Daiichi Koutsu Sangyo Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥46.41B
• Operating Income: ¥669M
• Net Income: ¥470M
• EPS: ¥13.46

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—top line grew modestly and operating profit was flat, but profitability compressed below the operating line with weak cash flow and high leverage amplifying risk. Revenue rose 1.5% YoY to 464.1, while operating income inched up 0.2% YoY to 6.69, keeping operating momentum essentially flat. Ordinary income fell 12.2% YoY to 9.32, and net income declined 13.9% to 4.60, indicating deterioration in below-OP items and special factors. Gross margin was 14.5% and operating margin stood at 1.44%, reflecting the labor- and fuel-intensive nature of the business. Based on YoY deltas, operating margin compressed by about 2 bps (to ~1.44%), ordinary margin by ~31 bps (to ~2.01%), and net margin by ~18 bps (to ~0.99%). EBITDA was 23.94 (5.2% margin), and interest coverage is thin at 1.07x, underscoring debt-servicing pressure. Cash generation is the weak point: operating cash flow was -94.46 versus net income of 4.60 (OCF/NI -20.5x), implying substantial working capital or timing outflows. Profit before tax of 3.38 vs ordinary income of 9.32 signals sizable extraordinary losses (~5.9) offset by a tax benefit (effective tax rate -38.8%), lifting bottom-line into the black—this is not repeatable quality. Balance sheet liquidity appears adequate (current ratio 163%), but leverage is high (D/E 3.49x) with large short-term loans (487.6) necessitating ongoing refinancing. ROE is low at 1.0%, driven by thin margins and low asset turnover, masked by high financial leverage. ROIC is reported at 0.4%, well below the 5% warning line, indicating poor capital efficiency. Dividend sustainability looks stretched: calculated payout ratio of 213% with negative OCF implies external funding of distributions if maintained. Forward-looking, modest revenue growth may continue, but earnings leverage is small, and interest/fuel/labor cost pressures plus refinancing risk could cap upside. Focus should be on stabilizing operating profitability, improving working capital discipline, and deleveraging to restore coverage and cash flow quality.

Profitability Analysis

DuPont ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 1.0% × 0.232 × 4.49x ≈ 1.0%. The dominant headwind YoY is the margin component: net margin compressed to ~0.99% (net income 4.60 on revenue 464.1), while asset turnover remained low (0.232) and leverage is elevated (4.49x). Business drivers: operating profit was flat (+0.2% YoY) against +1.5% revenue growth, implying limited operating leverage amid cost pressures, while ordinary profit (-12.2% YoY) and net profit (-13.9% YoY) reflect higher below-OP drag (interest burden and sizable extraordinary losses). The gap between ordinary income (9.32) and PBT (3.38) indicates one-off losses of roughly 5.9, and a tax credit (effective tax -38.8%) partly offset this—non-recurring items skew bottom-line quality. Sustainability: the current ROE level is not sustainable for value creation without margin expansion or asset turnover improvement; tax benefits and extraordinary items are not reliable drivers. Concerning trends: ordinary margin compressed by ~31 bps and net margin by ~18 bps despite revenue growth; SG&A ratio is 13.1% of sales (60.76/464.1), and cost growth likely outpaced revenue at the ordinary level; interest coverage at 1.07x shows rising finance cost pressure constraining profitability.

Growth Assessment

Top-line growth was modest at +1.5% YoY to 464.1, while operating income was essentially flat (+0.2% YoY), signaling minimal operating leverage. Ordinary income fell 12.2% YoY and net income fell 13.9% YoY, highlighting deterioration in below-OP items (net non-operating +2.63 but outweighed by extraordinary losses) and tax normalization risks. Gross margin stands at 14.5% and operating margin at 1.44%; with labor and fuel cost inflation, fare revisions and efficiency gains are needed to sustain growth. Current profit composition relies on thin operating margins, with non-operating items and special factors materially impacting bottom-line—this mix is less resilient. Outlook: absent meaningful cost relief or pricing power, growth likely remains low single-digit with limited earnings flow-through. Key swing factors include fuel prices, driver availability/wage pressures, accident/claim costs, and financing costs. Management may need to focus on asset recycling and capex discipline to lift ROIC (currently 0.4%) and earnings quality.

