KYORITSU MAINTENANCE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥119.56B
• Operating Income: ¥11.27B
• Net Income: ¥8.78B
• EPS: ¥109.93

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

FY2026 Q2 was solid on the P&L with double-digit bottom-line growth, but underlying cash flow and liquidity metrics weakened and warrant caution. Revenue grew 7.4% YoY to 1,195.6, with operating income up 6.1% to 112.7 and net income up 13.6% to 87.8. Operating margin printed at 9.4% (112.7/1,195.6), implying a slight YoY compression of about 12 bps given revenue outpaced operating income. Net margin improved to 7.3% (87.8/1,195.6), an estimated expansion of about 40 bps YoY. Gross margin stood at 25.3%, consistent with a service-heavy model; detailed YoY comparison is not possible due to limited disclosures. EBITDA was 155.7 (margin 13.0%), supporting a robust interest coverage of 21.5x despite elevated debt levels. However, operating cash flow was negative at -29.1, diverging sharply from net income (OCF/NI -0.33x), signaling earnings quality concerns. Capex was heavy at -230.4, and financing inflows of 222.2 indicate reliance on external funding to support investment and potentially liquidity. The balance sheet shows a current ratio of 0.90 and negative working capital (-100.7), highlighting short-term funding pressure, especially with short-term loans of 589.1 versus cash of 209.6 and receivables of 183.1. Leverage is meaningful with D/E of 1.51x and Debt/EBITDA of 8.43x, placing solvency in a tighter zone vs sector comfort levels. ROE is 7.0% via DuPont (NPM 7.3% × AT 0.377 × leverage 2.51x), adequate but constrained by low asset turnover; ROIC of 3.5% is below a typical 7–8% target. Tax rate is stable at 26.3%, and non-operating income (13.9) provided a modest tailwind. Dividend payout ratio is calculated at 37.6%, but FCF was likely negative when considering OCF and capex, making cash coverage weak in the quarter. Looking ahead, sustaining earnings growth will require improved cash conversion, stabilization of working capital, and careful pacing of capex to avoid further reliance on short-term funding. Near-term focus should be on occupancy/ADR trends and cost pass-through to protect margins amid wage and utility inflation.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 7.3% × Asset Turnover 0.377 × Financial Leverage 2.51x = ROE 7.0%. The biggest swing driver versus last year appears to be net margin, which improved ~40 bps (net income +13.6% vs revenue +7.4%), while operating margin compressed slightly (~12 bps), and leverage is broadly stable. The net margin gain likely reflects lower non-operating drag and scale benefits in high seasonality quarters, partially offset by cost inflation within operations. This improvement may not be fully structural: utilities and labor remain elevated, and revenue mix/seasonality could have supported the quarter. Asset turnover at 0.377 is low for an accommodation/operator model with sizable fixed assets, weighing on ROE; ongoing capex further depresses turnover in the near term. Sustainability: modest net margin gains could persist if ADRs and occupancy remain firm, but capex-driven asset growth without commensurate revenue growth risks further turnover dilution. Watch for SG&A rising in line with or above revenue; while SG&A detail is unreported, the operating income growth lagging revenue suggests limited operating leverage this quarter.

Growth Assessment

Top-line growth of 7.4% reflects resilient demand across lodging and contract services, with operating income up 6.1% suggesting mild cost pressure. Net income grew faster (+13.6%) owing to better non-operating balance (non-operating income 13.9 vs expenses 7.0) and a steady tax rate. Revenue sustainability hinges on occupancy/ADR and contract renewals; current demand appears healthy, but sensitivity to inbound travel, macro softness, and seasonality persists. Profit quality shows mixed signals: P&L growth is solid, but negative OCF implies weaker cash realization of earnings, likely due to working capital outflows and pre-opening/investment cycles. Near-term outlook depends on cost control (labor/utilities) and pacing of new openings; any acceleration in capex without offsetting cash flow could suppress FCF despite earnings growth.

