MRK HOLDINGS INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.51B
• Operating Income: ¥112M
• Net Income: ¥217M
• EPS: ¥2.20

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: FY2026 Q2 was a modest operational recovery quarter with sharply higher profits off a low base, underpinned by strong operating cash flow and a clean balance sheet, but profitability and capital efficiency remain weak. Revenue rose 4.9% YoY to 105.1, while operating income jumped 310.5% YoY to 1.12, indicating some operating leverage despite a still-thin margin profile. Ordinary income increased 219.2% YoY to 3.52, and net income rose 159.7% YoY to 2.17, lifting the net margin to 2.1%. Gross profit reached 78.78, implying a gross margin of 75.0% and confirming the model’s high gross margin/low operating margin structure. Operating margin improved to roughly 1.1% this quarter, up from about 0.3% a year ago (+~80 bps), given the small prior-period base. Net margin expanded by roughly +123 bps YoY (from ~0.83% to 2.06%), reflecting both operating gains and non-operating tailwinds. Ordinary margin improved by about +225 bps YoY (to ~3.35%), with non-operating income (3.13) a sizable contributor. Earnings quality is high this quarter: operating cash flow (11.38) is 5.24x net income, and OCF comfortably exceeds EBITDA (2.85), suggesting positive working capital dynamics or cash collection. Liquidity is robust, with a current ratio of 334% and low financial leverage (D/E ~0.32x by reported metric), minimizing near-term balance sheet risk. However, capital efficiency remains weak: ROE is only 1.5% and ROIC is flagged at 0.5%, well below a 5% warning threshold. SG&A (77.65) still absorbs nearly all gross profit (SG&A ratio ~73.9%), keeping operating margin thin and underscoring the need for structural cost actions. Non-operating income—especially interest income (2.13)—played a disproportionate role relative to operating profit, which introduces earnings variability risk if financial income normalizes. The effective tax rate is elevated at ~39%, limiting net income conversion. Cash was deployed to shareholders via buybacks (-1.41 in share repurchases) while financing CF was -8.10 overall; with OCF strong and capex light (-0.67), cash returns look covered near term. Forward-looking, sustaining margin expansion will require further SG&A discipline and revenue mix enhancement to reduce dependence on non-operating income. Overall, momentum is improving from a low base, balance sheet strength is a clear positive, but profitability quality and capital efficiency need continued improvement to be durable.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.5% = Net Profit Margin (2.1%) × Asset Turnover (0.545) × Financial Leverage (1.32x). The most meaningful change YoY appears to be in the profit margin component, as operating income rose 310.5% versus revenue +4.9%, while leverage stayed conservative and asset turnover likely changed modestly (assets 192.95 against revenue 105.1). Business driver: higher operating margin (to ~1.1% from ~0.3%) due to better operating leverage and potentially improved cost control, alongside a notable contribution from non-operating income (interest income 2.13). Sustainability: operating margin gains from SG&A control can be sticky if structural, but the outsized contribution from non-operating income is less durable and could reverse with changes in cash balances or interest rates. Concerning trends: SG&A at 77.65 absorbs ~98.6% of gross profit improvement (GP 78.78), keeping operating margins thin; while revenue grew 4.9%, detailed SG&A growth YoY is not disclosed, so we cannot confirm if SG&A grew below or above revenue, but the absolute SG&A burden remains high and constrains margin expansion. Asset turnover at 0.545 is low for a consumer-facing business, reflecting either high cash/receivables or underutilized assets; leverage at 1.32x is conservative, limiting ROE uplift.

Growth Assessment

Revenue growth of 4.9% YoY (to 105.1) indicates modest top-line momentum. Profit growth was outsized relative to revenue—OI +310.5%, ordinary income +219.2%, NI +159.7%—reflecting operating leverage from a small base and a significant non-operating contribution. Gross margin remains strong at 75.0%, suggesting underlying product economics are healthy; the constraint lies in SG&A efficiency. Profit quality is mixed: core margin improved, but non-operating income (3.13, including 2.13 interest) was material relative to operating income (1.12), which could make profit growth volatile. Near-term outlook hinges on sustaining revenue growth while compressing SG&A ratio; incremental top-line gains should drop through at a higher rate if cost discipline holds. With capex light (0.67) and strong OCF (11.38), reinvestment capacity exists without leverage. However, ROIC at 0.5% signals that current returns on the asset base remain subpar; growth without margin improvement risks value dilution. Absent segment/mix disclosure, the durability of revenue growth and margin gains cannot be fully assessed.

