KING Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.77B
• Operating Income: ¥320M
• Net Income: ¥270M
• EPS: ¥16.97

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: A mixed FY2026 Q2—core operations softened but ordinary profit held up thanks to sizable non-operating income, while cash flow and balance sheet remained very strong. Revenue declined 2.7% YoY to 37.71, with operating income down 5.9% YoY to 3.20 and net income falling 23.7% YoY to 2.70. Gross profit was 21.58, implying a robust gross margin of 57.2%. SG&A was 18.37, yielding an operating margin of 8.5% this quarter. Ordinary income rose 7.4% YoY to 4.13, supported by non-operating income of 0.95 (dividends 0.71, interest 0.20). Net margin printed at 7.2% (2.70 on 37.71), but the effective tax rate was high at 33.7%, contributing to the larger drop in net income versus operating income. Operating margin compressed by about 29 bps YoY (from roughly 8.77% to 8.48%), reflecting modest operating deleverage. EBITDA was 5.28 (14.0% margin), and interest coverage was very strong at 160x, underscoring minimal financial risk. Cash generation was a bright spot: operating cash flow of 5.71 was 2.11x net income, indicating high earnings quality. Free cash flow (OCF minus capex proxy) is estimated at roughly 4.46, though full investing cash flows were not disclosed. The balance sheet is exceptionally conservative with cash and deposits of 102.18, current ratio of 697%, and D/E of 0.16x. However, capital efficiency remains weak: ROE is 1.2% and ROIC is flagged at 1.6%, well below typical cost of capital, driven by low asset turnover (0.144) and a large cash/investment base. Profit composition leaned more on financial income this period (non-operating income ratio 35.2%), which is less controllable than operating profit. The reported payout ratio of 165.1% suggests dividends (and repurchases of 0.67) are being funded above current earnings, likely drawing on cash reserves. Looking forward, sustaining earnings will require stabilizing top-line and tightening SG&A, given limited operating leverage and the risk that non-operating income may normalize. Overall, defensive balance sheet and strong cash conversion offset soft core profitability and low capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.2% = Net Profit Margin (7.2%) × Asset Turnover (0.144) × Financial Leverage (1.16x). The weakest link is asset turnover at 0.144, reflecting a sizable asset base (cash 102.18 and investment securities 35.20) relative to revenue. Net margin is decent at 7.2%, but operating margin slipped ~29 bps YoY to ~8.5%, indicating mild negative operating leverage. The component that changed most appears to be net margin (via higher effective tax and softer operating margin), while leverage remained very low and stable. Business driver: revenue contraction (-2.7% YoY) with SG&A at 48.7% of sales limited operating leverage, and higher non-operating income shifted profit mix toward financial income. Sustainability: margin pressure looks modest and could stabilize with cost control, but reliance on dividends/interest income is less predictable; low asset turnover is structural unless the company deploys excess cash or improves sales productivity. Watch for SG&A growth outpacing revenue—current SG&A ratio at 48.7% is high relative to sales and leaves limited buffer if sales soften further.

Growth Assessment

Top-line contracted 2.7% YoY to 37.71, indicating soft demand or selective pruning. Operating income fell 5.9% YoY to 3.20, underperforming revenue due to slight margin compression. Ordinary income rose 7.4% YoY to 4.13 on stronger non-operating income (dividends 0.71, interest 0.20), masking core softness. Net income dropped 23.7% YoY to 2.70, pressured by the higher effective tax rate (33.7%) and the weaker operating line. Gross margin remains robust at 57.2%, suggesting product mix/pricing discipline, but SG&A at 48.7% limits scalability. With EBITDA margin at 14.0%, further OPEX discipline is needed to re-accelerate operating profit if sales remain flat-to-down. Outlook hinge points: stabilization of domestic apparel demand, inventory discipline (not disclosed), and the durability of financial income from securities. Near term, ordinary profit resilience looks serviceable given cash/investments, but sustainable EPS growth likely requires revenue recovery and SG&A control rather than incremental non-operating gains.

