PAPYLESS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.46B
• Operating Income: ¥154M
• Net Income: ¥21M
• EPS: ¥7.39

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: A weak topline quarter with razor-thin profitability, but very strong cash generation and ample liquidity cushion. Revenue fell 8.7% year over year to 74.57, while operating income reached 1.54 and net income was 0.63. Gross profit was 35.18, implying a healthy gross margin of 47.2% despite the topline contraction. Operating margin was just 2.1%, and ordinary margin 2.7%, underscoring limited operating leverage as SG&A (33.63) nearly consumed gross profit. Non-operating income of 0.47 contributed meaningfully (about 24% of ordinary income), with interest income (0.30) a notable component given the large cash balance. The effective tax rate was unusually high at 89.5%, depressing net income relative to profit before tax of 2.00. ROE calculated via DuPont stands at 0.7%, constrained by a very low net margin (0.8%) despite modest asset turnover (0.564) and conservative leverage (1.46x). Reported ROIC of -4.8% flags capital efficiency concerns relative to typical cost of capital. Cash generation was robust: operating cash flow of 6.19 was 9.8x net income, indicating strong cash conversion likely aided by working capital dynamics. The balance sheet is very liquid, with cash and deposits of 106.69, current assets of 124.36, and current liabilities of 41.43, producing a current ratio of 300%. Debt-related details were not disclosed, but total liabilities/equity is a manageable 0.46x. YoY margin expansion or compression cannot be quantified due to lack of prior-period margin disclosure; however, current margins are thin and vulnerable if revenue softness persists. Shareholder returns tilted to buybacks (financing CF -0.87, including share repurchases of -1.15), while dividends were not disclosed; the calculated payout ratio of 163.9% should be treated as indicative only given missing dividend data. The quarter’s quality of earnings is solid on a cash basis, but earnings power remains modest due to SG&A intensity and an elevated tax burden. Forward-looking, stabilizing revenue, regaining operating leverage, and normalizing the tax rate will be key to improving ROE/ROIC while preserving the strong liquidity position.

Profitability Analysis

Step 1 (DuPont): ROE (0.7%) = Net Profit Margin (0.8%) × Asset Turnover (0.564) × Financial Leverage (1.46x). Step 2 (Biggest change driver): Within this period snapshot, the binding constraint is the very low net margin (0.8%), not turnover or leverage. Step 3 (Business reason): Thin operating margin (2.1%) reflects SG&A (33.63) nearly matching gross profit (35.18), while a very high effective tax rate (89.5%) compressed net income from PBT 2.00 to NI 0.63. Step 4 (Sustainability): SG&A intensity is a structural challenge for a digital content platform and may persist absent revenue re-acceleration or cost discipline; the tax rate appears unusually high and may normalize, offering upside to net margin if one-off factors drove it. Step 5 (Trends/flags): SG&A as a share of sales is elevated (~45.1%), leaving limited operating leverage; without reported YoY SG&A, we cannot confirm whether SG&A rose faster than revenue, but the revenue decline (-8.7% YoY) implies deleveraging pressure. Non-operating income (0.47) accounted for ~23.5% of ordinary income, indicating some reliance on financial income (interest) from a large cash balance rather than purely operating profits.

Growth Assessment

Revenue contracted 8.7% YoY to 74.57, indicating demand softness or intensified competition in the e-book/content distribution market. Gross margin at 47.2% suggests content cost control remains adequate, but operating margin of 2.1% reveals limited operating leverage against a high SG&A base. Ordinary income (2.00) benefited from non-operating income (0.47), cushioning operating softness. Net income of 0.63 was disproportionately impacted by an 89.5% effective tax rate, which appears non-recurring in magnitude and could revert closer to normalized levels, providing potential earnings recovery even without major operating improvement. With D&A minimal (0.04) and capex negligible (-0.01), the business is asset-light; sustaining growth hinges more on user acquisition, content selection/royalties, and platform/channel terms than on heavy investment. Outlook hinges on stabilizing topline trends via catalog expansion, promotions, and retention initiatives; any rebound in sales should drop through at a higher incremental margin if SG&A growth is contained. However, absent disclosed YoY operating expense detail, we cannot attribute the revenue decline to specific drivers (mix, pricing, promotion levels, or platform policy changes). Overall, profit sustainability will depend on restoring growth while maintaining content cost discipline and taming SG&A intensity.

