Keifuku Electric Railroad Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.65B
• Operating Income: ¥1.53B
• Net Income: ¥1.07B
• EPS: ¥482.22

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: Solid Q2 performance with modest topline growth translating into slightly faster profit growth and stable margins. Revenue rose 4.8% YoY to 76.51, while operating income increased 6.0% YoY to 15.28, and net income grew 7.9% YoY to 9.58. Ordinary income reached 15.33 (+5.8% YoY), with only a small net contribution from non-operating items (+0.04). Operating margin stands at roughly 20.0% (15.28/76.51), showing a slight expansion versus last year. Net profit margin improved to 12.5%, up around 36 bps YoY by our reverse-calculation. Interest coverage is very strong at 47.75x, indicating low immediate refinancing stress. Balance sheet quality is sound with an equity ratio around 59% (calculated) and D/E of 0.69x, while the current ratio at 1.10 suggests a thin but positive liquidity buffer. ROE is 6.5% via DuPont (NPM 12.5% × AT 0.307 × leverage 1.69x), a reasonable level for a capital-intensive railway but below high-teens return profiles. ROIC is indicated at 5.8%, which is middling and suggests returns are close to typical cost of capital for regulated/infrastructure-like businesses. Earnings quality cannot be fully assessed due to unreported cash flow data; however, the limited reliance on non-operating gains is a positive. The reported payout ratio of 4.2% appears conservative and likely sustainable, pending cash flow confirmation. Working capital remains modestly positive (4.92), and short-term loans (28.45) are broadly matched by liquid assets (cash and receivables of ~39.8 combined), mitigating near-term liquidity risk. Taxes ran at an effective rate of 31.7%, consistent with a normalized level. Forward-looking, modest volume recovery and disciplined costs support incremental margin gains, though energy costs and capex needs may cap ROIC improvement without fare or volume uplift. Data limitations (no OCF/FCF, no cost of sales or depreciation) constrain deeper quality and capex-cycle assessment, but the headline Q2 performance is steady and incrementally improving.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.5% = Net Profit Margin 12.5% × Asset Turnover 0.307 × Financial Leverage 1.69x. The largest year-on-year driver appears to be a slight improvement in margins: net margin expanded by ~36 bps, and operating margin by ~23 bps, while leverage remained stable and asset turnover likely moved only marginally given the capital base. Business reason: modest revenue growth (+4.8% YoY) outpaced cost growth, and non-operating items were nearly neutral (+0.04), allowing operating discipline to flow through to the bottom line. Sustainability: incremental margin improvement looks achievable if demand remains stable and cost inflation (notably energy and maintenance) is contained; however, further expansion may be gradual given regulated pricing and fixed-cost intensity. Operating leverage is evident as operating income grew faster than revenue (+6.0% vs +4.8%). Concerning trends: none apparent from the limited disclosures; SG&A was reported at 0.22 (very low versus revenue), but with limited breakdown and missing cost lines, we cannot confirm whether SG&A growth outpaced revenue.

Growth Assessment

Revenue growth of 4.8% YoY translated into higher operating (+6.0%) and net income (+7.9%), indicating positive operating leverage. Profit quality appears recurring, as non-operating net contribution was minimal (+0.04). With operating margin around 20%, incremental gains are likely from steady passenger volumes, tourism tailwinds, and ancillary businesses, offset by potential energy cost headwinds. The improvement in net margin (~36 bps YoY) suggests disciplined cost control. Outlook: expect mid-single-digit revenue growth to continue if ridership and regional economic activity remain firm; profit growth could modestly outpace revenue provided cost discipline holds and no large cost shocks occur. Lack of segment data, cost of sales, and depreciation limits our ability to assess which businesses drive growth and how sustainable the mix is.

Financial Health

Liquidity: Current ratio 1.10 and quick ratio 1.10 indicate a thin but positive short-term cushion; no explicit warning as current ratio is not below 1.0. Working capital is positive at 4.92. Short-term loans (28.45) are substantial versus cash (25.23), but adding receivables (14.59) provides coverage of near-term obligations. Solvency: D/E 0.69x is conservative for a railway; calculated equity ratio is about 59% (147.28/249.48). Interest coverage at 47.75x is strong, indicating ample capacity to service interest. Maturity mismatch: manageable near term given liquid assets versus current liabilities (50.27), but the reliance on short-term loans warrants monitoring of rollover risk. Off-balance sheet obligations: none reported in the provided data.

Cash Flow Quality

OCF and FCF are unreported, so OCF/Net Income and FCF coverage cannot be assessed. Earnings quality signals from the P/L are decent: minimal non-operating reliance (+0.04) and a normalized effective tax rate (31.7%). However, for a capital-intensive operator, the absence of depreciation and capex data prevents evaluation of cash conversion and maintenance vs. growth capex. Working capital appears stable with modest receivables and minimal inventories (consistent with services), and no signs of deliberate period-end working capital manipulation are evident from the limited figures.

Dividend Sustainability

The calculated payout ratio is 4.2%, indicating a conservative distribution relative to earnings. With interest coverage very strong and leverage moderate, dividends look readily serviceable out of earnings. FCF coverage cannot be confirmed due to missing OCF and capex data, which is material for a railway given ongoing maintenance and safety capex. Policy outlook: given low payout, stable profits, and moderate leverage, the company has room to maintain or gradually raise dividends, contingent on capex and cash flow visibility.

Risk Assessment

Business Risks:

• Passenger demand and tourism volatility impacting fare revenue
• Energy and electricity cost inflation affecting operating expenses
• Regulatory and fare-setting constraints limiting pricing power
• Maintenance and safety-related capex requirements elevating fixed costs
• Weather and natural disaster risk (typhoons, earthquakes) disrupting operations

Financial Risks:

• Rollover risk on short-term loans (28.45) given thin current ratio
• Interest rate risk on refinancing of short- and long-term loans
• Potential capital intensity depressing ROIC (reported 5.8%) versus cost of capital

Key Concerns:

• Lack of cash flow disclosure prevents assessment of cash conversion and FCF
• Limited cost breakdown (no cost of sales, depreciation) obscures margin drivers
• Thin liquidity buffer (current ratio ~1.10) leaves less room for unexpected shocks

Investment Implications

Key Takeaways:

• Steady topline growth (+4.8% YoY) with faster net profit growth (+7.9%) and slight margin expansion
• Strong balance sheet quality (equity ratio ~59%, D/E 0.69x) and excellent interest coverage (47.75x)
• ROE at 6.5% is reasonable but suggests room for efficiency or mix improvements; ROIC at 5.8% is middling
• Dividend capacity appears ample with a low 4.2% payout, pending FCF confirmation
• Data gaps (OCF, capex, depreciation) are the main barrier to higher confidence on earnings quality and sustainability

Metrics to Watch:

• OCF and FCF trends vs. net income, especially OCF/NI ratio
• Capex levels (maintenance vs. growth) and their impact on ROIC
• Ridership/tourism indicators and fare adjustments
• Energy cost trajectory and hedging/contract arrangements
• Debt maturity profile and proportion of short-term borrowings

Relative Positioning: Within regional rail operators, the company exhibits conservative leverage and strong interest coverage, with modest but improving margins; however, returns (ROE/ROIC) are mid-pack and visibility on cash generation is currently limited due to missing disclosures.

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