KATITAS CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥72.42B
• Operating Income: ¥9.01B
• Net Income: ¥5.99B
• EPS: ¥76.56

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: A strong FY2026 Q2 with double-digit top-line growth and outsized profit expansion, but cash flow quality is weak due to working capital build. Revenue rose 13.1% YoY to 724.2, driven by healthy transaction volume and/or improved average selling prices. Operating income surged 32.1% YoY to 90.1, materially outpacing sales growth. Ordinary income was 87.8 (+32.0% YoY) and net income reached 59.9 (+32.0% YoY), reflecting solid operating leverage and limited non-operating noise. Operating margin expanded sharply to about 12.4%, up an estimated 179 bps from roughly 10.6% a year ago (derived from disclosed growth rates). Net margin improved to 8.3%, implying about a 119 bps YoY expansion. Gross margin printed at 23.8%, but YoY comparison is not disclosed; the scale benefit is evident in OP margin. DuPont ROE stands at 12.1% (NPM 8.3% × asset turnover 0.832 × leverage 1.75x), comfortably above an 8–10% cost-of-equity proxy. Earnings quality is a key caveat: OCF was -36.0 (OCF/NI -0.60x), indicating a sizable working capital outflow, typical when inventories are built to support growth but still a watchpoint. Liquidity remains robust with a current ratio of 779% and cash/deposits of 129.2, cushioning near-term volatility. Leverage is moderate with D/E at 0.75x and interest coverage strong at 41.7x; debt is predominantly long-term (265.0), reducing refinancing risk. Effective tax rate of 31.8% is in a normal range. Capex is light at 0.39, consistent with an asset-light refurbishment model; investment CF is not disclosed. Reported payout ratio is elevated at 73.6%, which may be challenging to cover in periods of negative OCF unless working capital normalizes. Forward-looking, the widened margins and mid-teens revenue growth set a solid earnings base if demand holds and inventory turns remain healthy. The main near-term swing factor is inventory and cash conversion; sustained negative OCF would pressure dividend flexibility despite balance sheet strength. Overall, the quarter confirms operational momentum, with the path of cash flow normalization determining durability.

Profitability Analysis

ROE decomposition: ROE 12.1% = Net Profit Margin 8.3% × Asset Turnover 0.832 × Financial Leverage 1.75x. The largest positive driver this quarter is margin expansion: operating income grew 32.1% vs revenue +13.1%, lifting operating margin by an estimated ~179 bps YoY (from ~10.6% to ~12.4%). Net margin also widened by ~119 bps to 8.3%, aided by operating leverage and limited non-operating drag (non-op income 0.34, expenses 2.60). Asset turnover at 0.832 is decent for a renovation/resale model that holds inventory; no explicit YoY comparison is disclosed, but revenue growth against a relatively stable asset base likely supported it. Financial leverage of 1.75x is moderate and stable, contributing to ROE without excessive balance sheet risk. Business drivers: higher sales scale likely diluted fixed SG&A (82.1), and gross profitability (23.8% GP margin) remained adequate to convert into OP margin gains. Sustainability: margin gains appear operational (scale, mix, pricing) rather than one-off, given tiny non-operating contributions and no disclosed one-time gains; however, housing demand sensitivity and inventory cycles can cause volatility. Watchpoints: SG&A growth vs revenue is not disclosed; if SG&A were to outpace sales in H2 (e.g., network expansion, personnel), operating leverage could reverse. Tax rate (31.8%) is in a normal range; no unusual tailwinds. Bottom line: ROE quality is primarily operating-margin-driven this quarter, with leverage a secondary, stable support.

Growth Assessment

Top-line growth of 13.1% YoY to 724.2 reflects healthy market demand and/or improved throughput per store/property, consistent with the firm's refurbishment-resale cycle. Profit growth outpaced revenue, with OP +32.1% and NI +32.0%, demonstrating solid operating leverage. Ordinary income moved in tandem with OP, indicating minimal reliance on non-operating items. The EBITDA margin of 12.5% and OP margin of ~12.4% reflect cost discipline and pricing power; gross margin at 23.8% supports sustainable conversion if mix holds. With ROIC reported at 9.7%, returns exceed common 7–8% domestic benchmarks, suggesting value creation even before leverage effects. However, negative OCF (-36.0) points to a growth-funded working capital build (likely inventory), which is typical but must unwind through higher sell-through in H2. The effective tax rate of 31.8% implies no unusual tax-driven boost to earnings growth. Outlook hinges on inventory turnover, housing transaction pace, and ability to sustain gross spreads amid macro conditions. Given capex-light operations (0.39), capacity to grow is tied more to inventory funding than fixed asset build, keeping scalability feasible if financing remains available. We view revenue momentum as sustainable near term, contingent on inventory conversion and regional housing conditions. Profit quality is solid operationally but near-term cash conversion is the key gating factor.

