THE KYOTO HOTEL,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.46B
• Operating Income: ¥319M
• Net Income: ¥217M
• EPS: ¥16.37

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: FY2026 Q2 was a modestly positive quarter operationally with revenue growth and stable operating profit, but ordinary and net income softened due to higher non-operating expenses (interest burden). Revenue rose 4.4% YoY to 44.61, supported by robust demand, while operating income edged up 2.1% YoY to 3.19. Gross profit reached 36.83 with a high gross margin of 82.6%, indicating strong pricing and mix for a hotel operator. SG&A increased to 33.71, absorbing much of the gross profit and limiting operating leverage. Operating margin stands at 7.2% (3.19/44.61), and net margin at 4.9% (2.17/44.61). Ordinary income declined 4.6% YoY to 2.25, pressured by 0.87 in non-operating expenses versus only 0.11 in non-operating income, highlighting interest expense of 0.81 as the main headwind. Net income dipped 2.3% YoY to 2.17, with a low effective tax rate (5.1%) cushioning the decline. Based on revenue growth exceeding operating income growth, operating margin appears to have compressed slightly; we estimate a marginal compression on the order of low tens of basis points YoY (data-limited inference). EBITDA was 6.68 (15.0% margin), providing moderate coverage over interest (interest coverage 3.93x), but below our 5x comfort threshold. Cash generation was a bright spot: operating cash flow of 4.59 implies OCF/NI of 2.12x, signaling high earnings quality. The balance sheet shows ample liquidity (current ratio 236%), but leverage is elevated with D/E 4.99x and long-term loans of 106.4. ROE is 7.8% per DuPont, largely leverage-driven given modest asset turnover (0.273) and net margin (4.9%). ROIC at 3.0% is below the 5% warning threshold, indicating value creation is constrained by capital intensity and borrowing costs. Forward-looking, inbound demand and pricing should support revenue, but high leverage and interest costs will continue to weigh on ordinary profit and net income unless operating margins improve further. Our base view: steady top-line with incremental margin work needed and balance-sheet de-risking a medium-term priority.

Profitability Analysis

ROE decomposition: ROE 7.8% = Net Profit Margin (4.9%) × Asset Turnover (0.273) × Financial Leverage (5.84x). The prime driver of ROE is financial leverage (5.84x), with profitability (NPM 4.9%) and efficiency (AT 0.273) moderate-to-low for a hotel operator. Change analysis is data-limited; however, given interest expense pressure (0.81) and a 4.6% YoY decline in ordinary income, the profitability leg is under pressure ex-operating items. Business reason: non-operating costs—primarily interest—offset modest operating improvement as SG&A absorbed most of the gross profit expansion. Sustainability: the operating margin (7.2%) appears stable but thin; interest costs will remain a drag unless debt is reduced or rates decline. Concerning trend: SG&A growth is implied to be near revenue growth, limiting operating leverage; with OI growth (+2.1%) below revenue growth (+4.4%), we flag margin discipline as a focus area.

Growth Assessment

Revenue growth of 4.4% YoY indicates steady demand, likely supported by inbound tourism and improved ADR/RevPAR, though segment detail is unavailable. Operating profit grew 2.1% YoY, lagging revenue due to higher SG&A, implying limited operating leverage. Ordinary and net income fell 4.6% and 2.3% YoY respectively, reflecting higher non-operating expenses, chiefly interest. Margins: gross margin is high at 82.6%, operating margin 7.2%, and net margin 4.9%; we infer slight YoY operating margin compression given OI growth trails revenue. EBITDA margin at 15.0% provides some buffer but leaves interest coverage below a strong threshold. Outlook: near-term revenue trajectory appears constructive if travel demand holds, but sustaining profit growth will require SG&A control and/or rate optimization. Medium term, deleveraging or refinancing at better terms would directly support ordinary profit growth.

