Chichibu Railway Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.83B
• Operating Income: ¥296M
• Net Income: ¥236M
• EPS: ¥158.86

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: A strong earnings rebound in FY2026 Q2 with materially higher profitability, but liquidity and leverage remain clear pressure points. Revenue reached 28.28, with operating income of 2.96 (+257.6% YoY), ordinary income of 2.74 (+304.7% YoY), and net income of 2.35 (+827.7% YoY). Operating margin was approximately 10.5% (2.96/28.28), ordinary margin ~9.7% (2.74/28.28), and net margin ~8.3% (2.35/28.28). Interest coverage was solid at ~9.1x, with interest expense of 0.32 versus operating income of 2.96. The effective tax rate was modest at ~13.7% (0.37/2.73). Balance sheet scale was 168.41 in assets, funded by 115.97 in liabilities and 52.44 in equity, implying leverage of roughly 2.21x D/E and 3.21x financial leverage. Liquidity is tight: current ratio 0.53 and quick ratio 0.52, with negative working capital of -17.04 and current liabilities (35.93) exceeding current assets (18.89). Short-term loans totaled 7.55 against cash and deposits of 11.71, providing some near-term coverage for debt service but not for the broader current liability base. Despite the earnings rebound, ROE was 4.5% and ROIC 3.1%, both below typical cost-of-capital thresholds, reflecting heavy asset intensity and modest asset turnover (0.168x). Profit composition is primarily operating-driven; non-operating items were a net drag (0.16 income vs 0.37 expenses), mainly interest costs. Margin expansion in basis points versus last year cannot be quantified due to missing prior-period revenue, but the triple-digit YoY profit growth implies significant improvement. Earnings quality cannot be validated as operating cash flow was unreported, so the OCF/NI relationship is unknown. Retained earnings remain negative (-25.25), signaling accumulated deficits that could constrain capital allocation flexibility. Forward-looking, the company must translate this profit recovery into stronger cash generation to address liquidity, reduce reliance on short-term funding, and lift ROIC toward sustainable levels. Absent cash flow disclosure and with low liquidity, refinancing discipline and prudent capex become central to maintaining the earnings trajectory.

Profitability Analysis

DuPont decomposition (current period): ROE ~4.5% = Net Profit Margin (8.3%) × Asset Turnover (0.168x) × Financial Leverage (3.21x). The principal structural drag is low asset turnover (0.168x), consistent with a capital-intensive railway model; the near-term uplift appears to stem from margin improvement (operating income +257.6% YoY and net income +827.7% YoY), although prior-period margins are unavailable to quantify bps change. Business interpretation: stronger operating profit suggests either better demand/pricing, improved cost control, or a recovery from an unusually weak base; non-operating items were a net negative due to interest costs (0.32). Sustainability: operating margin around ~10.5% is solid for a regional transport operator but may face normalization as cost inflation (power, maintenance, labor) reasserts; the asset-turnover constraint is structural and unlikely to improve materially without asset-light growth or disposals. Operating leverage risks: if SG&A (6.60; with salaries & allowances 2.30) grows faster than revenue, margins could compress; we cannot compare YoY SG&A growth due to missing prior data. Watch points: any acceleration in energy/power costs and wage inflation could erode the recent operating margin gains; the non-operating drag from interest limits pass-through to ROE.

Growth Assessment

Revenue quality: 28.28 with double- to triple-digit YoY profit growth points to a strong recovery off a weak base; however, missing YoY revenue prevents clarity on volume vs price mix. Profit quality: operating income (2.96) drove the improvement while non-operating items were a net negative; there are no disclosed one-time gains, and dividend/interest income (0.01/0.01) were immaterial. Outlook: sustaining a ~10% operating margin will depend on passenger/cargo volumes, fare/pricing, and input costs (electricity, maintenance). Ordinary income remains sensitive to interest expense (0.32); any rate increases or refinancing at higher spreads could cap earnings growth. With ROIC at 3.1%, reinvestment returns currently trail typical WACC; improving project selection, fare optimization, and ancillary businesses (e.g., real estate, tourism, if applicable) would be needed to lift structural returns. Near-term guidance is absent; without OCF and capex disclosure, growth sustainability cannot be firmly validated.

