Cleanup Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥65.40B
• Operating Income: ¥1.35B
• Net Income: ¥1.00B
• Earnings per Unit (EPU): ¥27.87

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 Q2 recovery with strong operating leverage despite still-thin margins and structurally low capital efficiency. Revenue rose 2.9% YoY to 654.01, while operating income surged 256.5% YoY to 13.51 as cost discipline and improved gross spread supported profitability. Ordinary income increased 170.0% to 16.63, and net income jumped 292.2% to 10.05, lifting EPS to 27.87 yen. Gross margin printed at 32.6%, and operating margin improved to 2.1%, implying a roughly 150 bps YoY expansion from about 0.6% last year on our back-of-the-envelope estimate. Net margin reached 1.5% (10.05/654.01), aided by 3.57 in non-operating gains, including 1.05 in dividend income and 0.20 in interest income. Earnings quality was high this quarter with OCF of 23.59, equating to 2.35x net income, signaling healthy cash conversion. Liquidity remains robust (current ratio 199%, quick ratio 192%) and solvency conservative (liabilities-to-equity 0.55x, interest coverage 52x). However, ROE is still low at 1.7%, and ROIC at 1.9% is below the 5% warning threshold, underscoring capital efficiency challenges. SG&A at 199.50 implies a 30.5% ratio to sales, which alongside the operating income step-up suggests tangible operating leverage. Non-operating income accounted for a meaningful share of ordinary income, so sustainability should be monitored if financial income normalizes. The effective tax rate was elevated at 35.5%, muting bottom-line conversion. Capex was 9.26, and with positive OCF, a proxy FCF (OCF–capex) appears positive, though full investing CF detail is unreported. The reported payout ratio stands at 115.5%, which is above sustainable norms; however, on a cash basis, the quarter’s proxy FCF likely covers dividends if maintained at current levels. Forward-looking, modest demand recovery, price/mix, and input-cost stabilization could support incremental margin gains, but structural returns need improvement via mix upgrades, further SG&A productivity, and disciplined capital allocation. Overall, Q2 indicates a credible earnings turnaround with improved cash generation, but sustained margin expansion and higher ROIC are required to re-rate the equity story.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.7% = Net Profit Margin 1.5% × Asset Turnover 0.725 × Financial Leverage 1.55x. The largest driver of the YoY improvement appears to be margin expansion: operating margin rose from roughly 0.6% to 2.1% (~+150 bps), and net margin reached 1.5% as non-operating gains provided a tailwind. Asset turnover at 0.725 is moderate and likely stable given the asset base (intangible assets 52.87; investment securities 56.67) and working capital needs. Financial leverage at 1.55x is modest, reflecting a strong equity base (equity 580.30 vs total assets 901.91), so leverage is not a material ROE lever. Business reason for margin change: better gross spread (32.6% GM) and SG&A containment (SG&A/sales ~30.5%), plus non-operating income (dividends, interest) lifting ordinary profit. Sustainability: gross margin improvements tied to pricing/mix and easing input costs could be partly sustainable; non-operating gains are more volatile and should be treated as a supplement rather than a core driver. Watch-outs: SG&A absolute level (199.50) remains high; if SG&A growth resumes ahead of sales, operating leverage could reverse. Additionally, an elevated tax rate (35.5%) caps net margin expansion unless normalized.

Growth Assessment

Top-line grew 2.9% YoY to 654.01, indicating modest demand support in core categories. Operating income growth of 256.5% reflects strong operating leverage from improved gross spread and controlled SG&A, off a low base. Ordinary income (+170%) and net income (+292%) benefited from both operating recovery and non-operating contributions (3.57). Revenue sustainability hinges on housing-related demand and renovation cycles; current data support low-single-digit growth, but sensitivity to macro conditions remains. Profit quality improved as OCF exceeded net income (2.35x), implying healthy cash conversion. Outlook: incremental margin gains are plausible if input costs remain benign and pricing/mix holds; however, thin starting margins and elevated tax rates temper net margin upside. Structural improvement requires product mix upgrades (premium categories), ongoing manufacturing efficiency, and tighter capital allocation to raise ROIC toward 5%+.

