absorb the gross-margin decline. The full-year plan calls for revenue of ¥10.418bn, up 1.0% YoY, and operating income of ¥370m, up 4.3% YoY. Q3 sales progress of 76.0% is 1.0 percentage point above the standard 75% pace, supporting the feasibility of the revenue target. Operating-income progress of 74.9% is essentially aligned with the standard Q3 pace, implying that the plan requires only a modest final-quarter contribution consistent with the cumulative trajectory. Ordinary-income progress is 76.2% against the ¥383m forecast, also ahead of the standard seasonal pace. In contrast, net-income progress is 64.6% against the ¥255m forecast, 10.4 percentage points behind the standard Q3 benchmark. The gap between ordinary-income and net-income progress makes the effective tax rate a key determinant of whether the bottom-line forecast is met. The forecast implies a fourth-quarter operating income of ¥93m and net income of ¥91m. Achieving the planned net income therefore requires a substantially better net-income conversion in Q4 than the cumulative 56.1% tax-burden factor suggests.
Financial Health
Liquidity is strong, with current assets of ¥7.782bn against current liabilities of ¥3.202bn, producing a current ratio of 243.0%. The quick ratio of 197.7% confirms that liquidity is not dependent on inventory monetization. Cash and deposits of ¥3.999bn represented 32.8% of total assets and covered short-term loans of ¥1.685bn by 2.37x. Working capital was ¥4.580bn, providing a substantial near-term liquidity buffer. Total interest-bearing debt was ¥2.329bn, comprising ¥1.685bn of short-term loans and ¥644m of long-term loans. D/E was a conservative 0.66x and debt-to-capital was 24.1%, both within investment-grade style benchmarks. Interest coverage of 8.46x indicates that current operating profit can service reported interest costs with reasonable headroom. The principal refinancing consideration is debt maturity concentration: 72.3% of debt is short term, well above the 40% quality-alert threshold. This short-term debt ratio raises refinancing and rollover sensitivity, even though the cash balance currently provides substantial protection. Current assets exceed current liabilities by ¥4.580bn, and cash alone exceeds short-term loans by ¥2.314bn, mitigating the immediate maturity mismatch. Accounts payable declined 35.6% YoY to ¥637m from ¥989m, reducing supplier-financing support and contributing to greater working-capital funding needs. Inventory increased 10.1% YoY to ¥1.452bn and trade receivables increased 9.3% to ¥2.137bn, while cash decreased 10.2% to ¥3.999bn. Equity increased to ¥7.316bn from ¥7.225bn, while the equity ratio improved to 60.1% from 58.2%, preserving a sound capital base. Lease obligations totaled approximately ¥882m across current and non-current liabilities and should be considered alongside borrowings in assessing fixed financial commitments.
Notable B/S Changes
Accounts payable: -¥352m (-35.6%) to ¥637m - reduced supplier financing increases the cash required to fund operations. Inventories: +¥133m (+10.1%) to ¥1.452bn - inventory rose despite a 1.0% revenue decline, consistent with elevated inventory-day alerts and requiring turnover monitoring. Accounts receivable: +¥181m (+9.3%) to ¥2.137bn - receivables growth outpaced sales and is consistent with the 74-day DSO alert. Cash and deposits: -¥452m (-10.2%) to ¥3.999bn - liquidity remains robust, but the cash decline coincides with greater working-capital intensity. Investment securities: +¥117m (+23.3%) to ¥621m - the increase remains modest at 5.1% of total assets, but contributes to asset allocation outside core operating working capital.
Cash Flow Quality
The 132-day cash conversion cycle is a material earnings-cash-conversion concern because capital remains tied up in receivables and inventory for an extended period. Receivable days of 74 exceed the 60-day alert threshold, increasing exposure to delayed customer collections and the need for working-capital financing. Inventory days are indicated at 91-98, above both the 60-day and 90-day alert thresholds. The inventory balance rose 10.1% YoY to ¥1.452bn despite revenue declining 1.0%, which is an unfavorable inventory-to-sales relationship. Trade receivables increased 9.3% YoY to ¥2.137bn, also outpacing sales and reinforcing the high-DSO alert. Accounts payable fell 35.6% YoY to ¥637m, reducing offsetting operating funding from suppliers. Together, higher receivables and inventory, alongside lower payables, point to a more cash-intensive working-capital position. Cash and deposits declined by ¥452m YoY, although the ending cash balance remains sizeable at ¥3.999bn. The elevated cash conversion cycle may be typical of a business that holds safety equipment inventory and serves project-based customers, but the year-on-year balance-sheet movement suggests monitoring is warranted. Improvement in inventory turnover and collections would strengthen free-cash-flow resilience and reduce reliance on short-term funding.
