eREX Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥86.54B
• Operating Income: ¥3.62B
• Net Income: ¥2.07B
• EPS: ¥20.36

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

Erex Co., Ltd. reported FY2026 Q2 consolidated IFRS results with revenue of 865.44 (100M JPY), up 4.0% YoY, but operating income declined 29.6% YoY to 36.21, indicating considerable margin compression. Gross profit of 99.89 implies a gross margin of 11.5%, while SG&A of 48.03 equates to 5.5% of sales, resulting in an operating margin of approximately 4.2%. Based on the YoY decline, prior-year operating income was roughly 51.5, suggesting prior H1 operating margin of about 6.2% and a deterioration of roughly 200 bps. Net income was 15.87 (-5.9% YoY), implying a net margin of 1.8% and a calculated ROE of 2.2% via DuPont (net margin 1.8% × asset turnover 0.556 × leverage 2.14x). Profit before tax was 32.12, with an elevated effective tax rate of 43.8%, which further constrained bottom-line performance. Comprehensive income of 33.33 exceeded net income, reflecting positive OCI effects that partially mitigated weak core profitability. Cash flow quality was strong: operating cash flow of 97.74 was 6.16x net income, and free cash flow (OCF + investing CF) was 69.87, comfortably covering dividends paid of 8.58. The balance sheet showed total assets of 1,556.69 and equity of 727.88 (equity ratio reported at 41.7%), with total liabilities of 809.01 and short-term loans of 126.19, indicating moderate leverage (liabilities-to-equity of 1.11x). EBITDA was 54.36 (6.3% margin), with D&A of 18.15, and capex of 33.93 indicating ongoing investment momentum. Accounts receivable stood at 244.62 and inventories at 16.75, pointing to a receivables-heavy working capital profile consistent with the retail power business model. Revenue growth alongside a sharp operating income decline suggests adverse price-cost dynamics, likely tighter spreads or less favorable hedging versus the prior year. Liquidity metrics such as the current ratio and quick ratio are not calculable from the disclosed items, but cash and equivalents of 336.13 provide a buffer. Interest expense was unreported, preventing interest coverage analysis despite adequate EBITDA. EPS was 20.36 yen on an average share count of 77.98 million, and BVPS was calculated at 932.86 yen, implying low mid-single digit annualized ROE on the current equity base. Data gaps (ordinary income, interest, current liabilities detail, DPS) limit precision, but available figures indicate thin margins, robust cash conversion this period, and a manageable capital structure.

Profitability Analysis

DuPont analysis yields ROE of 2.2% = net margin 1.8% × asset turnover 0.556 × financial leverage 2.14x. Operating margin was approximately 4.2% (36.21 / 865.44), down roughly 200 bps from an estimated ~6.2% in the prior-year period based on the 29.6% YoY drop in operating income and 4% revenue growth, indicating negative operating leverage. Gross margin of 11.5% versus SG&A at 5.5% of sales leaves a relatively narrow operating spread susceptible to input price volatility and retail pricing pressure. EBITDA margin of 6.3% provides limited cushion for interest and tax given the effective tax rate of 43.8%, constraining net margin to 1.8%. The decline in operating income despite higher revenue implies unfavorable mix or spread compression, potentially from fuel cost pass-through timing, hedging gaps, or retail competition. Equity-method loss of -1.82 also detracted from profitability and may reflect underperforming affiliates. Implied ROA (net income / total assets) is about 1.0%, highlighting modest asset productivity despite asset turnover of 0.556. Overall margin quality appears fragile, with high sensitivity to spark/clean spreads and SG&A discipline.

Growth Assessment

Top-line grew 4.0% YoY to 865.44, suggesting stable demand or customer base expansion in retail power or increased output in generation. However, the 29.6% YoY decline in operating income indicates growth was not profitable, with spreads weakening relative to costs. Net income declined 5.9% YoY, aided by positive comprehensive income, which suggests non-core factors (e.g., FX, valuation changes) supported total equity returns. EBITDA of 54.36 grew slower than revenue (not disclosed YoY), implying lower conversion of sales to cash earnings. With capex at 33.93 exceeding D&A of 18.15, the company appears to be investing for future capacity, efficiency, or new projects, but current returns on that investment are not yet evident in margins. Revenue sustainability in H2 will depend on procurement cost trends, the effectiveness of pass-through clauses, and retail churn. Profit quality is mixed: core operating income is under pressure, but cash conversion is strong in H1, possibly reflecting favorable working capital. Outlook hinges on fuel price normalization, policy mechanisms (FIT/FIP), and execution on capex projects; absent margin recovery, earnings growth may lag revenue growth.

