THE ROYAL HOTEL,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.72B
• Operating Income: ¥500M
• Net Income: ¥-473M
• EPS: ¥26.06

Income Statement

Balance Sheet

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

Royal Hotel Co., Ltd. (TSE: 9713) reported FY2026 Q2 (cumulative) consolidated results under JGAAP showing strong top-line momentum but muted profit translation. Revenue rose 36.2% year over year to ¥13.72 billion, yet operating income declined 1.4% to ¥0.50 billion, indicating negative operating leverage in the period. Gross profit margin is reported at a high 61.7%, implying healthy pricing and/or favorable mix, but the drop-through to operating profit was limited by higher operating expenses. Ordinary income of ¥0.53 billion benefitted from minimal interest expense of ¥4 million, yielding a robust interest coverage of roughly 125x. Net income declined 65.5% YoY to ¥0.398 billion, reflecting either tougher comps, non-operating factors, or expense normalization; the implied effective tax burden for the period is roughly in the teens based on reported taxes, although the ‘effective tax rate’ metric shown as 0.0% is not reliable due to reporting limitations. DuPont analysis shows ROE of 1.71%, driven by a 2.90% net margin, 0.356x asset turnover, and 1.65x financial leverage; the composition suggests profitability is the main constraint on returns rather than balance sheet efficiency or leverage. The balance sheet appears conservative: total assets are ¥38.509 billion, total equity is ¥23.305 billion, and liabilities are ¥15.325 billion, implying liabilities-to-equity of 0.66x. Liquidity is strong with current assets of ¥15.339 billion versus current liabilities of ¥4.428 billion, resulting in a current ratio of 346% and working capital of ¥10.911 billion. Cash flow statement items were not disclosed (zeros indicate unreported), so operating cash flow, investing cash flow, and free cash flow cannot be assessed. Similarly, depreciation/amortization and EBITDA were not disclosed; therefore, EBITDA metrics shown as zero are not indicative of actual performance. Dividend per share is not reported (DPS 0.00) and the payout ratio is shown as 0.0%; absent cash flow disclosure, dividend sustainability cannot be judged, but current profitability and liquidity appear adequate to support flexibility. Overall, the quarter demonstrates strong demand recovery but limited operating margin capture, pointing to cost pressure or expense reinvestment. The company’s low interest burden and solid liquidity mitigate financial risk, but sustained improvement in operating efficiency will be required to lift ROE above the current 1–2% range. Key data gaps limit precision of cash flow and margin quality assessments, so conclusions should be revisited upon fuller disclosure. Near-term monitoring should focus on SG&A discipline, room rate and occupancy mix, banquet/conference recovery, and any capital expenditure plans implied by the balance sheet.

Profitability Analysis

ROE_decomposition: Reported/calculated ROE is 1.71%, consisting of a 2.90% net profit margin, 0.356x asset turnover (¥13.72bn revenue / ¥38.509bn assets), and 1.65x financial leverage (assets/equity = ¥38.509bn/¥23.305bn). The primary drag is the low net margin; leverage is modest and asset turnover is typical for an asset-heavy hospitality operator. margin_quality: Gross margin is reported at 61.7%, indicating strong pricing/mix, but operating income of ¥0.50bn implies an operating margin around 3.6% on the reported revenue base, evidencing significant SG&A intensity. Ordinary income (¥0.53bn) slightly exceeds operating income due to low interest expense (¥4m), and net income (¥0.398bn) reflects tax expense of ¥64m, implying an approximate effective tax in the mid-teens for this period. Absence of depreciation data prevents assessment of EBITDA and fixed-cost absorption quality. operating_leverage: Revenue grew 36.2% YoY while operating income declined 1.4% YoY, indicating negative operating leverage in the period—likely from inflationary costs, wage normalization, and/or reinvestment in sales/marketing and property operations. The gap between gross margin and operating margin highlights overhead absorption challenges that constrained profit conversion.

