PAPYLESS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.46B
• Operating Income: ¥154M
• Net Income: ¥-243M
• 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

Papyless (3641) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥7,457m, down 8.7% YoY, indicating a challenging topline environment. Despite the revenue decline, operating income held flat YoY at ¥154m, reflecting tight cost control and some operating leverage resilience. Net income was ¥63m (EPS ¥7.39), also essentially flat YoY, implying that below-the-line items and taxes did not materially change headline earnings versus the prior year. Gross profit is stated at ¥3,929m, corresponding to a gross margin of 52.7%, which suggests a stable or improved take-rate/content cost profile relative to revenue pressure. Operating margin remained thin at roughly 2.1%, underscoring a business model sensitive to marketing, content procurement, and platform distribution costs. DuPont metrics show a modest ROE of 0.69%, driven by a very low net margin of 0.84%, asset turnover of 0.564x, and financial leverage of 1.46x. Ordinary income of ¥200m exceeded operating income, indicating positive non-operating contributions (e.g., financial income or equity method gains), while interest expense was not disclosed. Operating cash flow of ¥109m exceeded net income (OCF/NI 1.73x), suggesting reasonable earnings quality and limited accrual build in the half. The balance sheet appears conservative: total assets ¥13,217m, liabilities ¥3,704m, and equity ¥9,073m, with a debt-to-equity metric presented at 0.41x, indicating low financial leverage. Liquidity appears strong with a current ratio of 320%, supported by large current assets of ¥11,869m and no reported inventories—consistent with an asset-light digital content model. Dividends were not paid (DPS ¥0, payout 0%), which aligns with the low profitability and a prudent capital preservation stance. Free cash flow was not derivable from disclosures due to unreported investing cash flows; the presented FCF of zero should be treated as “not disclosed,” not as actual zero. Several metrics, including equity ratio, cash and equivalents, and share counts, show as zero or unreported; analysis therefore emphasizes the disclosed items. Overall, the company preserved profitability despite revenue headwinds, but margins remain thin and ROE subdued, highlighting the need for growth reacceleration and/or mix improvements. The strong liquidity position provides a buffer to navigate competitive dynamics in digital content distribution. Outlook hinges on stabilizing user trends, content lineup efficacy, and marketing ROI, given the high operating leverage to revenue.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 0.84%
• asset_turnover: 0.564x
• financial_leverage: 1.46x
• calculated_ROE: 0.69%
• commentary: ROE is constrained primarily by a very low net margin; leverage is modest and asset turnover typical for an asset-light platform. margin_quality:
• gross_margin: 52.7% (Gross profit ¥3,929m on revenue ¥7,457m)
• operating_margin: ≈2.1% (Operating income ¥154m)
• EBITDA: ¥158m (OI ¥154m + D&A ¥4m); EBITDA margin ≈2.1%
• drivers: Stable/improved gross margin suggests content cost control or favorable sales mix. Thin operating margin points to high fixed/semi-fixed SG&A (marketing, platform fees, content royalties timing) limiting drop-through. operating_leverage: Revenue fell 8.7% YoY while operating income was flat YoY, implying effective cost flexing and/or non-operating tailwinds offsetting operating pressure; nevertheless, the small absolute profit base makes margins sensitive to further revenue swings.

Growth Assessment

revenue_sustainability: Topline declined 8.7% YoY to ¥7,457m, indicating pressure on user activity, ARPU, or competitive share within digital comics/e-books. Sustaining revenue will depend on content lineup strength, promotions, and retention. profit_quality: Operating income held steady despite the revenue drop, suggesting disciplined cost management; ordinary income outpacing operating income indicates supportive non-operating items. Net margin remains sub-1%, limiting earnings scalability. outlook: Near-term growth hinges on stabilizing engagement and optimizing marketing ROI. A return to mid-single-digit revenue growth with current gross margin could materially enhance operating leverage, but competitive intensity in Japan’s digital manga market remains a headwind.

