Open Up Group Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥41.16B
• Operating Income: ¥4.12B
• Net Income: ¥2.78B
• EPS: ¥32.40

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q1 was a mixed quarter: profitability held up despite a sharp top-line decline, but cash flow quality and capital efficiency were weak. Revenue fell 14.9% YoY to 411.6, while operating income was resilient at 41.2 (-0.7% YoY), implying stronger operating margin execution. Gross profit was 117.3 (gross margin 28.5%) and SG&A was 76.4, supporting operating leverage despite lower sales. Net income rose 16.4% YoY to 27.8, lifting the net margin to 6.8% from roughly 4.9% a year ago. Operating margin improved to about 10.0% from roughly 8.6% last year, an estimated expansion of approximately 140 bps. Net margin expanded by about 180 bps, aided by cost discipline and a favorable mix despite a higher effective tax rate of 37.8%. Earnings quality is a key concern: operating cash flow was -14.8 versus net income of 27.8, yielding an OCF/NI of -0.53x, which is well below the 0.8x warning threshold. Free cash flow was -18.4, and financing cash flow was -4.2, while dividends paid were -39.0 in the quarter, producing poor cash coverage. The balance sheet remains sound on headline solvency with an equity ratio of 62.3% and D/E at 0.60x, but goodwill is elevated at 581.6 (about 49% of assets), highlighting potential impairment risk if growth stalls. Short-term loans are 100.2 and cash and equivalents sit at 166.7, reducing near-term liquidity stress, albeit current liabilities detail is unreported. ROE is 3.8% per DuPont (6.8% margin × 0.348 asset turnover × 1.60x leverage), and ROIC is low at 3.1%, below the 5% warning level. Equity-method income is negligible (0.11), so performance is driven by core operations, not affiliate contributions. The payout ratio prints at 248% and FCF coverage at -0.27x; this looks unsustainably high on a quarterly basis, and may reflect seasonal dividend timing. Forward-looking, the company must convert resilient margins into positive cash generation, improve ROIC above the 5% threshold, and manage goodwill risk amid a revenue contraction. Near-term focus should be on working capital normalization, order intake visibility, and maintaining utilization and pricing to defend the 10% operating margin.

Profitability Analysis

ROE decomposition: ROE 3.8% = Net Profit Margin 6.8% × Asset Turnover 0.348 × Financial Leverage 1.60x. The biggest driver of YoY change appears to be the net margin: operating income declined only 0.7% on a 14.9% drop in revenue, implying meaningful margin expansion (operating margin up ~140 bps, net margin up ~180 bps). Business drivers likely include tighter SG&A control and a comparatively favorable revenue mix supporting gross margin, offset partly by a high effective tax rate (37.8%). Asset turnover fell due to the revenue contraction against a relatively stable asset base, diluting ROE; leverage was stable at a moderate 1.60x. Sustainability: the operating margin uplift could be partly sustainable if driven by structural efficiency (e.g., bench management, utilization, pricing), but with revenue down double digits and OCF negative, the margin print may be vulnerable to demand softness or mix shifts. Watch for adverse trends such as SG&A rising faster than revenue in future quarters; in Q1, cost discipline outpaced revenue decline (SG&A not growing faster than revenue). Overall, ROE remains subdued given low asset turnover and low ROIC, signaling that improving capital efficiency (organic growth and pruning underperforming assets) is as important as preserving margins.

Growth Assessment

Revenue contracted 14.9% YoY to 411.6, indicating a weak demand environment or reduced project volumes. Operating income was resilient at -0.7% YoY, demonstrating cost control and operating efficiency gains. Net income rose 16.4% YoY to 27.8, supported by margin expansion rather than top-line growth. Equity-method income (0.11) is immaterial, so earnings are primarily from core operations. Given negative OCF and declining sales, growth quality is questionable; profitability is currently ahead of cash conversion. Outlook hinges on order intake, utilization rates, and pricing discipline; any rebound in client spending could quickly improve asset turnover and ROE. Without a sales recovery, margin defense alone may not be enough to lift ROIC above 5%. Near-term, focus on stabilizing revenue, reducing receivable days, and prioritizing higher-ROIC projects and integration benefits from prior M&A.

