TOKAI LEASE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.71B
• Operating Income: ¥822M
• Net Income: ¥523M
• EPS: ¥150.28

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

Verdict: A strong FY2026 Q2 with robust top-line growth and sharp operating leverage, albeit with lingering capital efficiency and dividend sustainability questions due to absent cash flow disclosure. Revenue rose 15.9% YoY to 97.10, while operating income surged 92.3% YoY to 8.22, and net income increased 55.4% YoY to 5.20. Operating margin improved to 8.5% (8.22/97.10), expanding by an estimated 336 bps YoY based on prior-period implied margins. Net margin reached 5.4%, improving by roughly 136 bps YoY (from ~4.0% to 5.36%). Gross margin printed at 21.3%, with SG&A ratio at 12.8%, signaling solid cost discipline. Ordinary income (8.04) was slightly below operating income due to net non-operating loss (non-op income 1.05 vs non-op expenses 1.24), reflecting interest burden. Interest coverage is healthy at 8.17x (above the 5x benchmark), indicating manageable financing costs. Liquidity is adequate with a current ratio of 125.9% and quick ratio of 124.3%, though just shy of the 150% comfort benchmark. Leverage is moderate with D/E at 1.19x and short-term loans of 85.18 against current assets of 161.73, limiting near-term refinancing stress. ROE is modest at 3.0% via DuPont (5.4% margin × 0.256 turnover × 2.19x leverage), highlighting that asset intensity and low turnover constrain returns. ROIC at 1.8% is below the 5% warning threshold, underscoring capital efficiency as the main structural issue. Earnings quality cannot be validated due to unreported operating cash flow; OCF/NI is not calculable. The implied payout ratio of 80.6% appears elevated versus the <60% benchmark, potentially stretching dividend sustainability absent evidence of strong free cash flow. Forward-looking, sustaining the higher operating margin while improving asset turnover will be key to lifting ROE/ROIC. Overall, execution on cost control and operating leverage is evident, but capital efficiency and cash-flow-backed dividend coverage remain the watch items.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 5.4% × Asset Turnover 0.256 × Financial Leverage 2.19x = ROE 3.0%. The largest change driver appears to be profit margin expansion, as operating income growth (+92.3% YoY) far outpaced revenue growth (+15.9% YoY), implying significant operating leverage. Business reason: improved gross profitability and tighter SG&A control (SG&A at 12.8% of sales) drove operating margin to 8.5%; ordinary margin was modestly pressured by net non-operating costs (interest). Sustainability: some margin gains may be sustainable if pricing and mix improvements and utilization gains persist; however, interest burden and potential normalization of project volumes could temper further expansion. Asset turnover remains low (0.256), consistent with an asset-heavy lease-based model; without balance sheet rotation or disposals, turnover uplift may be slow. Watch for SG&A growth outpacing revenue; currently, operating leverage is positive (OI grew > revenue), but if growth slows, fixed cost absorption could reverse.

Growth Assessment

Top line grew 15.9% YoY to 97.10, indicating healthy demand. Operating income grew 92.3% to 8.22, evidencing strong operating leverage and cost control. Net income expanded 55.4% to 5.20, partially offset by higher interest expense (1.01) and a 34.7% effective tax rate. Operating margin rose to 8.5% from an implied ~5.1% last year (+~336 bps), and net margin improved to 5.4% from ~4.0% (+~136 bps). Non-operating items were a small net drag (-0.19), so the core improvement was operational. Given the asset-heavy model, sustaining double-digit growth may require continued project wins and efficient fleet utilization. Outlook hinges on maintaining pricing, rental fleet turnover, and discipline on financing costs; growth quality cannot be validated due to missing cash flow data.

Financial Health

Liquidity is adequate: current ratio 125.9% and quick ratio 124.3% (above 1.0 but below the >1.5 benchmark). No explicit warning triggers (current ratio is not <1.0; D/E at 1.19x is below the 1.5x conservative threshold). Short-term loans total 85.18 versus current assets of 161.73, suggesting manageable maturity mismatch; cash (23.40) plus accounts receivable (111.11) comfortably exceed short-term loans. Total liabilities are 206.26 against equity of 173.42; financial leverage (assets/equity) at 2.19x is moderate. Interest coverage is 8.17x, indicating capacity to service debt from operations. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow was not disclosed; OCF/Net Income is not calculable, so earnings quality cannot be validated. Free cash flow is unreported; thus, we cannot assess coverage of capex and dividends. Working capital posture appears stable with receivables (111.11) high relative to inventories (2.09), consistent with a service/lease model; however, without OCF, we cannot confirm cash conversion. There are no explicit signs of working capital manipulation in the disclosed data, but the absence of cash flow statements is a limitation.

Dividend Sustainability

The calculated payout ratio is 80.6%, above the <60% benchmark, signaling potential pressure if cash generation is not robust. DPS and total dividends paid were not disclosed, preventing cross-check with cash flows. With FCF unreported, coverage of dividends by internal cash is unknown. Given moderate leverage (D/E 1.19x) and healthy interest coverage (8.17x), the balance sheet is not currently strained, but sustaining a high payout alongside potential capex needs in an asset-heavy model could be challenging without strong OCF.

Risk Assessment

Business Risks:

• Margin normalization risk if project volumes or pricing ease after a strong first half
• Asset intensity leading to low asset turnover (0.256) and depressed ROIC (1.8%)
• Execution risk on cost control; fixed-cost absorption could reverse with slower sales
• Customer concentration or collection risk implicit in high receivables (111.11) relative to inventory

Financial Risks:

• Interest rate/refinancing risk with short-term loans of 85.18 and total loans of 156.37
• Dividend sustainability risk with a high calculated payout ratio (80.6%) and unreported FCF
• Potential liquidity tightness if receivable collections slow, given current ratio of 1.26 (below 1.5 benchmark)

Key Concerns:

• Capital efficiency: ROIC at 1.8% (<5% warning) despite improved margins
• Earnings quality unverifiable due to missing OCF
• Net non-operating drag (interest expense 1.01 > non-op income 1.05), modestly capping ordinary income

Investment Implications

Key Takeaways:

• Strong YoY operating performance with operating income up 92.3% on 15.9% sales growth
• Operating margin expanded to 8.5%, indicating effective cost control and scale benefits
• ROE at 3.0% constrained by low asset turnover and modest leverage
• ROIC at 1.8% signals the need for improved capital deployment or asset rotation
• Leverage moderate (D/E 1.19x) and interest coverage solid (8.17x), supporting financial flexibility
• Dividend payout appears high at 80.6% without corroborating FCF, a potential sustainability flag

Metrics to Watch:

• Operating cash flow and OCF/NI ratio (target ≥1.0) when disclosed
• Free cash flow after maintenance capex to gauge dividend coverage
• Asset turnover improvement (revenue/asset base) and ROIC trajectory toward >5%
• Receivables collection days and short-term debt rollover profile
• Interest expense trend and coverage amid rate environment
• SG&A growth versus revenue to confirm sustained operating leverage

Relative Positioning: Within asset-heavy leasing/temporary facility peers, Tokai Lease exhibits above-peer operating momentum this quarter but lags on capital efficiency (low ROIC, low asset turnover). Balance sheet risk appears moderate, positioning the company in the mid-range on solvency but below-average on capital returns.

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