KOTOBUKIYA (7809) FY2026 Q2 Earnings Report

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Executive Summary

Q2 FY2026 was characterized by increases in both revenue and profit, with particularly strong progress on the profit front against the full-year forecast. Revenue was ¥83.7B, Operating Income was ¥5.6B, Ordinary Income was ¥5.8B, and Net Income attributable to owners of the parent was ¥4.0B. The full-year progress rate for revenue was 50.7%, exceeding the standard midyear progress level, while the progress rates for Operating Income, Ordinary Income, and Net Income were 69.9%, 81.1%, and 79.0%, respectively. The results were therefore profit-led, with profit progress significantly exceeding revenue progress.

Factors Affecting Performance

【Revenue】Revenue was ¥83.7B, representing progress of 50.7% against the full-year forecast of ¥165.0B. As the Company operates in a single segment (Manufacturing and Sales of Hobby-Related Products Business), the factors behind the revenue increase cannot be separately identified from the disclosed information. However, the business is susceptible to the popularity of intellectual properties (IPs) and the timing of product launches.

【Profit and Loss】Gross profit was ¥27.4B, securing a gross margin of 32.7%. After absorbing SG&A expenses of ¥21.8B (SG&A ratio: 26.0%), Operating Income was ¥5.6B (Operating Income margin: 6.7%). Ordinary Income was ¥5.8B, ¥0.25B higher than Operating Income, as non-operating income of ¥0.4B (including a foreign exchange gain of ¥0.3B) exceeded non-operating expenses of ¥0.2B. Net Income of ¥4.0B reflects a tax burden corresponding to an effective tax rate of approximately 32.4% relative to Ordinary Income. The Company achieved increases in both revenue and profit, while the progress rate for Ordinary Income exceeded that for Operating Income, incorporating the positive impact of non-operating income and expenses, including foreign exchange gains.

Key Financial Indicators

【Profitability】Operating Income margin was 6.7%, Net Income margin was 4.7%, and ROE was 4.8%. Under DuPont analysis, ROE was decomposed into a Net Income margin of 4.7%, total asset turnover of 0.631x, and financial leverage of 1.62x, indicating that the low asset turnover ratio is constraining capital efficiency. The EBITDA margin was 15.0%, and the ¥7.0B depreciation and amortization burden generated the difference between the Operating Income margin and EBITDA margin.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥14.3B, equivalent to 3.61x Net Income. The accrual ratio was negative 7.8% and the cash conversion ratio was 1.14x, confirming cash-generation capacity exceeding accounting profit.【Investment Efficiency】Capital expenditures of ¥8.8B were 1.26x depreciation and amortization of ¥7.0B, indicating continued growth investment exceeding maintenance investment. Free Cash Flow was positive at ¥4.7B even after investment.【Financial Soundness】The Equity Ratio was 61.7%, the current ratio was 320.4%, and the quick ratio was 278.3%, indicating a high level of safety both in the short and long term. Debt/EBITDA was 2.00x against interest-bearing debt of ¥25.1B, while interest coverage was 34.6x, indicating ample debt-servicing capacity.

Cash Flow Analysis

Operating Cash Flow was ¥14.3B, reaching 3.6x Net Income of ¥4.0B, indicating strong cash backing for earnings. The decrease in accounts receivable of ¥3.0B and the decrease in inventories of ¥2.7B contributed to the improvement, with working capital efficiency temporarily supporting cash flow. Investing Cash Flow was an outflow of ¥9.6B, of which capital expenditures accounted for ¥8.8B, indicating continued investment exceeding depreciation and amortization of ¥7.0B. Free Cash Flow, calculated as Operating Cash Flow less capital expenditures, was positive at ¥4.7B. Financing Cash Flow was an outflow of ¥5.9B, reflecting the execution and repayment of long-term borrowings, a decrease in short-term borrowings, and dividend payments. As a result, cash and cash equivalents decreased by ¥0.6B; however, cash and deposits of ¥39.4B were equivalent to 4.9x current liabilities, maintaining a level that provides ample liquidity. The increase in Operating Cash Flow resulting from decreases in accounts receivable and inventories could reverse during a period of expanding demand, making future trends important to monitor.

