Hirota Group Holdings Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥883M
• Operating Income: ¥-138M
• Net Income: ¥-187M
• EPS: ¥-4.37

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

For FY2026 Q2, Hirota Group Holdings (33460) reported revenue of ¥883.0m, down 26.1% YoY, and remained loss-making at all profit lines (operating loss ¥138.0m, ordinary loss ¥144.0m, net loss ¥114.0m). Despite the revenue contraction, the operating loss was essentially flat YoY, suggesting tighter cost controls or lower fixed-cost absorption than might be expected given the topline decline. EBITDA was ¥-135.9m, translating to an EBITDA margin of -15.4%, indicating weak operating profitability. The DuPont framework points to a severe ROE of -154.1%, driven by a negative net margin (-12.9%), moderate asset turnover (0.562x), and extremely high financial leverage (21.22x), reflecting a very thin equity cushion. Liquidity appears adequate on a current basis with a current ratio of 160.9% and quick ratio of 137.0%, supported by a substantial financing cash inflow (¥335.7m). However, operating cash flow was deeply negative at ¥-262.0m, worse than the net loss, signaling material working capital outflows or earnings quality pressure. Interest coverage is negative (approximately -25.9x on an EBITDA basis), underscoring weak debt-servicing capacity from operations. Balance sheet signals are mixed: reported equity is only ¥74.0m, implying high leverage and sensitivity to losses, while total liabilities of ¥1,080.3m yield a debt-to-equity of 14.6x. There are internal inconsistencies between some line items (e.g., gross profit versus cost of sales; liabilities versus the equity used to compute leverage), and multiple items are undisclosed (values shown as zero are unreported, not actual zero), which constrains precision. Given these limitations, we rely on the provided calculated metrics (e.g., GPM, DuPont, liquidity ratios) for analytical consistency. Inventory of ¥115.8m looks modest relative to current assets, and quick liquidity is acceptable, but ongoing cash burn raises near-term funding dependence. The absence of dividends (DPS ¥0.00) aligns with loss-making status and the need to preserve cash. Overall, the quarter reflects demand softness, weak operating leverage, and high financial leverage, leaving little room for execution missteps. Sustainability hinges on stabilizing revenue, improving unit economics, and reducing working capital drag. Near-term priorities likely include cost actions, pricing/mix optimization, and disciplined inventory/payables management. We flag solvency and refinancing risks if losses persist given the small equity buffer and negative OCF.

Profitability Analysis

ROE decomposes to Net Margin (-12.91%) × Asset Turnover (0.562x) × Financial Leverage (21.22x) = -154.05%, indicating leverage is amplifying operating losses into a very large negative equity return. EBITDA margin stands at -15.4%, confirming that the core operations are not covering operating costs before D&A. Operating loss of ¥138.0m on revenue of ¥883.0m implies an operating margin of approximately -15.6%. The provided gross profit margin (57.5%) conflicts with the reported cost of sales; given this inconsistency, we avoid drawing conclusions from the gross line and anchor on EBITDA/operating margins for margin quality. Interest expense is modest at ¥5.32m, but with negative EBITDA, interest coverage is approximately -25.9x, highlighting weak capacity to service debt from operations. The flat YoY operating loss despite a 26.1% revenue decline suggests some variable cost flexibility and/or cost reductions, but operating leverage remains unfavorable at current volumes. Ordinary income of ¥-144.0m is close to operating loss, indicating limited non-operating relief. Effective tax is essentially nil given losses. Overall profitability is constrained by soft demand and insufficient scale, with leverage magnifying downside to equity.

Growth Assessment

Revenue declined 26.1% YoY to ¥883.0m, indicating significant end-market weakness or loss of key business. The scale of decline raises questions on demand normalization, competitive dynamics, and pricing/mix changes. Profitability did not deteriorate commensurately (operating loss flat YoY), implying partial cost offsets, but margins remain negative and sensitive to revenue recovery. With EBITDA margin at -15.4%, breakeven would require a meaningful improvement in gross economics or further cost rationalization. The net margin of -12.9% points to persistent structural profitability challenges at current volume. Given negative OCF and reliance on financing inflows, growth must be balanced against cash preservation. Near-term outlook depends on stabilizing order intake, curbing discounts, and improving utilization. Without additional disclosure (e.g., segment mix, order backlog), the sustainability of revenue and pace of recovery remain uncertain. Monitoring sequential revenue trends in H2 and any commentary on pipeline or price increases will be key to assessing rebound potential.

