DATA HORIZON CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.09B
• Operating Income: ¥-392M
• Net Income: ¥-59M
• EPS: ¥-4.66

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

Verdict: Weak quarter with revenue contraction, operating loss, and extremely thin equity base despite positive operating cash flow. Revenue was 20.86, down 8.0% YoY, with gross profit of 5.75 and a gross margin of 27.6%. SG&A of 9.68 exceeded gross profit by 3.93, driving an operating loss of -3.92 (operating margin -18.8%). Ordinary loss was -3.91 and net loss was -0.59 (net margin -2.8%), translating to EPS of -4.66 JPY. Depreciation and amortization were 1.42, implying EBITDA of -2.50 and an EBITDA margin of -12.0%. Financial leverage is extremely high: total liabilities 47.30 against total assets 48.81, leaving total equity at just 1.51 (equity ratio approximately 3.1%). Debt load is heavy with short-term loans of 11.00 and long-term loans of 26.01 (total interest-bearing debt around 37.01), resulting in a D/E of 31.32x and debt-to-assets near 76%. Interest expense was 0.23, and interest coverage is deeply negative (-17.28x), underscoring debt service stress. Operating cash flow was positive at 7.16 despite the loss, yielding an OCF/Net Income ratio of -12.13x; this divergence likely reflects non-cash D&A and working capital release, but it also triggers an earnings quality caution under the stated benchmark. Liquidity is adequate short-term (current ratio 1.29), but cash of 8.72 covers only 79% of short-term loans, signaling refinancing reliance. Intangibles are sizable (intangible assets 13.65 and goodwill 3.39; together 17.04, ~35% of assets), elevating impairment risk if performance remains weak. ROE is -39.1% under DuPont (driven by negative margin magnified by extreme leverage), and ROIC is -13.2%, both well below benchmarks. Margin trend analysis vs. prior year is not possible due to limited disclosures, but the present cost structure indicates fixed-cost deleverage. Forward-looking, the company must restore topline growth and reduce the SG&A burden, while addressing balance sheet fragility, potential covenant pressure, and refinancing risk; equity reinforcement may be considered if losses persist.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-2.8%) × 0.427 × 32.32 ≈ -39.1%. The most influential component is the extremely high financial leverage (32.3x), which amplifies the effect of the negative net margin. The negative margin stems from gross margin of 27.6% being insufficient to cover SG&A (SG&A/revenue 46.4%; SG&A/gross profit 168.5%), resulting in operating losses. Asset turnover at 0.427 indicates relatively low efficiency, consistent with a business carrying significant intangibles and receivables against modest sales. Business drivers: revenue declined 8% YoY while fixed costs remained high, causing operating deleverage; non-operating items were roughly neutral (0.47 income vs 0.45 expense), leaving ordinary income negative. Sustainability: the current loss profile is not sustainable; profitability recovery requires either material revenue growth, gross margin expansion, and/or SG&A reduction. Concerning trends: SG&A level exceeds gross profit, and interest expense, while not large in absolute terms, is punitive when combined with operating losses; moreover, high leverage raises the required return threshold and increases sensitivity to further margin pressure.

Growth Assessment

Topline fell 8.0% YoY to 20.86, indicating demand softness or project timing slippage. With operating margin at -18.8%, negative operating leverage is evident as fixed costs outpaced revenue. Recurring profitability appears challenged given SG&A intensity and low asset turnover. Non-operating contribution was minimal and not a driver of resilience. No segment or product detail was provided, limiting visibility on mix effects or pipeline. Near-term growth sustainability is uncertain; absent cost actions, even a modest revenue recovery may not return the company to breakeven. Outlook hinges on: rebuilding bookings, improving gross margin via pricing and mix, and rationalizing SG&A. If OCF strength reflects one-time working capital release, it may fade; if it reflects improved collections cycles, it could partially support operations but will not replace earnings recovery. Management may need to prioritize profitable growth over volume and consider restructuring to reset the breakeven point.