Earnings Quality

Ordinary Income was ¥5.8B, ¥0.25B higher than Operating Income of ¥5.6B. The primary reason for this difference was non-operating income of ¥0.4B, mainly consisting of a foreign exchange gain of ¥0.3B. Non-operating expenses primarily comprised interest expenses of ¥0.2B, and their impact on profit and loss was limited, as indicated by the interest burden coefficient of 1.046x. Net Income reflects income taxes and other taxes of ¥1.9B, corresponding to an effective tax rate of 32.4% relative to Ordinary Income, while maintaining a high full-year progress rate even after the tax burden. The negative accrual ratio of 7.8% indicates that accounting profit does not fall below cash generation, and earnings quality can be assessed as sound. However, because the foreign exchange gain included in non-operating income is subject to market fluctuations, its reproducibility warrants attention.

Earnings Forecast and Guidance

Against the full-year earnings forecast (Revenue of ¥165.0B, Operating Income of ¥8.0B, Ordinary Income of ¥7.2B, and Net Income of ¥5.0B), first-half progress was 50.7% for Revenue, 69.9% for Operating Income, 81.1% for Ordinary Income, and 79.0% for Net Income, representing strong progress on the profit front. The earnings forecast was revised during the quarter, and even assuming the revised forecast, the pace of profit progress required in the second half appears manageable. Operating Income required in the second half is approximately ¥2.4B, while Net Income required is approximately ¥1.1B, both below the first-half results. However, it is necessary to assess these figures while considering that quarterly performance in the hobby-related products business is susceptible to product launch timing and IP popularity.

Shareholder Returns

The dividend at the end of Q2 was ¥0, while the full-year dividend forecast is ¥45 per share. No revision to the dividend forecast was made during the quarter. Based on the full-year Net Income forecast of ¥5.0B and an approximate number of shares outstanding excluding treasury shares of approximately 8.08 million shares, the estimated Payout Ratio is 72.8%. First-half Free Cash Flow of ¥4.7B exceeded the estimated annual total dividend amount of approximately ¥3.6B, indicating room to support dividends based on current cash-generation capacity. However, as the Payout Ratio is relatively high, dividend capacity could decline if second-half profit progress falls below plan, making it meaningful to monitor achievement of the full-year earnings forecast.

Risk Factors

1. Single-Segment and IP Dependence Risk: The Company operates in a single segment involving the manufacture and sale of hobby-related products and may have a high degree of dependence on specific IPs or product series. Its quarterly performance is susceptible to product launch timing and fluctuations in popularity.

2. Inventory and Demand Risk: The Company holds product inventories of ¥11.9B and work in progress of ¥6.4B. If demand forecasts prove inaccurate, the Company may face risks of inventory write-downs or discounted sales. Working capital trends should be monitored together with the collection status of accounts receivable of ¥21.0B.

3. Payout Ratio and Earnings Dependence Risk: The estimated full-year Payout Ratio is relatively high at 72.8%, and if second-half profit progress falls below plan, dividend capacity may decline. In addition, a portion of Ordinary Income depends on a foreign exchange gain of ¥0.3B, and attention should be paid to its reproducibility.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin were slightly below the industry median, placing the Company’s profitability at a mid-to-low level within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. First-half progress was strong, with Operating Income progress of 69.9% and Net Income progress of 79.0%. Earnings quality was favorable, as Operating Cash Flow was 3.6x Net Income and Free Cash Flow was also positive at ¥4.7B.

2. ROE of 4.8% and an Operating Income margin of 6.7% were below the industry medians (Net Income margin: 5.4%; Operating Income margin: 9.7%). Asset turnover and SG&A efficiency will be key medium-term evaluation factors. Capital expenditures reached 1.26x depreciation and amortization, making trends in investment recovery an important point of focus.

