I.A GROUP CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.70B
• Operating Income: ¥376M
• Net Income: ¥290M
• EPS: ¥187.38

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: AIE Group (7509) delivered a modestly positive FY2026 Q2 result with resilient revenue growth and solid cash conversion, but profitability and capital efficiency remain weak. Revenue rose 9.9% YoY to 186.95, while operating income increased 8.6% YoY to 3.76 and ordinary income rose 3.3% YoY to 4.18. Net income grew 15.8% YoY to 2.72, outpacing topline growth due to lower non-operating drag and despite a high effective tax rate of 46.6%. Gross profit reached 83.51, implying a gross margin of 44.7%. Operating margin was 2.01%, showing slight compression of about 2 bps YoY (estimated), while net margin improved about 8 bps YoY to 1.46% on stronger bottom-line growth. SG&A intensity is heavy at 42.7% of sales (rent expense 10.75 alone equals ~5.8% of sales), capping operating leverage. Cash flow quality was strong: operating cash flow of 7.59 was 2.79x net income, indicating robust cash conversion. Liquidity is adequate by current ratio (149.9%) but lean by quick ratio (54.2%), reflecting inventory-heavy working capital. Leverage is moderate (D/E 0.79x), and interest coverage is strong at 17.1x, but debt/EBITDA of 6.21x points to limited headroom if EBITDA normalizes downward. Capital efficiency remains the chief concern: ROIC is just 1.1% and ROE 1.7%, well below typical mid-single-digit thresholds. Non-operating income is meaningful (25.8% of operating income), implying some reliance on items outside core operations. A tentative dividend payout ratio of 72.6% looks elevated relative to earnings and low ROIC, but appears covered by a proxy FCF this half (OCF 7.59 minus capex 4.79 ≈ 2.80 vs implied dividends ~1.98). Forward-looking, sustaining volume-led growth while tightening SG&A and improving inventory turns will be key to lift ROIC and defend margins against cost inflation and a high tax rate. Overall, the quarter shows healthy revenue momentum and cash generation but underscores structural profitability and capital efficiency challenges that need operational improvements to unlock value.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (1.46%) × Asset Turnover (0.652x) × Financial Leverage (1.79x) = 1.7% (matches reported). Component changes: net margin improved modestly YoY (+8 bps) as net income grew faster than sales; operating margin slightly compressed (-2 bps) as SG&A grew roughly in line with sales, and ordinary margin compressed (-14 bps) likely due to higher tax burden and/or less favorable non-operating balance versus sales. Business drivers: the low operating margin (2.0%) reflects heavy SG&A intensity (42.7% of sales) with notable rent costs (~5.8% of sales), suggesting store network and facility costs weigh on scalability; the high effective tax rate (46.6%) dampens net profitability. Sustainability: the modest net margin uptick is fragile given thin operating margin, high fixed costs, and elevated tax rate; without SG&A discipline or mix/price improvements, sustained margin expansion is uncertain. Operating leverage: revenue +9.9% vs operating income +8.6% signals slight negative operating leverage in the period; watch SG&A growth relative to sales. Flags: capital efficiency is weak (ROIC 1.1%); reliance on non-operating income (non-operating income ratio 25.8%) suggests some earnings sensitivity to non-core items.

Growth Assessment

Top-line growth of 9.9% YoY to 186.95 appears healthy and likely volume-led; pricing/mix contribution is not disclosed. Operating income rose 8.6% and net income 15.8%, indicating some bottom-line benefit from non-operating items and possibly cost control outside core COGS, though effective tax rate limited net upside. Gross margin at 44.7% is solid for a distribution/retail-like profile, but SG&A intensity (42.7%) caps scalability. Estimated bps changes: operating margin ~-2 bps YoY to 2.01%; net margin ~+8 bps to 1.46%; ordinary margin ~-14 bps to 2.24%. Growth quality is mixed: while cash conversion is strong (OCF/NI 2.79x), EBIT-based profitability remains thin, and ROIC at 1.1% signals value creation below cost of capital. Outlook hinges on improving store economics/overheads, inventory productivity, and sustaining demand; absent SG&A ratio improvements or better asset turns, earnings growth may lag sales growth.

