Skymark Airlines Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥54.88B
• Operating Income: ¥1.21B
• Net Income: ¥475M
• EPS: ¥7.89

Income Statement

Balance Sheet

Cash Flow Statement

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 quarter with resilient top-line and strong operating cash flow, but pronounced margin compression, heavy non-operating drag, and tight liquidity. Revenue grew modestly to 548.83 (up 0.7% YoY), while operating income fell 47.8% YoY to 12.13, implying operating margin compression to roughly 2.2%. Ordinary income was 4.91 (up 412.2% YoY), but this sits below operating income due to sizable non-operating expenses (29.14) that outweighed non-operating income (6.85). Interest expense was 2.55, with additional non-operating costs likely including FX/lease-related items given the sector, though not disclosed. Despite a reported profit before tax of 0.95 and income tax expense of 6.86 (effective tax rate of 722.1%), net income is reported at 4.75, suggesting classification/timing effects or below-the-line items under JGAAP; the presentation indicates data limitations rather than a true inconsistency. EBITDA was 26.48 (margin 4.8%), and interest coverage (operating income/interest) stood at 4.76x, adequate but below the >5x “strong” benchmark. Cash generation was notably robust: operating cash flow of 38.20 exceeded net income 8.0x, signaling strong cash conversion. Balance sheet liquidity is tight: current ratio 0.79 and quick ratio 0.79, with negative working capital of -104.73 and short-term loans of 200. Leverage is elevated: D/E 2.80x and Debt/EBITDA 10.4x, indicating sensitivity to earnings volatility. ROE was 1.7% on thin net margin (0.9%), middling asset turnover (0.509x), and high leverage (3.93x). ROIC at 2.1% is below the 5% caution line, highlighting capital inefficiency given the asset-intensive model. Operating margin compressed by an estimated ~206 bps YoY (from ~4.3% to ~2.2%) on cost pressures and non-operating headwinds. Given airlines’ exposure to fuel and FX, non-operating volatility likely persists absent better hedging or cost offsets. Forward-looking, maintaining cash discipline, smoothing non-operating volatility, and refinancing short-term obligations are key to stabilizing margins and protecting liquidity. With capex of 25.63 and OCF of 38.20, an analyst-derived proxy FCF of ~12.6 suggests near-term investment capacity, but the balance sheet remains stretched. Dividend details are unreported; a calculated payout ratio of 38.1% appears manageable on cash metrics, but sustainability depends on refinancing and margin recovery.

Profitability Analysis

ROE decomposition (DuPont): ROE (1.7%) = Net Profit Margin (0.9%) × Asset Turnover (0.509x) × Financial Leverage (3.93x). The most pronounced pressure came from the margin component: operating margin fell to ~2.2% from ~4.3% YoY (estimated), with ordinary income further weighed by elevated non-operating expenses. Business drivers likely include higher unit costs (fuel, maintenance, airport/handling), FX impacts on USD-denominated costs, and interest/lease-related expenses. Asset turnover of 0.509x is typical for an airline with heavy fixed assets and limited fleet disclosure; no clear improvement was visible given flattish revenue. Leverage at 3.93x amplifies the low margin into modest ROE, but also raises financial risk. Sustainability: margin pressure from fuel, FX, and airport fees is an ongoing risk absent fare/yield improvements and cost actions; leverage is high and likely persistent near term. Watch for SG&A and other fixed costs relative to revenue: SG&A was 34.32; with revenue up only 0.7%, any fixed-cost creep could further compress margins.

Growth Assessment

Revenue growth was modest at +0.7% YoY, indicating stable passenger demand but limited yield/pricing uplift. Operating income contracted 47.8% YoY, reflecting negative operating leverage and cost headwinds. Ordinary income increased sharply in YoY percentage terms to 4.91 due to a low base, but absolute ordinary earnings remain low versus operating earnings, highlighting non-operating drag. EBITDA margin (4.8%) is thin for a capital-intensive carrier and susceptible to fuel and FX volatility. The very high reported effective tax rate (722%) against a low PBT suggests non-recurring or classification/timing effects; normalized tax burden is likely lower. Outlook: near-term growth depends on unit revenue (load factor + yield) and cost discipline (fuel hedging, contract renegotiation, maintenance timing). With elevated leverage and tight liquidity, incremental growth may be prioritized in profitable routes with disciplined capacity deployment. Execution on refinancing and reduction of non-operating losses will be key to translating modest revenue growth into net profit expansion.