Financial Health

Liquidity: Cash and equivalents are 166.7 and short-term loans are 100.2; current assets total 432.9, suggesting near-term coverage of short-term debt, but current liabilities are unreported, so current ratio cannot be assessed. No explicit warning on Current Ratio <1.0 due to missing data. Solvency: Total equity is 737.8 (equity ratio 62.3%), D/E is 0.60x—conservative for the sector. Maturity mismatch: presence of 100.2 in short-term loans necessitates rollover or cash coverage; current assets appear sufficient, but lack of current liabilities detail limits precision. Goodwill is high at 581.6 (~49% of assets), increasing impairment sensitivity if earnings weaken. Retained earnings are negative (-17.5) despite large capital surplus (827.7), implying past equity financing and acquisition activity; this reduces distributable reserves flexibility. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF was -14.8 against net income of 27.8 (OCF/NI = -0.53x), a red flag for earnings quality. Free cash flow was -18.4 (OCF + Investing CF), insufficient to cover dividends (-39.0) or even maintenance capex (-2.2). Working capital appears to be a key drag: accounts receivable are 201.5 versus quarterly revenue of 411.6, implying DSO in a normal range (~40–50 days) but any elongation QoQ could explain the OCF shortfall; detailed movements are unreported. No clear signs of aggressive working capital manipulation are observable from the limited data, but negative OCF alongside shrinking revenue warrants caution. Sustained dividend + capex commitments are not covered by internally generated cash this quarter; reliance on cash on hand or debt would be required if repeated.

Dividend Sustainability

The calculated payout ratio is 248% and FCF coverage is -0.27x for the quarter, clearly unsustainable if extrapolated. However, dividends often cluster due to seasonal payment schedules in Japan; the -39.0 dividend cash out may reflect a prior fiscal year distribution. On a full-year basis, sustainability will depend on restoring positive OCF and stabilizing revenue. With ROIC at 3.1% and OCF negative, maintaining a high payout would constrain reinvestment capacity and balance sheet resilience. Policy outlook: expect management to emphasize cash generation and ROIC improvement; if cash conversion does not normalize, a more conservative payout stance could be prudent.

Risk Assessment

Business Risks:

• Demand softness leading to revenue contraction (-14.9% YoY)
• Utilization and pricing pressure in staffing/IT services impacting margins
• High goodwill (581.6) increasing impairment risk if performance deteriorates
• Execution risk on integration and synergy realization from past M&A
• Talent acquisition/retention and wage inflation potentially compressing gross margin

Financial Risks:

• Negative OCF versus positive net income (OCF/NI -0.53x)
• Dividend cash out not covered by FCF (-18.4) in the quarter
• Short-term borrowing reliance (100.2) requiring rollover amid uncertain cash generation
• Low ROIC (3.1%) signaling weak capital efficiency and value creation risk
• Negative retained earnings limiting flexibility for future distributions

Key Concerns:

• Sustainability of margin expansion without revenue recovery
• Potential goodwill impairment given revenue decline and low ROIC
• Working capital drag on cash flows despite reported profitability
• High effective tax rate (37.8%) weighing on net profitability
• Data gaps (current liabilities, interest expense) limiting full stress testing

Investment Implications

Key Takeaways:

• Profitability resilient: operating margin ~10% despite -14.9% revenue decline
• Net margin expanded ~180 bps YoY; ROE 3.8% but constrained by low asset turnover
• Cash conversion weak (OCF/NI -0.53x); FCF negative
• Balance sheet headline strength (equity ratio 62.3%, D/E 0.60x) offset by high goodwill (~49% of assets)
• Dividend outflow this quarter not covered by FCF; payout ratio 248% likely distorted by seasonality

Metrics to Watch:

• Order intake, utilization rate, and bill rate trends
• OCF/Net income and working capital (DSO, DPO) movements
• ROIC trajectory toward/above 5% threshold
• Goodwill impairment indicators and segment profitability
• Debt maturity profile and short-term debt rollover plans
• Effective tax rate normalization and any structural drivers

Relative Positioning: Versus domestic staffing/IT services peers, margin defense appears solid but the -15% revenue contraction and negative cash conversion place the company in a cautious middle-to-weak positioning near term; capital efficiency (ROIC 3.1%) trails best-in-class 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