Financial Health

Liquidity is moderate: current ratio 1.29 (>1.0 but <1.5 benchmark); quick ratio equals current ratio at 1.29 given no inventories reported. Warning thresholds: D/E is 31.32x (>2.0), signaling extreme leverage and thin equity (equity ratio ~3.1%). Maturity profile: short-term loans 11.00 vs cash 8.72; while current assets (26.69) exceed current liabilities (20.63), refinancing risk exists if credit conditions tighten. Noncurrent liabilities (26.67) exceed noncurrent assets (22.13), implying balance sheet pressure and limited asset backing for long-term debt. Interest coverage is deeply negative (-17.28x), highlighting weak debt-servicing capacity from operations. Intangibles (13.65) plus goodwill (3.39) total ~17.04 (≈35% of assets), raising impairment risk should performance deteriorate. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

OCF was 7.16 versus net income of -0.59, yielding OCF/NI of -12.13x, which breaches the <0.8 benchmark and requires caution. The positive OCF likely reflects non-cash D&A of 1.42 and a material working capital inflow (exact drivers not disclosed). Proxy free cash flow (OCF minus reported capex) is approximately 7.01, but full investing cash flows were not disclosed, so true FCF may differ. Financing CF was -6.60, indicating net debt repayment or interest/dividend outflows; given the leverage, the company appears to be deleveraging at the margin. Working capital indicators: accounts receivable of 15.49 is high relative to half-year revenue (suggesting long collection cycles), and any normalization could be a one-time OCF tailwind rather than a recurring source. No clear signs of aggressive working capital manipulation are evident from the limited snapshot, but sustainability of OCF is uncertain without profit recovery.

Dividend Sustainability

Dividend data is unreported; payout ratio and total dividends paid are not available. With negative net income and highly leveraged balance sheet, capacity for distributions appears constrained even if proxy FCF was positive this period. Absent recurring earnings and clear FCF visibility (full investing CF unreported), dividend sustainability cannot be assessed; prudence would suggest prioritizing balance sheet stabilization and interest service over payouts. Policy outlook is unclear from disclosures.

Risk Assessment

Business Risks:

• Revenue decline (-8% YoY) and fixed-cost deleverage leading to operating losses
• High SG&A intensity (46.4% of revenue) and insufficient gross margin (27.6%)
• Concentration risk potential (not disclosed) common in B2G/healthcare data businesses
• Execution risk in achieving cost reductions without impairing growth
• Regulatory and data-privacy risk typical for healthcare/data analytics providers

Financial Risks:

• Extreme leverage: D/E 31.32x; equity ratio ~3.1%
• Refinancing risk: short-term loans 11.00 vs cash 8.72; interest coverage -17.28x
• Intangible asset and goodwill impairment risk (~35% of assets)
• Potential covenant pressure given operating losses
• Working capital volatility; receivables magnitude vs sales

Key Concerns:

• Sustained operating losses with negative ROIC (-13.2%)
• Reliance on OCF potentially driven by one-off working capital releases
• Limited buffer to absorb shocks due to thin equity
• Margin recovery uncertainty without clear segment visibility
• Data limitations (numerous items unreported) constrain full risk evaluation

Investment Implications

Key Takeaways:

• Topline contraction and cost structure drove a -18.8% operating margin
• OCF positive (7.16) but quality flagged relative to earnings and likely aided by WC
• Balance sheet is highly levered (debt ~37.01; D/E 31.3x) with equity only 1.51
• Liquidity adequate near term (current ratio 1.29) but refinancing dependence persists
• Intangible-heavy asset base heightens impairment sensitivity
• ROE -39.1% and ROIC -13.2% underscore challenged capital efficiency

Metrics to Watch:

• Revenue growth trajectory and order intake
• Gross margin and SG&A ratio (SG&A/gross profit and SG&A/revenue)
• Operating margin and EBITDA trend toward breakeven
• OCF sustainability and receivables days
• Net debt, debt maturity profile, and interest coverage
• Equity ratio and any capital reinforcement actions
• Impairment testing outcomes for goodwill/intangibles

Relative Positioning: Relative to Japan small-cap IT/healthcare data peers, profitability and capital efficiency are weaker and leverage is materially higher, implying elevated financial risk and lower resilience until margins recover and 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