TOBU RAILWAY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥310.75B
• Operating Income: ¥35.58B
• Net Income: ¥24.18B
• EPS: ¥121.68

Income Statement

Balance Sheet

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: FY2026 Q2 was a mixed quarter for Tobu Railway, with resilient profitability but softer ordinary and operating earnings year over year amid high leverage and tight liquidity. Revenue reached 3,107.53 (100M JPY), supporting operating income of 355.84 (100M JPY, -7.5% YoY), ordinary income of 337.26 (100M JPY, -9.8% YoY), and net income of 240.22 (100M JPY, -5.2% YoY). Operating margin is a solid 11.5% (calculated), ordinary margin 10.9%, and net margin 7.7%, underscoring healthy core profitability for a rail/real estate operator. Non-operating items were a net drag: non-operating income was 26.77 but expenses were 45.35, with interest expense of 38.40 outweighing dividend income of 16.39. Interest coverage stands at 9.27x, comfortably above the 5x benchmark, indicating manageable interest burden despite leverage. Liquidity is weak: current ratio is 0.40 and quick ratio 0.40, with working capital negative by -2,746.05, signaling a pronounced maturity mismatch. Balance sheet leverage is high with D/E at 2.06x; calculated equity ratio is approximately 32.7% (equity/total assets). ROE is modest at 4.1% (DuPont: margin 7.7% × turnover 0.174 × leverage 3.06x), reflecting low asset turnover typical of asset-heavy rail and real estate portfolios. ROIC at 2.4% is below the 5% warning threshold, highlighting capital efficiency challenges. We cannot assess operating cash flow quality or FCF due to unreported cash flow statements; hence, earnings-to-cash conversion remains a key unknown. The payout ratio is estimated at 50.3%, appearing within a sustainable range on earnings, but FCF coverage cannot be verified. Margin direction in basis points cannot be precisely quantified due to missing revenue YoY; however, the decline in operating and ordinary income suggests likely margin compression if revenue was flat or slower-growing. Dividend income cushioned non-operating results but did not offset interest costs, making funding costs an important sensitivity if rates normalize. Forward-looking, recovery in passenger traffic and tourism-related real estate/leisure assets should support topline, but capex needs and refinancing risks under a higher-rate backdrop warrant caution. Overall, stable core profitability, but leverage, liquidity, and low ROIC constrain upside until cash flow visibility improves.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.1% = Net profit margin (7.7%) × Asset turnover (0.174) × Financial leverage (3.06x). The dominant constraint on ROE is low asset turnover (0.174), characteristic of rail/infrastructure with large fixed asset bases. The most notable change YoY is implied margin pressure (operating income -7.5% YoY; net -5.2% YoY) while revenue YoY is unreported—suggesting margin compression if revenue growth did not offset cost increases. Business drivers: higher interest costs (38.40) and net non-operating losses (-18.58 vs operating income) reduced ordinary income; cost inflation (personnel/energy/maintenance) likely weighed on operating profitability given SG&A of 639.81 (20.6% of revenue). Sustainability: structurally low turnover is persistent; margins can recover with ridership/tourism normalization and fare/pricing measures, but financing costs may stay elevated. Flags: potential negative operating leverage if SG&A and fixed costs outpace revenue; inability to quantify SG&A YoY is a limitation. Overall margin quality is acceptable (11.5% operating margin), but reliance on dividend income within non-operating earnings and sensitivity to interest expense remain key.

Growth Assessment

Topline growth cannot be assessed due to missing YoY revenue. Profit growth was negative: operating income -7.5% YoY, ordinary income -9.8% YoY, and net income -5.2% YoY, indicating a softening earnings trajectory. Profitability mix shows core operations profitable, but non-operating items detracted, largely from interest expense outweighing dividend income. Revenue sustainability drivers include commuter demand recovery, inbound tourism, and steady real estate/retail contributions, partially offset by energy cost pressures and maintenance outlays. With ROIC at 2.4%, incremental growth must be disciplined to avoid value dilution; improved asset utilization or selective divestments could help. Outlook hinges on traffic recovery, fare adjustments, and cost control; financing environment and capex cadence will be pivotal near term.

