TOHOKUSHINSHA FILM CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.05B
• Operating Income: ¥1.31B
• Net Income: ¥2.71B
• EPS: ¥19.08

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: Solid topline and operating margin expansion in FY2026 Q2, but bottom line is flattered by one-time gains and cash conversion is weak. Revenue rose 6.3% YoY to 210.5, while operating income grew 61.4% YoY to 13.1, evidencing meaningful operating leverage. Gross profit reached 59.2 with a gross margin of 28.1%, and operating margin improved to about 6.2%. Ordinary income increased 78.1% YoY to 18.3, supported by 6.3 in non-operating income (notably 3.2 interest income), but the step-up from ordinary income to profit before tax (40.1) indicates sizable extraordinary gains this quarter. Net income of 26.3 grew 56.7% YoY, lifting net margin to 12.5%, though this is inflated by non-recurring items. Operating margin expanded roughly 212 bps YoY (from ~4.1% to ~6.2%), reflecting better cost discipline relative to revenue growth. EBITDA was 15.6 with a 7.4% margin, and interest coverage is exceptionally high at 435x given minimal interest expense. However, operating cash flow was -15.7 versus net income of 26.3 (OCF/NI -0.60x), flagging weak earnings quality this half. The balance sheet is very strong: cash and deposits stand at 456.6, current ratio is 714%, and total liabilities are only 130.1 with D/E (total liabilities/equity) around 0.15x. Capital intensity is low (capex -0.7), yet capital efficiency remains subdued: ROE is 3.0% and ROIC is 2.1% (warning level). Non-operating income accounts for 23.8% of ordinary income, and extraordinary gains appear material, increasing earnings volatility. Dividends paid to date (Q1: 19.0 JPY, Q3: 6.33 JPY) imply a calculated payout ratio of ~74%, which is high relative to earnings and not covered by OCF this half but supported by cash reserves. Overall, the quarter’s reported profitability is strong, but normalized earnings (excluding extraordinary) and cash conversion trends warrant caution. Looking ahead, sustaining the improved operating margin while normalizing cash flow will be key to improving ROE/ROIC and underpinning dividend sustainability.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.0% = Net Profit Margin 12.5% × Asset Turnover 0.211 × Financial Leverage 1.15x. The largest driver this quarter is the surge in net profit margin, boosted by extraordinary gains (PBT 40.1 vs ordinary income 18.3 implies ~21.8 of non-recurring gains) and higher non-operating income (6.3), atop improved operating margin (~6.2%, +~212 bps YoY). Asset turnover remains low at 0.211, reflecting a large cash-heavy balance sheet relative to half-year revenue. Financial leverage is modest at 1.15x, constrained by a conservative capital structure. Business rationale: operating margin improved as SG&A grew slower than revenue (absolute SG&A 46.1; YoY pace not disclosed), while non-operating interest income lifted ordinary income due to a sizable cash balance. The extraordinary gains appear to be the main reason for the elevated net margin this quarter. Sustainability: operating margin gains could be partly sustainable if cost discipline continues; however, the uplift from extraordinary gains and non-operating items is one-time/volatile and should not be annualized. Watch-outs: capital efficiency is weak (ROIC 2.1%), and non-operating/extraordinary reliance is high (non-operating income ratio 23.8%); any slowdown in core operations would compress ROE quickly.

Growth Assessment

Revenue grew 6.3% YoY to 210.5, a healthy but moderate pace for a media/production business. Operating income growth of 61.4% significantly outpaced sales, evidencing operating leverage and improved cost control. Ordinary income +78.1% and net income +56.7% are amplified by non-operating and extraordinary gains; underlying growth in core profit is likely much lower. The operating margin expanded to ~6.2% (+~212 bps YoY), suggesting better project mix or improved execution, but sustainability requires validation in H2. Non-operating income (6.3), including 3.2 of interest income, indicates earnings support from high cash balances rather than purely from operations. The sharp jump from ordinary income to PBT (to 40.1) implies substantial one-off gains, which are not repeatable drivers. Given OCF of -15.7 and capex of -0.7, cash generation from operations is currently weak, which could constrain growth investments if not reversed. Near-term outlook hinges on maintaining SG&A discipline, securing higher-margin content contracts, and stabilizing working capital. Without recurring drivers, net profit growth will likely normalize once extraordinary effects fade.

