KUWAZAWA Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.40B
• Operating Income: ¥516M
• Net Income: ¥516M
• EPS: ¥27.91

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

Kuwazawa Holdings (8104) reported FY2026 Q2 consolidated results under JGAAP showing resilient top-line with softness in profits. Revenue was ¥31.4bn, down 0.9% YoY, indicating a broadly flat demand environment. Gross profit came in at ¥4.465bn, implying a gross margin of 14.2%, consistent with the low-to-mid teens margin profile typical for building-materials distribution and related construction services. Operating income declined 24.7% YoY to ¥516m, compressing the operating margin to 1.6%, and signaling negative operating leverage on a marginal revenue dip. Ordinary income was ¥716m, while net income was ¥417m, down 17.6% YoY, resulting in a net margin of 1.33%. The DuPont ROE was 2.50%, driven by a thin net margin (1.33%), moderate asset turnover (0.674x), and leverage of 2.79x. EBITDA was ¥684m (2.2% margin), highlighting a business with limited fixed-cost absorption and thin operating yields. Liquidity remains adequate with a current ratio of 144% and quick ratio of 141%, supported by modest inventory levels of ¥718m relative to current assets. Capital structure is moderate with liabilities-to-equity at 1.51x; interest coverage is strong at 18.4x, suggesting ample buffer against interest-rate volatility. Operating cash flow was ¥393m, roughly in line with earnings (OCF/NI ~0.94x), indicating reasonable earnings quality this period. Reported investing cash flow is unreported (shown as zero), preventing a definitive free cash flow assessment; consequently, the reported FCF of zero reflects data limitations rather than actual cash generation. The effective tax rate displayed as 0.0% in the metrics is not reflective of the statements; using provided figures, implied tax rate is approximately 42–43%, contributing to profit compression. Equity ratio and cash balance are unreported (displayed as zero), and shares outstanding are also not disclosed in the dataset, limiting per-share and capital policy analysis. Working capital stands at a healthy ¥9.9bn, which, while supportive of liquidity, warrants monitoring for efficiency given the low-margin nature of the business. Overall, the quarter reflects stable sales but pressure on operating profitability, with solid liquidity and coverage, and acceptable cash conversion from earnings. Near-term focus should be on gross margin resilience, SG&A discipline, and working capital efficiency to stabilize ROE.

Profitability Analysis

ROE of 2.50% decomposes into a 1.33% net margin, 0.674x asset turnover, and 2.79x financial leverage. The slight revenue decline (-0.9% YoY) translated into a disproportionately larger drop in operating income (-24.7% YoY), indicating negative operating leverage and suggesting fixed cost intensity in SG&A or project mix pressure. Gross margin was 14.2%, broadly consistent with prior ranges for distribution-heavy models, but operating margin compressed to 1.6%, implying SG&A inflation or mix headwinds. EBITDA margin at 2.2% underscores a structurally thin profitability model and limited fixed-cost absorption. Ordinary margin was 2.28% (¥716m/¥31.4bn), aided by low interest expense (¥28m) and strong coverage (18.4x). Net margin at 1.33% was further constrained by an implied effective tax rate of ~42–43% (¥309m tax vs. ~¥726m pre-tax approximated from net + tax), although extraordinary items are undisclosed and may affect precision. Overall profitability remains modest, with ROE primarily constrained by thin margins rather than asset efficiency or excessive leverage.

Growth Assessment

Top-line growth was slightly negative at -0.9% YoY, implying a stable but non-expansive demand backdrop. The outsized decline in operating income (-24.7% YoY) signals pressure from cost inflation, project pricing, or mix effects rather than volume. Revenue sustainability appears acceptable given the minimal decline and the nature of recurring distribution activities; however, pricing power looks limited. Profit quality is mixed: gross profit held up, but operating margin erosion reveals sensitivity to SG&A and overhead. With EBITDA at ¥684m and interest expense modest, the operating platform remains viable, but scaling margins will depend on cost control and project selection. Outlook-wise, stabilization of SG&A and normalization of the effective tax rate could lift net income, even on flat sales. Absent a visible catalyst for volume acceleration, margin management and working capital turns are the near-term levers for growth in earnings.

