Keikyu Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥142.56B
• Operating Income: ¥18.56B
• Net Income: ¥15.30B
• EPS: ¥56.22

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 with resilient bottom-line and strong cash conversion despite softer operating profit and thin liquidity. Revenue reached 1,425.65, with operating income of 185.56 (-2.3% YoY) and ordinary income of 168.88 (-7.9% YoY), but net income climbed to 152.57 (+11.7% YoY), indicating material below-ordinary support (likely extraordinary gains and/or tax effects). Operating margin stands at approximately 13.0%, ordinary margin at 11.9%, and net margin at 10.7%, with EBITDA margin at 22.8%. Due to missing prior revenue, precise margin basis-point changes cannot be calculated, but the divergence between falling operating/ordinary income and rising net income suggests net margin expansion driven by non-recurring items rather than core operations. Total comprehensive income was notably higher at 252.16, further pointing to valuation gains or OCI tailwinds. Cash flow quality was strong: operating cash flow of 346.50 implies an OCF/NI ratio of 2.27x, comfortably above quality thresholds. However, heavy capital expenditure (-404.60) led to negative free cash flow of about -58.1, before financing and shareholder returns. Liquidity is tight with a current ratio of 100.9% and quick ratio of 99.7%, highlighting limited short-term cushion despite ample cash and deposits of 895.56. Leverage is elevated (D/E 1.77x) but manageable with interest coverage at 7.08x; nonetheless, a sizable short-term loan balance (1,192.59) introduces refinancing risk. ROE is low at 4.0%, constrained by asset intensity (asset turnover 0.134x) and modest profitability for a capital-heavy railway platform. ROIC is reported at 2.0%, below the 5% warning threshold, underscoring capital efficiency challenges. Non-operating income (13.62) and controlled interest expense (26.22) partly mitigated weaker ordinary profit, but the PBT of 218.81 exceeding ordinary income by a wide margin signals meaningful extraordinary gains; sustainability is questionable. Dividend affordability looks acceptable on earnings (payout ~47%) but is not covered by FCF this quarter due to capex; aggregate funding likely relied on debt and balance sheet flexibility amid 103.18 of share repurchases. Forward-looking, earnings stability will depend on traffic recovery durability, cost control (including energy), execution of real estate and ancillary businesses, and capex pacing; liquidity management and refinancing timing will be key near-term focuses.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.0% = Net Profit Margin (10.7%) × Asset Turnover (0.134x) × Financial Leverage (2.77x). The biggest structural drag is low asset turnover, typical for railways with large fixed asset bases. In-period dynamics show a mismatch: operating and ordinary profits declined YoY while net income rose 11.7%, implying net margin uplift driven by below-ordinary items (difference between PBT 218.81 and ordinary income 168.88) and a normalized effective tax rate of 30.1%. Business drivers likely include extraordinary gains (e.g., asset sales or revaluation) and stable non-operating income (dividends 3.77, interest income 1.07) offsetting interest expense (26.22). This pattern is unlikely to be fully repeatable; hence, the improved net margin looks partly one-time rather than structural. EBITDA margin at 22.8% indicates reasonable operating efficiency, but operating income fell despite no revenue YoY disclosed, hinting at cost pressure (e.g., personnel, energy) or mix (we cannot allocate given SG&A details are largely unreported). Sustainability: core profitability appears under modest pressure; absent recurring extraordinary gains, net margin may normalize downward. Concerning trends: ordinary income (-7.9% YoY) declined faster than operating income (-2.3% YoY), suggesting higher non-operating burdens (e.g., interest) or weaker equity method/other non-operating contributions; SG&A growth vs revenue cannot be measured due to missing revenue YoY and SG&A breakdown.

Growth Assessment

Revenue scale is solid at 1,425.65, but growth is unclear due to missing YoY revenue data. Profit mix tilts away from core this quarter: operating income fell (-2.3% YoY) and ordinary income dropped further (-7.9% YoY), while net income improved (+11.7% YoY) through non-recurring or below-ordinary support. EBITDA of 325.12 provides buffer, yet the spread between EBITDA and operating income suggests depreciation burden typical for rail assets (D&A 139.56). Without segment data, we cannot dissect rail vs real estate vs other, but the gap between ordinary and PBT points to one-time gains. Outlook hinges on passenger demand and ancillary businesses (retail/real estate/hotels) as well as cost normalization (energy and maintenance). Capital program remains heavy (capex 404.60), which should underpin long-term service quality and safety but weighs on near-term FCF. Given ROIC at 2.0%, incremental growth must be capital-disciplined to avoid further dilution of returns. Near-term earnings trajectory looks stable-to-cautious: core margins under mild pressure; reported EPS supported by non-recurring items may not recur.