Financial Health

Liquidity is strong: current ratio 199.3% and quick ratio 192.0% comfortably exceed benchmarks. Working capital stands at 272.00, with cash and deposits at 170.15 and accounts receivable at 162.00 supporting short-term obligations. Solvency conservative: total liabilities to equity is 0.55x; interest-bearing debt disclosed as short-term 36.74 and long-term 8.37 is modest relative to equity (exact IBD total not fully disclosed in a single line). Interest coverage is robust at 51.96x. Maturity mismatch risk appears low: short-term loans (36.74) are well covered by liquid assets (cash 170.15, AR 162.00) and overall current assets of 545.81 vs current liabilities of 273.81. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF/Net Income is 2.35x, indicating strong cash earnings and low accrual risk in the period. While full investing cash flows are unreported, capex was 9.26; a proxy FCF (OCF – capex) approximates 14.33, suggesting capacity to fund maintenance capex and a reasonable dividend. Working capital quality appears healthy given high cash and controlled inventories (19.97), but detailed WC movements (AR/AP/inventory deltas) are unreported, limiting assessment of timing effects. No signs of working capital manipulation are evident from the limited disclosures, but ongoing monitoring of AR and inventory days is warranted.

Dividend Sustainability

The reported payout ratio is 115.5%, above the <60% benchmark and typically unsustainable if persistent. However, proxy FCF of about 14.33 (OCF 23.59 minus capex 9.26) appears to cover an implied dividend near 11–12 if the payout is based on current net income, suggesting near-term cash coverage. Lacking DPS and total dividend cash payments, we cannot confirm exact coverage or policy changes. If earnings normalize higher and non-operating support fades, sustaining a >100% payout would erode balance sheet flexibility over time. Policy outlook: expect management to align dividends with medium-term earnings and cash generation; a payout in the 40–60% range would be more consistent with internal investment needs and low ROIC improvement targets, but explicit guidance is not provided here.

Risk Assessment

Business Risks:

• End-market cyclicality in housing/renovation demand affecting volumes and mix
• Input cost volatility (steel, resins, logistics) impacting gross margins
• Pricing power limitations in a competitive kitchen/interior fittings market
• Execution risk on SG&A productivity and manufacturing efficiency initiatives
• Elevated effective tax rate (35.5%) constraining net margin

Financial Risks:

• Structurally low ROIC (1.9%) below cost of capital
• Dividend payout above 100% risking future balance sheet flexibility if sustained
• Exposure to non-operating income (dividends, interest) that may be volatile
• Potential receivables collection risk in a softening macro (AR 162.00 vs NI 10.05, though liquidity is strong)

Key Concerns:

• Sustainability of margin gains given still-thin 2.1% operating margin
• Reliance on non-operating gains to lift ordinary income
• Insufficient visibility on full investing cash flows and dividend cash outlays
• Capital efficiency well below peer norms, limiting valuation rerating

Investment Implications

Key Takeaways:

• Clear QoQ/YoY earnings recovery with strong operating leverage off a low base
• Healthy cash conversion (OCF/NI 2.35x) and ample liquidity reduce near-term downside risk
• Operating and net margins remain thin; durable improvement requires further mix and cost actions
• ROIC at 1.9% highlights need for disciplined capital allocation and higher-return growth
• Dividend policy signals generosity (115.5% payout) but may need recalibration unless FCF sustainably improves

Metrics to Watch:

• Operating margin and gross margin progression (bps changes QoQ/YoY)
• SG&A-to-sales ratio and absolute SG&A growth vs revenue growth
• OCF trends and full investing CF to validate sustainable FCF
• Order trends/backlog (if disclosed) and price/mix indicators
• Effective tax rate normalization and impact on net margin
• ROIC trajectory toward or above 5%

Relative Positioning: Versus domestic building materials/fixtures peers, the company shows improving earnings momentum and strong liquidity but lags on structural profitability and capital efficiency; sustained cost discipline and mix upgrades are required to close the gap.

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