MRK HOLDINGS INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.51B
• Operating Income: ¥112M
• Net Income: ¥-9M
• 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

MRK Holdings (99800) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥10.51bn, up 4.9% YoY, indicating moderate top-line momentum. Gross profit was ¥7.486bn, translating to a very high gross margin of 71.2%, which underscores a value-added model but also implies that SG&A intensity is the key driver of operating leverage. Operating income rose sharply to ¥112m (+310.5% YoY), yet the operating margin remains thin at 1.1%, highlighting limited cost absorption. Ordinary income of ¥352m exceeded operating income by a wide margin, implying material non-operating gains that boosted bottom-line performance in the period. Net income reached ¥217m (+159.7% YoY), equating to a 2.06% net margin; EPS is ¥2.20. DuPont analysis shows a calculated ROE of 1.48% (net margin 2.06% × asset turnover 0.545 × financial leverage 1.32), evidencing modest profitability despite balance sheet strength. Liquidity appears strong with a current ratio of 306.5% and working capital of ¥9.66bn, and the balance sheet is lightly levered with a debt-to-equity ratio of 0.38x. Interest burden is heavy relative to operating earnings: interest expense of ¥110.9m nearly equals operating income, yielding an EBIT interest coverage of roughly 1.0x, a key constraint on financial flexibility. Operating cash flow of ¥230m slightly exceeds net income (OCF/NI ≈ 1.06x), suggesting acceptable earnings quality this half. Reported equity ratio is 0.0%, but this appears to be an unreported metric: based on total equity of ¥14.65bn and total assets of ¥19.30bn, the implied equity ratio is approximately 76%, indicating substantial solvency headroom. Several disclosures show as zero (inventories, cash & equivalents, investing CF, DPS, shares), which under the provided guidance should be treated as not disclosed rather than true zeros; this constrains certain ratio interpretations (e.g., quick ratio equals current ratio due to unreported inventories). The effective tax rate shown as 0.0% is also likely a placeholder; using income taxes of ¥105m and net income of ¥217m implies pre-tax income around ¥322m and an estimated tax rate near 33%. EBITDA was ¥306m (2.9% margin), underscoring limited operating buffer after SG&A and interest. Financing cash outflows of ¥1.51bn suggest debt reduction and/or other financing activities, which, in the absence of dividend payments, may reflect proactive balance sheet management. Dividend payments are currently nil (DPS ¥0), and with FCF not disclosed, dividend capacity cannot be assessed; ongoing OCF generation and lower financing needs would be prerequisites for any resumption. Overall, MRK shows improving profitability and solid liquidity, but thin operating margins, reliance on non-operating gains, and tight interest coverage remain the primary challenges.

Profitability Analysis

ROE decomposition (DuPont): Net margin 2.06% × Asset turnover 0.545 × Financial leverage 1.32 = ROE 1.48%, consistent with the reported figure. Gross margin is high at 71.2%, indicating strong product/service economics; however, operating margin is only 1.1% (¥112m/¥10.51bn), implying heavy SG&A absorption and limited operating leverage so far. Ordinary margin is 3.35% (¥352m/¥10.51bn), boosted by non-operating items; this gap versus operating income highlights reliance on below-the-line contributions. EBITDA margin stands at 2.9% (¥306m), providing a modest cushion before interest and taxes. Interest expense of ¥111m nearly equals EBIT, resulting in EBIT interest coverage of ~1.0x; EBITDA/interest coverage is healthier at ~2.8x but still leaves little room for shocks. The YoY surge in operating income (+310.5%) off a low base suggests some early operating leverage, but the absolute margin remains thin, and sustainability depends on SG&A discipline. Effective tax rate appears closer to ~33% (estimated) rather than the displayed 0.0%, based on taxes paid and net income.

Growth Assessment

Revenue grew 4.9% YoY to ¥10.51bn, a modest but positive trajectory. Growth quality appears mixed: gross margin remains robust, implying pricing power and/or a favorable mix, but operating profit expansion is restrained by SG&A. The outsized lift in ordinary income relative to operating income suggests non-operating gains (e.g., investment income, subsidies, or FX) were a contributor; these are typically less repeatable than core earnings. Net income rose 159.7% YoY to ¥217m, aided by the non-operating line and improved operating results from a low base. Depreciation of ¥194m indicates a tangible asset base, but capex is not disclosed, limiting visibility on reinvestment needs and capacity-led growth. Asset turnover at 0.545x is modest; further growth will benefit from improved utilization and faster inventory/receivable cycles (not disclosed). Near-term outlook hinges on: sustaining revenue growth in core channels, executing SG&A efficiencies to widen operating margin, and reducing reliance on non-operating items.

