Keio Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥230.69B
• Operating Income: ¥31.48B
• Net Income: ¥21.79B
• EPS: ¥183.67

Income Statement

Balance Sheet

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 mixed FY2026 Q2—solid operating profitability but weaker bottom line and tight liquidity. Revenue reached 2,306.88 (100M JPY), with operating income of 314.85 (down 0.8% YoY) and ordinary income of 306.89 (down 1.7% YoY). Net income fell more sharply to 217.22 (down 13.5% YoY), reflecting a larger drag from non-operating items and taxes. Operating margin stands at 13.6% (314.85 / 2,306.88), ordinary margin at 13.3%, and net margin at 9.4%. The non-operating balance was negative at -7.96 (non-op income 17.08 vs non-op expenses 25.04), mainly due to interest expense of 22.72. The flow-through from operating to net margin shows a 422 bps compression (13.6% to 9.4%) from financing and tax burdens. Interest coverage remains strong at 13.86x, mitigating near-term solvency concerns. Liquidity is a weak spot: the current ratio is 96.5% and the quick ratio is 76.9%, with working capital at -99.04 (100M JPY), indicating reliance on short-term funding. Leverage is moderate-to-elevated with D/E at 1.59x, and ROIC at 3.3% is below the 5% warning threshold, signaling capital efficiency challenges. DuPont shows ROE at 5.0%, driven by low asset turnover (0.203) and moderate leverage (2.59x), with net margin at 9.4%. Earnings quality cannot be assessed fully because operating cash flow and capex are unreported; thus, OCF/NI and FCF-based conclusions are not available. The effective tax rate is 28.9% (88.71 / 306.60), consistent with historical norms and reinforcing the gap between operating and net profit. Dividend payout ratio (calculated) is 55.1%, within a generally sustainable range, but FCF coverage is unassessable from disclosed data. Forward-looking, maintaining operating discipline while refinancing short-term debt and lifting ROIC will be key, especially as transport and real estate segments face cost inflation and potential demand normalization. Overall, the quarter underscores resilient operations but highlights pressure points in bottom-line trajectory, liquidity, and capital efficiency that need monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.0% = Net Profit Margin 9.4% × Asset Turnover 0.203 × Financial Leverage 2.59x. The most constrained component is asset turnover (0.203), typical for capital-intensive rail and real estate portfolios, while leverage provides the primary uplift. Net margin remains decent at 9.4%, but was pressured by a negative non-operating balance (−7.96) and a 28.9% tax rate. Operating margin at 13.6% indicates stable core operations; however, net income declined 13.5% YoY versus only −0.8% for operating income, pointing to deterioration below the operating line. The spread between operating and net margins widened to 422 bps due to financing and tax costs. The business driver of the change is higher financing burden relative to operating profits (interest expense 22.72), and softer non-operating gains versus prior periods (details unreported). Sustainability: operating profitability appears steady near term, but the net margin is sensitive to interest expense and the cadence of non-operating items; absent deleveraging or lower rates, the drag likely persists. Watch for cost trends: SG&A is 297.46; without revenue YoY, we cannot confirm whether SG&A growth exceeded revenue, but the mild decline in operating income hints limited operating leverage this quarter.

Growth Assessment

Top-line growth is indeterminable due to missing YoY revenue, but the absolute revenue base is sizable at 2,306.88 (100M JPY). Operating income decreased moderately (−0.8% YoY), while ordinary income fell −1.7% YoY and net income −13.5% YoY, indicating larger headwinds in non-operating items and taxes. Non-operating income of 17.08 was outweighed by non-operating expenses of 25.04; dividend income (11.08) and interest income (0.62) were not enough to offset interest expense (22.72). Profit quality is tilted toward operations, but with non-operating drag increasing, bottom-line growth will depend on cost control and financing costs. Outlook: demand normalization in commuter rail and retail/real estate footfall should support revenue stability, but energy, maintenance, and wage inflation may cap operating leverage. Absent clearer catalysts (fare revisions, property sales, or traffic mix shifts), profit growth looks modest, with net profit more sensitive to financing and tax than operating profit.