Financial Health

liquidity:

• current_ratio: 320.4%
• quick_ratio: 320.4% (no inventories reported)
• working_capital: ¥8,165m
• commentary: Ample short-term liquidity provides strong buffer; large current assets align with a platform model (cash, receivables). solvency_capital_structure:
• total_assets: ¥13,217m
• total_liabilities: ¥3,704m
• total_equity: ¥9,073m
• debt_to_equity: 0.41x (liabilities/equity basis provided)
• equity_ratio: Not disclosed (reported as 0.0%)
• commentary: Low leverage and strong equity base indicate conservative solvency; capacity exists to absorb volatility without balance sheet strain.

Cash Flow Quality

earnings_quality: OCF ¥109m vs NI ¥63m (OCF/NI 1.73x) suggests solid cash conversion and limited accrual reliance in the period. FCF_analysis: Investing cash flows were not disclosed (reported as 0). As a result, true FCF cannot be determined from available data; the stated FCF of 0 should be treated as ‘not available.’ working_capital: Details by component not disclosed; the strong current asset position likely includes substantial cash and receivables. No inventories reported, consistent with digital content.

Dividend Sustainability

payout_ratio_assessment: DPS ¥0 and payout ratio 0% reflect capital preservation amid thin profitability (net margin 0.84%, ROE 0.69%). FCF_coverage: Not assessable due to unreported investing cash flows; dividend suspension avoids coverage risk. policy_outlook: Resumption would likely require clearer revenue growth and sustained operating margin expansion to ensure coverage from internally generated cash.

Risk Assessment

Business Risks:

• Intense competition in digital manga/e-book distribution affecting user acquisition costs and take rates
• Dependence on hit titles and content procurement terms with publishers
• Platform distribution fees and potential changes in app store policies impacting margins
• Marketing spend efficiency and retention risks amid promotional cycles
• Technology uptime, cybersecurity, and data privacy risks for a digital platform
• Potential regulatory changes in digital content and consumer protection

Financial Risks:

• Thin operating margin increases sensitivity to revenue fluctuations
• Limited visibility on investing cash flows and cash balance due to non-disclosure in this period
• Potential working capital swings tied to receivables/settlement cycles with platforms and publishers
• Low D&A suggests limited non-cash buffer; earnings closely track cash generation

Key Concerns:

• Sustained revenue decline (-8.7% YoY) against stable profits may not be repeatable without further cost flex
• Sub-1% net margin and low ROE (0.69%) constrain value creation
• Insufficient disclosure of cash and investing flows limits assessment of true FCF and balance sheet liquidity composition

Investment Implications

Key Takeaways:

• Revenue down 8.7% YoY to ¥7,457m amid competitive pressures
• Operating income flat YoY at ¥154m; ordinary income ¥200m provides a buffer
• Net income ¥63m; net margin 0.84% and ROE 0.69% remain subdued
• Gross margin robust at 52.7%, but SG&A intensity caps operating margin (~2.1%)
• Strong liquidity (current ratio 320%) and low leverage (D/E ~0.41x) support resilience
• OCF exceeds NI (1.73x), indicating reasonable earnings quality
• No dividend; capital preserved pending clearer profitability trajectory

Metrics to Watch:

• Quarterly revenue growth and user/ARPU trends
• Gross margin stability versus content and platform cost inflation
• Operating margin trajectory and marketing ROI
• Ordinary income components (non-operating gains/losses) sustainability
• OCF conversion and disclosure of investing cash flows to assess true FCF
• Balance of current assets, especially cash and receivables composition

Relative Positioning: Within Japan’s digital content distributors, Papyless shows a conservative balance sheet and acceptable cash conversion but lags on growth and profitability scale, with thinner operating margins and lower ROE versus leading peers; execution on revenue reacceleration and SG&A efficiency will be key to narrow the gap.

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