Financial Health

Liquidity is strong: current assets of ¥14.34bn versus current liabilities of ¥4.68bn yield a current ratio of 306.5%; quick ratio is reported the same due to unreported inventories. Working capital stands at ¥9.66bn, offering a substantial buffer. Solvency appears solid: total liabilities of ¥5.57bn against equity of ¥14.65bn implies a debt-to-equity ratio of 0.38x. Although the reported equity ratio is 0.0%, the implied equity ratio using disclosed balance sheet figures is approximately 76%, suggesting low leverage. However, interest expense (¥110.9m) relative to EBIT (¥112m) signals that the cost of debt meaningfully constrains earnings capacity; managing financing costs is crucial. Financing cash outflows of ¥1.51bn indicate debt reduction and/or other capital structure actions in the period; details are not disclosed but would further support balance sheet resilience if repayments occurred.

Cash Flow Quality

Operating cash flow of ¥230m modestly exceeds net income of ¥217m (OCF/NI ≈ 1.06x), indicating acceptable earnings-to-cash conversion for the half. Working capital details are limited (inventories and cash balances are unreported), so the drivers of OCF are unclear; given large working capital, the business may be sensitive to collection cycles. Depreciation of ¥194m versus EBITDA of ¥306m suggests limited non-cash add-backs beyond D&A, consistent with low operating margin. Investing cash flow is shown as ¥0, which should be treated as not disclosed; therefore, free cash flow cannot be reliably calculated. Using OCF as a proxy, cash generation is positive but thin relative to interest burden. Overall, cash flow quality is fair, but better disclosure on capex and working capital components is needed to assess sustainability.

Dividend Sustainability

The company paid no dividends in the period (DPS ¥0; payout ratio 0%). With investing cash flows not disclosed, free cash flow coverage of dividends cannot be assessed. Given modest OCF (¥230m) and meaningful financing outflows (¥1.51bn), priority appears to be on balance sheet management rather than distributions. For any resumption of dividends, sustained positive OCF, improved operating margins, and reduced interest burden would be necessary. Policy outlook is unclear due to lack of guidance; monitoring communication on capital allocation and potential leverage reduction will be key.

Risk Assessment

Business Risks:

• Thin operating margin (1.1%) despite high gross margin, leaving little buffer against demand or cost shocks
• Dependence on non-operating gains to lift ordinary income above operating income
• Execution risk in SG&A efficiency and channel productivity to achieve operating leverage
• Revenue growth modest at +4.9% YoY; potential sensitivity to consumer sentiment and promotional intensity
• Limited visibility on inventory and working capital dynamics due to disclosure gaps

Financial Risks:

• Tight interest coverage (EBIT/interest ~1.0x) despite low balance sheet leverage
• Potential earnings volatility from non-operating items
• Capex and cash balance not disclosed, obscuring true free cash flow and liquidity runway
• Large working capital base may tie up cash if collections slow

Key Concerns:

• Sustainability of ordinary income uplift absent recurring non-operating gains
• Ability to expand operating margin from 1.1% while maintaining growth
• Managing financing costs to lift coverage above 2.0x on an EBIT basis

Investment Implications

Key Takeaways:

• Top-line growth resumed at +4.9% YoY with exceptionally high gross margin (71.2%)
• Operating margin remains thin at 1.1%, constraining ROE (1.48%) despite low leverage
• Ordinary income materially exceeds operating income, highlighting non-operating reliance
• Liquidity is ample (current ratio 3.07x; implied equity ratio ~76%), but interest burden is heavy relative to EBIT
• OCF modestly covers net income (1.06x), but true FCF is unclear due to missing capex data
• Financing cash outflows (-¥1.51bn) suggest deleveraging or other capital actions; details needed

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• EBIT and EBITDA interest coverage
• Composition of non-operating income and its recurrence
• OCF and capex disclosures to assess true FCF
• Working capital turns (receivable days, payable days) once disclosed
• Revenue growth by channel/product and repeat purchase metrics

Relative Positioning: The company exhibits strong balance sheet solvency and liquidity relative to low-margin peers, but trails in core operating profitability and exhibits higher sensitivity to financing costs; improvement in operating leverage is required to translate solid gross economics into competitive 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
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