Dividend Sustainability
The full-year dividend forecast is ¥60 per share. Against forecast EPS of ¥143.63, the implied dividend payout ratio is approximately 41.8%. This is below the 60% sustainability benchmark and is moderate on an earnings basis. Retained earnings of ¥6.637bn provide a substantial accumulated capital buffer relative to the planned dividend. The Q2 dividend per share was ¥0, so shareholder distributions appear concentrated in the year-end payment. The planned dividend requires delivery of the full-year earnings forecast, and Q3 net-income progress of 64.6% is below the standard 75% pace. The principal watchpoint for dividend coverage is therefore the Q4 recovery needed in net-income conversion after the elevated 43.7% effective tax rate through Q3. Strong liquidity, including ¥3.999bn of cash, supports near-term payment capacity. The long cash conversion cycle and high short-term debt mix nevertheless make working-capital discipline important for maintaining distribution flexibility.
Risk Assessment
Business risks include Margin risk: operating margin declined to 3.5%, and gross margin contracted by approximately 60bp YoY; at this margin level, small changes in pricing, procurement cost, or sales mix can materially affect profit., Working-capital risk: DSO of 74 days, inventory days of 91-98, and a 132-day cash conversion cycle expose the business to slower collection and inventory-rotation risk., Inventory-management risk: inventories rose 10.1% YoY while revenue declined 1.0%, increasing the risk of slower-moving stock and potential margin pressure., Industry-specific demand and project-timing risk: demand for safety equipment can be affected by construction, infrastructure-maintenance, and public-works activity, while project timing can also lengthen customer collection cycles..
Financial risks include Refinancing risk: 72.3% of interest-bearing debt is short term, above the 40% alert threshold, creating greater rollover sensitivity despite adequate cash coverage., Tax-rate risk: the 43.7% effective tax rate and 0.561 tax-burden factor depressed net-income conversion and create uncertainty around the required Q4 earnings delivery., Capital-efficiency risk: annualized ROIC of 3.7% and annualized ROE of 3.0% are below the stated warning thresholds, limiting value creation from the capital base., Supplier-funding risk: accounts payable fell 35.6% YoY, reducing spontaneous operating financing at a time of rising receivables and inventory..
Key concerns include The low 3.5% EBIT margin is the highest-impact operating concern because it constrains returns and leaves limited protection against further gross-margin pressure., Net-income progress is 64.6% versus a standard 75% Q3 pace, requiring stronger Q4 tax-adjusted earnings conversion to achieve the ¥255m full-year forecast., The high cash conversion cycle is a high-likelihood funding and cash-generation concern, particularly when combined with the predominance of short-term debt., The balance sheet is sufficiently liquid to mitigate immediate refinancing pressure, but sustained working-capital expansion would reduce that cushion..
Investment Implications
Key takeaways include Revenue and operating income were down 1.0% and 6.4% YoY, respectively, with operating-margin compression to 3.5%., The full-year revenue and operating-income forecasts remain broadly achievable based on Q3 progress rates of 76.0% and 74.9%., The ¥255m net-income forecast requires attention because Q3 progress was only 64.6%, largely reflecting the elevated 43.7% effective tax rate., Liquidity and capitalization are solid, with a 243.0% current ratio, 2.37x cash-to-short-term-debt coverage, 0.66x D/E, and a 60.1% equity ratio., Working-capital efficiency is the main balance-sheet operational issue, as receivables and inventory increased while payables declined., The forecast ¥60 DPS implies a moderate 41.8% payout ratio against forecast EPS..
Metrics to watch include Operating margin and gross margin, particularly whether the 3.5% EBIT margin recovers in Q4, Effective tax rate and conversion of ordinary income into net income, DSO, inventory days, and the cash conversion cycle, Inventory and receivable growth relative to revenue, Short-term debt ratio, cash-to-short-term-debt coverage, and debt rollover terms, Annualized ROIC, currently 3.7%, and annualized ROE, currently 3.0%, Progress toward the ¥10.418bn sales, ¥370m operating-income, and ¥255m net-income forecasts.
Regarding relative positioning, The company presents a conservative liquidity and leverage profile, but its profitability and capital efficiency are weak relative to the provided benchmarks. Its 3.5% operating margin, 2.1% net margin, 3.0% annualized ROE, and 3.7% annualized ROIC indicate that the investment case is more dependent on operational-margin recovery and working-capital improvement than on balance-sheet restructuring.