Financial Health

Liquidity: Current ratio of 162.9% and quick ratio of 162.9% indicate adequate near-term liquidity; working capital is 405.3. Cash and deposits of 123.7 cover only 25% of short-term loans (487.6), implying reliance on revolvers/refinancing—monitor covenant headroom and tenor. Solvency: D/E is high at 3.49x (warning >2.0). Total loans are 1,297.9 (short-term 487.6; long-term 810.3), implying significant leverage versus equity of 445.4. Interest coverage is weak at 1.07x, raising debt service risk if earnings soften. Maturity mismatch: current assets (1,049.5) exceed current liabilities (644.2), but short-term borrowings are large; rollover risk exists if credit conditions tighten. Off-balance sheet: not disclosed; no data on guarantees/leases contained here. Explicit warning: D/E > 2.0 (high leverage). Current ratio is >1.0 (no immediate liquidity warning).

Cash Flow Quality

OCF of -94.46 vs net income of 4.60 yields OCF/NI of -20.5x, a clear earnings quality concern (threshold <0.8). The negative OCF suggests significant working capital outflows and/or timing effects; however, without detail on receivables/payables/inventory, the drivers are unclear. Financing CF of +113.19 indicates external funding covered the operating shortfall, increasing dependence on debt markets. FCF is not disclosed; given negative OCF and unknown capex, coverage of dividends and maintenance capex appears weak. No explicit signs of manipulation can be confirmed, but the divergence between NI and OCF warrants scrutiny of revenue recognition, collection cycles, and expense timing. Sustainability: current cash generation does not support distributions or deleveraging without improvement.

Dividend Sustainability

Calculated payout ratio is 213.2%, implying dividends exceeded earnings; with OCF negative, distributions, if paid at that level, would be financed externally—unsustainable medium term. FCF coverage is not calculable (capex and dividends paid unreported), but cash flow signals point to insufficient internal coverage. Balance sheet flexibility is constrained by high leverage (D/E 3.49x) and low interest coverage (1.07x). Policy outlook: unless earnings and OCF recover, prudent policy would be to align dividends with normalized earnings/FCF; any maintenance of a high payout likely increases financial risk.

Risk Assessment

Business Risks:

• Fuel price volatility impacting cost of sales and EBITDA margin
• Labor shortages and wage inflation for drivers and service staff compressing margins
• Regulatory constraints on fare adjustments limiting pricing power
• Operational risk (accidents/claims) leading to extraordinary losses as implied by PBT shortfall
• Demand variability due to macro conditions and tourism flows

Financial Risks:

• High leverage (D/E 3.49x) and weak interest coverage (1.07x) increasing debt service risk
• Refinancing risk given large short-term loans (487.6) relative to cash (123.7)
• Negative operating cash flow requiring external funding
• Potential covenant pressure if earnings deteriorate

Key Concerns:

• Large extraordinary losses (~5.9) in the period reducing PBT, nature undisclosed
• Tax benefit (effective tax rate -38.8%) inflating net income—unlikely to recur
• ROIC at 0.4% well below cost of capital, indicating poor capital efficiency
• Margin compression at ordinary and net levels despite revenue growth

Investment Implications

Key Takeaways:

• Revenue grew +1.5% YoY, but operating income was flat and ordinary/net profits declined
• Margins are thin (OP 1.44%, EBITDA 5.2%) and compressed at the ordinary and net levels
• OCF deeply negative (-94.46) versus positive net income, pointing to weak earnings quality
• Leverage is high (D/E 3.49x) with low interest coverage (1.07x), elevating refinancing risk
• Extraordinary losses and tax benefits drove bottom-line volatility; low repeatability
• ROE 1.0% and ROIC 0.4% signal subpar returns; improvement needs margin/turnover gains and lower leverage

Metrics to Watch:

• Operating cash flow and working capital movements (receivables/payables turnover)
• Interest coverage and borrowing costs on short-term rollovers
• Extraordinary items detail and recurrence
• Fare/pricing actions vs fuel and wage inflation
• Debt mix and maturity ladder; net debt/EBITDA trajectory
• SG&A ratio versus revenue growth

Relative Positioning: Within domestic mobility/service peers, profitability and cash flow generation appear weaker than average given thin margins, negative OCF, and elevated leverage. Note: REIT- and trading company-specific metrics provided in the data are not applicable to this issuer and should not influence relative assessment.

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
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