Financial Health

Liquidity is strong: current ratio 300.2% and quick ratio 300.2%, with cash and deposits of 106.69 far exceeding current liabilities of 41.43. No red flag: current ratio well above 1.0. Solvency is conservative: reported debt-to-equity ratio (based on total liabilities/equity) is 0.46x; interest-bearing debt details were unreported, so actual net debt cannot be precisely assessed, but cash holdings imply net cash. Maturity mismatch risk appears low: current assets (124.36) comfortably exceed current liabilities (41.43), and accounts receivable (14.84) roughly cover accounts payable (13.75). Equity is 90.73 (owners’ equity 89.70), supporting resilience. No noncurrent liabilities or off-balance-sheet obligations were disclosed; absence of disclosure is not evidence of absence, but the balance sheet is clearly cash-rich.

Cash Flow Quality

OCF/Net income is 9.83x (6.19 vs 0.63), signaling high-quality earnings this quarter, likely aided by working capital inflows (specific drivers not disclosed). With capex at only -0.01, the business generates ample pre-dividend free cash flow in principle, though full FCF cannot be calculated due to unreported investing cash flows. Financing cash outflow (-0.87) was driven by share repurchases (-1.15); dividends were unreported. No signs of aggressive working capital manipulation are evident from disclosed aggregates, but underlying receivables/payables movements were not provided. Given the large cash balance and strong OCF, cash flow capacity appears sufficient to support measured shareholder returns if operating trends stabilize.

Dividend Sustainability

Dividend details for the period were unreported; the calculated payout ratio of 163.9% should be treated with caution given missing disclosure. On a cash basis, OCF of 6.19 and negligible capex suggest capacity to fund ordinary dividends if the absolute yen amount is moderate; however, sustainability depends on normalizing the effective tax rate and improving operating margins. With buybacks of 1.15 already executed, capital returns appear skewed to repurchases this period. Policy outlook: absent explicit guidance, we assume a conservative, cash-based approach is feasible given the net cash position, but visibility is limited without DPS and total dividend data.

Risk Assessment

Business Risks:

• Topline contraction (-8.7% YoY) in a competitive e-book/digital content market could persist.
• High SG&A intensity (~45% of sales) limits operating leverage and profit resilience.
• Content procurement/royalty cost and promotional spend volatility can pressure gross and operating margins.
• Platform dependency risk (app store fees/policies, algorithmic exposure) could affect take-rates and user acquisition costs.
• Customer churn risk in subscription/transactional digital content models.

Financial Risks:

• Unusually high effective tax rate (89.5%) depressed net margins; if persistent, it structurally lowers earnings power.
• Capital efficiency flagged (reported ROIC -4.8%), implying potential value dilution if not improved.
• Earnings reliance on non-operating income (~24% of ordinary income) reduces quality of profits if interest income declines with rate changes or cash deployment.
• Limited disclosure on interest-bearing debt and investing cash flows obscures true leverage and FCF.

Key Concerns:

• Sustained revenue decline with thin operating margin (2.1%).
• Potential normalization of non-operating income if cash yields fall or cash is deployed.
• Dependence on working capital dynamics to support cash flow, with limited visibility into receivable/payable turns.
• Data gaps (dividends, debt, investing CF) constrain assessment of long-term capital allocation capacity.

Investment Implications

Key Takeaways:

• Revenue down 8.7% YoY to 74.57 with gross margin solid at 47.2% but operating margin thin at 2.1%.
• Ordinary income of 2.00 benefited from non-operating income of 0.47 (notably interest).
• Net income of 0.63 suppressed by an 89.5% effective tax rate; ROE 0.7% reflects margin weakness.
• Cash generation strong: OCF 6.19 (9.8x NI) with negligible capex; balance sheet highly liquid (cash 106.69).
• Capital efficiency concern: reported ROIC -4.8% below typical thresholds.

Metrics to Watch:

• Topline trajectory and user/ARPU trends to gauge revenue stabilization.
• SG&A growth vs revenue to assess operating leverage recovery.
• Effective tax rate normalization path and drivers.
• Non-operating income sensitivity to interest rates and cash deployment.
• Working capital movements (AR/AP days) and OCF sustainability.
• Disclosure of DPS/total dividends and investing CF for full FCF coverage analysis.

Relative Positioning: Within Japan’s digital content/e-book peers, the company is cash-rich with low financial risk but exhibits weaker profitability metrics (low operating margin, low ROE/ROIC) and negative revenue growth; near-term resilience is supported by liquidity and OCF, while medium-term competitiveness hinges on restoring growth and operating leverage.

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