RIKEI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.80B
• Operating Income: ¥419M
• Net Income: ¥217M
• EPS: ¥13.93

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 solid quarter with modest top-line growth, slight operating margin expansion, and a strong jump in net income, underpinned by robust operating cash flow. Revenue rose 1.9% YoY to 98.04, while operating income increased 3.4% YoY to 4.19, indicating operating leverage. Ordinary income declined 3.3% YoY to 3.68 due to a negative non-operating balance (income 0.07 vs expenses 0.58). Net income rose 25.6% YoY to 2.10, lifting net margin to 2.14%. Operating margin improved to 4.27%, and our estimate implies c. +6 bps YoY expansion (from ~4.21% to ~4.27%). Net margin improved by an estimated ~41 bps YoY (from ~1.73% to ~2.14%), despite higher non-operating expenses, suggesting better operating execution and potentially cleaner below-the-line items this year. OCF was 6.77, 3.22x net income, signaling high earnings quality and strong cash conversion. Liquidity is ample (current ratio 206.7%, quick ratio 191.1%) with cash of 39.95 exceeding short-term loans of 28.00, mitigating near-term refinancing pressure. Financial leverage by equity (D/E 1.08x) is moderate, but Debt/EBITDA at ~7.6x is elevated for a distributor, though largely offset by very strong interest coverage (31.6x) given low interest cost. ROE stands at 3.8%, still subdued for equity investors; ROIC at 5.1% trails the typical 7–8% target range, suggesting further efficiency gains are needed. Tax burden is heavy (effective rate 41.1%), which dampens bottom-line conversion and is a watch item. SG&A is 12.45% of sales; detailed SG&A breakdown is not disclosed, limiting cost-structure insight. Non-operating line remains a headwind; better control of forex/valuation losses could support ordinary income. Overall, the quarter’s quality of earnings is high, balance sheet liquidity is strong, and modest margin improvement is evident. Forward-looking, sustaining margin gains and lifting ROIC above 7% will be key, alongside managing leverage relative to EBITDA and stabilizing the non-operating line. Data gaps (investing CF, DPS details, SG&A components) constrain deeper analysis but do not alter the positive cash-quality verdict.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.8% = Net Profit Margin (2.1%) × Asset Turnover (0.854x) × Financial Leverage (2.08x). The most notable YoY change appears in net margin, which we estimate expanded ~41 bps (from ~1.73% to 2.14%), as operating income grew faster than revenue and below-the-line items were cleaner versus the prior year’s drag. Asset turnover at 0.854x reflects a working-capital-heavy model (AR 38.03, inventory 8.06) and is broadly stable; we lack prior-period assets to quantify change. Financial leverage (assets/equity) is 2.08x, moderate and likely similar YoY given balance sheet structure; again, prior data are not available to confirm. Business drivers: modest top-line growth, stable gross margin (16.7%), and disciplined SG&A (12.45% of sales) collectively supported the slight operating margin uptick (+6 bps). The decline in ordinary income (-3.3% YoY) was driven by a wider non-operating expense burden (net -0.51), likely FX or valuation-related, partially offset by lower extraordinary drag versus last year (inferred from stronger NI despite lower ordinary income). Sustainability: Operating margin gains from cost discipline are more sustainable than non-operating swings; however, the elevated effective tax rate (41.1%) constrains ROE unless normalized. Watch-outs: ROIC at 5.1% remains below a 7–8% benchmark; SG&A detail is unreported, preventing a check on whether SG&A grew faster than sales—flag as a monitoring gap rather than a concern.

Growth Assessment

Revenue grew 1.9% YoY to 98.04, indicating steady but modest demand, consistent with a value-added distributor/solution integrator profile. Operating income rose 3.4% YoY to 4.19, implying slight operating leverage and disciplined costs. Ordinary income declined 3.3% YoY as non-operating expenses increased, but net income jumped 25.6% YoY on cleaner below-the-line effects and strong operating execution. Gross margin of 16.7% appears stable for the business mix. EBITDA was 4.40 (4.5% margin), adequate for a low-capex model. Outlook: With cash at 39.95 and working capital ample, the company is positioned to support orders and delivery timing into H2. Key swing factors for H2 include the timing of government/public sector projects, FX movements affecting procurement costs, and stabilization of the non-operating line. Achieving ROIC >7% will likely require continued margin discipline and improved asset turns (faster AR/inventory cycles). Given the high OCF/NI, growth appears supported by cash generation rather than working-capital stretch.