Financial Health

Liquidity: Current ratio 0.965 (warning <1.0) and quick ratio 0.769 indicate tight short-term liquidity; working capital is negative at -99.04 (100M JPY). Maturity mismatch risk is present: short-term loans total 1,066.88 versus cash of 333.65 and receivables of 527.25; coverage relies on inventories and ongoing cash generation. Solvency: D/E 1.59x is slightly above the conservative 1.5x benchmark but below the 2.0x warning. Long-term loans are 1,720.32 (100M JPY), suggesting a balanced term structure but with meaningful short-term refinancing needs. Interest coverage is healthy at 13.86x, mitigating near-term default risk. Total liabilities of 6,981.92 against equity of 4,384.71 reflect moderate leverage typical for rail infrastructure. No off-balance sheet obligations are disclosed in the provided data; however, rail operators often have long-term commitments (lease/maintenance) that may not be fully reflected here.

Cash Flow Quality

OCF/Net Income and FCF are unreported; therefore, earnings-to-cash conversion cannot be assessed and OCF/NI <0.8 screening cannot be applied. Dividend and capex coverage by FCF is not calculable, limiting visibility on sustainability. Working capital: negative working capital is common in transportation/retail ecosystems due to advance receipts and payables timing; however, the reliance on short-term borrowings (1,066.88) elevates liquidity risk if operating cash inflows soften. No clear signs of working capital manipulation can be inferred without period-to-period movements; inventories (558.89) and receivables (527.25) are material but trend data is unavailable.

Dividend Sustainability

The calculated payout ratio is 55.1%, within the <60% benchmark and broadly consistent with sustainable distribution for stable operators. However, FCF coverage is not calculable due to unreported OCF and capex, which is a key limitation. Interest coverage (13.86x) and steady operating margin (13.6%) support baseline capacity to pay dividends, but low ROIC (3.3%) and tight liquidity (current ratio 0.97) could constrain dividend growth or necessitate cautious cash management. Policy outlook cannot be inferred from disclosures; monitor guidance and capex plans related to rail maintenance and real estate developments.

Risk Assessment

Business Risks:

• Passenger demand variability (commuter trends, tourism recovery trajectory) impacting rail revenues
• Cost inflation in energy, maintenance materials, and wages compressing operating margins
• Execution risk in real estate and retail operations along the railway network
• Regulatory/fare revision timing and safety-related capex requirements
• Event risk (accidents, service disruptions) affecting reputation and costs

Financial Risks:

• Short-term refinancing risk given current ratio 0.97 and short-term loans of 1,066.88
• Interest rate risk on variable-rate debt or future refinancing, increasing non-operating drag
• Moderate-to-elevated leverage (D/E 1.59x) amid low ROIC (3.3%)
• Potential asset impairment risk in noncurrent assets under adverse market conditions

Key Concerns:

• Bottom-line sensitivity to non-operating items (−7.96 net non-operating) and a 28.9% tax rate
• Negative working capital (−99.04) and quick ratio of 0.77 indicating liquidity tightness
• Capital efficiency below threshold (ROIC 3.3%), limiting value creation absent growth or asset turnover improvement
• Data limitations (no OCF, capex, or segment detail) obscuring cash sustainability and growth drivers

Investment Implications

Key Takeaways:

• Core operations are resilient with a 13.6% operating margin, but net profit fell 13.5% YoY due to non-operating and tax headwinds
• Liquidity is tight (current ratio 0.97; quick 0.77) with reliance on short-term loans (1,066.88)
• Leverage is moderate (D/E 1.59x) and interest coverage is strong (13.86x), containing near-term solvency risk
• ROE at 5.0% and ROIC at 3.3% highlight capital efficiency challenges typical of rail-heavy asset bases
• Dividend payout ratio of 55.1% appears reasonable, but FCF coverage is unknown, tempering confidence in growth of payouts

Metrics to Watch:

• Operating cash flow and capex (for FCF and dividend coverage)
• Passenger volumes, fare revisions, and energy costs (margin drivers)
• Debt maturity ladder and refinancing rates (non-operating drag)
• SG&A trajectory vs revenue growth (operating leverage)
• ROIC and asset turnover improvements via portfolio optimization

Relative Positioning: Within the Japanese private railway peer set, Keio exhibits typical strong operating margins and high fixed-asset intensity, but currently faces tighter liquidity than ideal and below-target ROIC; improving cash conversion and refinancing visibility would be necessary to close the gap with higher-ROIC 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