Innovation Holdings CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.41B
• Operating Income: ¥998M
• Net Income: ¥720M
• EPS: ¥42.40

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 a solid beat on profitability with healthy top-line growth and clear operating leverage. Revenue rose 13.5% YoY to 94.06, while operating income jumped 46.6% YoY to 9.98 and ordinary income climbed 54.3% YoY to 10.77. Net income advanced 51.4% YoY to 7.11, translating to an ROE of 16.7%, above a typical small-cap cost of equity. Gross profit was 21.95, yielding a gross margin of 23.3%, and operating margin reached roughly 10.6%. Using implied prior-period figures, operating margin expanded by about 239 bps YoY (from ~8.2% to ~10.6%), and net margin expanded by ~189 bps (from ~5.7% to ~7.6%). The operating leverage is visible as operating income growth far outpaced revenue growth. Non-operating items were a modest tailwind: net non-operating contribution was approximately +0.78, lifting ordinary income above operating income. Cash generation was reasonably aligned with earnings: operating cash flow of 6.07 equates to an OCF/NI ratio of 0.85x, slightly below 1.0 but above the 0.8 caution threshold. Liquidity is strong with a current ratio of 236%, underpinned by cash of 45.77. However, leverage is elevated with a D/E of 2.80x, warranting attention to refinancing and covenant headroom once interest details are disclosed. Capital intensity remains low (D&A 0.21; capex 0.37), supporting cash conversion and potential reinvestment. Estimated FCF of about 5.70 (OCF minus capex) suggests room to support shareholder returns, though the calculated payout ratio of 69.6% looks on the high side for a growth company. The reported ROIC metric (-404.3%) appears distorted and likely non-representative given data limitations; management's capital efficiency should be reassessed when more details are available. Overall, the quarter demonstrates improved profitability and decent cash alignment, but the high leverage and reliance on non-operating gains as a visible component of ordinary income should be monitored. Forward-looking, sustaining margin gains while de-risking the balance sheet will be key to preserving the >15% ROE profile.

Profitability Analysis

ROE (16.7%) = Net Profit Margin (7.6%) × Asset Turnover (0.580) × Financial Leverage (3.80x). The largest positive driver this quarter appears to be margin expansion: operating income grew 46.6% YoY vs revenue +13.5%, implying operating margin widened by ~239 bps to ~10.6%, and net margin improved by ~189 bps to ~7.6%. The business reason is operating leverage from controlled SG&A relative to revenue (SG&A at 12.7% of sales) and a modest boost from net non-operating income (+0.78). Asset turnover at 0.58 is steady for a mid-year snapshot and likely less influential than margins in the ROE move. Financial leverage (3.80x) materially amplifies ROE but also elevates risk. The margin uplift looks partly sustainable if revenue momentum continues and cost discipline holds; the non-operating contribution may be less predictable. Watch for any quarter where SG&A growth outpaces revenue; currently, the spread favors operating leverage.

Growth Assessment

Top line grew 13.5% YoY to 94.06, with stronger flow-through to operating profit (+46.6% YoY) and net profit (+51.4% YoY), indicating healthy operating leverage. Operating margin reached ~10.6%, supported by a gross margin of 23.3% and SG&A at 12.7% of sales. Ordinary income outpaced operating income due to net non-operating gains (+0.78), a secondary growth contributor. The effective tax rate was 33.1%, broadly standard and not a swing factor. Revenue sustainability will hinge on maintaining demand while avoiding price/mix pressure that could compress gross margin. Profit quality appears decent given OCF/NI of 0.85x, though a clean >1.0x would be preferable. Near-term outlook leans positive if the company can maintain cost discipline and avoid increased reliance on non-operating items.

Financial Health

Liquidity is strong: current assets 72.44 vs current liabilities 30.67 drive a current ratio of 236% and quick ratio of 236%, with cash of 45.77 providing a sizable buffer. Solvency risk is elevated: Debt-to-Equity is 2.80x (warning threshold >2.0), indicating high leverage. Maturity profile looks manageable near term, as current assets exceed current liabilities by 41.77, but noncurrent liabilities are sizable at 88.97 and should be matched against long-duration assets (noncurrent assets 89.88). Long-term loans are modest at 1.45, suggesting other noncurrent liabilities (e.g., leases or provisions) may be significant; details are not disclosed. No off-balance sheet obligations are reported in the data provided. Explicit warning: D/E > 2.0; monitor refinancing and interest cost sensitivity once interest expense is reported.

Cash Flow Quality

OCF of 6.07 vs net income of 7.11 yields an OCF/NI of 0.85x—slightly below 1.0 but above the 0.8 caution threshold, indicating acceptable but not robust cash realization. Working capital detail (AR, AP, inventory) is unreported, limiting diagnosis of drivers; no clear signs of manipulation can be assessed. Capex was low at 0.37, enabling an estimated FCF of ~5.70 (OCF minus capex). With financing CF at -4.28, the company appears to prioritize debt service/shareholder returns or other financing outflows, consistent with a deleveraging or return stance. Sustainability looks reasonable if OCF holds at current levels; a drop in OCF would quickly tighten coverage given the elevated leverage.

Dividend Sustainability

The calculated payout ratio is 69.6%, which is above a conservative <60% benchmark for safety, though actual dividends paid are unreported. Using estimated FCF of 5.70 and implied dividends of roughly 4.95 (from the payout ratio on NI), FCF coverage would be about 87%, indicating coverage but with limited cushion. Given leverage of 2.80x D/E, a more moderate payout could enhance balance-sheet resilience; absent explicit policy disclosure, we assume a stable-to-cautious stance. Visibility is constrained by the lack of reported DPS and total dividends paid.

Risk Assessment

Business Risks:

• Margin volatility risk if revenue growth slows, reducing operating leverage
• Dependence on non-operating gains to lift ordinary income (non-operating income ratio 22.3%)
• Potential cost inflation (labor, vendors) pressuring SG&A and gross margins

Financial Risks:

• High leverage (D/E 2.80x) increasing sensitivity to interest rates and refinancing conditions
• Cash conversion below ideal (OCF/NI 0.85x), leaving less buffer in a downturn
• Large noncurrent liabilities (88.97) vs equity (42.67) elevate solvency risk if earnings weaken

Key Concerns:

• Interest coverage unreported; inability to assess servicing capacity precisely
• Distorted ROIC metric (-404.3%) suggests data or definition issues; capital efficiency unclear
• Limited disclosure on working capital components and SG&A breakdown obscures cost dynamics

Investment Implications

Key Takeaways:

• Strong profit growth with operating margin expansion (~+239 bps YoY) and ROE at 16.7%
• Acceptable cash alignment (OCF/NI 0.85x) but short of best-in-class
• Balance sheet is liquid but highly leveraged (D/E 2.80x), a key overhang
• Non-operating gains contributed to ordinary income, adding some volatility risk
• Low capex intensity supports FCF generation in the near term

Metrics to Watch:

• OCF/Net Income (target >1.0x)
• Debt-to-Equity and net debt trends
• Interest expense and interest coverage once disclosed
• SG&A growth vs revenue growth
• Non-operating income ratio and its drivers
• Gross margin trajectory amid revenue growth

Relative Positioning: Within TSE small/mid-cap peers, the company shows above-average ROE and margin momentum but sits on the higher end of financial leverage; cash conversion is decent though not outstanding, implying higher beta to earnings cycles until leverage is reduced.

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