JK Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥193.33B
• Operating Income: ¥3.04B
• Net Income: ¥1.89B
• EPS: ¥67.88

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 with resilient topline but pressured profitability, tight liquidity, and weak cash conversion. Revenue grew 1.4% YoY to 1,933.3, but operating income declined 7.4% to 30.4, leading to margin compression. Gross profit reached 233.5, with a gross margin of 12.1%, while SG&A of 203.1 held the operating margin to 1.57%. Ordinary income fell 4.2% to 33.21, aided by net non-operating income of 2.81, indicating reliance on non-core gains (non-operating income ratio 28.5%). Net income declined 5.8% YoY to 18.54, putting net margin at roughly 1.0% and calculated ROE at a subdued 2.8%. Operating margin compressed by about 15 bps YoY (from ~1.72% to ~1.57%), reflecting cost pressure and limited operating leverage. EBITDA was 42.03, translating to a thin 2.2% margin, and Debt/EBITDA stood at 4.60x, highlighting leverage against modest cash earnings. OCF of 9.40 trailed net income materially (OCF/NI 0.51x), flagging earnings quality and likely working capital headwinds. Liquidity is tight: current ratio at 1.10 and quick ratio at 0.99, with a high D/E of 2.31x despite strong interest coverage (16.6x). The effective tax rate was elevated at 43.1%, further pressuring bottom-line conversion. ROIC is 4.5%, below the 5% warning threshold, signaling capital efficiency concerns. Balance-sheet composition shows sizeable receivables (577.7) and cash (460.1), offset by large payables (523.8), implying sensitivity to working capital swings. Shareholder returns included buybacks of 15.38 despite weak OCF, adding to financing cash outflow of -45.53 and tightening the cash cushion. Dividend payout ratio is indicated at 75.3% (calculated), suggesting potential strain if cash generation does not improve. Forward-looking, stabilization requires recapturing operating margin, improving cash conversion from receivables/inventory, and moderating leverage to support a sustainable shareholder return policy.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.8% = Net Profit Margin (~1.0%) × Asset Turnover (0.890x) × Financial Leverage (3.31x). The weakest link is the net margin, constrained by a low operating margin of 1.57%, high tax rate (43.1%), and a meaningful reliance on non-operating items (net +2.81), which masks underlying core weakness. Asset turnover at 0.89x is moderate for a distributor/wholesaler model but not high enough to offset thin margins. Leverage at 3.31x amplifies returns but comes with balance sheet risk; current interest burden is manageable (coverage 16.6x) but Debt/EBITDA 4.60x is elevated for this margin structure. YoY, the most notable change is margin compression (~15 bps decline in operating margin as operating income fell 7.4% while sales rose 1.4%). Business drivers likely include input cost pass-through lags in building materials, mixed product mix, and SG&A rigidity relative to revenue. The compression appears cyclical rather than one-off, tied to cost inflation and soft downstream demand, and may persist absent pricing or mix improvement. Watch for concerning trends: SG&A ratio at 10.5% is high versus a 12.1% gross margin, leaving a slim operating spread; with revenue growth modest, further SG&A creep would quickly erode profit.

Growth Assessment

Topline grew 1.4% YoY to 1,933.3, indicating stable demand but no strong growth catalyst. Operating income fell 7.4% to 30.4 and ordinary income declined 4.2% to 33.21, suggesting negative operating leverage. Net income declined 5.8% to 18.54, reflecting both operating pressure and a high tax rate. Non-operating contributions (dividends 0.87, interest income 0.29, and other) cushioned ordinary income; quality of growth is thus mixed and partially non-core. EBITDA margin at 2.2% indicates limited room to absorb further cost increases. With ROIC at 4.5% (<5% warning), incremental growth at current returns may not exceed cost of capital, pressuring value creation unless margins recover. Outlook hinges on improved pricing/mix, tighter SG&A control, and working capital normalization to lift OCF; absent these, earnings quality and growth sustainability remain challenged.