Financial Health

Liquidity is solid with current ratio 144% and quick ratio 141%, supported by modest inventories (¥718m). Working capital of ¥9.9bn provides operating flexibility and resilience against seasonality. Solvency appears comfortable: total liabilities-to-equity is 1.51x, and interest coverage is strong at 18.4x, indicating low refinancing risk under current conditions. Total assets are ¥46.6bn and equity ¥16.7bn, implying leverage (assets/equity) of 2.79x, which is moderate for a distribution-centric model. The equity ratio is unreported (displayed as 0.0%), so we rely on balance sheet totals to infer a healthy capital buffer. Cash and equivalents are unreported, preventing detailed short-term liquidity runway analysis, but overall current assets of ¥32.2bn vs. current liabilities of ¥22.3bn suggest headroom.

Cash Flow Quality

Operating cash flow of ¥393m versus net income of ¥417m yields an OCF/NI ratio of ~0.94x, indicating earnings are largely cash-backed this period. Depreciation and amortization of ¥168m supports EBITDA reconciliation and suggests limited capital intensity. Investing cash flow is unreported (shown as zero), so free cash flow cannot be reliably computed; the displayed FCF of zero reflects missing data rather than true cash generation. Financing cash flow was an inflow of ¥316m, implying net borrowing or capital inflows, though details are not disclosed. Working capital management appears reasonable given low inventories and stable current ratios, but receivable and payable dynamics are not available; monitoring cash conversion cycle components remains important. Overall, cash earnings quality is acceptable, but the absence of investing cash flow data is a key limitation.

Dividend Sustainability

Dividend per share is unreported (displayed as 0.00), and the payout ratio shown as 0.0% is not meaningful. With net income of ¥417m and positive OCF of ¥393m, internal capacity to fund dividends would depend on actual investing cash needs and existing policy. Given unknown FCF (investing cash flows not disclosed), we cannot assess FCF coverage of dividends. Capital structure and interest coverage indicate capacity for distributions is not constrained by leverage, but management’s stated policy and capital allocation priorities (working capital, maintenance capex, strategic investments) are determinative. In the absence of disclosed DPS and policy guidance, dividend sustainability cannot be concluded from this dataset.

Risk Assessment

Business Risks:

• Margin compression from input cost inflation and limited pricing power in a low-margin distribution model
• Project mix and execution risk in construction-related activities impacting gross margin and SG&A absorption
• Regional demand cyclicality (e.g., construction cycles, housing starts) affecting volume and utilization
• Customer credit risk and receivables collection timing impacting operating cash flow
• Competitive pressures from national distributors and manufacturers

Financial Risks:

• Earnings sensitivity to small revenue changes due to negative operating leverage
• Potential volatility in effective tax rate impacting net income
• Reliance on working capital funding; changes in payables/receivables terms could affect OCF
• Moderate leverage (liabilities/equity 1.51x) though currently well-covered; interest rate increases could erode coverage over time
• Data limitations on cash balances and investing cash flows constrain liquidity visibility

Key Concerns:

• Operating income down 24.7% YoY on a 0.9% revenue decline, implying cost pressures
• Thin operating and EBITDA margins (1.6% and 2.2%) limit ROE expansion
• High implied effective tax rate (~42–43%) suppressing net margin
• Missing disclosures for cash, equity ratio, shares outstanding, and investing cash flows

Investment Implications

Key Takeaways:

• Stable revenue but disproportionately weaker operating profit highlights negative operating leverage
• ROE at 2.50% is constrained primarily by thin net margins rather than asset efficiency
• Liquidity and interest coverage are solid, mitigating short-term financial risk
• Cash conversion is acceptable (OCF/NI ~0.94x), but FCF cannot be assessed due to missing investing cash flow data
• Monitoring margin drivers (gross and SG&A) is critical to earnings trajectory

Metrics to Watch:

• Gross profit margin and SG&A-to-sales ratio
• Order backlog and pricing/mix in construction-related projects
• OCF/Net income and cash conversion cycle (DSO/DPO/DIO)
• Asset turnover and working capital intensity
• Effective tax rate normalization and any extraordinary items
• Net debt and interest coverage under changing rate environments

Relative Positioning: Within domestic building-materials distribution and construction-adjacent peers, Kuwazawa exhibits typical thin margins and moderate leverage, with better-than-adequate liquidity and strong interest coverage; profitability is below higher-margin peers, making cost control and mix optimization key differentiators.

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