HEIAN CEREMONY SERVICE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.88B
• Operating Income: ¥563M
• Net Income: ¥480M
• EPS: ¥38.96

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

Heian Ceremony Service Co., Ltd. (Heian Rei Service, 23440) delivered a relatively resilient FY2026 Q2 result with modest top-line softness and sharper profit contraction, indicative of negative operating leverage. Revenue declined 1.6% YoY to ¥4,881m, while operating income fell 9.7% YoY to ¥563m, compressing the operating margin to roughly 11.5%. Gross profit of ¥1,460m implies a gross margin of 29.9%, broadly stable for a service business with a fixed-cost base but suggesting limited pricing power in the period. Ordinary income reached ¥648m, and net income was ¥464m (-3.2% YoY), translating to a net margin of 9.5%. DuPont shows net margin of 9.51%, asset turnover of 0.143x, and financial leverage of 1.57x, yielding an ROE of 2.14% for the half-year. On a simple annualization, this would imply a mid-4% ROE, still modest but underpinned by a very strong equity base. The balance sheet is conservative: total assets ¥34.152bn against equity of ¥21.704bn, implying an equity ratio around 63.6% based on provided non-zero items (the reported 0.0% equity ratio field appears undisclosed). Liquidity is robust with a current ratio of 610% and working capital of ¥6.867bn, highlighting ample short-term coverage. Ordinary income to income tax suggests an effective tax rate near 29–30%, consistent with domestic norms, despite a reported 0.0% field. Cash generation was weaker relative to earnings: operating cash flow (OCF) of ¥227m represents 0.49x net income, signaling earnings-to-cash conversion softness, likely due to working capital timing. Investing cash flow is undisclosed (reported as 0), so free cash flow cannot be reliably assessed this quarter; the provided FCF figure of 0 should be interpreted as unreported. The business mix likely includes a material component of long-duration liabilities (e.g., pre-need advances), supporting solvency but complicating simple debt assessments. Dividend fields show 0 (undisclosed), so payout and coverage cannot be assessed this period; in the absence of a stated dividend, cash retention supports flexibility. Overall, the company remains financially solid with high equity and liquidity, but exhibits negative operating leverage and weaker cash conversion that merit monitoring. The outlook hinges on funeral volumes, average unit pricing, and the trajectory of fixed costs. Data limitations (notably cash balances, investing cash flows, and shares) constrain precision; conclusions are based on the available non-zero disclosures and derived metrics.

Profitability Analysis

ROE_decomposition: ROE 2.14% (half-year basis) = Net margin 9.51% × Asset turnover 0.143 × Financial leverage 1.57. Implies low asset intensity but also low turnover for the half-year; annualized turnover would be ~0.286x if seasonal effects are modest. margin_quality: Gross margin 29.9% (¥1,459.6m/¥4,881.0m) appears stable. Operating margin ~11.5% (¥563.0m/¥4,881.0m) contracted versus revenue (-1.6% YoY vs -9.7% YoY OI), evidencing cost rigidity. EBITDA margin ~17.6% (¥857.9m/¥4,881.0m) indicates D&A at ~6.0% of sales (¥294.9m), consistent with an asset-backed service model (facilities/vehicles). Net margin 9.5% supported by low reported interest burden and a normalized tax rate. operating_leverage: Negative in the period: small revenue decline (-1.6% YoY) led to a larger drop in operating income (-9.7% YoY). Fixed cost absorption likely weakened; careful monitoring of personnel and facility costs is warranted to preserve margins at current volume levels.

Growth Assessment

revenue_sustainability: Top-line dipped 1.6% YoY to ¥4.881bn. In funeral services, volumes and average unit prices can be volatile quarter-to-quarter; absent evidence of structural decline, this reads as mild softness. Sustainability hinges on service mix, pricing, and local demographics. profit_quality: Ordinary income at ¥648m exceeds operating income, implying some non-operating support (e.g., financial income) with minimal reported interest expense. Effective tax outflow (~¥190m) versus ordinary income suggests a ~29% tax rate, consistent with recurring profitability rather than one-offs. outlook: With a high equity buffer and strong liquidity, the company is positioned to navigate near-term demand fluctuations. Margin recovery will require improved volume or cost discipline; absent that, operating leverage will continue to pressure profits if revenue softness persists.