Financial Health

Total assets were 1,556.69 and total equity 727.88, with a reported equity ratio of 41.7%, indicating a moderate capitalization. Total liabilities of 809.01 equate to a liabilities-to-equity ratio of 1.11x; short-term loans were 126.19, while long-term debt was unreported, limiting tenor assessment. Cash and equivalents were 336.13, providing liquidity, but the current ratio and quick ratio are not calculable due to unreported current liabilities. Accounts receivable of 244.62 and inventories of 16.75 suggest working capital intensity primarily in receivables, typical for the power retail business. Interest-bearing debt in total is unreported; however, financing cash inflow of 16.39 implies net borrowings or other financing support in the period. The effective tax rate of 43.8% is high, reducing retained earnings accretion. Equity components include capital surplus of 180.09 and retained earnings of 153.81, indicating room for balance sheet strengthening if profitability improves. Overall solvency appears acceptable given the equity base and cash balance, but visibility into maturity structure and interest burden is limited.

Cash Flow Quality

Operating cash flow was 97.74, 6.16x net income of 15.87, indicating strong cash conversion and likely a favorable working capital swing (specific drivers not disclosed). Free cash flow, defined here as OCF plus investing cash flow, was 69.87, comfortably positive despite capex of 33.93; this provides internal funding for investments and dividends. Investing cash flow of -27.87 suggests capex was partially offset by asset disposals or investment inflows, given capex exceeded total investing outflow. Earnings quality is supported by the high OCF/NI ratio and EBITDA of 54.36 versus operating income of 36.21, consistent with non-cash D&A of 18.15. Working capital details are incomplete; however, the presence of high accounts receivable (244.62) underscores collection and counterparty credit as ongoing cash flow risks. Financing cash flow of 16.39 indicates incremental external funding, though the composition (debt vs. other) is not provided. Overall, cash flow quality this half is strong, but sustainability depends on maintaining receivables collections and stabilizing margins.

Dividend Sustainability

Dividends paid were 8.58, with a calculated payout ratio of 54.2% on reported net income of 15.87, implying a moderate distribution relative to earnings. Free cash flow coverage of dividends was robust at 8.13x, reflecting strong cash generation in the period. DPS was unreported, limiting per-share analysis, and payout policy details are not disclosed in the data. Given the thin net margin and volatile operating income, dividend sustainability depends on sustaining OCF rather than accounting earnings alone. With capex at 33.93 and positive FCF of 69.87, the company retained ample flexibility to fund investments and dividends in H1. Absent clarity on full-year guidance and payout policy (e.g., target payout/DOE), we assume the company aims to balance shareholder returns with balance sheet prudence, especially given sector volatility.

Risk Assessment

Business Risks:

• Wholesale electricity price volatility and fuel cost fluctuations affecting spreads
• Hedging effectiveness and timing of cost pass-through to retail tariffs
• Regulatory and policy risk around FIT/FIP schemes and capacity market rules
• Customer churn and credit risk in the retail power segment
• Project execution and return risks on ongoing capex exceeding D&A
• Affiliate performance risk as indicated by equity-method losses

Financial Risks:

• Limited visibility on interest burden and debt maturity profile due to unreported items
• Reliance on short-term loans (126.19) increases refinancing exposure
• High effective tax rate (43.8%) depresses net income and retained earnings
• Receivables concentration (244.62) heightens collection and counterparty risk
• Margin compression leading to negative operating leverage if revenue growth continues without spread recovery

Key Concerns:

• Operating income down 29.6% YoY despite 4% revenue growth, indicating margin pressures
• Net margin thin at 1.8% and ROE modest at 2.2%
• Interest coverage not calculable due to unreported interest expense
• Current and quick ratios not calculable owing to missing current liability details
• Dividend capacity dependent on maintaining strong OCF amid volatile spreads

Investment Implications

Key Takeaways:

• Top-line growth of 4.0% YoY contrasted with a 29.6% YoY decline in operating income, signaling spread compression
• Operating margin fell to roughly 4.2% from an estimated ~6.2% in the prior-year period
• OCF was strong at 97.74 (6.16x NI), supporting positive FCF of 69.87 and 8.13x dividend coverage
• Balance sheet moderate with equity ratio reported at 41.7% and liabilities-to-equity of 1.11x
• Capex of 33.93 exceeds D&A of 18.15, indicating continued investment phase
• Comprehensive income (33.33) materially above net income (15.87), suggesting non-operating valuation gains

Metrics to Watch:

• Gross margin and operating margin recovery versus H1 levels
• Hedging coverage and pass-through effectiveness for fuel/wholesale costs
• Receivables days and bad debt expense to assess cash conversion sustainability
• Short-term debt reliance and refinancing schedule; interest expense and coverage
• Capex execution, project returns, and impact on EBITDA
• Effective tax rate normalization and factors driving OCI

Relative Positioning: Within Japan’s power retail and IPP cohort, the company shows mid-range leverage with adequate liquidity but structurally thin margins and elevated earnings volatility; cash conversion this period is strong, yet profitability trails peers with steadier hedging and cost pass-through frameworks.

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