eole Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.53B
• Operating Income: ¥67M
• Net Income: ¥61M
• EPS: ¥1.97

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

Verdict: FY2026 Q2 was a mixed quarter with revenue contraction but positive profit metrics and ROE supported by leverage, offset by weak cash conversion. Revenue fell 16.2% YoY to 35.29, indicating top-line pressure. Gross profit was 4.04 with a reported gross margin of 11.4%, highlighting a thin unit economics profile. Operating income was 0.67 (operating margin roughly 1.9%), ordinary income 0.60, and net income 0.61 (EPS 1.97 yen), implying modest profitability despite the demand softness. EBITDA came in at 0.99 (EBITDA margin 2.8%), providing a small buffer over operating income via non-cash D&A of 0.32. ROE (DuPont) was 7.6%, driven primarily by financial leverage of 3.35x and asset turnover of 1.32, with a very thin net margin of 1.7%. Liquidity remains adequate with a current ratio of 154% and quick ratio of 154%, and interest burden is negligible (interest coverage 957x). However, earnings quality is weak: operating cash flow was -0.09 against net income of 0.61 (OCF/NI -0.15x), a notable divergence. Financing cash inflow of 2.40 suggests dependence on external funding to bridge cash shortfalls. Balance sheet shows accumulated losses (retained earnings -14.66) keeping book value per share low at 24.37 yen despite positive quarterly profit. Debt metrics are within tolerance (D/E 0.92x), but leverage is a meaningful contributor to ROE rather than margin strength. We lack disclosed YoY margin trends, so basis-point expansion/compression cannot be precisely quantified this quarter. Working capital looks tight with receivables at 5.02 and cash at 3.76 against current liabilities of 5.96, though overall current assets cover near-term obligations. Forward-looking, restoring revenue growth and improving cash conversion are key to sustaining profitability and rebuilding retained earnings. With ROIC reported at 11.1% (above the 8% excellence benchmark) but cash conversion weak, the focus should be on durable margin improvement and OCF recovery to reduce reliance on financing.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.6% = Net Profit Margin 1.7% × Asset Turnover 1.320 × Financial Leverage 3.35x. The margin is very thin, asset turnover is decent, and leverage is elevated, indicating ROE is most supported by leverage and efficiency rather than profitability per unit of sales. Without prior-period components disclosed, the most influential factor currently appears to be leverage (3.35x), followed by asset turnover; the net margin constrains ROE. Business drivers: the 16.2% YoY revenue decline likely pressured fixed-cost absorption and constrained operating leverage, keeping operating margin near 2% despite positive operating income. Non-operating items are small (net -0.01), so core operations explain most of earnings. Sustainability: leverage-driven ROE is less durable than margin-driven ROE; if margins do not expand or OCF remains negative, sustaining 7–8% ROE could become challenging. Watch for SG&A discipline; while SG&A (5.07) appears heavy relative to gross profit (4.04), the reported operating income suggests other cost/line item effects—nonetheless, a structurally low gross margin (11.4%) limits operating leverage benefits unless top-line recovers or mix improves.

Growth Assessment

Top-line contracted 16.2% YoY to 35.29, pointing to weaker demand or client budget cuts in the company’s served markets. Profitability held in positive territory: operating income 0.67 and net income 0.61, but margins remain thin (gross 11.4%, EBITDA 2.8%, operating ~1.9%). With non-operating income/expense near zero, growth in profits will likely depend on revenue recovery and gross margin enhancement rather than financial income. ROIC at 11.1% is encouraging versus typical 7–8% benchmarks, but sustaining this requires stabilizing revenue and improving cash conversion. Outlook hinges on improving sales execution, pricing/commission rates, and cost containment; absent these, further revenue softness could quickly compress earnings given low margin buffers.

Financial Health

Liquidity: Current ratio 154.4% and quick ratio 154.4% are healthy (>1.5 benchmark met), with current assets 9.20 comfortably exceeding current liabilities 5.96. No warning on current ratio (<1.0) is triggered. Maturity: Short-term loans are 0.40 against cash of 3.76 and receivables of 5.02, suggesting manageable near-term refinancing risk; long-term loans total 1.40. Solvency: D/E of 0.92x is within conservative thresholds (<1.5x), and interest coverage is extremely strong at 957x due to minimal interest expense. However, retained earnings are negative (-14.66), indicating limited accumulated capital buffers. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income at -0.15x (<0.8) flags poor earnings quality this quarter, indicating that accrual profits did not translate into cash. Operating CF was -0.09 despite net income of 0.61, implying working capital outflows and/or revenue recognition ahead of cash collection. Capex was modest at -0.09; implied FCF based on available figures is approximately -0.18 (OCF - capex), though total investing CF was not disclosed. Financing CF of 2.40 funded the cash shortfall, highlighting reliance on external funding. No explicit signs of manipulation are provided, but negative OCF alongside declining sales suggests cash collection pressure; monitor receivables days and advances. Sustainability: with thin margins, the company needs consistent positive OCF to support even modest capex and any potential shareholder returns.

Dividend Sustainability

Dividend data are unreported. Given negative retained earnings (-14.66) and implied negative FCF (~-0.18), internal capacity to fund dividends appears limited near term. Absent disclosed payout policy or DPS, we cannot calculate payout ratios or FCF coverage. For sustainability, management would need to prioritize rebuilding retained earnings and restoring positive, durable OCF before committing to distributions.

Risk Assessment

Business Risks:

• Revenue decline of 16.2% YoY indicates demand weakness and potential loss of share or reduced client budgets.
• Low gross margin (11.4%) limits operating leverage and leaves little buffer against cost increases.
• Thin operating margin (~1.9%) exposes earnings to small revenue/mix shifts.
• Execution risk in improving collections and working capital given negative OCF.

Financial Risks:

• Earnings quality risk with OCF/NI at -0.15x, requiring external financing (Fin. CF 2.40).
• Accumulated deficit (retained earnings -14.66) constrains financial flexibility.
• Leverage contribution to ROE (3.35x) raises sensitivity to profit variability, though absolute D/E (0.92x) is within norms.

Key Concerns:

• Sustainability of ROE (7.6%) given dependence on leverage and weak cash conversion.
• Potential working capital strain if receivables grow or collections slow amid softer sales.
• Limited disclosure on extraordinary/non-operating items and investing cash flows hinders full quality assessment.

Investment Implications

Key Takeaways:

• Top-line contraction (-16.2% YoY) with thin but positive profitability (OP 0.67, NI 0.61).
• ROE at 7.6% is primarily leverage- and turnover-driven; margin is the bottleneck.
• Cash conversion is weak (OCF/NI -0.15x); reliance on financing observed (Fin. CF 2.40).
• Liquidity adequate (CR 154%), solvency acceptable (D/E 0.92x), but retained losses persist.
• ROIC at 11.1% is a bright spot; sustaining it requires margin/OCF improvement.

Metrics to Watch:

• OCF/Net income and working capital metrics (DSO, payables days).
• Gross and operating margin progression in bps.
• Revenue trajectory and order intake/pipeline indicators.
• Debt levels and financing cash flows (new borrowings vs repayments).
• Retained earnings trend and any disclosure on dividend policy.

Relative Positioning: Within small-cap domestic peers, the company shows acceptable liquidity and leverage with above-benchmark ROIC but trails on cash conversion and margin resilience; near-term performance will hinge on stabilizing sales and converting profits to cash.

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