Financial Health

Liquidity is adequate on a current basis: current ratio 160.9%, quick ratio 137.0%, and working capital of ¥294.7m. Inventory of ¥115.8m appears manageable relative to current assets, supporting the quick ratio. However, operating cash burn (¥-262.0m) necessitated financing inflows (¥335.7m), indicating funding dependence. Reported total liabilities of ¥1,080.3m against equity of ¥74.0m produce a debt-to-equity ratio of 14.60x, signaling substantial leverage and a thin equity buffer. Financial leverage used in DuPont (assets/equity = 21.22x) is very high, increasing sensitivity to earnings volatility. Interest expense of ¥5.32m is modest, but negative EBITDA renders coverage metrics weak. There are inconsistencies among balance sheet totals (assets, liabilities, equity), so solvency diagnostics should be interpreted with caution; nonetheless, all provided leverage indicators point to elevated balance sheet risk.

Cash Flow Quality

Operating cash flow of ¥-261.96m is materially worse than net income of ¥-114.0m (OCF/NI = 2.30 on an absolute basis), indicating significant working capital outflows and/or non-cash benefits reversing in cash terms. EBITDA of ¥-135.9m triangulates with the negative OCF, but the additional gap likely reflects changes in receivables, payables, and inventory. Investing CF is undisclosed (reported as 0), preventing a reliable free cash flow calculation; the reported FCF of 0 should be treated as not available. Financing CF of ¥+335.66m funded the operating deficit and added to liquidity, underscoring reliance on external capital. With limited D&A (¥2.07m), earnings are largely cash-like before working capital, amplifying the importance of managing payables and collections. The negative interest coverage indicates that, absent financing, operations do not support debt service. Overall, cash conversion is weak, driven by both operating losses and working capital drag.

Dividend Sustainability

The company reported DPS of ¥0.00, with a payout ratio of 0.0%, which is appropriate given a net loss of ¥-114.0m and negative operating cash flow. Free cash flow is not reliably determinable due to undisclosed investing CF; thus, FCF coverage metrics are not meaningful. With high leverage (D/E 14.6x) and financing-dependent liquidity, capital allocation priorities are likely focused on stabilization and balance sheet resilience rather than distributions. Unless profitability and cash generation improve, reinstating dividends would be challenging under a prudent policy framework.

Risk Assessment

Business Risks:

• Demand softness evidenced by a 26.1% YoY revenue decline
• Negative operating and EBITDA margins indicating subscale operations
• Potential pricing pressure or unfavorable mix impacting margins
• Execution risk around cost reductions and working capital management
• Limited disclosure granularity (segments, order pipeline) hindering visibility

Financial Risks:

• High financial leverage (Assets/Equity 21.22x; D/E 14.6x) with a thin equity base (¥74.0m)
• Negative operating cash flow (¥-262.0m) necessitating external financing
• Negative interest coverage (~-25.9x) signaling weak debt-servicing capacity from operations
• Potential refinancing/liquidity risk if losses persist
• Balance sheet data inconsistencies complicate solvency assessment

Key Concerns:

• Sustainability of liquidity absent continued financing inflows
• Path to breakeven given -15.4% EBITDA margin
• Working capital outflows exacerbating cash burn
• Data inconsistencies (gross profit vs. cost of sales; liabilities vs. equity) limiting precision

Investment Implications

Key Takeaways:

• Topline contracted sharply (-26.1% YoY) while losses persisted, indicating weak operating leverage
• ROE is severely negative (-154.1%) due to negative margins and very high leverage
• Liquidity ratios are acceptable short term, but cash burn is funded by financing inflows
• Interest coverage is negative; solvency is sensitive to continued losses
• Data limitations require reliance on provided calculated metrics and caution in interpreting line-item subtotals

Metrics to Watch:

• Sequential revenue growth and order intake to gauge demand stabilization
• EBITDA margin trajectory and operating expense run-rate
• Operating cash flow and working capital movements (DSO/DIO/DPO if disclosed)
• Leverage and liquidity (net debt, refinancing activities, covenant headroom if disclosed)
• Gross margin reconciliation once cost of sales/gross profit disclosures are clarified

Relative Positioning: Based on the provided metrics, the company appears weaker than typical TSE peers on profitability (negative EBITDA and ROE), more leveraged given the small equity base, and more reliant on external financing to fund operations; near-term positioning hinges on revenue stabilization and disciplined cash management.

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