Innovation Holdings CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.41B
• Operating Income: ¥998M
• Net Income: ¥468M
• 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

For FY2026 Q2, Innovation Holdings reported solid top-line growth with revenue of ¥9,406 million, up 13.5% YoY, demonstrating healthy demand and/or successful commercial execution. Operating income rose 46.6% YoY to ¥998 million, implying notable operating leverage and disciplined cost control. Ordinary income of ¥1,077 million exceeded operating income, suggesting supportive non-operating items and negligible interest burden. Net income increased 51.4% YoY to ¥711 million, with EPS at ¥42.40, underscoring strong profit growth relative to sales. Gross margin was 16.4%, and operating margin improved to 10.6%, indicating better cost efficiency and scale benefits. EBITDA was ¥1,025 million, with an EBITDA margin of 10.9%, reflecting modest non-cash charges (D&A of ¥27 million) relative to operating profit. DuPont analysis shows a calculated ROE of 16.66%, driven by a 7.56% net margin, 0.58x asset turnover, and 3.80x financial leverage, placing return metrics at an attractive level for a Japan small/mid-cap context. Asset turnover at 0.58x is reasonable for a service/solution-oriented business with moderate asset intensity. The current ratio stands at 231.5%, with working capital of ¥4,000 million, indicating ample short-term liquidity relative to current obligations. Leverage, measured as total liabilities to equity, is 2.73x, signaling a balance sheet that relies meaningfully on liabilities, though interest expense is effectively nil in the period. Operating cash flow of ¥470 million equates to 0.66x net income, pointing to moderate cash conversion that may reflect working capital investment in the growth phase. Free cash flow cannot be reliably assessed due to unreported investing cash flows and capex details. Dividend payout is currently zero, consistent with a reinvestment stance or a yet-to-be-articulated shareholder return policy for this fiscal period. Overall profitability momentum is strong, underpinned by margin expansion and non-operating support, but cash flow conversion and the composition of liabilities warrant monitoring. Data limitations (several line items are unreported) constrain deeper diagnostics on cash, investment, and per-share balance sheet metrics. Despite these constraints, the available non-zero data points collectively indicate improving earnings quality, adequate liquidity, and solid ROE, with the key swing factor being sustained operating cash flow generation.

Profitability Analysis

ROE_decomposition: ROE 16.66% = Net margin 7.56% x Asset turnover 0.580x x Financial leverage 3.80x. Net margin is supported by operating margin expansion (10.6% operating margin) and minimal interest burden, while leverage enhances equity returns. margin_quality: Gross margin 16.4% and operating margin 10.6% reflect cost discipline and scale benefits; ordinary margin of 11.5% suggests positive non-operating contributions. Effective tax rate, inferred as income tax (¥230.2m) over pre-tax (≈ordinary income ¥1,077m), is 21–22%, consistent with a normalizing tax profile. operating_leverage: Operating income growth (+46.6% YoY) outpaced revenue growth (+13.5% YoY), indicating favorable operating leverage from fixed-cost dilution and/or improved mix. D&A is modest (¥27m), so margin gains are primarily operational rather than accounting-driven.

Growth Assessment

revenue_sustainability: Top-line growth of 13.5% YoY suggests healthy demand or successful go-to-market execution. Asset turnover at 0.58x is consistent with an asset-light or services-oriented model, supporting scalable revenue per asset base. profit_quality: Operating margin at 10.6% and net margin at 7.6% indicate improved profitability. Non-operating gains likely supported ordinary income, but core operating expansion remains the key driver. The OCF/NI ratio of 0.66 suggests cash conversion lagging earnings, potentially due to working capital investment. outlook: Assuming steady demand, continued cost discipline, and normalization of working capital, the company can sustain mid-teens revenue growth with improving operating margins. Key to the outlook is maintaining sales momentum while converting earnings to cash at a higher rate.

Financial Health

liquidity: Current assets ¥7,042m vs. current liabilities ¥3,042m yield a current ratio of 231.5% and working capital of ¥4,000m, indicating strong short-term liquidity. Quick ratio mirrors current ratio due to unreported inventories. solvency: Total liabilities of ¥11,636m against equity of ¥4,267m produce a liabilities-to-equity ratio of 2.73x. Interest expense is reported as zero, implying minimal interest burden currently. The equity ratio is unreported; nonetheless, leverage is meaningful and should be monitored. capital_structure: Leverage enhances ROE (financial leverage 3.80x), but sustainability hinges on stable cash generation and liability composition (not disclosed). The absence of reported cash and debt details limits deeper solvency stress testing.

Cash Flow Quality

earnings_quality: OCF ¥470m versus net income ¥711m yields an OCF/NI of 0.66, indicating moderate cash conversion and likely working capital absorption alongside growth. Low D&A (~¥27m) means earnings are not heavily influenced by non-cash charges. FCF_analysis: Investing cash flow and capex are unreported (shown as zero), so FCF cannot be reliably derived. Given positive OCF, FCF directionally depends on actual capex and investment outflows. working_capital: Current ratio strength suggests adequate liquidity, but the OCF/NI ratio implies timing effects or higher receivables/payables dynamics. Without detailed receivable/payable days, the degree of structural versus temporary WC usage cannot be determined.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are unreported (shown as zero). With net income of ¥711m and positive OCF of ¥470m, the capacity for dividends exists, but actual payout policy for the period is not indicated. FCF_coverage: FCF is not determinable due to unreported investing cash flows; therefore, dividend coverage by FCF cannot be assessed. policy_outlook: Given reinvestment needs implied by growth and working capital usage, management may prioritize growth over distributions in the near term; however, explicit guidance is not provided in the data.

Risk Assessment

Business Risks:

• Growth execution risk if sales momentum moderates after strong YoY expansion
• Margin pressure from wage inflation or higher customer acquisition costs
• Potential reliance on non-operating gains to support ordinary income
• Competitive intensity in core markets impacting pricing and mix
• Talent retention and scaling of operations as the company grows

Financial Risks:

• Moderate-to-high leverage (liabilities/equity 2.73x) amplifies earnings variability
• OCF/NI at 0.66 indicates reliance on working capital management for cash generation
• Limited visibility on cash balances and debt structure due to unreported items
• Refinancing or covenant risk cannot be assessed without debt detail
• Tax rate variability affecting net profit and cash flows

Key Concerns:

• Sustaining operating margin gains while maintaining double-digit revenue growth
• Improving cash conversion to align OCF more closely with net income
• Clarifying liability composition and capital structure to gauge solvency more precisely

Investment Implications

Key Takeaways:

• Strong earnings momentum: revenue +13.5% YoY, operating income +46.6% YoY, net income +51.4% YoY
• Healthy ROE of 16.66% supported by margin gains and leverage
• Operating margin at 10.6% reflects improved cost efficiency and scale
• Liquidity is ample (current ratio 231.5%), but leverage is meaningful (2.73x liabilities/equity)
• Cash conversion moderate (OCF/NI 0.66), indicating working capital investment
• Non-operating items likely aided ordinary income; interest burden negligible

Metrics to Watch:

• Operating margin and EBITDA margin trajectory
• OCF/Net income and working capital days (DSO/DPO/DIO) when available
• Asset turnover as a proxy for capital efficiency
• Liabilities-to-equity ratio and equity ratio once disclosed
• Tax rate stability and the split of operating vs non-operating income
• Capex and investing cash flows to assess true FCF

Relative Positioning: Within Japan small/mid-cap peers, profitability (ROE ~16.7%, operating margin ~10.6%) appears above average, aided by operating leverage; however, cash conversion trails profit growth and leverage is higher than low-leverage peers, warranting monitoring.

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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