Financial Health

Liquidity: Current ratio 149.9% (adequate), quick ratio 54.2% (weak), indicating reliance on inventories (76.98) to meet short-term obligations. No warning for current ratio (<1.0) or D/E (>2.0) thresholds; D/E is 0.79x (moderate). Maturity structure: short-term loans 24.77 vs quick assets (cash 18.14 + AR 17.97) of 36.11 suggests coverage is acceptable, but inventory conversion is critical given low quick ratio. Solvency: total loans 46.18 vs EBITDA 7.43 implies debt/EBITDA 6.21x; while interest coverage is strong (17.1x), leverage is elevated relative to EBITDA and could pressure flexibility if EBITDA softens. Off-balance sheet: significant rent expense (10.75) hints at lease commitments not fully reflected on-balance under JGAAP; ongoing lease obligations represent a fixed-cost burden.

Cash Flow Quality

OCF/Net Income is 2.79x, indicating high-quality earnings and strong cash conversion this half. Proxy FCF (analyst-derived) of ~2.80 (OCF 7.59 minus capex 4.79) is positive, suggesting capacity to fund dividends and maintenance capex near term. Working capital dynamics are not disclosed in detail; however, the inventory-heavy balance sheet alongside strong OCF suggests either healthy inventory turnover or favorable payables/receivables timing—insufficient disclosure to confirm. No signs of OCF/NI <0.8; thus no immediate quality red flag. Sustainability will depend on maintaining inventory discipline and avoiding payables-driven OCF spikes.

Dividend Sustainability

With a calculated payout ratio of 72.6%, dividends appear elevated relative to earnings but likely covered by proxy FCF this half. Using net income of 2.72 implies dividends of roughly ~1.98 (not officially disclosed), which are covered by proxy FCF of ~2.80. Balance sheet leverage is moderate (D/E 0.79x) and interest coverage is strong, supporting near-term distributions. That said, structurally low ROIC (1.1%) and thin operating margins (2.0%) limit long-term dividend growth capacity without operational improvements. Policy signals are not disclosed; investors should monitor payout versus FCF, especially if capex rises or OCF normalizes.

Risk Assessment

Business Risks:

• Thin operating margin (2.0%) with high SG&A intensity (42.7%) limits resilience to sales volatility.
• High effective tax rate (46.6%) suppresses net profitability and ROE.
• Inventory-heavy model (inventories 76.98) exposes earnings to obsolescence and markdown risk if demand slows.
• Dependence on non-operating income (ratio 25.8%) adds volatility to total earnings.

Financial Risks:

• Low capital efficiency (ROIC 1.1%) risks value dilution if growth is capex- or working-capital-intensive.
• Debt/EBITDA at 6.21x reduces buffer against EBITDA downturns despite strong interest coverage.
• Quick ratio at 0.54 indicates liquidity reliance on inventory conversion; a slowdown could tighten liquidity.
• Potential off-balance lease commitments implied by rent expense (10.75) represent fixed-cost obligations.

Key Concerns:

• Sustainability of margin improvements given minimal operating margin progress and high fixed costs.
• Earnings sensitivity to tax rate and non-operating items.
• Limited visibility due to multiple unreported disclosures (dividends detail, segment mix, investing cash flow).

Investment Implications

Key Takeaways:

• Top-line momentum is solid (+9.9% YoY) but operating leverage is limited (operating margin ~2.0%).
• Cash conversion is strong (OCF/NI 2.79x), supporting near-term funding needs.
• Capital efficiency is the main overhang: ROIC 1.1% and ROE 1.7%.
• Leverage moderate by D/E (0.79x) but elevated by Debt/EBITDA (6.21x); interest coverage is strong (17.1x).
• Dividend payout (~72.6%) is high versus earnings but appears covered by proxy FCF this half.

Metrics to Watch:

• SG&A-to-sales ratio and rent expense trajectory for operating leverage signs.
• Inventory turns and working capital days to validate cash conversion sustainability.
• Effective tax rate normalization potential and impact on net margin.
• Debt/EBITDA and interest coverage under different earnings scenarios.
• Capex levels and investing cash flows (currently unreported) to assess future FCF.

Relative Positioning: Versus domestic retail/distribution peers, AIE Group shows respectable gross margin but thinner operating margin and significantly lower ROIC, with acceptable balance-sheet leverage but weaker quick liquidity and heavier reliance on non-operating income.

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