SEIGAKUSHA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.07B
• Operating Income: ¥167M
• Net Income: ¥73M
• EPS: ¥13.09

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—solid top-line growth and operating leverage, but weak cash conversion, elevated tax burden, and lower net profit. Revenue rose 8.1% YoY to 70.66, while operating income increased 41.8% YoY to 1.67, evidencing good cost control relative to sales. Ordinary income climbed 47.3% YoY to 1.59, but net income slipped 2.3% YoY to 0.72 on a high effective tax rate (49%) and a small net non-operating expense. Gross margin stood at 19.6%, SG&A was 17.3% of sales, and operating margin improved to 2.36%. Using growth-implied base figures, operating margin expanded by roughly 56 bps YoY (from ~1.80% to ~2.36%), while net margin compressed by about 11 bps (from ~1.13% to ~1.02%). EBITDA was 3.62 (margin 5.1%), providing comfortable interest coverage (13.17x). ROE is low at 1.9% driven by a thin net margin (1.0%) despite moderate asset turnover (0.754) and leverage (2.42x). Cash generation was soft: operating cash flow of 0.29 equated to only 0.41x of net income, indicating earnings quality concerns and likely working capital outflows or timing effects. Balance sheet liquidity is adequate (current ratio 122.6%), and solvency is acceptable (D/E 1.42x), though below the comfort benchmark for liquidity (>150%). ROIC of 2.6% is below the 5% warning threshold, highlighting capital efficiency issues. Capex of 1.59 exceeded OCF, implying negative implied FCF of roughly -1.30 for the period, pressuring dividend capacity if payouts are maintained. The calculated payout ratio of 155.1% suggests distributions exceeded earnings in the period and are not covered by OCF. Forward-looking, sustained revenue growth with disciplined SG&A can continue to lift operating margins, but cash conversion, normalization of the effective tax rate, and improvement in ROIC are key to upgrading quality and sustainability. Seasonality in the education business may aid 2H results, but the company must demonstrate stronger OCF conversion and capital efficiency to support shareholder returns without balance sheet strain. Non-operating items are small; performance hinges largely on core operations. Overall, execution at the operating level is improving, but bottom-line and cash metrics need attention.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.9% = Net Profit Margin (1.0%) × Asset Turnover (0.754) × Financial Leverage (2.42x). The weakest link is the net profit margin, constrained by a high effective tax rate (49%), small net non-operating expense (non-op income 0.09 vs non-op expense 0.16), and a still-tight operating margin (2.36%). Operating margin improved notably (+56 bps YoY by growth-implied back-calculation), indicating better operating leverage as revenue outpaced fixed cost growth. The biggest driver of the YoY change in ROE is the margin line: operating profit rose 41.8% vs revenue +8.1%, but this benefit was offset downstream by the elevated tax burden, which compressed net margin (-11 bps YoY). Business reason: cost discipline and scale benefits likely lowered SG&A ratio modestly relative to gross profit, but limited pricing power and a high tax expense limited flow-through to net income. Sustainability: operating leverage can persist if enrollment and utilization expand without proportional SG&A growth; however, the tax rate looks unusually high versus normative corporate tax levels, suggesting room for normalization—a potential upside to NPM. Watch-outs: SG&A at 17.3% of sales remains heavy relative to a 19.6% gross margin, leaving a thin operating spread; if SG&A growth accelerates above revenue, operating margin could quickly compress.

Growth Assessment

Revenue growth of 8.1% YoY to 70.66 indicates healthy demand, likely driven by steady enrollment and possibly incremental price/mix effects. Operating income grew 41.8% YoY to 1.67, showing positive operating leverage. Ordinary income growth (+47.3%) outpaced operating income, but net income fell 2.3% due to a 49% effective tax rate and modest net non-operating expenses. Margin dynamics: gross margin at 19.6% and SG&A ratio at 17.3% yielded a 2.36% operating margin; by inference, operating margin expanded ~56 bps YoY, while net margin slipped ~11 bps. Profit quality is mixed: EBITDA margin at 5.1% and strong interest coverage are positives, but OCF/NI at 0.41x is a negative. Outlook: If top-line momentum continues and the tax rate normalizes closer to the statutory range, net margin could improve. However, capital efficiency (ROIC 2.6%) is low, and sustaining growth while lifting ROIC will require either higher unit economics (tuition, utilization) or improved asset productivity (center throughput, closures of underperformers).