Financial Health

Liquidity is exceptionally strong: current ratio 697.3% and quick ratio the same (cash 102.18 vs current liabilities 17.54). No warning on current ratio (<1.0) or leverage (D/E 0.16x far below the 2.0 warning). Maturity mismatch risk is negligible—short-term loans of 3.80 are dwarfed by cash and deposits, and accounts payable (4.91) are easily covered by cash and receivables. Solvency is robust with total liabilities at 35.73 against equity of 226.95. Off-balance sheet obligations are not disclosed; none can be inferred from the provided data. The company holds sizable investment securities (35.20), introducing market value volatility to equity and OCI but also providing liquidity. Overall, balance sheet strength is a clear buffer against cyclical softness.

Cash Flow Quality

Earnings quality is strong with OCF/Net Income at 2.11x (5.71 vs 2.70), indicating healthy cash conversion. Estimated FCF (OCF minus capex) is about 4.46, suggesting good internal funding capacity, though full investing cash flows beyond capex are unreported. Working capital appears well-controlled—AR is modest at 5.98 versus half-year sales of 37.71, and positive OCF amid lower sales hints at beneficial working capital movements; however, inventory data are unreported, limiting a full assessment. No signs of aggressive working capital tactics are evident from the disclosed figures. Financing CF was -3.55, including share repurchases of 0.67, indicating cash returns to shareholders are ongoing. With substantial cash on hand, near-term cash flow risk is low.

Dividend Sustainability

The calculated payout ratio is 165.1%, indicating distributions exceed current earnings capacity. Dividend amounts are unreported, but the ratio implies dividends of roughly 4.5 against net income of 2.70. On an FCF basis, estimated FCF of ~4.46 would roughly cover such dividends but leaves little headroom, especially when including buybacks (0.67). Given the large cash balance (102.18), the company can fund elevated payouts near term, but sustainability on an earnings basis is weak without a profit recovery. Policy clarity is limited due to unreported DPS; monitor guidance and payout targets. If non-operating income normalizes or operating profit softens further, maintaining a >100% earnings payout would likely require continued balance-sheet drawdown.

Risk Assessment

Business Risks:

• Revenue decline (-2.7% YoY) and mild operating margin compression (~29 bps), indicating potential demand softness and limited operating leverage
• High SG&A ratio (48.7% of sales) constraining scalability
• Dependence on non-operating income (0.95; 35.2% ratio) to support ordinary profit
• Potential gross margin pressure if mix/pricing deteriorate despite current 57.2% gross margin

Financial Risks:

• Low asset turnover (0.144) and very low ROIC (1.6%), implying weak capital efficiency and risk of value dilution
• Market valuation risk on investment securities (35.20) affecting OCI and potentially non-operating income via dividend changes
• Tax rate volatility (effective tax 33.7%) which amplified the drop in net income

Key Concerns:

• ROE at 1.2% and ROIC at 1.6% are below cost of capital benchmarks
• Payout ratio at 165.1% suggests reliance on cash reserves for shareholder returns
• Data gaps (inventory, investing CF, DPS) limit visibility into operational resilience and cash outflow commitments

Investment Implications

Key Takeaways:

• Core operations softened: sales -2.7% YoY and operating income -5.9% YoY with ~29 bps margin compression
• Ordinary income resilience (+7.4% YoY) driven by dividends and interest income (0.95 total)
• Cash conversion strong (OCF/NI 2.11x) and balance sheet very conservative (cash 102.18; D/E 0.16x)
• Capital efficiency weak (ROE 1.2%, ROIC 1.6%, asset turnover 0.144), a structural drag on valuation
• Shareholder returns appear elevated relative to earnings (payout ~165%), funded by strong cash position

Metrics to Watch:

• Revenue trajectory and order/backlog trends
• SG&A discipline and operating margin progression
• Breakdown and durability of non-operating income (dividend and interest streams)
• Inventory levels and turnover (currently unreported)
• ROIC and asset turnover improvement plans (cash/investment deployment)
• Dividend policy/DPS disclosure and payout alignment with FCF

Relative Positioning: Versus domestic apparel peers, the company exhibits a more conservative balance sheet and stronger cash conversion but lags on capital efficiency and core growth; earnings stability leans more on financial income than operating leverage.

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