Financial Health

Liquidity is exceptionally strong: current assets 763.2 vs current liabilities 106.9 yields a current ratio of 7.14x and quick ratio similar, backed by cash of 456.6. Solvency is robust: total liabilities are 130.1 against equity of 869.8, resulting in D/E of ~0.15x; interest-bearing debt details are unreported, but interest expense is negligible (0.03), and coverage is 435x. No warnings on Current Ratio (<1.0) or D/E (>2.0). Maturity mismatch risk appears low given cash far exceeds current liabilities (cash alone >4x current liabilities). Off-balance sheet obligations are not disclosed; absence of data prevents assessment of operating lease or guarantees. Overall, the balance sheet comfortably supports operations and dividends despite temporary OCF weakness.

Cash Flow Quality

OCF/Net Income is -0.60x (<0.8), a clear quality flag; earnings are not converting to cash this half. The negative OCF alongside rising profits implies a working capital outflow (e.g., build in receivables or production advances), though detailed drivers are unreported. With capex at -0.7, FCF cannot be calculated from disclosures, but qualitatively FCF is negative this half given negative OCF. Dividend and any buybacks appear to be funded from the large cash balance rather than operating cash generation this period. No direct signs of manipulation can be asserted from available data; however, the divergence between NI and OCF warrants monitoring of collections, project milestone billings, and advance payments in H2.

Dividend Sustainability

The interim distributions (Q1 19.0 JPY, Q3 6.33 JPY) correspond to a calculated payout ratio of ~74%, which is above the 60% benchmark for comfort. With OCF negative in H1, dividends are not covered by cash generation this half, though the cash balance (456.6) offers ample coverage near term. Capex needs are modest (-0.7), reducing structural FCF pressure once OCF normalizes. Sustainability hinges on: 1) maintaining improved operating margins on a recurring basis, 2) normalizing OCF/NI toward >1.0x, and 3) avoiding reliance on non-recurring gains to fund payouts. Policy outlook cannot be inferred due to lack of guidance, but the conservative balance sheet provides flexibility to maintain current DPS in the near term, assuming H2 cash conversion recovers.

Risk Assessment

Business Risks:

• Earnings volatility from project-based content production and delivery timing
• Dependence on non-operating and extraordinary gains in the reported quarter
• Margin pressure from rising talent and production costs
• Client concentration risk in advertising/production contracts (not disclosed)
• Potential impairment risk on content/intangibles (goodwill 10.6, intangibles 18.6)

Financial Risks:

• Weak cash conversion (OCF/NI -0.60x) creating short-term funding of dividends from cash reserves
• Low capital efficiency (ROIC 2.1%, ROE 3.0%) limiting value creation
• Potential working capital swings impacting liquidity, despite large cash
• Exposure to interest income volatility due to reliance on returns from cash balances

Key Concerns:

• Large extraordinary gains implied (PBT 40.1 vs ordinary income 18.3) inflate net profit
• Non-operating income ratio at 23.8% heightens earnings volatility
• Sustainability of operating margin improvement not yet proven over multiple quarters
• Data gaps (inventory, detailed SG&A, investing CF) limit analysis of cost and WC drivers
• Any slowdown in sales could quickly compress ROE/ROIC given low asset turnover

Investment Implications

Key Takeaways:

• Core operations improved with ~212 bps operating margin expansion YoY
• Headline net profit is boosted by non-recurring/extraordinary gains
• Cash conversion is weak this half; OCF negative against positive NI
• Balance sheet strength (cash-rich, low leverage) mitigates near-term financial risk
• Capital efficiency remains a structural challenge (ROIC 2.1%, ROE 3.0%)
• Dividend payout is relatively high (~74%) and currently not covered by OCF

Metrics to Watch:

• Operating margin and SG&A growth vs revenue in H2
• OCF/NI ratio and working capital movements (receivables, advance billings)
• Recurrence of non-operating and extraordinary gains
• ROIC trajectory and asset turnover improvement
• Interest income sensitivity as cash yields and balances change
• AR days and project milestone collection rates

Relative Positioning: Within Japan’s media/production peer set, the company exhibits above-average balance sheet strength and solid near-term operating margin improvement, but lags on capital efficiency (low ROIC/ROE) and shows weaker cash conversion this half; earnings volatility appears higher due to reliance on non-operating and extraordinary items.

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