Human Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥50.73B
• Operating Income: ¥1.18B
• Net Income: ¥741M
• EPS: ¥71.39

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

FY2026 Q2 was solid, with modest top-line growth translating into stronger profit and cash conversion. Revenue rose 3.2% YoY to 507.3, while operating income increased 9.0% YoY to 11.79, indicating positive operating leverage. Gross profit was 128.7 with a gross margin of 25.4%, and SG&A was contained at 116.91, yielding an operating margin of 2.32%. Based on revenue and operating income growth rates, operating margin expanded by roughly 12 bps YoY (from ~2.20% to ~2.32%). Ordinary income climbed 22.3% YoY to 13.80, aided by 2.51 of non-operating income (interest income 0.24, others undisclosed), while non-operating expenses were limited at 0.50. Net income increased 22.4% YoY to 7.40, translating to a net margin of about 1.46%. Cash generation outpaced earnings: operating cash flow was 11.31, implying an OCF/Net Income of 1.53x, which supports earnings quality. With capex of 4.11, implied FCF is approximately 7.20, suggesting internal funding capacity for routine investments. The balance sheet is liquid with 290.23 in cash and deposits, current assets of 418.69, and a current ratio of 176.9%, providing a comfortable liquidity cushion. Leverage as measured by D/E is 1.83x, elevated versus a conservative benchmark but mitigated by sizeable cash holdings and strong interest coverage of 36x. Effective tax rate was 40.8%, notably high and a drag on net margin. Reported ROE is 4.1% based on DuPont components: net margin ~1.5%, asset turnover 0.993x, and financial leverage 2.83x. Profit expansion was primarily driven by improved operating efficiency (SG&A discipline) more than gross margin gains, given modest top-line growth. The non-operating line provided a supportive but not dominant contribution to ordinary profit. Forward-looking, the combination of stable gross profit, restrained SG&A growth, and solid cash conversion supports continued incremental margin gains if demand holds, though the elevated tax rate and any wage inflation present headwinds. Overall, the quarter points to steady execution with healthy liquidity and improving profitability metrics.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.1% = Net Profit Margin (~1.46%) × Asset Turnover (0.993x) × Financial Leverage (2.83x). The most notable change appears in profitability (net margin up) given operating income +9% vs revenue +3.2%, implying ~12 bps expansion in operating margin. Business drivers likely include SG&A control (SG&A ratio ~23.0%) and modest scale benefits, with limited help from non-operating gains (2.51) and a high tax rate (40.8%) capping net margin. Asset turnover is near 1.0x, broadly stable for a service-heavy model with significant cash holdings that dilute turnover. Financial leverage at 2.83x reflects total assets/equity but is effectively tempered by a large net cash position versus disclosed long-term loans (77.61). Sustainability: SG&A discipline and modest operating leverage appear sustainable if revenue continues to grow in low single digits; non-operating contributions may vary, and the elevated tax rate could normalize, offering upside to net margin. Watch for any period where SG&A growth outpaces revenue; currently, implied operating leverage is positive.

Growth Assessment

Revenue grew 3.2% YoY to 507.3, a steady pace consistent with mature segments in staffing/education-related services. Operating income outgrew sales at +9.0% YoY, evidencing improved mix and/or cost control. Ordinary income rose 22.3% YoY, partially supported by non-operating income (2.51), suggesting a modest tailwind from financial items. Net income increased 22.4% YoY to 7.40, despite a high 40.8% effective tax rate. EBITDA was 16.47 (EBITDA margin ~3.2%), indicating limited but improving operating efficiency. The growth quality is sound: OCF exceeded NI (1.53x), and implied FCF was positive after capex. Outlook hinges on maintaining utilization, controlling labor costs, and sustaining demand across core service lines; incremental margin expansion is feasible if SG&A discipline persists. Non-operating income is supportive but not central to the thesis and may fluctuate.

Financial Health

Liquidity is strong with current assets of 418.69 vs current liabilities of 236.74 (current ratio 176.9%; quick ratio 176.9%). Cash and deposits at 290.23 comfortably exceed disclosed long-term loans of 77.61, indicating net cash on a disclosed-debt basis. D/E is 1.83x, above a conservative 1.5x benchmark but not at a warning threshold; no explicit warning (threshold D/E > 2.0) is triggered. Interest coverage is robust at ~36x, implying low near-term refinancing stress. Maturity mismatch risk appears low: sizable cash balances and working capital (181.95) provide cushion against short-term obligations. No off-balance sheet obligations were reported in the provided data. Equity stands at 180.55; financial leverage (assets/equity) is 2.83x but tempered by liquidity.

Cash Flow Quality

OCF/Net Income is 1.53x, indicating high-quality earnings backed by cash conversion. With capex of 4.11 and OCF of 11.31, implied FCF is approximately 7.20, comfortably positive. This suggests routine capex and potential capacity to fund dividends from internal cash flow. No signs of aggressive working capital management are evident from the limited disclosures; accounts receivable at 109.29 is material but supported by strong cash. Investing and detailed working capital movements are unreported, limiting deeper diagnostics. Overall, cash flow quality in the period is favorable.

Dividend Sustainability

Dividend details are unreported, and the reported payout ratios are not calculable; a calculated payout ratio of 105.9% is referenced but cannot be validated from disclosed DPS. Based on implied FCF of ~7.20 and strong cash on hand (290.23), ordinary dividends appear likely fundable if kept in line with historical practice; however, confirmation of actual DPS is needed. Coverage of dividends by FCF and earnings should be reassessed upon disclosure of interim/annual DPS. Policy outlook cannot be inferred from the period data alone; management often targets stable or gradually rising dividends in this sector, contingent on cash generation and visibility.

Risk Assessment

Business Risks:

• Labor cost inflation and social insurance burdens compressing margins in staffing/education services
• Demand variability in training/education programs impacting utilization and gross margin
• Regulatory changes in employment practices, subsidies, or accreditation affecting business volumes
• Talent acquisition/retention pressures raising SG&A and reducing operating leverage

Financial Risks:

• Elevated effective tax rate (40.8%) reducing net profitability
• Potential volatility in non-operating income contributions to ordinary profit
• D/E at 1.83x above conservative benchmark, though mitigated by large cash balance
• Limited visibility on total interest-bearing debt due to partial disclosures

Key Concerns:

• Sustaining SG&A discipline as wages rise
• Maintaining cash conversion if receivables expand with growth
• Data limitations (unreported investing CF, dividend payments, and detailed SG&A breakdown) obscuring deeper analysis

Investment Implications

Key Takeaways:

• Steady top-line growth (+3.2% YoY) with stronger operating profit growth (+9.0%) indicates improving efficiency
• Operating margin expanded ~12 bps YoY to ~2.32% on SG&A containment
• Earnings quality is solid with OCF/NI at 1.53x and implied FCF ~7.20
• Balance sheet liquidity is strong (cash 290.23; current ratio 176.9%); interest coverage ~36x
• High tax rate (40.8%) and partial reliance on non-operating items are headwinds to net margin

Metrics to Watch:

• SG&A-to-sales ratio and wage inflation trends
• Gross margin trajectory and utilization rates
• OCF/NI and working capital (especially receivables)
• Capex cadence versus cash generation
• Effective tax rate and any guidance on normalization
• Disclosure of DPS and payout policy

Relative Positioning: Within Japan’s HR/education services peer set, the company shows solid liquidity and cash conversion with modest but improving margins; profitability remains thinner than top-tier peers, but balance sheet strength and OCF support steady execution.

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