3. The estimated full-year Payout Ratio is relatively high at 72.8%, and a portion of Ordinary Income depends on foreign exchange gains. The profitability of products and the maintenance of profit progress in the second half will be important in assessing the financial structure, including dividend capacity.

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This report is an automatically generated earnings analysis document created by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional advisor.

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AI Financial Analysis

Executive Summary

FY2026 Q2 performance was profitable, cash-generative, and ahead of the company’s full-year earnings plan, although the operating-margin profile remains moderate rather than high. Cumulative Q2 revenue was ¥8.37bn, operating income was ¥0.56bn, ordinary income was ¥0.58bn, and net income attributable to owners was ¥0.40bn. Gross profit was ¥2.74bn, producing a 32.7% gross margin. SG&A expense of ¥2.18bn absorbed 26.0% of revenue, leaving a 6.7% operating margin. EBITDA was ¥1.26bn and the EBITDA margin was 15.0%, showing that depreciation and amortization are a meaningful component of the cost structure. The 4.7% net margin was 200bp below the 6.7% EBIT margin, principally reflecting the 32.4% effective tax rate. Conversely, ordinary income exceeded operating income by ¥0.25bn, supported by ¥0.34bn of foreign-exchange gains within non-operating income. Operating cash flow was exceptionally strong at ¥1.43bn, equal to 3.61x net income. Free cash flow was positive at ¥0.47bn even after ¥0.88bn of capital expenditure. The cash-flow result was aided by reductions in trade receivables of ¥0.30bn and inventories of ¥0.27bn, which improved working-capital cash generation during the half year. The balance sheet remains well funded, with a 320.4% current ratio, ¥3.94bn of cash and deposits, and debt-to-equity of 0.62x. Interest-bearing debt was ¥2.51bn, but debt/EBITDA of 2.00x and EBIT interest coverage of 34.60x indicate substantial servicing capacity. Q2 revenue represents 50.7% of the revised ¥16.50bn full-year forecast, broadly aligned with the 50% first-half reference point. Operating income has reached 69.9% of the ¥0.80bn full-year target and net income has reached 79.0% of the ¥0.50bn target, setting a favorable earnings base for the second half. Full-year performance will depend on sustaining product demand, gross-margin discipline, disciplined inventory management, and limiting reliance on foreign-exchange gains for ordinary-income delivery.

Profitability Analysis

The reported annualized ROE is 9.7%, derived through the supplied DuPont framework as a 4.7% net profit margin multiplied by 1.262x asset turnover and 1.62x financial leverage. The largest constraint within this equation is profitability rather than balance-sheet efficiency or leverage: the 4.7% net margin is below the 5%-10% benchmark range for a good net margin, while asset turnover is solid and leverage is moderate. The 6.7% EBIT margin is supported by a 32.7% gross margin but reduced by SG&A equal to 26.0% of revenue. EBITDA margin of 15.0% is stronger than EBIT margin because depreciation and amortization totaled ¥0.70bn, or 8.3% of revenue. Tax burden was 0.675, corresponding to a 32.4% effective tax rate and moderately reducing conversion of pre-tax profit into net income. Interest burden was 1.046 because non-operating income exceeded interest costs; this is favorable for the period, but ¥0.34bn of FX gains accounted for 6.0% of operating income and should not be treated as a core operating-margin driver. Using annualized Q2 net income and period-end assets, annualized ROA is approximately 6.0%, indicating satisfactory asset profitability. Capital expenditure/depreciation was 1.26x, consistent with investment above depreciation and supportive of future capacity or operating infrastructure. The company operates a single hobby-related products manufacturing and sales business, so profitability is concentrated in one commercial model and depends on product-cycle execution, licensing appeal, production efficiency, and inventory discipline.

