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

Kyoto Hotel Co., Ltd. (9723) reported FY2026 Q2 standalone results with revenue of ¥4,461 million, up 4.4% year on year, indicating continued recovery in lodging and banquet demand. Operating income increased 2.1% YoY to ¥319 million, translating to a 7.2% operating margin, while ordinary income was ¥225 million and net income was ¥217 million, down 2.3% YoY due to financial costs and a low but non-zero tax expense. Gross profit of ¥3,683 million implies an 82.6% gross margin, reflecting a high fixed-cost operating model typical of asset-heavy hotel operations and accounting classification of direct costs. EBITDA was ¥668 million, yielding a 15.0% EBITDA margin, and depreciation and amortization totaled ¥349 million, underscoring the capital-intensive nature of the business. Interest expense was ¥81 million and EBIT/interest coverage was 3.9x, adequate but leaving limited cushion if rates rise or occupancy softens. Cash conversion was strong with operating cash flow of ¥459 million versus net income of ¥217 million (OCF/NI 2.12x), suggesting solid earnings quality and favorable working capital dynamics in the period. The balance sheet shows total assets of ¥16,364 million and total liabilities of ¥13,967 million, implying high leverage alongside reported equity of ¥2,801 million. The calculated DuPont ROE was 7.75%, driven by a modest net margin of 4.86%, low asset turnover of 0.273x, and high financial leverage of 5.84x. Liquidity metrics appear comfortable with a current ratio of 236% and working capital of ¥2,376 million, providing flexibility for seasonal swings, though cash and equivalents were not disclosed in the XBRL. Financing cash flow was negative at ¥375 million, implying net debt repayment or lease/service of obligations, consistent with a deleveraging stance or scheduled amortization; investing cash flow was not disclosed. Dividend per share (DPS) is reported as ¥0.00 for the period, with a 0.0% payout ratio, aligning with a focus on balance sheet resilience given leverage and ongoing recovery. The effective tax burden appears unusually low in the period (reported as 0.0% in summary metrics despite ¥11.98 million tax expense), which may reflect loss carryforwards or tax credits; sustainability of this benefit is uncertain. Asset turnover remains structurally low given owned-hotel exposure, reinforcing the importance of rate management, occupancy, and F&B/banquet mix to drive margin. Overall, results show steady top-line growth, stable operating profitability, and healthy cash generation, offset by elevated leverage and sensitivity to interest costs. Data limitations exist due to several unreported line items (e.g., cash, investing CF, equity ratio per XBRL), so conclusions are based on the available non-zero data points.

Profitability Analysis

ROE of 7.75% is explained by a 4.86% net profit margin, 0.273x asset turnover, and 5.84x financial leverage. The operating margin stands at approximately 7.2% (¥319m / ¥4,461m), indicating modest operating efficiency improvement alongside a 4.4% revenue increase; operating income rose 2.1% YoY, implying mild negative operating leverage in the quarter (cost growth slightly outpaced revenue). Gross margin of 82.6% reflects low reported cost of sales and a cost structure where major expenses reside below gross profit (personnel, utilities, maintenance), typical for hotels. EBITDA margin of 15.0% and D&A of ¥349m show the business is capital intensive, with depreciation equal to roughly 52% of EBITDA. Interest expense of ¥81m reduces ordinary income margin to ~5.0% and limits net margin expansion; interest coverage at 3.9x is adequate but not robust. The margin quality appears acceptable: OCF/NI at 2.12x suggests earnings are backed by cash, reducing concerns about accrual-driven profits. Overall profitability is supported by volume recovery and rate/mix, but constrained by depreciation drag and financial charges.

Growth Assessment

Revenue grew 4.4% YoY to ¥4,461m, consistent with ongoing demand normalization in Kyoto’s lodging and banquet markets. Operating income increased 2.1% YoY to ¥319m, lagging revenue growth, indicating modest pressure from fixed cost creep (wages, energy) or mix. Net income declined 2.3% YoY to ¥217m, highlighting the impact of financing costs and limited operating leverage. EBITDA of ¥668m provides growth capacity, but significant D&A (¥349m) will continue to weigh on accounting profit. With asset turnover at 0.273x, incremental growth depends on occupancy, ADR, banquet utilization, and ancillary revenue capture rather than footprint expansion in the short term. The quality of profit is supported by strong cash conversion (OCF/NI 2.12x), suggesting limited reliance on working capital releases or one-offs in this period. Outlook-wise, tailwinds include inbound tourism recovery and event demand in Kyoto; headwinds include wage inflation, utility costs, and potential rate normalization affecting interest burden. Absent disclosed capex or pipeline data, sustaining mid-single-digit revenue growth appears plausible, but margin expansion will rely on pricing power and cost control.

