Odakyu Electric Railway Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥198.45B
• Operating Income: ¥28.03B
• Net Income: ¥23.16B
• EPS: ¥66.83

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 solid on core profitability but showed pressure at the bottom line and elevated near-term liquidity risk. Revenue reached 1,984.48, supporting operating income of 280.34 (-3.5% YoY) and ordinary income of 274.59 (-7.8% YoY). Net income declined to 230.69 (-30.1% YoY), implying a net margin of 11.6% and an effective tax rate of 27.4%. Operating margin stood at about 14.1% (280.34/1,984.48), and ordinary income margin was about 13.8%. With revenue YoY not disclosed, margin expansion/compression versus last year cannot be quantified; given operating income fell, margins likely compressed if revenue was flat, but this remains an assumption. Non-operating items were a modest drag overall (non-operating income 33.87 vs expenses 39.61), with interest expense at 28.61 covered 9.8x by operating profit, indicating sound interest coverage. SG&A was 337.10, but the lack of prior-year data prevents assessment of operating leverage. Balance sheet shows total assets of 13,599.35 and owners’ equity of 4,931.36, implying an equity ratio of roughly 36.3% (calculated). Liquidity is tight: current ratio 56.9% and quick ratio 56.2%, with negative working capital of -1,457.20 and short-term loans of 2,080.55 dominating current liabilities. Leverage is moderate-high for a private railway: D/E at 1.75x, with calculated net debt around 4,170 (short- and long-term loans 4,951.88 less cash 782.24). Capital efficiency remains a concern: ROIC at 2.2% is below the 5% warning threshold, and ROE is 4.7% driven largely by leverage (2.75x) against a low asset turnover (0.146). Earnings quality cannot be verified as operating cash flow was not disclosed; OCF/NI is not calculable. The calculated payout ratio of 63.9% is slightly above the 60% benchmark, and FCF coverage is unknown, so dividend sustainability hinges on cash generation and refinancing capacity. Forward-looking, the company likely benefits from steady mobility and real estate synergies, but profitability is constrained by a heavy asset base and interest costs; liquidity management and capital discipline will be key in 2H. Overall, core operations look resilient, but the combination of margin pressure at ordinary profit, thin liquidity, and low ROIC moderates the quality of the quarter.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.7% = Net Profit Margin 11.6% × Asset Turnover 0.146 × Financial Leverage 2.75x. The weakest component is asset turnover at 0.146, typical for rail/infrastructure-heavy models and the primary structural drag on ROE. Net margin at 11.6% is healthy for the sector, supported by operating margin around 14.1% and reasonable interest coverage (9.8x), though ordinary income fell more than operating income due to a slight non-operating drag. Financial leverage at 2.75x is doing most of the work to lift ROE above what the low asset turnover would imply, but this comes with refinancing and liquidity risks given short-term loan reliance. Business drivers: the asset intensity of rolling stock and infrastructure depresses turnover structurally, while non-operating items (interest expense, other income/expense) can swing ordinary profit; in this quarter, higher non-operating expenses vs income weighed on ordinary income. Sustainability: the low turnover is structural; leverage contribution is sustainable only if refinancing remains smooth and rates stable; the current non-operating drag could normalize but is sensitive to rates and one-off items. Concerning trends: operating income -3.5% YoY with revenue YoY unreported hints at possible mild margin pressure; however, SG&A growth vs revenue cannot be assessed due to missing YoY revenue and SG&A breakdown. Overall, ROE remains subdued chiefly due to low asset turnover and low ROIC (2.2%), with leverage masking underlying capital efficiency weakness.

Growth Assessment

Revenue sustainability appears supported by multi-business pillars (rail, real estate, retail/hospitality), but the heavy-asset rail core caps growth in asset turnover. Operating income declined 3.5% YoY; without revenue YoY, we cannot ascertain whether the decline reflects margin compression or mix. Ordinary income fell 7.8% YoY, more than operating income, implying non-operating headwinds (net non-operating loss ~5.7) and interest burden. Net income dropped 30.1% YoY, indicating additional below-ordinary impacts (e.g., taxes, minority interests, or prior-year one-off gains; details not disclosed). Profit quality looks mainly operational as dividend and interest income are modest (7.75 and 0.35), but non-operating expenses (39.61) and interest expense (28.61) are meaningful drags. With ROIC at 2.2%, incremental growth that is capex-heavy risks value dilution unless accompanied by fare revisions, traffic growth, or real estate profit uplift. Near-term catalysts may include ridership recovery, inbound tourism along the Hakone/Enoshima corridor, and property development near key stations; headwinds include energy costs and wage inflation. Outlook: steady but constrained growth with emphasis on cost control and capital discipline; non-operating normalization and refinancing terms will influence ordinary profit trajectory.