Financial Health

Liquidity is very strong: current assets 847.9 vs current liabilities 108.8 yields a current ratio of 779% and quick ratio proxy also 779% based on disclosed items. There is no warning trigger from current ratio <1.0. Working capital stands at 739.1, providing ample cushion for seasonal inventory swings. Solvency is sound with total equity 496.2 and D/E of 0.75x; this is conservative versus typical small/mid-cap benchmarks (<1.5x). Interest coverage is robust at 41.7x, indicating low servicing risk. Debt profile is favorable: long-term loans total 265.0 and align with noncurrent liabilities (265.8), limiting near-term refinancing pressure; short-term borrowings are not disclosed. Maturity mismatch risk is low given the predominance of long-term debt and large current asset base. No off-balance sheet obligations are disclosed in the provided data set. Equity base is solid (retained earnings 421.9), supporting resilience. There are no threshold warnings for D/E >2.0 or current ratio concerns.

Cash Flow Quality

OCF of -36.0 against net income of 59.9 yields OCF/NI of -0.60x, a material earnings quality flag (<0.8). The likely driver is working capital outflow, especially inventory build inherent to the refurbishment-resale business model; specific inventory balances are not disclosed, but the pattern is consistent with scaling for H2 sales. Capex is minimal at 0.39, implying that free cash flow would primarily be a function of OCF; with investing CF undisclosed, we cannot compute FCF precisely. Dividend and repurchase cash outlays are not disclosed; financing CF was -21.9, potentially reflecting net debt repayment and/or dividends, but details are unavailable. Sustainability: If inventory converts in H2, OCF should normalize, but repeated negative OCF across periods would challenge dividend coverage and potentially require incremental debt. No signs of aggressive working capital manipulation are evident from available data (e.g., no spike in payables disclosed), but limited disclosure constrains diagnostics. Overall, cash conversion is the main weakness this quarter and warrants close monitoring.

Dividend Sustainability

The calculated payout ratio is 73.6%, above the <60% comfort benchmark and elevated for a company with inherently volatile working capital. With OCF negative this quarter and capex low, dividend coverage depends on H2 cash inflows from inventory sell-through or balance sheet capacity. Financing CF was -21.9, but dividends paid are not disclosed, limiting precision on cash coverage; FCF is not calculable given missing investing CF details. Balance sheet strength (cash 129.2, high liquidity, moderate leverage) provides near-term headroom to sustain distributions. Policy outlook: absent explicit guidance, we assume a stable-to-cautious stance contingent on OCF normalization; if OCF remains negative, payout may constrain flexibility for growth funding. Key dependency is inventory turnover; with ROIC at 9.7%, reinvestment remains attractive, but payout above 70% reduces buffer.

Risk Assessment

Business Risks:

• Inventory turnover risk: slower sell-through can depress cash flow and compress margins via discounting.
• Housing market sensitivity: transaction volumes and ASPs can be affected by macro conditions and consumer confidence.
• Cost inflation in refurbishment (materials/labor) potentially squeezing gross margin (23.8% current).
• Supply pipeline risk for suitable distressed/aging properties to refurbish at attractive spreads.
• Regional concentration or disaster risk (e.g., earthquakes, floods) impacting inventory and sales cycles.
• Regulatory/tax changes affecting real-estate transactions or property renovation standards.

Financial Risks:

• Negative OCF (-36.0) versus NI raises short-term funding needs tied to working capital.
• Dividend payout ratio at 73.6% reduces financial flexibility if cash conversion remains weak.
• Interest rate risk: higher mortgage rates could dampen buyer demand; debt cost could rise on refinancing despite current long-term profile.
• Potential valuation risk on held inventory if market conditions soften.

Key Concerns:

• OCF/NI at -0.60x signals low earnings quality this quarter.
• Dependence on inventory build/unwind creates cash flow volatility.
• Limited disclosure on investing CF and dividends paid constrains assessment of true FCF and coverage.

Investment Implications

Key Takeaways:

• Strong operational performance: revenue +13.1% YoY, OP +32.1%, NI +32.0%.
• Meaningful margin expansion: OP margin ~12.4% (+~179 bps YoY), net margin 8.3% (+~119 bps).
• ROE at 12.1% underpinned by improved margins and moderate leverage (1.75x).
• Cash conversion is weak near term (OCF/NI -0.60x) due to working capital outflow.
• Balance sheet is resilient: current ratio 779%, D/E 0.75x, interest cover 41.7x.
• ROIC at 9.7% exceeds common targets, indicating value-accretive growth if sustained.
• Dividend payout appears high (73.6%), raising sensitivity to OCF normalization.

Metrics to Watch:

• Inventory levels and days-in-inventory/turnover (not disclosed this quarter).
• OCF/NI ratio and working capital movements in H2.
• Gross margin per property and mix of resale price points.
• SG&A growth vs revenue to confirm continued operating leverage.
• Effective tax rate stability around ~32%.
• Debt mix and refinancing schedule despite current long-term skew.
• Store/area coverage and acquisition pipeline for properties.

Relative Positioning: Within Japan’s refurbishment-resale space, the company exhibits above-average profitability (OP margin ~12%, ROIC 9.7%) and conservative leverage, positioning it favorably for disciplined growth; the key differentiator versus peers is the scale-driven efficiency, offset by higher-than-ideal payout and temporarily weak 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