Growth Assessment

revenue_sustainability: The 36.2% YoY revenue growth suggests robust demand recovery. Sustainability will hinge on maintaining rate/occupancy, banquet and F&B traction, and seasonality normalization into the back half of the fiscal year. profit_quality: Despite solid gross margin, weak operating leverage diluted earnings quality. With minimal interest burden, the profit shortfall is operational, not financial. Limited visibility on depreciation and other non-cash items constrains assessment of recurring vs. one-off cost effects. outlook: If management can curb SG&A growth and optimize labor scheduling and procurement, operating margin should improve on a higher base. A stable balance sheet and low financing costs provide capacity to execute, but near-term margins may remain pressured until cost normalization catches up with pricing.

Financial Health

liquidity: Current assets ¥15.339bn vs. current liabilities ¥4.428bn yield a current ratio of 346% and working capital of ¥10.911bn, indicating strong short-term liquidity. Quick ratio equals current ratio due to unreported inventories. solvency: Total liabilities ¥15.325bn and equity ¥23.305bn imply liabilities-to-equity of 0.66x, a moderate leverage profile. Interest expense is just ¥4m with operating income of ¥500m, supporting a very high interest coverage (~125x). capital_structure: Assets/equity of 1.65x indicates conservative leverage. The reported equity ratio of 0.0% is not informative (treated as unreported); based on totals, equity comprises roughly 60%+ of assets, underscoring balance sheet strength.

Cash Flow Quality

earnings_quality: Operating cash flow is unreported; OCF/Net Income shows 0.00 by default and should not be interpreted as a deterioration. Without D&A and working capital details, accrual intensity cannot be assessed. FCF_analysis: Free cash flow is unreported; capex dynamics and maintenance vs. growth investment split are unknown. Given the asset-heavy nature of hospitality, true FCF may lag accounting earnings during reinvestment cycles. working_capital: Current assets exceed current liabilities by ¥10.911bn, suggesting ample cushion for operations. However, without receivables, payables, and inventory turnover disclosures, working capital efficiency and cash conversion cannot be evaluated.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is unreported (0.00) and the payout ratio shows 0.0% by default; therefore, no conclusion can be drawn about policy changes from this dataset. FCF_coverage: FCF is unreported, so coverage cannot be calculated. From a balance sheet standpoint, liquidity appears strong, but sustainable dividends depend on recurring OCF and capex needs. policy_outlook: Given low ROE (1.71%) and pressure at the operating margin, internal reinvestment or balance sheet reinforcement may be prioritized over distributions until earnings visibility and cash generation improve. Formal policy confirmation would require management guidance.

Risk Assessment

Business Risks:

• Operating leverage risk: high fixed-cost base can compress margins if occupancy/mix softens.
• Cost inflation: labor, utilities, and F&B inputs can outpace pricing power.
• Demand volatility: exposure to travel cycles, seasonality, and macro conditions.
• Mix risk: reliance on banquet/conference segments and room rate integrity.
• Competition: pricing pressure from domestic peers and alternative accommodations.

Financial Risks:

• Earnings volatility with limited buffer at current operating margin (~3–4%).
• Capex intensity typical for hospitality assets may weigh on free cash flow in reinvestment phases.
• Limited visibility on cash flows and depreciation increases uncertainty in leverage and coverage sustainability.

Key Concerns:

• Negative operating leverage despite strong revenue growth.
• Low ROE (1.71%) driven by thin net margins.
• Lack of disclosed cash flow and D&A data limits assessment of earnings quality and FCF.

Investment Implications

Key Takeaways:

• Top-line growth (+36.2% YoY) is strong, but profit conversion is weak (OP -1.4% YoY).
• ROE at 1.71% is constrained by a 2.90% net margin rather than leverage or asset turnover.
• Liquidity is robust (current ratio 346%, working capital ¥10.9bn) and interest burden is minimal.
• Balance sheet leverage is moderate (liabilities/equity 0.66x), supporting financial resilience.
• Cash flow and D&A are unreported, preventing FCF evaluation and EBITDA benchmarking.

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio in H2.
• Room rate, occupancy, and banquet/F&B revenue mix (if disclosed).
• Operating cash flow and capex once reported to assess FCF.
• Depreciation trends as a proxy for asset reinvestment and maintenance needs.
• Net debt and interest expense trajectory amid rate environment.

Relative Positioning: Based on reported metrics, the company exhibits stronger liquidity and modest leverage compared to a typical asset-heavy hospitality profile, but trails on operating margin conversion, resulting in below-peer ROE; fuller comparatives require disclosure of cash flow and depreciation.

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