TAKARA & COMPANY LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.07B
• Operating Income: ¥2.30B
• Net Income: ¥1.54B
• EPS: ¥118.76

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 topline and operating profit growth with strong cash generation, but sub-8% ROE and a >100% payout ratio highlight return and capital allocation headwinds. Revenue rose 8.1% year over year to 160.75, supported by operating income growth of 9.6% to 23.01 and ordinary income up 7.8% to 23.88. Net income increased 5.0% to 15.34, with basic EPS of 118.76 yen. Gross margin was 42.5%, and operating margin printed 14.3%, near the high end of industry norms for business services. Operating margin expanded by roughly 19 bps versus the prior period (14.31% vs. about 14.12%), indicating modest operating leverage. Net margin compressed by about 27 bps (9.5% vs. about 9.8%) due to a higher effective tax rate of 35.3%, dampening the flow-through to the bottom line. Earnings quality is high: operating cash flow of 26.73 implies OCF/NI of 1.74x and OCF/EBITDA of 0.94x, both strong. Balance sheet strength is exceptional with a current ratio of 416.7%, cash and deposits of 200.36, and minimal interest-bearing debt of 1.29. ROE is 4.9% (DuPont: net margin 9.5%, asset turnover 0.414x, leverage 1.25x), below the 8–15% comfort zone, reflecting conservative leverage and moderate asset turnover. CapEx/Depreciation of 0.08 triggered an underinvestment flag, which may reflect an asset-light model but raises questions about reinvestment for future growth. Dividend plans imply a payout ratio of about 102.9%, which is above typical sustainability thresholds, though current OCF can cover dividends and buybacks in the period. Non-operating items are benign with negligible interest cost and some dividend/interest income. Intangibles and goodwill are meaningful (49.02 and 22.28), introducing potential impairment risk if growth underperforms. Forward-looking, the company appears well-positioned to fund operations and shareholder returns from cash reserves, but sustaining dividend growth may require either higher earnings growth or a reassessment of payout levels. Key watchpoints are reinvestment levels, tax rate normalization, and the durability of mid-teens operating margins.

Profitability Analysis

ROE of 4.9% decomposes into Net Profit Margin (9.5%) × Asset Turnover (0.414x) × Financial Leverage (1.25x). The largest constraint on ROE is the combination of moderate asset turnover and low financial leverage, not margin quality (operating margin is solid at 14.3%). The year-on-year operating margin expanded by roughly 19 bps, indicating cost control and operating leverage despite higher payroll (Salaries and allowances of 21.46 within SG&A of 45.37). Net margin compressed by about 27 bps, primarily due to a higher effective tax rate of 35.3% (tax burden 0.643 vs. a >0.70 benchmark), partially offsetting operating gains. Interest burden (EBT/EBIT) at 1.038 signals minimal interest drag and small positive non-operating contributions. EBIT margin (14.3%) is healthy, placing overall profitability in the 'good' range by industry benchmarks. Sustainability: the margin profile appears repeatable in the near term given the absence of one-off gains and de minimis financing costs; however, the elevated tax rate limits net margin upside unless the tax burden normalizes. Operating leverage is positive but should be monitored if SG&A growth accelerates beyond revenue growth; current SG&A-to-sales is about 28.2%, which is manageable. Overall, ROE improvement will likely require either faster revenue growth (raising asset turnover), a more efficient asset base, or a more assertive but prudent use of leverage, given margins are already near an upper bound for the business mix.

Growth Assessment

Topline growth of 8.1% and operating profit growth of 9.6% indicate healthy demand and controlled costs. Ordinary income up 7.8% and NI up 5.0% reflect some tax headwinds, not operational weakness. With depreciation and amortization at 5.49 and very low CapEx (0.43), growth appears to be driven primarily by organic operating leverage and potentially prior-period investments (including intangibles). The lack of reported R&D and detailed segment data limits visibility into growth durability. Non-operating income (1.00) was modest; growth is not dependent on financial gains. Given the asset-light profile and strong cash, the company has capacity to invest to sustain growth; the underinvestment flag suggests growth could slow if reinvestment remains muted. Outlook: maintaining mid-teens operating margins and mid- to high-single-digit revenue growth would support incremental NI growth, but tax burden is a swing factor for bottom-line expansion.