Financial Health

Liquidity: Current ratio 122.6% and quick ratio 122.6% indicate adequate short-term coverage (above 1.0 but below the 1.5 comfort benchmark). Working capital is 6.96; cash and deposits of 23.26 cover a large portion of current liabilities (30.77), mitigating near-term liquidity stress. No explicit warning for current ratio (<1.0) is needed. Solvency: Total liabilities 54.91 vs equity 38.77 implies D/E 1.42x, within conservative bounds (<1.5x benchmark). Long-term loans are 17.49; short-term borrowings are unreported, so total interest-bearing debt is uncertain. Interest coverage is strong at 13.17x, suggesting manageable debt service. Maturity mismatch: Current assets (37.73) exceed current liabilities (30.77), lowering refinancing risk, though reliance on cash to cover payables indicates sensitivity to OCF timing. Off-balance sheet: Not disclosed. Equity ratio (derived) is approximately 41% (38.77/93.67), implying a reasonably solid capital base.

Cash Flow Quality

OCF was 0.29 versus net income of 0.72, yielding OCF/NI of 0.41x—below the 0.8 threshold and indicating weak cash conversion, likely due to working capital outflows and/or seasonal collection timing typical in education services. Capex was 1.59; with OCF at 0.29, implied FCF is approximately -1.30 this period, though full investing cash flows were not disclosed. This negative implied FCF does not cover potential dividends or debt reduction without tapping cash or financing (financing CF was 2.96). No clear signs of working capital manipulation can be concluded from the limited data, but low OCF relative to EBITDA (3.62) suggests a temporary drag from receivables/advance payments or timing of expenses. Sustainability: To support capex and potential dividends, OCF needs to improve in 2H; otherwise, the company may rely on balance sheet cash or additional financing.

Dividend Sustainability

Reported dividend data are limited, but the calculated payout ratio of 155.1% implies dividends exceeded earnings for the period. Given implied negative FCF (~-1.30) and OCF/NI at 0.41x, current payouts (if maintained) are not covered by internally generated cash in 1H. Coverage could improve if 2H seasonality strengthens OCF and earnings; however, with ROIC at 2.6% and capex needs, sustaining a high payout risks constraining reinvestment or increasing leverage. Policy outlook: Absent explicit guidance, expect management to prioritize cash generation and capital efficiency; a stable or flexible payout policy tied to full-year results is more plausible than aggressive increases until OCF normalizes.

Risk Assessment

Business Risks:

• Enrollment and utilization volatility across schools impacting revenue and operating leverage
• Teacher recruitment and wage inflation pressuring SG&A and margins
• Price competition in supplemental education limiting pricing power and gross margin
• Regional demographic headwinds (aging/declining student population) affecting addressable market
• Execution risk on new site openings and closures of underperforming locations

Financial Risks:

• Weak cash conversion (OCF/NI 0.41x) leading to reliance on financing (financing CF 2.96)
• Low ROIC (2.6%) versus typical cost of capital, risking value dilution
• Potential maturity/rollover risk if short-term borrowings exist but are unreported
• High effective tax rate (49%) depressing net margin and cash flows
• Dividend coverage risk given implied negative FCF

Key Concerns:

• Earnings quality flagged by low OCF relative to NI
• Thin operating margin (2.36%) leaves limited buffer against revenue shocks
• Payout ratio above 100% in the period is not supported by cash generation
• Capital efficiency requires improvement to sustain growth and returns

Investment Implications

Key Takeaways:

• Top-line growth (+8.1% YoY) and operating leverage lifted operating income (+41.8% YoY) and margins.
• Net income declined (-2.3% YoY) due to a high tax burden and small net non-operating expense.
• Cash conversion is weak (OCF/NI 0.41x) with implied negative FCF as capex exceeded OCF.
• Balance sheet/liquidity remain adequate (current ratio 122.6%, interest coverage 13.17x), but ROIC is low (2.6%).
• Dividend capacity looks tight for 1H given payout > earnings and insufficient OCF.

Metrics to Watch:

• OCF and working capital swings (receivables, advances, payables) in 2H
• Effective tax rate normalization trajectory
• Operating margin progression and SG&A discipline versus revenue growth
• ROIC improvement (targeting >5% near-term, >7% medium-term)
• Capex intensity and returns on new centers; closures of low-ROIC sites
• Any disclosure on short-term borrowings/total interest-bearing debt

Relative Positioning: Within the private education/services peer set, the company shows improving operating leverage but lags on cash conversion and capital efficiency, placing it in the middle-to-lower tier on ROIC and earnings quality while maintaining acceptable liquidity and solvency.

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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