KITAZAWA SANGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.98B
• Operating Income: ¥141M
• Net Income: ¥250M
• EPS: ¥6.07

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

Kitazawa Sangyo (9930) reported FY2026 Q2 consolidated results under JGAAP showing top-line softness and pronounced margin pressure. Revenue declined 7.3% YoY to ¥6.98bn, while operating income fell 58.9% YoY to ¥141m, indicating significant negative operating leverage. Gross profit of ¥2.107bn implies a gross margin of 30.2%, but operating margin compressed to roughly 2.0%, highlighting elevated SG&A burden relative to sales. Ordinary income of ¥213m exceeded operating income by ¥72m, suggesting supportive non-operating gains or financial income offsetting weak core profitability. Net income was ¥112m, down 54.9% YoY, with EPS reported at 6.07 (share count not disclosed). DuPont indicates a net margin of 1.60%, asset turnover of 0.397x, and financial leverage of 1.58x, producing an ROE of about 1.01%, underscoring subdued shareholder returns. Despite reported “effective tax rate: 0.0%,” the presence of ¥149m in income tax alongside ¥112m in net income implies an estimated effective tax rate near the mid-50% range, indicating potential tax-related timing effects or non-recurring items. Liquidity appears adequate on reported metrics, with a current ratio of 1.37x and working capital of approximately ¥2.38bn. Balance sheet strength looks sound: recalculating the equity ratio as Total Equity/Total Assets yields roughly 63.3%, despite the reported 0.0% (likely undisclosed in XBRL rather than a true zero). Debt-to-equity of 0.66x suggests a moderate liability load relative to equity. Interest expense is low at ¥7.6m, and interest coverage is comfortable at about 18.5x based on operating income. Cash flow quality is a key watchpoint: operating cash flow was negative at -¥649m against positive net income, pointing to working capital consumption and weaker cash conversion. Investing and cash balances are undisclosed in the XBRL (displayed as zeros), limiting free cash flow assessment; however, the OCF shortfall indicates near-term cash discipline will be necessary. Dividend per share is reported as zero with a 0% payout, but without full cash flow and share data, policy interpretation is constrained. Overall, profitability deterioration, negative operating cash flow, and revenue contraction weigh on near-term quality of earnings, while the balance sheet provides a buffer. The outlook will hinge on demand recovery, cost control to stabilize margins, and normalization of working capital to restore cash generation.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 1.60% (Net income ¥112m / Revenue ¥6,980m)
• asset_turnover: 0.397x (Revenue ¥6,980m / Total assets ¥17,564m)
• financial_leverage: 1.58x (Total assets ¥17,564m / Equity ¥11,111m)
• calculated_ROE: ≈1.01% (matches reported 1.01%) margin_quality: Gross margin at 30.2% remains reasonable for a distribution/solutions model, but operating margin compressed to ~2.0% (¥141m/¥6,980m), indicating SG&A absorption issues amid lower sales. EBITDA margin is 3.5%, suggesting limited buffer to absorb further revenue softness without deeper cost action. operating_leverage: Revenue declined 7.3% YoY while operating income fell 58.9% YoY, evidencing high negative operating leverage. Non-operating items (+¥72m vs operating income) partly cushioned ordinary profit but do not resolve core margin compression.

Growth Assessment

revenue_sustainability: Top line contracted to ¥6.98bn (-7.3% YoY). The decline suggests softer order intake or shipment timing. Without segment detail, we assume broad-based pressure and/or project deferrals. profit_quality: Ordinary income (¥213m) exceeded operating income (¥141m), implying reliance on non-operating contributions. Estimated effective tax rate appears elevated (based on disclosed tax expense), which, if recurring, could further constrain net margins. outlook: To stabilize growth, recovery in demand and improved throughput are needed to better utilize fixed cost base. Emphasis on pricing discipline, mix improvement, and SG&A containment will be key. A normalization of working capital would support sustainable growth by freeing cash for operations.

Financial Health

liquidity: Current assets ¥8,729.9m vs current liabilities ¥6,354.6m yields a current ratio of 1.37x. Quick ratio is shown equal to current ratio due to undisclosed inventories; thus, true quick liquidity may be lower than indicated. solvency: Total liabilities ¥7,304.4m vs equity ¥11,111.0m leads to a debt-to-equity of 0.66x, reflecting moderate leverage. Recomputed equity ratio is ~63.3% (¥11,111m/¥17,564m), indicating a solid capital base. capital_structure: Interest expense is modest at ¥7.6m, and interest coverage is healthy at ~18.5x based on operating income, suggesting limited short-term refinancing risk.

Cash Flow Quality

earnings_quality: OCF of -¥649.4m against net income of ¥112m results in OCF/NI of -5.80, signaling poor cash conversion this half, likely due to working capital outflows (receivables, inventories, or payables timing). FCF_analysis: Investing cash flow is undisclosed (displayed as zero), so true free cash flow cannot be derived. Given negative OCF, underlying FCF is likely negative absent material asset disposals or reductions in investing outlays. working_capital: Working capital stands at ~¥2.38bn. The negative OCF suggests increased net working capital (e.g., higher receivables or lower payables). Monitoring collections and procurement terms will be important to restore cash generation.

Dividend Sustainability

payout_ratio_assessment: DPS is reported as ¥0.00 with a 0% payout; however, without confirmed share count and given negative OCF, a conservative stance on distributions is evident or data may be incomplete. FCF_coverage: With OCF negative and investing CF undisclosed, FCF coverage of dividends cannot be reliably assessed. Near-term cash generation would not support distributions without drawing on cash or balance sheet capacity. policy_outlook: Given low ROE (~1.0%), margin pressure, and negative OCF, maintaining a cautious dividend policy appears likely until earnings quality and cash conversion improve.

Risk Assessment

Business Risks:

• Demand variability leading to revenue volatility and negative operating leverage
• Project timing and delivery schedules affecting quarterly revenue recognition
• Pricing pressure and input cost inflation compressing gross margin
• Dependence on non-operating income to support ordinary profit
• Supply chain delays impacting fulfillment and working capital

Financial Risks:

• Negative operating cash flow driven by working capital expansion
• Potentially higher effective tax burden reducing net profitability
• Liquidity overstatement risk if inventories are material but undisclosed
• Exposure to credit risk if receivables have lengthened amid softer demand

Key Concerns:

• Sustained margin compression with revenue down 7.3% YoY
• OCF/NI at -5.80 indicating weak cash conversion
• Reliance on non-operating items (¥72m) to bridge ordinary vs operating income
• Low ROE at ~1.01% despite a strong equity base

Investment Implications

Key Takeaways:

• Revenue down 7.3% YoY with operating income down 58.9% signals elevated negative operating leverage
• Gross margin 30.2% but operating margin ~2.0%, highlighting SG&A pressure
• ROE ~1.0% reflects low earnings efficiency on a relatively strong balance sheet
• OCF negative ¥649m; cash conversion a primary near-term issue
• Interest coverage strong (~18.5x) and leverage moderate (D/E 0.66x), providing solvency cushion

Metrics to Watch:

• Order intake and backlog to gauge near-term revenue trajectory
• Operating margin and SG&A ratio for evidence of cost containment
• Working capital days (DSO, DPO, DIO) and OCF recovery
• Non-operating gains/losses that impact ordinary income sustainability
• Effective tax rate normalization and drivers

Relative Positioning: Financially conservative balance sheet with moderate leverage and strong equity ratio, but currently weaker profitability and cash conversion versus a normalized mid-cycle profile; improvement depends on demand recovery and working capital normalization.

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
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