Financial Health

Liquidity: Current ratio 0.53 and quick ratio 0.52 both below 1.0 (warning). Working capital is negative at -17.04, with current liabilities (35.93) exceeding current assets (18.89), indicating a maturity mismatch risk. Cash and deposits of 11.71 cover short-term loans of 7.55, but broader current liabilities remain undercovered. Solvency: D/E is 2.21x (warning >2.0), and financial leverage is 3.21x; total loans comprise 7.55 short-term and 34.61 long-term (42.16 total interest-bearing debt based on disclosed components). Interest coverage is strong at ~9.1x, mitigating near-term solvency concerns. Equity quality: retained earnings are negative (-25.25), but total equity is positive (52.44), suggesting historical losses or legacy distributions; continued profitability is needed to rebuild equity buffers. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be calculated, preventing an assessment of earnings-to-cash conversion quality. Free cash flow and capex are also unreported, limiting visibility on the capacity to self-fund maintenance and safety investments. Given negative working capital and high leverage, reliance on stable OCF is critical; absent data, we cannot rule out working capital timing effects supporting earnings. No clear signs of working capital manipulation can be assessed due to missing cash flow detail. Dividend coverage by FCF cannot be evaluated.

Dividend Sustainability

Dividend data (DPS, payout, total dividends) are unreported; therefore, payout ratio and FCF coverage cannot be assessed. The negative retained earnings (-25.25) and low ROE (4.5%) suggest limited headroom for aggressive distributions until equity is rebuilt. Sustainability of any dividend would hinge on positive, recurring FCF after maintenance capex; without OCF/capex disclosure, prudence would dictate a conservative stance. Policy outlook is unclear from the data provided.

Risk Assessment

Business Risks:

• Demand volatility in passenger and freight volumes impacting revenue and operating leverage
• Input cost inflation (electricity, fuel, maintenance materials) pressuring margins
• Labor cost increases (salaries & allowances 2.30 within SG&A 6.60) potentially outpacing revenue
• Regulatory/fare-setting constraints limiting pricing flexibility
• Capex needs for safety, rolling stock, and infrastructure renewal potentially elevating fixed costs

Financial Risks:

• Low liquidity: current ratio 0.53 and negative working capital (-17.04) create refinancing and rollover risk
• High leverage: D/E 2.21x; sensitivity to interest rate increases with interest expense at 0.32
• Maturity mismatch: current liabilities (35.93) exceed current assets (18.89)
• ROIC at 3.1% below cost of capital, risking value dilution if reinvestment persists without return uplift

Key Concerns:

• Earnings recovery not yet validated by cash flow (OCF unreported)
• Negative retained earnings (-25.25) constraining financial flexibility and potential distributions
• Non-operating drag from interest costs offsetting part of operating gains
• Data gaps on capex and debt maturity profile limit visibility on medium-term funding needs

Investment Implications

Key Takeaways:

• Robust profit rebound: operating income 2.96 (+257.6% YoY) and net income 2.35 (+827.7% YoY)
• Healthy operating margin (~10.5%) but low asset turnover (0.168x) caps ROE at 4.5%
• Liquidity stress evident (current ratio 0.53; negative working capital -17.04)
• Leverage elevated (D/E 2.21x) though interest coverage is currently comfortable (~9.1x)
• ROIC 3.1% underscores structural return challenges for a capital-intensive model

Metrics to Watch:

• Operating cash flow, free cash flow, and maintenance capex levels
• Current ratio and cash balance versus short-term liabilities
• Debt maturity ladder and refinancing terms; interest expense trajectory
• Operating margin sustainability amid energy and labor cost trends
• ROIC and asset turnover progression; disposition or asset-light initiatives
• Passenger/freight volume trends and fare/policy changes

Relative Positioning: Within domestic regional rail operators, profitability this quarter is solid, but structural capital intensity and low asset turnover keep ROE/ROIC below peers that leverage ancillary businesses; liquidity appears weaker than conservative operators with current ratios near or above 1.0, making balance sheet management a higher priority.

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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