KU HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥81.92B
• Operating Income: ¥3.98B
• Net Income: ¥2.78B
• EPS: ¥84.58

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

Verdict: A mixed FY2026 Q2—top-line growth of 3.7% but notable margin compression led to double-digit declines in operating and bottom-line profits. Revenue reached 819.15, with gross profit of 132.66 and operating income of 39.83, implying an operating margin of 4.9%. Ordinary income was 41.09 and net income was 27.84, translating to a net margin of 3.4%. Operating income fell 17.4% YoY despite the sales increase, pointing to cost pressure and/or a less favorable sales mix. Operating margin compressed by roughly 124 bps YoY (to 4.9% from about 6.1%), while net margin compressed by about 81 bps (to 3.4% from about 4.2%). SG&A at 92.83 rose faster than gross profit, squeezing operating leverage; the SG&A ratio is approximately 11.3% of sales. Earnings quality is weak this quarter with OCF of -3.99 versus net income of 27.84 (OCF/NI -0.14x), largely suggestive of inventory build (inventories sit at a high 267.87). ROE is modest at 4.0% and ROIC at 3.9% sits below the 5% warning threshold, indicating subpar capital efficiency. Leverage remains conservative with D/E at 0.40x and an interest coverage ratio of 120.7x, supporting solvency despite cyclical headwinds. Liquidity is strong on a current ratio of 231.5%, though the quick ratio of 94.6% reflects inventory intensity inherent to auto retail. The effective tax rate of 32.5% is in a normal range and non-operating items were a minor net positive (income 1.95 vs expenses 0.69). EPS (basic) was 84.58 JPY on an average share count of 32.92 million, with book value per share around 2,106.67 JPY, underscoring a solid equity buffer. Dividend payout ratio (calculated) is high at 101.4%, which is not well-covered by cash flow given negative OCF and ongoing capex. Free cash flow proxy (OCF – Capex) is approximately -20.66, implying funding needs were likely met via balance sheet capacity this quarter. Forward-looking, the key issues are normalizing used car pricing, inventory turnover, and the trajectory of SG&A against modest sales growth. Near-term catalysts would be inventory normalization (to restore cash conversion), stabilization of gross margin per vehicle, and improved ROIC toward management thresholds.

Profitability Analysis

ROE decomposition: ROE ≈ Net Profit Margin (3.4%) × Asset Turnover (0.838) × Financial Leverage (1.40x) = ~4.0%. The largest YoY change driver is Net Profit Margin, which compressed by roughly 81 bps as operating margin fell ~124 bps. Business reasons likely include weaker gross margin per unit and higher SG&A intensity versus sales (SG&A 92.83 against gross profit 132.66), diluting operating leverage. Asset turnover at 0.838 reflects a heavier asset base (notably inventories at 267.87) relative to sales growth, which also dampens ROIC. Leverage remained conservative (D/E 0.40x), so equity returns weren’t buoyed by financial gearing. The margin compression is partly cyclical (used car price normalization, competitive pricing) and partly cost-structure related; absent mix/pricing recovery or SG&A discipline, the improvement potential is limited. Watch for any trend where SG&A growth outpaces revenue—this quarter’s margin indicates pressure even with positive sales growth.

Growth Assessment

Top-line growth of 3.7% (to 819.15) indicates resilient demand, but profit growth lagged with operating income down 17.4% and net income down 16.3%. Operating margin of ~4.9% versus ~6.1% last year signals unfavorable mix or cost inflation not fully passed through. Non-operating income (1.95) contributed modestly (non-operating income ratio ~7.0% of operating income), but could not offset operating softness. EBITDA was 56.70 (margin 6.9%), showing some buffer from depreciation (16.87), yet not enough to prevent profit decline. Growth sustainability depends on inventory turnover improvement and gross margin per vehicle; elevated inventories (267.87) suggest either deliberate stocking or slower sell-through. With effective tax rate at 32.5% and interest expense minimal (0.33), the core operating model must drive recovery. Outlook hinges on stabilizing used vehicle prices and disciplined SG&A; near-term growth in profits will likely trail sales unless pricing/mix normalizes.