Financial Health

Liquidity is strong: current ratio 206.7% and quick ratio 191.1%, with working capital of 55.40. Cash and deposits (39.95) exceed short-term loans (28.00), reducing near-term maturity risk. Solvency: D/E at 1.08x is moderate; total loans are 33.38 (short-term 28.00, long-term 5.38). Interest coverage is very strong at 31.6x, indicating comfortable debt service capacity despite Debt/EBITDA of ~7.6x being on the high side for a distributor. No explicit off-balance sheet obligations are disclosed in the provided data. Maturity mismatch risk appears limited given the large current asset base (107.34) relative to current liabilities (51.94). No warnings triggered for Current Ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

OCF was 6.77 vs net income of 2.10, yielding OCF/NI of 3.22x—high-quality earnings with strong cash conversion. Capex was modest at 0.17, consistent with an asset-light model. Free cash flow cannot be fully calculated due to unreported investing CF details, but a simple OCF minus capex proxy suggests ~6.60 of pre-M&A FCF, comfortably covering likely dividend needs. No obvious signs of working capital manipulation are observable from point-in-time balances; however, without period-over-period changes in AR, AP, and inventory, we cannot assess the contribution of working capital to OCF. Financing CF was +2.63, indicating net inflow (details unreported), which, alongside strong cash, suggests ample liquidity.

Dividend Sustainability

DPS is unreported, but the calculated payout ratio is 44.3%, within a sustainable range (<60%). On a proxy basis, dividends implied by the payout ratio (~0.93) appear well covered by operating cash flow (6.77) and by estimated FCF (OCF–capex ≈ 6.60), suggesting high sustainability. Balance sheet strength (cash exceeding short-term loans) provides additional cushion. Policy outlook cannot be assessed due to lack of disclosed dividend policy updates, but current cash generation supports stable to modestly progressive dividends if earnings hold.

Risk Assessment

Business Risks:

• Execution risk on project-based deliveries (timing of public-sector/enterprise orders can swing quarterly revenue and margins).
• Gross margin pressure from competitive pricing in ICT and equipment distribution.
• Supply-chain and lead-time risks affecting inventory availability and project schedules.
• Customer concentration risk if large projects dominate sales (not disclosed but typical in the segment).
• High effective tax rate (41.1%) reducing net profitability.

Financial Risks:

• Elevated Debt/EBITDA (~7.6x) despite strong interest coverage; potential vulnerability if EBITDA softens.
• Non-operating expense volatility (net -0.51 this period), possibly from FX or valuation losses.
• Refinancing and interest-rate risk on 28.00 of short-term loans if rates rise.
• ROIC at 5.1% below a 7–8% benchmark, indicating efficiency headroom needed.

Key Concerns:

• Ordinary income down 3.3% YoY despite higher operating income, due to non-operating headwinds.
• Subdued ROE at 3.8% may limit equity value creation unless margins/turns improve.
• Data gaps (investing CF, DPS, SG&A breakdown) constrain visibility into recurring vs one-off items.

Investment Implications

Key Takeaways:

• Modest revenue growth (+1.9%) with slight operating margin expansion (~+6 bps) indicates disciplined execution.
• Net margin expanded ~41 bps with NI up 25.6% YoY, aided by strong operating performance.
• High-quality earnings: OCF/NI 3.22x; cash comfortably exceeds short-term debt.
• Ordinary income softness reflects non-operating losses; stabilization here is a near-term catalyst.
• Leverage by EBITDA is elevated (~7.6x) but interest burden is light (31.6x coverage).
• ROE 3.8% and ROIC 5.1% highlight the need for improved asset turns and/or margin uplift.

Metrics to Watch:

• Non-operating items breakdown (FX gains/losses, valuation effects).
• Effective tax rate normalization trajectory.
• Order backlog and book-to-bill in core segments.
• Working capital efficiency (AR days, inventory turns, AP terms).
• ROIC progression toward >7% and operating margin sustainability.
• Debt maturity profile and interest cost trends.

Relative Positioning: Within Japanese small-cap ICT/equipment distributors, liquidity and cash conversion are strong and operating margin is in the mid-4% range, but ROE/ROIC are below desirable thresholds; leverage versus EBITDA is higher than some peers, offset by robust interest coverage.

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