Financial Health

liquidity: Current ratio 609.8%, quick ratio 606.9%, working capital ¥6,867m: ample near-term coverage. Cash and equivalents not disclosed this quarter; nonetheless, current assets of ¥8,214m far exceed current liabilities of ¥1,347m. solvency: Total liabilities ¥12,918m vs equity ¥21,704m → liabilities-to-equity ~0.60x; equity ratio by derivation 63.6% (vs reported field 0.0% which is undisclosed). Long-term liabilities (¥11.6bn) dominate, likely including deferred revenues or other long-duration obligations typical in the sector. capital_structure: Financial leverage 1.57x (Assets/Equity) is conservative. Interest expense is undisclosed (reported 0), and interest coverage metric is therefore not meaningful this period.

Cash Flow Quality

earnings_quality: OCF/Net income = 0.49x (¥227m/¥464m), indicating weak conversion this period. The gap likely reflects working capital outflows (e.g., receivables buildup or timing of payables) rather than accrual-driven earnings inflation, but details are undisclosed. FCF_analysis: Investing CF is undisclosed (reported 0), so FCF cannot be reliably calculated. Using OCF alone would overstate FCF if maintenance capex is material; given D&A of ~¥295m, underlying capex is likely non-trivial. working_capital: Inventories are minimal (¥38m), so WC swings likely come from receivables/payables and contract liabilities. The scale of current assets vs liabilities suggests resilience, but the OCF shortfall flags timing effects that need tracking.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are reported as 0 (undisclosed). Without DPS/EPS linkage, payout cannot be assessed for this period. FCF_coverage: FCF is not derivable due to undisclosed investing cash flows; OCF is positive but insufficient to judge sustainable coverage without capex visibility. policy_outlook: In the absence of disclosed dividends, cash retention supports flexibility. Given the strong equity base and liquidity, capacity exists for distributions when cash conversion normalizes; however, current disclosure does not permit an assessment of policy trajectory.

Risk Assessment

Business Risks:

• Volume sensitivity to local demographics and mortality trends affecting funeral counts
• Pricing pressure and competition in key service areas and geographies
• Fixed-cost intensity (facilities, personnel) leading to negative operating leverage on revenue softness
• Service mix shifts (e.g., smaller-scale ceremonies) lowering average revenue per case
• Regulatory or consumer preference changes affecting pre-need contracts and funeral formats
• Event-driven volatility (e.g., seasonality, epidemics) impacting ceremony scheduling and ancillary services

Financial Risks:

• Weaker cash conversion (OCF/NI 0.49x) implying working capital timing risk
• Concentration of long-duration liabilities (e.g., advances/deferred revenue) complicating liquidity analysis
• Limited visibility on capex due to undisclosed investing cash flows
• Potential exposure to lease liabilities or interest rate changes not evident due to undisclosed interest expense

Key Concerns:

• Negative operating leverage with operating income down 9.7% on a 1.6% revenue decline
• Subpar earnings-to-cash conversion this half
• Data limitations (cash, investing CF, dividend, shares) reduce analytical precision

Investment Implications

Key Takeaways:

• Solid balance sheet with derived equity ratio ~63.6% and low leverage (liabilities/equity ~0.60x)
• Margins remain healthy but under pressure: operating margin ~11.5%, EBITDA margin 17.6%
• ROE modest at 2.14% for the half; improvement hinges on turnover and margin stabilization
• Cash generation lagged earnings (OCF/NI 0.49x), highlighting working capital sensitivity
• Liquidity is ample (current ratio ~610%), supporting operational resilience

Metrics to Watch:

• Funeral case volumes and average revenue per ceremony
• OCF/Net income and working capital movements (AR/AP days)
• Capex vs D&A once investing cash flows are disclosed
• Operating margin trajectory and fixed-cost containment
• Advance receipt/deferred revenue balances within long-term liabilities
• Asset turnover (annualized) and ROE trend into H2

Relative Positioning: Relative to typical domestic funeral service peers, the company exhibits a stronger equity cushion and liquidity, but currently weaker cash conversion and negative operating leverage; sustaining margins and normalizing OCF will be key to maintaining its financial advantage.

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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