Financial Health

Liquidity is weak: current ratio 0.79 and quick ratio 0.79 (warning), with negative working capital of -104.73. Short-term loans (200) and current liabilities (498.97) exceed current assets (394.24), indicating maturity mismatch risk; however, cash and deposits of 260.18 provide a partial buffer. Solvency: D/E is 2.80x (high leverage warning) and Debt/EBITDA 10.4x underscores sensitivity to earnings. Long-term loans are 75.00, suggesting a material portion of debt sits short-term; proactive refinancing would mitigate rollover risk. Total assets are 1,077.43 vs equity 273.85 (equity ratio ~25%), reinforcing the levered profile. No off-balance sheet obligations were disclosed in the dataset; however, airlines typically utilize lease structures, which may not be fully visible here. Explicit warnings: Current Ratio < 1.0 and D/E > 2.0.

Cash Flow Quality

OCF/Net Income is 8.04x, indicating strong cash conversion and suggesting earnings quality is better than headline net income implies. Working capital likely released cash, and/or non-cash expenses (depreciation 14.35) supported OCF. Capex was 25.63; using OCF - Capex, analyst-derived proxy FCF is ~12.57, indicating capacity to fund maintenance capex and some debt service. Financing CF was -21.34, signaling net repayments or dividend/interest outflows; details unreported. No explicit signs of working capital manipulation are evident from the limited data, but the negative working capital position implies sensitivity to timing of payables/receivables. Sustainability: OCF appears adequate near term, but hinges on stabilizing EBITDA and controlling non-operating outflows.

Dividend Sustainability

Dividend data are unreported; however, a calculated payout ratio of 38.1% implies dividends are below the 60% benchmark and likely manageable if cash generation remains at current levels. Using analyst-derived proxy FCF (~12.6), near-term coverage looks feasible, though the balance sheet’s high leverage and short-term debt burden argue for conservative distributions. Policy outlook: given liquidity constraints (current ratio 0.79) and refinancing needs, management may prioritize balance sheet strengthening over aggressive shareholder returns. Absent explicit guidance, assume a cautious stance on dividend growth until margins and leverage improve.

Risk Assessment

Business Risks:

• Fuel price volatility increasing operating cost base and squeezing margins
• FX risk (USD/JPY) impacting USD-denominated costs (fuel, maintenance, leases)
• Demand elasticity and competitive pricing pressure on yields/load factors
• Operational disruptions (weather, ATC, maintenance) affecting utilization
• Airport slot/gate constraints and fee escalation at key hubs

Financial Risks:

• Low liquidity (current ratio 0.79) and negative working capital
• High leverage (D/E 2.80x) and Debt/EBITDA 10.4x
• Maturity mismatch with short-term loans (200) vs limited current asset headroom
• Interest rate and credit spread risk on refinancing
• Non-operating volatility impacting ordinary and net income

Key Concerns:

• Operating margin compression (~206 bps YoY) despite stable revenue
• High effective tax rate vs low PBT, suggesting potential one-offs/classification effects
• ROIC of 2.1% well below the 5% threshold, indicating capital inefficiency
• Interest coverage at 4.76x, below the >5x strong benchmark
• Data limitations (unreported cost of sales, gross margin, detailed non-operating items) could mask additional pressure

Investment Implications

Key Takeaways:

• Stable revenue but significant margin compression; cost and non-operating headwinds dominate
• Strong OCF relative to earnings provides near-term flexibility
• Liquidity is tight and leverage is high; refinancing and liability management are priorities
• ROE modest at 1.7% due to thin margins; ROIC below threshold underscores need for efficiency gains
• Non-operating losses materially dilute ordinary profit, elevating earnings volatility

Metrics to Watch:

• Operating margin and unit revenue (yield/load factor) trajectory
• Fuel and FX exposure/hedging effectiveness
• Refinancing progress and maturity profile of short-term loans
• EBITDA and interest coverage trends
• OCF vs capex (proxy FCF) and working capital movements

Relative Positioning: Within Japan aviation peers, the company exhibits comparable revenue resilience but weaker liquidity and higher leverage than desired, with profitability and ROIC lagging sector best-in-class; near-term performance hinges on cost control, FX/fuel management, and balance sheet de-risking.

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