Growth Assessment

Revenue of ¥8.37bn has achieved 50.7% of the ¥16.50bn full-year forecast, which is close to the standard 50% Q2 progress level. In contrast, operating income progress is 69.9%, ordinary income progress is 81.1%, and net-income progress is 79.0%, all more than 10 percentage points ahead of the standard first-half run rate. This suggests the revised forecast embeds a lower second-half earnings run rate, greater expected cost absorption, seasonality, or a prudent planning stance. The gap between operating-income progress and ordinary-income progress also reflects the contribution from foreign-exchange gains. Revenue conversion is constructive: gross profit of ¥2.74bn covered ¥2.18bn of SG&A and generated ¥0.56bn of operating income. The inventory reduction of ¥0.27bn is cash-positive and reduces near-term stock carrying risk, while finished goods of ¥1.19bn and work in process of ¥0.64bn remain important operating assets to monitor against sales momentum. Capex of ¥0.88bn, equivalent to 1.26x depreciation, indicates management is continuing to invest rather than simply harvesting cash flow. The full-year forecast calls for ¥8.13bn of second-half revenue, ¥0.24bn of operating income, and ¥0.10bn of net income, implying materially lower second-half margins than the first-half outcome. Therefore, the central outlook issue is not forecast attainment alone, but whether first-half profitability and cash conversion can persist while the company supports investment and manages product-demand volatility.

Financial Health

Liquidity is strong. Current assets of ¥9.04bn exceeded current liabilities of ¥2.82bn by ¥6.22bn, producing a 320.4% current ratio and a 278.3% quick ratio. Cash and deposits of ¥3.94bn represented 29.7% of total assets and covered short-term loans of ¥0.80bn by 4.93x. Interest-bearing debt totaled ¥2.51bn, comprising ¥0.80bn of short-term loans and ¥1.71bn of long-term loans; the 31.9% short-term debt ratio limits refinancing concentration. Long-term loans exceed short-term loans, while the substantial working-capital surplus and cash position mitigate maturity-mismatch risk. Debt-to-equity of 0.62x, debt/capital of 23.5%, and equity of ¥8.18bn indicate a conservative capital structure. Debt/EBITDA of 2.00x remains within the stated investment-grade benchmark of below 2.5x. EBIT interest coverage of 34.60x and EBITDA interest coverage of 77.76x demonstrate considerable tolerance for higher financing costs or temporary earnings volatility. PPE was ¥3.31bn, or 25.0% of total assets, while intangible assets were only 1.3% of assets, limiting balance-sheet dependence on intangible-asset valuation. Asset retirement obligations were ¥0.21bn, equivalent to approximately 0.4% of total liabilities, a modest level relative to the liability base.

Cash Flow Quality

Cash-flow quality is high in the reported period. Operating cash flow of ¥1.43bn was 3.61x net income of ¥0.40bn, comfortably above the 1.0x high-quality benchmark. The accruals ratio was negative 7.8%, consistent with cash realization exceeding accounting earnings. Cash conversion, measured as OCF/EBITDA, was 1.14x and exceeded the 0.9x benchmark. Free cash flow was ¥0.47bn after ¥0.88bn of capital expenditure, demonstrating that internal cash generation funded investment during the half year. CapEx/depreciation of 1.26x indicates reinvestment exceeded the depreciation charge. Working-capital movements were a major positive source of operating cash flow: trade receivables decreased by ¥0.30bn and inventories decreased by ¥0.27bn. These movements are favorable for cash generation, but the durability of the OCF/net-income premium should be assessed alongside future receivable and inventory movements because releases of working capital are not indefinitely repeatable. Financing cash flow was negative ¥0.59bn, including ¥0.33bn of dividends paid, debt repayments, and short-term borrowing reductions, while investing cash flow was negative ¥0.96bn. Cash and cash equivalents ended at ¥1.92bn, with additional funds held in cash and deposits and time-deposit movements reflected in investing cash flow.