Financial Health

Liquidity is weak: current ratio 0.569 and quick ratio 0.562, both below 1.0—explicit warning. Working capital is negative at -1,457.20, and short-term loans of 2,080.55 represent the bulk of current liabilities (3,384.82), indicating a maturity mismatch risk as current assets (1,927.62) and cash (782.24) are insufficient to cover near-term obligations without refinancing. Solvency: D/E at 1.75x exceeds the 1.5x conservative benchmark (though below the 2.0x high-risk threshold); calculated equity ratio is about 36.3%, reasonable for the sector but dependent on debt markets. Interest coverage is strong at 9.8x, suggesting manageable interest burden under current earnings. Net debt is roughly 4,170, implying net debt/equity around 0.84x; net debt/EBITDA is not calculable. No off-balance-sheet obligations were disclosed in the data provided; contingent liabilities (e.g., guarantees, leases) cannot be assessed from the current dataset. Overall, liquidity requires attention and rolling of short-term debt remains a key risk lever.

Cash Flow Quality

OCF/Net Income is not calculable due to unreported cash flows—earnings quality cannot be validated. FCF sustainability for dividends and capex is unknown; given the capital-intensive nature of rail operations, sustained FCF typically hinges on stable OCF and disciplined capex phasing—both unassessable here. Working capital signs: receivables (250.54) and inventories (25.35) are small relative to revenue, consistent with services; no clear signs of working capital manipulation can be inferred without period-over-period movements. Non-operating contributions to earnings are modest on the income side (dividends 7.75; interest income 0.35) and outweighed by expenses, suggesting profit is primarily operating in nature. Key watchpoint: absent OCF disclosure, the gap (if any) between NI and OCF could be material in a heavy-depreciation sector; monitoring cash conversion and capex intensity in 2H is essential.

Dividend Sustainability

The calculated payout ratio is 63.9%, slightly above the <60% benchmark, indicating limited buffer if earnings soften. FCF coverage is not calculable due to missing OCF and capex; hence dividend affordability cannot be confirmed. Liquidity metrics (current ratio 0.569; negative working capital) and reliance on short-term loans underscore that dividend continuity depends on consistent OCF and access to refinancing. Balance sheet capacity exists (equity ratio ~36%), but low ROIC (2.2%) argues for careful capital allocation. Policy outlook: absent disclosed guidance, we assume a stable or cautiously progressive dividend policy typical of private railways, but actual sustainability hinges on 2H cash generation and rate/refinancing conditions.

Risk Assessment

Business Risks:

• Passenger demand volatility (commuting patterns, inbound tourism sensitivity along Hakone/Enoshima corridors)
• Energy and traction power cost inflation impacting rail operating margins
• Regulatory constraints on fare revisions and service requirements
• Execution risk in real estate and retail/hospitality segments tied to station-area development
• Labor cost pressure given tight labor markets (potential SG&A creep)

Financial Risks:

• Near-term liquidity risk with current ratio 0.569 and significant short-term loans (2,080.55)
• Refinancing and interest rate risk affecting ordinary income and cash flows
• Low ROIC (2.2%) raising risk of value-dilutive capex if returns do not improve
• Leverage at D/E 1.75x (above conservative benchmark), increasing sensitivity to earnings shocks

Key Concerns:

• Net income down 30.1% YoY with limited disclosure on drivers beyond operating/non-operating line—potential one-offs or tax effects
• Non-operating expenses (39.61) exceeding non-operating income (33.87), pressuring ordinary profit
• Negative working capital (-1,457.20) and dependency on rolling short-term debt
• Information gaps (cash flow statement, capex, segment details) limiting visibility on cash generation and investment needs

Investment Implications

Key Takeaways:

• Core profitability remains sound (operating margin ~14.1%) despite a 3.5% YoY decline in operating income
• Ordinary income fell faster (-7.8% YoY) due to a modest non-operating drag and interest costs
• Net income decline (-30.1% YoY) materially lowers ROE to 4.7%, highlighting weak capital efficiency (ROIC 2.2%)
• Liquidity is the primary watchpoint: current ratio 0.569 and large short-term loans imply refinancing dependence
• Leverage (D/E 1.75x) supports ROE but elevates sensitivity to rates and credit conditions

Metrics to Watch:

• OCF and FCF in 2H (OCF/NI > 1.0 target) and capex cadence
• Ridership trends, fare mix, and energy cost pass-through to margins
• Non-operating items trajectory (interest expense, other income/expense) and interest coverage
• Refinancing progress on short-term loans and average funding cost
• ROIC improvement toward >5% and segment-level returns (rail vs. real estate)

Relative Positioning: Versus domestic private railway peers (e.g., Tokyu, Keio, Seibu), Odakyu exhibits comparable operating margin resilience but weaker near-term liquidity (current ratio <1) and subdued capital efficiency (ROIC 2.2%). Leverage is moderate-high, within sector norms but above conservative thresholds. Earnings reliance is chiefly operational with limited equity-method contribution, making cost control, fare strategy, and non-rail profits (real estate) key differentiators.

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
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