Financial Health

Liquidity is tight: current ratio 1.10 and quick ratio 0.99; explicit warning not triggered for CR <1.0, but the cushion is slim. Solvency: D/E is high at 2.31x (warning: >2.0), and Debt/EBITDA is 4.60x, indicating elevated leverage relative to earnings capacity. Interest coverage is strong at 16.6x, mitigating near-term servicing risk. Maturity profile: short-term loans of 71.61 are modest, but current liabilities are large at 1,309.89, primarily payables (523.78), creating dependency on receivables (577.73) and inventory (147.16) turnover; any slowdown could strain liquidity. Cash and deposits are sizeable at 460.08, providing some buffer despite negative financing CF (-45.53). No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not preclude their existence.

Cash Flow Quality

OCF of 9.40 versus net income of 18.54 yields OCF/NI of 0.51x, a quality concern (<0.8 threshold). Likely drivers include working capital consumption (receivables/inventory) and tax cash outflows given a high ETR. With investing CF and capex unreported, FCF cannot be calculated; however, financing CF was -45.53, including buybacks of -15.38, implying shareholder returns and/or debt reduction exceeded internally generated cash. Sustainability risk: current OCF appears insufficient to comfortably cover dividends plus buybacks and potential maintenance capex. No explicit signs of working capital manipulation are evident from point-in-time balances, but the low OCF relative to earnings warrants scrutiny of DSO/DIO trends in subsequent quarters.

Dividend Sustainability

Calculated payout ratio is 75.3%, above the <60% comfort threshold, implying limited headroom given current earnings and weak cash conversion. FCF coverage cannot be assessed due to missing investing CF/capex data; however, OCF of 9.40 appears thin relative to potential dividends plus buybacks (15.38 already executed), suggesting reliance on balance sheet or incremental financing. Policy outlook: to maintain dividends without increasing leverage, management will likely need to improve OCF via working capital normalization and stabilize margins; otherwise, a more conservative payout or reduced buybacks may be warranted.

Risk Assessment

Business Risks:

• Input cost volatility in lumber/building materials and lagged pass-through to selling prices
• Demand softness tied to housing starts and construction activity in Japan
• Customer credit risk in the construction value chain amid tight liquidity conditions
• High effective tax rate (43.1%) depressing net profitability

Financial Risks:

• High leverage: D/E 2.31x and Debt/EBITDA 4.60x
• Tight liquidity: current ratio 1.10, quick ratio 0.99, sensitivity to working capital
• Weak cash conversion: OCF/NI 0.51x; potential funding gap for shareholder returns
• Interest rate risk on floating-rate borrowings despite current strong coverage

Key Concerns:

• Operating margin compression (~15 bps YoY) with limited EBITDA margin (2.2%)
• ROIC at 4.5% below the 5% warning threshold, implying subpar capital efficiency
• Meaningful reliance on non-operating income (28.5% of operating profit base) to support ordinary income
• Data gaps (capex, dividends paid, segment details) impede full assessment of sustainability

Investment Implications

Key Takeaways:

• Topline stable (+1.4% YoY) but operating income down 7.4%, indicating negative operating leverage
• Operating margin compressed to 1.57% (~15 bps YoY), with SG&A at 10.5% of sales
• OCF/NI of 0.51x signals low earnings quality and working capital pressure
• Leverage elevated (D/E 2.31x; Debt/EBITDA 4.60x) despite healthy interest coverage
• ROE modest at 2.8% and ROIC 4.5% below threshold, pointing to weak capital efficiency
• Shareholder returns (buybacks 15.38) amid weak OCF tightened financing cash flow (-45.53)
• High effective tax rate (43.1%) further constrains net margin

Metrics to Watch:

• Operating margin and gross-to-SG&A spread
• OCF/Net income and working capital days (DSO/DIO/DPO)
• Debt/EBITDA and D/E ratio trajectory
• Current and quick ratios for liquidity buffer
• ROIC versus internal hurdle and cost of capital
• Non-operating income contribution to ordinary profit
• Effective tax rate normalization

Relative Positioning: Versus domestic building-materials distributors, JK Holdings exhibits stable revenue but thinner margins, lower ROE/ROIC, tighter liquidity, and higher leverage; near-term performance hinges on margin recapture and working capital normalization 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