Financial Health

Total assets are ¥16,364m and total liabilities are ¥13,967m, implying equity of ~¥2,397m by arithmetic; the company reports total equity of ¥2,801m, so use the reported equity level acknowledging presentation differences under JGAAP. Leverage is high with a debt-to-equity ratio of 4.99x (as provided), and financial leverage in DuPont at 5.84x underscores balance sheet sensitivity. Liquidity appears sound: current assets ¥4,122m versus current liabilities ¥1,746m deliver a current ratio of 236% and positive working capital of ¥2,376m. Quick ratio equals current ratio due to undisclosed inventories (0 indicates not reported), suggesting liquidity is supported by receivables and other current assets; actual cash level is not disclosed. Interest coverage is 3.9x on EBIT, giving an adequate buffer but vulnerable to earnings dips or higher interest rates. The solvency profile is acceptable provided cash generation remains steady; deleveraging was hinted at by negative financing CF (−¥375m), but absolute debt levels are not disclosed in detail.

Cash Flow Quality

Operating cash flow was ¥459m against net income of ¥217m, yielding an OCF/NI ratio of 2.12x, indicative of strong cash earnings and limited accrual risk for the period. Working capital management appears supportive, as liquidity metrics improved while OCF stayed strong; specific changes in receivables/payables are not disclosed. Free cash flow cannot be assessed accurately because investing cash flow/capex was not disclosed (reported as 0 indicates unreported). EBITDA of ¥668m and D&A of ¥349m imply substantial maintenance requirements typical of hotels; without capex data, normalized FCF is uncertain. Financing cash flow was −¥375m, consistent with net repayments or lease/service obligations in the period, supporting gradual balance sheet strengthening if sustained. Overall, cash flow quality is good based on OCF metrics, but FCF sustainability depends on ongoing capex needs.

Dividend Sustainability

DPS is reported at ¥0.00 with a 0.0% payout ratio for the period. With OCF at ¥459m and undisclosed capex, FCF coverage of dividends cannot be determined (FCF reported as 0 indicates not disclosed). Given leverage (D/E 4.99x) and interest coverage at 3.9x, internal capital allocation likely prioritizes debt service, maintenance capex, and liquidity over distributions in the near term. The sustainability of future dividends will depend on maintaining mid-single-digit revenue growth, stable operating margins around 7%, and clear visibility on maintenance and refurbishment capex. Policy signals are not provided; under JGAAP standalone reporting, payout can be more variable and subject to parent/board policy decisions.

Risk Assessment

Business Risks:

• Demand volatility tied to tourism cycles, inbound travel policies, and macro conditions.
• Cost inflation in wages, food and beverage, and utilities pressuring margins.
• High fixed-cost base and capital intensity raise breakeven occupancy levels.
• Geographic concentration in Kyoto increases exposure to local event and seasonality swings.
• Competitive pricing pressure from alternative accommodations and new hotel supply.

Financial Risks:

• High leverage (D/E 4.99x; DuPont leverage 5.84x) increases sensitivity to earnings shocks.
• Interest rate and refinancing risk with EBIT/interest coverage at 3.9x.
• Limited disclosed cash balance; liquidity assessment depends on non-cash current assets.
• Potential future capex requirements for renovations could compress FCF.
• Tax benefit sustainability uncertainty given low effective tax burden this period.

Key Concerns:

• Modest operating leverage with profits growing slower than revenue (+2.1% vs +4.4%).
• Net income decline (−2.3% YoY) despite revenue growth, reflecting financial cost drag.
• Undisclosed investing cash flows and cash balance impede full FCF and liquidity analysis.

Investment Implications

Key Takeaways:

• Top-line recovery continues (+4.4% YoY) with stable operating margins (~7.2%).
• Cash generation is strong relative to earnings (OCF/NI 2.12x), supporting balance sheet needs.
• Leverage remains elevated (D/E 4.99x), making interest costs an important swing factor.
• EBITDA margin at 15.0% with high D&A (¥349m) highlights capital intensity and need for ongoing capex.
• Negative financing CF (−¥375m) suggests repayment discipline or scheduled amortization.

Metrics to Watch:

• ADR, occupancy, and banquet utilization to assess revenue mix and pricing power.
• EBIT margin and EBITDA margin progression versus utility and labor cost trends.
• Interest coverage and average borrowing cost trajectory.
• Capex disclosures and room/refurbishment schedules to gauge FCF.
• Working capital turns and OCF/NI to monitor earnings quality.

Relative Positioning: Within Japan’s hotel operators, Kyoto Hotel exhibits typical asset-heavy characteristics: low asset turnover, meaningful depreciation, and sensitivity to interest costs. Liquidity appears stronger than some peers (current ratio ~2.36x), but leverage is on the higher side, placing the company at a moderate financial risk position that is dependent on sustained occupancy and pricing in the Kyoto market.

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