Financial Health

Liquidity is thin but above warning levels: current ratio 100.9% and quick ratio 99.7%. Short-term loans (1,192.59) are large relative to cash (895.56) and receivables (178.81), elevating refinancing/maturity mismatch risk, although total current assets (1,917.99) slightly exceed current liabilities (1,901.26). No explicit warning thresholds are breached (Current Ratio is not below 1.0; D/E is 1.77x, below the 2.0 explicit warning) but leverage is on the high side for a regulated, capex-heavy sector. Long-term loans total 2,263.12, indicating a balanced but sizeable debt stack; interest coverage is comfortable at 7.08x. Equity is 3,832.71 with retained earnings of 2,755.42, providing some loss-absorption capacity. Off-balance items are not disclosed; contingent liabilities and guarantees (common in infrastructure) are unknown. Overall solvency is adequate, but reliance on short-term funding warrants close monitoring of debt maturity profiles and liquidity buffers.

Cash Flow Quality

Earnings quality is strong this quarter: OCF/NI at 2.27x indicates cash inflows outpaced accounting earnings. Free cash flow is approximately -58.1 (346.50 OCF minus 404.60 capex), reflecting ongoing investment. With share repurchases of 103.18 and unspecified dividends, aggregate shareholder returns likely exceeded internally generated FCF, implying reliance on debt or cash balances. Working capital movements cannot be analyzed due to lack of period-over-period AR/AP/inventory changes, though the overall OCF strength suggests no apparent manipulation. Sustainability: If OCF remains near current levels while capex stays elevated, FCF may remain negative in the near term absent asset sales or capex moderation.

Dividend Sustainability

The calculated payout ratio is 47.0%, comfortably within a sustainable range on an earnings basis. However, quarterly FCF is negative due to capex, so dividends are not covered by FCF this period. Coverage likely depends on debt financing, cash on hand (895.56), and potential asset recycling. Policy visibility is limited because DPS and total dividends paid are unreported. If capex intensity persists and non-recurring gains fade, sustaining both dividends and buybacks (103.18 this period) may pressure leverage; prioritization between dividends and repurchases would be prudent.

Risk Assessment

Business Risks:

• Passenger demand sensitivity to macro conditions and tourism flows
• Energy and maintenance cost inflation compressing operating margins
• Execution risk in real estate/ancillary businesses amid property market fluctuations
• Regulatory constraints on fare revisions impacting revenue flexibility
• Operational disruptions (weather, natural disasters) affecting service continuity

Financial Risks:

• Thin liquidity buffer (current ratio ~1.01, quick ratio ~1.00)
• Refinancing risk due to large short-term loans (1,192.59)
• Elevated leverage (D/E 1.77x) with negative FCF driven by capex
• Interest rate risk affecting interest expense and valuation of financial assets
• Dependence on non-recurring gains to support bottom line in this quarter

Key Concerns:

• Core profitability softness (OI -2.3% YoY, ordinary income -7.9% YoY)
• Net income uplift appears partially one-time (PBT significantly above ordinary income)
• ROIC at 2.0% signals weak capital efficiency
• Debt/EBITDA implied leverage high for the asset base, necessitating careful capex pacing
• Limited disclosure on SG&A drivers and extraordinary items heightens uncertainty

Investment Implications

Key Takeaways:

• Mixed quality quarter: weaker core profits but stronger net income on likely non-recurring items
• Cash conversion is solid (OCF/NI 2.27x), yet capex pushed FCF negative
• Liquidity is tight; short-term funding reliance elevates near-term refinancing risk
• ROE 4.0% and ROIC 2.0% highlight capital efficiency headwinds
• Interest coverage of 7.1x provides some cushion against rate pressures

Metrics to Watch:

• Segment-level margins and extraordinary items to gauge core vs one-off profit
• Debt maturity ladder and proportion of short-term loans
• Capex trajectory and any asset recycling plans
• OCF sustainability and FCF trend relative to dividends and buybacks
• Passenger volume recovery, fare revisions, and energy cost trends

Relative Positioning: Within Japanese private rail operators, the company exhibits typical asset intensity and depreciation load, but currently faces tighter liquidity and lower capital efficiency than ideal; maintaining service quality while moderating leverage and improving core margins will be key to narrowing the gap with stronger peers.

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