Financial Health

Liquidity is sound: current ratio 236.1% and quick ratio 236.1%, with cash and deposits of 34.78 comfortably covering current liabilities of 17.46. No warning on current ratio (<1.0) is triggered. Solvency is the key weak point: D/E at 4.99x (warning) and long-term loans of 106.4 drive high leverage. Total liabilities 139.67 versus equity 28.01 underscore balance-sheet risk. Interest coverage is 3.93x—adequate but below the >5x strong benchmark—leaving sensitivity to rate moves and earnings volatility. Maturity mismatch risk appears contained on the short end given cash levels, but the heavy noncurrent liabilities (122.22) point to refinancing risk over the medium term. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

Earnings quality is strong this quarter: OCF/Net Income is 2.12x (>1.0), suggesting cash-backed profits. Indicative FCF before broader investing flows is positive at approximately 4.08 (OCF 4.59 minus CapEx 0.51), but full investing CF is unreported, so this is a partial view. CapEx appears modest relative to EBITDA (0.51 vs 6.68), consistent with maintenance-phase spending; however, hotel refurbishments can be lumpy, and future CapEx could rise. Working capital quality shows no red flags: receivables at 5.28 are reasonable versus revenue in a largely cash-based business; OCF strength argues against earnings management via working capital. No signs of aggressive working capital manipulation are evident.

Dividend Sustainability

The calculated payout ratio is 16.7%, implying a conservative distribution relative to earnings. With indicative FCF positive (based on available data) and OCF comfortably above net income, near-term dividend coverage appears strong. However, dividends paid and policy details are unreported, and high leverage elevates the case for debt reduction over aggressive payouts. Sustainability hinges on maintaining OCF resilience and avoiding step-ups in CapEx for renovations; under current run-rate, dividends look covered.

Risk Assessment

Business Risks:

• Demand cyclicality and seasonality in hotel occupancy and ADR/RevPAR, particularly tied to inbound tourism in Kyoto.
• Cost inflation in labor and utilities pressuring SG&A and operating margins.
• Event and disaster risk (storms, earthquakes, pandemics) impacting travel demand and operations.
• Competitive pressure from alternative accommodations and new hotel supply.

Financial Risks:

• High leverage (D/E 4.99x) and large long-term loans (106.4) elevate refinancing and interest rate risk.
• Interest coverage at 3.93x leaves limited cushion against earnings volatility.
• Low ROIC (3.0%) relative to cost of capital risks value dilution if leverage remains high.
• Potential CapEx spikes for refurbishments could pressure FCF and constrain deleveraging.

Key Concerns:

• Ordinary income declined 4.6% YoY due to non-operating expense pressure (interest).
• Operating leverage is limited as SG&A absorbs most gross profit gains.
• Data limitations (no full investing CF, dividend cash amount, or detailed SG&A breakdown) constrain visibility into medium-term cash commitments.

Investment Implications

Key Takeaways:

• Top line grew 4.4% YoY; operating profit up 2.1% YoY with thin but stable operating margin around 7.2%.
• Earnings quality is strong (OCF/NI 2.12x), but ordinary and net income are capped by interest burden.
• Balance sheet leverage is high (D/E 4.99x; long-term loans 106.4), making deleveraging a priority for improving equity returns.
• ROE of 7.8% is primarily leverage-driven; ROIC at 3.0% flags capital efficiency challenges.

Metrics to Watch:

• ADR, occupancy, and RevPAR trends to validate revenue sustainability.
• SG&A-to-sales ratio and labor cost inflation to assess margin resilience.
• Interest coverage and effective interest rate; refinancing schedule of long-term loans.
• CapEx pipeline and renovation plans to gauge future FCF.
• ROIC progression versus WACC; OCF/NI ratio stability.

Relative Positioning: Within Japan hotel peers, liquidity is solid but leverage is higher than typical mid-cap operators, margins are mid-pack, and capital efficiency (ROIC 3%) is on the weak side; cash generation is a relative positive.

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