Financial Health

Liquidity is tight: current ratio 0.90 and quick ratio 0.90 are below warning thresholds, and working capital is negative (-100.7). Short-term loans (589.1) exceed cash (209.6) and receivables (183.1), suggesting a maturity mismatch and rollover risk if credit conditions tighten. Total liabilities are 1,910.3 against equity of 1,263.3, yielding D/E of 1.51x—on the high side of comfort. Long-term loans stand at 723.1, indicating a mix of maturities, but near-term refinancing needs appear significant given current liabilities of 1,054.4 versus current assets of 953.7. Interest coverage is strong at 21.5x, mitigating immediate servicing risk; however, Debt/EBITDA of 8.43x implies elevated leverage for a services operator. No off-balance sheet obligations are disclosed in the data provided; absence of disclosure does not preclude their existence (e.g., leases or guarantees). Explicit warnings: Current Ratio < 1.0 (yes), D/E > 2.0 (no).

Cash Flow Quality

OCF/Net Income is -0.33x, a clear quality issue indicating earnings are not converting to cash this quarter. While investing CF is unreported, capex was -230.4; a proxy FCF (OCF - capex) is approximately -259.5, implying that dividends and capex were funded by increased financing (+222.2). This is unsustainable if repeated; improvement in working capital discipline and ramp-up of newly invested assets are required to normalize cash generation. Potential working capital pressure points include receivables collection, prepayments/deposits for openings, and seasonality; detailed components are not disclosed. No explicit signs of manipulation are evident from the limited data, but negative OCF in a profit-growing quarter merits close monitoring across several periods.

Dividend Sustainability

The calculated payout ratio is 37.6% based on earnings, within a broadly sustainable range on a P&L basis. However, cash coverage is weak given an estimated negative FCF of about -259.5 this quarter; absent investing CF details, full-year coverage cannot be concluded, but near-term reliance on financing is evident. With ROIC at 3.5% (<5% warning) and leverage elevated, management may prioritize balance-sheet resilience over dividend growth unless cash conversion improves. Policy outlook will depend on the cadence of capex and normalization of OCF; a stable to cautious stance is prudent until FCF visibility improves.

Risk Assessment

Business Risks:

• Demand variability in lodging (occupancy/ADR) and contract services due to macro and seasonality
• Cost inflation (labor and utilities) pressuring operating margins
• Execution risk from heavy capex pipeline and new property ramp-up
• Dependence on inbound tourism and travel flows
• Potential competitive pricing pressure from hotels and alternative accommodations

Financial Risks:

• Liquidity stress: current ratio 0.90 and negative working capital
• Refinancing risk given short-term loans of 589.1 versus cash 209.6
• High leverage: D/E 1.51x and Debt/EBITDA 8.43x
• Weak cash conversion (OCF/NI -0.33x) and negative proxy FCF
• Sensitivity to interest rate increases despite current strong coverage

Key Concerns:

• Earnings quality flagged by negative OCF despite higher NI
• ROIC at 3.5% below 5% warning threshold
• Slight operating margin compression while capex remains elevated
• Reliance on financing CF (+222.2) to fund investments
• Limited disclosure on SG&A and investing CF reduces visibility

Investment Implications

Key Takeaways:

• Solid revenue and net income growth with slight operating margin compression
• OCF negative and proxy FCF deeply negative due to capex, indicating funding dependence
• Liquidity tight; current ratio below 1.0 and short-term debt heavy
• Leverage elevated (Debt/EBITDA 8.43x), though interest coverage remains strong
• ROE 7% adequate but constrained by low asset turnover; ROIC 3.5% below target range

Metrics to Watch:

• Occupancy and ADR trends, particularly in shoulder seasons
• OCF/NI ratio and working capital turns (DSO/DPO) for cash conversion
• Capex cadence versus project returns and timing of cash ramps
• Net debt/EBITDA and maturity profile (short-term vs long-term loans)
• Operating margin trajectory versus wage and utility cost inflation

Relative Positioning: Within Japan lodging/contract services peers, operating margin around 9–10% is respectable, but liquidity is weaker and leverage higher than conservative peers; ROIC below 5% suggests under-earning on invested capital relative to best-in-class operators.

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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