Financial Health

Liquidity is strained: current ratio 0.40 and quick ratio 0.40 are well below the 1.0 warning threshold; explicit warning warranted. Working capital is deeply negative at -2,746.05, indicating a significant maturity mismatch as current liabilities (4,542.94) far exceed current assets (1,796.89). Cash and deposits are 342.91 versus short-term loans of 479.50 and accounts payable of 436.70, reinforcing near-term funding dependence. Solvency: D/E is 2.06x (>2.0), triggering a high-leverage warning; calculated equity ratio ~32.7% (5,834.31 / 17,834.98). Long-term loans are substantial at 4,677.37, reducing immediate refinancing pressure but adding interest-rate sensitivity. Interest coverage is adequate at 9.27x, suggesting current debt service is manageable. Off-balance sheet obligations are not disclosed; no data on leases or guarantees provided. Overall, high leverage with tight liquidity and a maturity mismatch elevates financial risk.

Cash Flow Quality

OCF and FCF are unreported, preventing direct assessment of earnings-to-cash conversion (OCF/NI N/A). With net income at 240.22 and interest coverage at 9.27x, accrual earnings appear serviceable, but cash sufficiency remains unknown. Dividend sustainability from cash is not verifiable due to missing OCF and capex. Working capital risks: negative working capital structure is typical for transportation/retail components but raises rollover/refinancing dependence; no signs of manipulation can be inferred without detailed working capital movements. Given ROIC 2.4% and asset intensity, capex is likely significant; absent FCF data, we treat cash flow quality as uncertain.

Dividend Sustainability

The calculated payout ratio is 50.3%, within the generally sustainable range (<60%). However, FCF coverage is not calculable due to unreported OCF and capex; thus, sustainability on a cash basis cannot be confirmed. High leverage (D/E 2.06x) and low ROIC (2.4%) constrain flexibility for dividend growth, particularly if refinancing costs rise. With interest coverage healthy at 9.27x, current dividends appear supportable on earnings, but liquidity metrics (current ratio 0.40) suggest prudent cash management is necessary. Policy visibility is limited as DPS details are unreported.

Risk Assessment

Business Risks:

• Demand volatility in commuter and inbound tourism segments affecting farebox and ancillary revenues
• Energy and maintenance cost inflation pressuring operating margins
• Execution risk on large-scale capex for rail infrastructure and real estate development
• Regulatory/fare-setting constraints limiting pricing flexibility

Financial Risks:

• Tight liquidity with current ratio 0.40 and negative working capital of -2,746.05
• High leverage (D/E 2.06x) and interest rate sensitivity; interest expense (38.40) already depresses ordinary income
• Refinancing/maturity mismatch risk given short-term loans (479.50) versus cash (342.91)
• Low ROIC (2.4%) implying value dilution risk if capex returns do not improve

Key Concerns:

• Earnings compression: operating income -7.5% YoY and ordinary income -9.8% YoY
• Non-operating drag: net -18.58 between non-operating income and expenses despite dividend income of 16.39
• Inability to verify cash flow backing (OCF/FCF unreported), elevating uncertainty on dividend and capex coverage
• Potential rate normalization could increase funding costs and reduce interest coverage from 9.27x

Investment Implications

Key Takeaways:

• Core profitability remains solid with an 11.5% operating margin, but YoY earnings softened
• Leverage is high (D/E 2.06x) and liquidity is weak (current ratio 0.40), elevating near-term financial risk
• ROE 4.1% is constrained by low asset turnover (0.174) and low ROIC (2.4%)
• Non-operating items, especially interest expense, are a material headwind despite dividend income
• Cash flow visibility is limited due to unreported OCF/FCF, a key gap for dividend and capex assessment

Metrics to Watch:

• Passenger volumes and tourism indicators vs pre-pandemic baselines
• Operating margin trend and SG&A trajectory vs revenue growth
• OCF, capex, and FCF when disclosed; OCF/NI target >1.0
• Debt maturity ladder, refinancing terms, and interest coverage
• ROIC by project/segment and asset turnover improvements

Relative Positioning: Within Japanese private rail and real estate operators, Tobu exhibits healthy operating margins but sits on the higher end of leverage with weaker liquidity, and its capital efficiency (ROIC 2.4%) trails peers targeting mid-single-digit to high-single-digit ROIC.

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