Financial Health

Liquidity is strong: current assets 134.83 vs current liabilities 40.33 drive a current ratio of 334% and a quick ratio of 334% (inventories unreported). No warning on Current Ratio (<1.0) or D/E (>2.0); reported D/E is 0.32x and interest-bearing debt appears minimal (short-term 1.50, long-term 0.46). Working capital is ample at 94.50, and cash and deposits are 16.68, with receivables 47.15, comfortably covering short-term borrowings (1.50). Maturity mismatch risk is low given large current assets relative to current liabilities. Interest coverage is modest at 2.77x—above the warning threshold (2x) but below a strong level (5x), implying that while leverage risk is low, operating earnings headroom versus interest is limited. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/NI is 5.24x, signaling strong earnings quality and cash conversion this quarter. OCF (11.38) comfortably exceeds EBITDA (2.85), implying favorable working capital inflows (e.g., receivable collections or payables timing). Free cash flow is not fully reported, but a proxy FCF (OCF − Capex) is approximately 10.71, indicating ample capacity to fund shareholder returns and reinvestment. There are no explicit signs of working capital manipulation in the data, but the outsized OCF relative to EBITDA suggests timing benefits that may normalize. Financing cash flow was -8.10, including share repurchases of -1.41; debt movements and dividends are not disclosed, but net cash generation appears adequate to fund these uses. Sustainability: with capex light and GP strong, cash generation should remain solid if margins hold; reliance on non-operating income does not directly affect OCF but may affect reported NI.

Dividend Sustainability

DPS and total dividends are unreported; the calculated payout ratio is 46.7%, which is within a generally sustainable range (<60%). Proxy FCF (10.71) suggests coverage for ordinary dividends and modest buybacks this period. Given strong liquidity and low leverage, near-term dividend safety appears supported by cash flow. However, given low ROE (1.5%) and ROIC (0.5%), management may prioritize reinvestment in efficiency or maintain conservative payouts to support balance sheet strength. Policy outlook cannot be assessed without explicit guidance; dependability hinges on maintaining OCF above NI and avoiding a drop in non-operating income.

Risk Assessment

Business Risks:

• Thin operating margin (~1.1%) leaves limited buffer against revenue or cost shocks.
• High SG&A burden (77.65 vs GP 78.78) constrains scalability and profit durability.
• Dependence on non-operating income (3.13; interest income 2.13) to supplement profits.
• Modest revenue growth (+4.9% YoY), with limited visibility into drivers or mix.
• Elevated effective tax rate (~39%) suppresses net profitability.

Financial Risks:

• Interest coverage of 2.77x is only moderate, leaving less cushion if operating income dips.
• Asset turnover is low (0.545), implying underutilized assets and weak capital efficiency.
• ROIC at 0.5% (<5% warning) signals value dilution risk if growth outpaces returns.

Key Concerns:

• Sustainability of recent profit rebound given a low prior base and large non-operating contribution.
• Potential volatility in financial income if cash balances or interest rates change.
• Lack of detailed disclosures (inventories, segment data, SG&A breakdown) limiting diagnostic clarity.

Investment Implications

Key Takeaways:

• Earnings rebound is real but driven off a low base; operating margin improved yet remains thin.
• Cash generation is strong (OCF 11.38; OCF/NI 5.24x), supporting balance sheet strength and buybacks.
• Non-operating income is a significant earnings lever this quarter, raising volatility risk.
• Capital efficiency is weak (ROE 1.5%, ROIC 0.5%); margin and asset utilization need improvement.
• Liquidity is ample (current ratio 334%), leverage low (reported D/E 0.32x), reducing solvency risk.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory
• Non-operating income composition and sustainability (especially interest income)
• OCF versus NI and working capital movements
• ROIC progression relative to cost of capital
• Interest coverage and any changes in interest-bearing debt
• Revenue growth mix (channels/products) as disclosed in future filings

Relative Positioning: Within consumer/retail peers, MRK shows stronger liquidity and lower leverage but lags on profitability and capital efficiency; its high gross margin model is offset by heavy SG&A, leaving ROE/ROIC below peer medians and making the equity story dependent on sustained cost discipline and improved asset utilization.

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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