Financial Health

Liquidity is robust: current ratio 416.7% and quick ratio 416.7%, with cash and deposits of 200.36 far exceeding current liabilities of 59.14. No warnings on liquidity thresholds (Current Ratio well above 1.0). Solvency is conservative: interest-bearing debt is 1.29, Debt/EBITDA 0.05x, Debt/Capital 0.4%, and interest coverage is >1,400x. Debt-to-equity of 0.25x (total liabilities basis) is conservative and far below any stress thresholds (no D/E > 2.0 concerns). Maturity mismatch risk is negligible: short-term loans of 0.50 are covered by cash 400× over (Cash/STD 400.7x). Equity of 311.22 continues to build, supported by retained earnings (227.82). Intangible assets (49.02) and goodwill (22.28) are meaningful; while not a liquidity issue, they represent solvency sensitivity if impairments occur during downturns. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income at 1.74x and OCF/EBITDA at 0.94x indicate solid cash conversion and low accrual intensity (accruals ratio -2.9%). Free cash flow cannot be fully calculated due to unreported investing cash flows, but using CapEx as a proxy suggests substantial FCF in the period (OCF 26.73 minus CapEx 0.43 ≈ 26.30). Working capital behavior appears benign given strong OCF relative to earnings; no signs of aggressive working capital management are evident from the summary data. Financing CF was -13.04, including buybacks of -2.55, implying cash is being used for shareholder returns with ample headroom from OCF. The company’s cash balance provides additional flexibility to absorb timing differences or investment needs.

Dividend Sustainability

Interim and year-end DPS total 120 yen, implying a payout of about 15.8 (100M JPY) on 13.15 million shares, versus NI of 15.34—an estimated payout ratio of 102.9%. This exceeds the <60% benchmark for conservative sustainability and is flagged as a potential risk if earnings growth does not accelerate. However, period OCF of 26.73 comfortably covers dividends and buybacks (about 18.3 combined), suggesting near-term affordability. Sustainability thus hinges on maintaining strong cash generation and avoiding a step-down in NI; otherwise, dividend growth may need to be moderated or offset by balance sheet cash. Policy signal: management is prioritizing shareholder returns; absent visibility on FCF for the full year, caution is warranted on maintaining >100% payout over time.

Risk Assessment

Business Risks:

• Underinvestment risk: CapEx/Depreciation at 0.08 may constrain future growth or operational resilience if sustained.
• Intangible and goodwill concentration (49.02 and 22.28) raises impairment risk if revenue growth slows.
• Cost inflation risk, particularly wages (Salaries and allowances 21.46), could pressure margins.
• Client demand cyclicality for disclosure/IR-related services could slow project volume.
• Execution risk in integrating past acquisitions that contribute to high D&A.

Financial Risks:

• Dividend over-distribution risk with payout ratio ~103% if cash conversion weakens.
• Tax burden sensitivity (35.3% effective rate) could depress net margins if it remains elevated.
• Limited leverage reduces financial risk but also constrains ROE improvement absent growth or efficiency gains.

Key Concerns:

• Quality flag: Underinvestment (CapEx/Dep 0.08) suggests deferred reinvestment; while asset-light models can justify low CapEx, persistently low reinvestment may erode competitiveness.
• Net margin compression (~27 bps) from a higher tax rate could continue to cap NI growth.
• High share of intangibles increases downside in a downturn via potential impairment charges.

Investment Implications

Key Takeaways:

• Operational performance is solid with revenue +8.1% and operating income +9.6%, and operating margin around 14.3%.
• Cash generation is strong (OCF/NI 1.74x), supporting shareholder returns in the near term.
• ROE at 4.9% is below comfort thresholds, held back by moderate asset turnover and low leverage.
• Dividend policy implies a payout ratio above 100%, sustainable only with continued strong cash flow.
• Underinvestment flag warrants monitoring; reinvestment may need to rise to sustain growth.

Metrics to Watch:

• CapEx trajectory versus depreciation and growth initiatives
• Effective tax rate and tax burden (target >0.70 tax burden)
• SG&A growth versus revenue; salaries as a percent of sales
• Operating margin sustainability around mid-teens
• OCF to NI ratio and working capital trends
• Goodwill/intangible impairment indicators

Relative Positioning: Compared with domestic business services peers, the company exhibits stronger liquidity and lower leverage, with margins near the upper end, but lower ROE due to conservative balance sheet usage and moderate asset turnover. Dividend payout is more aggressive than typical peers, relying on robust cash conversion.

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