Financial Health

Liquidity is strong: current ratio 231.5% and working capital of 257.38, though the quick ratio at 94.6% highlights reliance on inventory conversion. No immediate red flags on maturity profile: short-term loans are 20.00 against cash of 101.15 and receivables of 42.96; current liabilities are well covered by current assets. Solvency is conservative with D/E 0.40x and interest coverage 120.7x, indicating ample buffer against rate or earnings shocks. Total assets are 977.06 with equity of 698.63 (equity ratio ~71.5% by calculation), reflecting a robust capital base. There is no disclosure of off-balance-sheet obligations here; absent such data, we assume none material from the provided figures.

Cash Flow Quality

Earnings quality is weak this quarter: OCF/Net Income is -0.14x (<0.8 threshold), indicating cash earnings lagging accrual profits. The likely culprit is working capital outflow, particularly from inventories at 267.87. A proxy for FCF is OCF minus Capex = -3.99 - 16.67 ≈ -20.66, implying cash outflow before financing and dividends. With financing CF at -2.47, the cash position likely declined unless other investing inflows (unreported) offset. No signs of aggressive working capital pull-forward; instead, the risk is inventory build ahead of demand. Sustained negative OCF would pressure dividends and capex plans; a reversion to positive OCF hinges on inventory turnover and margin normalization.

Dividend Sustainability

The calculated payout ratio is elevated at 101.4%, which is not covered by current-period cash generation given negative OCF and negative FCF proxy (~-20.66). Dividend and share repurchase details are unreported, limiting precision on cash returns. Balance sheet strength (equity ratio ~71.5%, D/E 0.40x) provides temporary capacity to fund dividends, but sustaining a >100% payout amid weak ROIC (3.9%) is not prudent without a near-term cash flow rebound. Unless OCF recovers and capex remains disciplined, dividend coverage is at risk over the medium term.

Risk Assessment

Business Risks:

• Used vehicle price normalization and margin pressure reducing gross profit per unit
• Inventory valuation and turnover risk given high inventories (267.87)
• SG&A rigidity limiting operating leverage amid modest sales growth
• Supply-demand volatility in automotive retail (new car supply recovery may pressure used prices)
• Competitive pricing in auto retail compressing margins

Financial Risks:

• Weak cash conversion (OCF/NI -0.14x) and negative FCF proxy (~-20.66)
• Potential need to fund dividends/capex from balance sheet if OCF remains weak
• Inventory-intensive model exposes liquidity to demand shocks despite strong current ratio
• Interest rate sensitivity modest but present via short/long-term loans (86.04 total)

Key Concerns:

• ROIC at 3.9% below 5% threshold indicates suboptimal capital efficiency
• Operating margin compression (~124 bps YoY) suggests sustained competitive/cost pressures
• High payout ratio (101.4%) not aligned with current cash flow profile
• Dependence on inventory normalization to restore OCF

Investment Implications

Key Takeaways:

• Sales growth (+3.7% YoY) but profit decline (OP -17.4%, NI -16.3%) due to margin compression
• OCF negative with inventory build; cash earnings lag accruals
• ROE at 4.0% and ROIC at 3.9% underline low capital efficiency
• Balance sheet strong (D/E 0.40x, interest coverage 120.7x), cushioning near-term volatility
• Dividend coverage stretched with >100% payout ratio against negative FCF proxy

Metrics to Watch:

• Inventory days/turnover and mix (impact on gross margin per vehicle)
• OCF/Net Income ratio trend back toward >1.0
• Operating margin trajectory and SG&A-to-sales ratio
• ROIC improvement toward 7–8% target range
• Unit sales growth vs. average selling price and procurement costs

Relative Positioning: Within domestic auto retailers, the company presents conservative leverage and strong liquidity but weaker capital efficiency (ROIC ~3.9%) and softer cash conversion this quarter. Recovery in inventory turnover and stabilization of margins are necessary to close the gap with more efficient peers.

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