Dividend Sustainability

No interim dividend was declared for Q2, while the full-year forecast specifies DPS of ¥45. Using forecast EPS of ¥61.53, the implied dividend-only payout ratio is approximately 73.1%. This is above the stated 60% sustainability benchmark, but remains below 100% and is supported by the company’s net-income forecast. Based on 8.07 million average shares, the indicative annual cash dividend is approximately ¥0.36bn, compared with reported first-half free cash flow of ¥0.47bn. This provides current free-cash-flow coverage before considering second-half operating cash generation and investment requirements. The balance sheet adds support, with ¥3.94bn of cash and deposits, a ¥6.22bn working-capital surplus, and moderate leverage. The absence of a Q2 dividend is consistent with a year-end-oriented dividend structure rather than evidence of weak distribution capacity. Sustainability nonetheless depends on converting second-half earnings into cash while maintaining the planned level of capital expenditure. No share repurchase amount is presented; therefore, the analysis uses dividend payout ratio rather than total return ratio.

Risk Assessment

Business risks include Product-demand and product-lifecycle risk: the single hobby-related manufacturing and sales business is exposed to consumer preferences, franchise or licensing appeal, release timing, and the commercial success of individual products., Inventory risk: finished goods of ¥1.19bn and work in process of ¥0.64bn require continued sell-through discipline; a demand shortfall could lead to markdowns, write-downs, or weaker gross margins., Foreign-exchange risk: FX gains of ¥0.34bn lifted ordinary income and represented 6.0% of operating income, leaving reported ordinary-profit conversion partly exposed to currency movements., Production and supply-chain risk: profitability depends on input costs, production capacity, delivery reliability, quality control, and the ability to manage manufacturing costs without impairing product availability..

Financial risks include Debt is manageable but material at ¥2.51bn; a sustained reduction in EBITDA would increase the current 2.00x debt/EBITDA ratio., Capital expenditure of ¥0.88bn exceeded depreciation, requiring continued operating-cash-flow generation to preserve free cash flow and balance-sheet flexibility., The implied 73.1% full-year dividend payout ratio leaves less earnings retention than a sub-60% payout policy, increasing sensitivity of dividend coverage to earnings volatility..

Key concerns include The full-year forecast implies second-half operating income of only ¥0.24bn after ¥0.56bn in the first half; the reasons for this implied margin moderation are important for interpreting the durability of first-half outperformance., Operating margin of 6.7% is below the 8% threshold associated with a good profitability profile, making gross-margin preservation and SG&A control central to earnings resilience., First-half operating cash flow benefited from ¥0.56bn of combined receivable and inventory reductions; future cash conversion should be evaluated on whether cash flow remains strong without comparable working-capital releases..

Investment Implications

Key takeaways include First-half earnings are ahead of full-year plan, with 69.9% operating-income progress and 79.0% net-income progress against the revised forecast., Cash conversion is robust: ¥1.43bn of operating cash flow, 1.14x OCF/EBITDA, and ¥0.47bn of positive free cash flow., Liquidity and debt service capacity are strong, supported by a 320.4% current ratio, 0.62x debt-to-equity, and 34.60x EBIT interest coverage., The main analytical issue is sustainability of first-half margins and cash generation, especially given the implied second-half profit slowdown and the contribution from FX gains., The ¥45 full-year DPS implies a 73.1% dividend payout ratio based on forecast EPS, making forecast delivery and cash-flow retention important for distribution capacity..

Metrics to watch include Gross margin and operating margin relative to the first-half 32.7% and 6.7% levels, Second-half revenue and operating-income delivery versus the ¥16.50bn and ¥0.80bn full-year forecasts, Finished-goods and work-in-process balances relative to sales momentum, Operating cash flow excluding working-capital movements, Foreign-exchange gains or losses and their contribution to ordinary income, Capex relative to depreciation and free-cash-flow generation, Debt/EBITDA and the ¥45 DPS coverage by earnings and free cash flow.

Regarding relative positioning, The company presents a financially conservative and cash-generative profile, with liquidity, leverage, and interest coverage stronger than common caution thresholds. Operating profitability is adequate but below the stated good-margin benchmark, so relative differentiation depends on product-led gross-margin resilience, inventory execution, and the ability to maintain cash conversion while investing for growth.