Ekitan & Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.44B
• Operating Income: ¥-76M
• Net Income: ¥-86M
• EPS: ¥-18.21

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2026 Q2 was weak, with a revenue contraction and a swing to operating and net losses despite positive operating cash flow. Revenue fell to 14.44 (100M JPY), down 18.2% YoY, indicating meaningful topline softness. Gross profit was 4.14, with a gross margin of 28.7%, insufficient to cover SG&A of 4.90, resulting in operating income of -0.76 and an operating margin of -5.3%. Ordinary income was -0.73 and net income was -0.85 (EPS -18.21 JPY), confirming broad-based profit pressure. Non-operating items were small (income 0.05, expenses 0.02), so core operations drove the loss. Margins are currently compressed across the P&L; however, YoY margin basis-point comparisons are not quantifiable due to missing prior-period margin disclosure. The DuPont framework shows ROE at -5.7%, driven by a negative net margin (-5.9%), modest asset turnover (0.659x), and moderate leverage (1.46x). Operating cash flow was positive at 0.48, diverging from net loss (-0.85), implying non-cash charges (D&A 0.40) and likely working capital inflows supported cash. Liquidity is a bright spot: cash and deposits stand at 11.59 versus current liabilities of 4.68, yielding a current ratio of 337% and ample working capital of 11.11. Leverage is conservative with D/E of 0.46x and long-term loans of 1.74, though interest coverage is negative given operating loss. Intangibles (4.05) and goodwill (1.26) together represent about 24% of total assets, introducing potential impairment risk if profitability does not recover. ROIC is deeply negative at -14.8%, signaling capital inefficiency and pressure to recalibrate the cost base or portfolio. Shareholder returns signals are unclear given unreported DPS, but buybacks of -0.30 indicate some capital return amid losses, which may be reassessed if losses persist. Forward-looking, stabilization requires revenue recovery and SG&A discipline to restore positive operating leverage; cash reserves provide time to execute, but sustained losses would erode equity and ROE further. Key watchpoints are revenue run-rate, gross margin resilience, and expense control over the next two quarters.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-5.9%) × 0.659 × 1.46 ≈ -5.7%. The primary driver of weak ROE is the negative net margin as operating income (-0.76) and net income (-0.85) turned negative on reduced revenue and SG&A exceeding gross profit. Asset turnover of 0.659 is modest for a digital services business and likely fell alongside revenue; leverage at 1.46x is moderate and not the source of volatility. Business reason: revenue contracted 18.2% YoY while SG&A remained elevated at 4.90, producing negative operating leverage; D&A (0.40) also weighs on EBITDA (-0.36). Sustainability: without revenue recovery and/or SG&A cuts, margin pressure could persist; conversely, modest cost actions and stabilization of sales could meaningfully lift margins given small absolute scale. Concerning trends: (1) SG&A > gross profit (4.90 > 4.14) is unsustainable; (2) EBITDA margin is negative (-2.5%); (3) ROIC at -14.8% indicates value destruction at current returns.

Growth Assessment

Revenue declined 18.2% YoY to 14.44, signaling demand softness or portfolio rationalization. The contraction drove gross profit down to 4.14 and pushed operating income into the red as fixed/semi-fixed costs were not flexed commensurately. With non-operating items minimal, the earnings trajectory is dominated by core operations. Near-term growth visibility is limited given the magnitude of the YoY decline and lack of disclosed order backlog or segment detail. However, the company retains capacity to invest (cash 11.59 and low debt), which could support growth initiatives if ROI hurdles are improved. Outlook hinges on stabilizing user/enterprise demand and improving monetization; absent revenue growth, margin restoration must come from SG&A efficiencies. We lack segment and customer concentration data, so sustainability of any single revenue stream cannot be assessed from this disclosure.

Financial Health

Liquidity is strong: current assets 15.79 vs current liabilities 4.68 yield a current ratio of 337% and a quick ratio equivalent given no inventories reported. Cash of 11.59 comfortably covers all current liabilities, indicating low short-term refinancing risk. Solvency is conservative: total liabilities 6.92 vs equity 14.98 imply D/E of 0.46x; long-term loans are 1.74. Interest coverage is negative due to operating loss, which is a flag despite small absolute interest expense (0.02). No warning on Current Ratio (<1.0) or D/E (>2.0); both are well within healthy bounds. Maturity mismatch risk appears low given cash-rich position versus modest debt, although exact short-term debt is unreported. Off-balance sheet obligations are not disclosed; no leases or guarantees are visible in the provided data.

Cash Flow Quality

OCF was +0.48 against net income of -0.85, producing an OCF/NI ratio of -0.57, which triggers a quality alert by the mechanical threshold but practically reflects positive cash generation despite an accounting loss. The positive OCF likely stems from non-cash D&A (0.40) and potential working capital inflows (details not disclosed). Capex was restrained at -0.08, implying a proxy FCF of about +0.40 (OCF - Capex), which is supportive near term. Financing CF was -1.08, including share repurchases of -0.30; debt movements are not detailed. Sustainability: given losses, sustained FCF depends on maintaining working capital discipline and low capex while restoring operating margins. No clear signs of working capital manipulation can be confirmed without period-on-period balance detail; however, the divergence between OCF and NI should be monitored.

Dividend Sustainability

Dividend data (DPS, total dividends) are unreported this quarter, and payout ratios are not meaningful in a net loss context. With proxy FCF positive (~0.40) and strong cash reserves (11.59), the company could theoretically fund modest shareholder returns; however, ongoing losses and negative ROIC argue for prioritizing reinvestment or balance sheet preservation. Buybacks of -0.30 indicate some capital return in the period. Sustainability of any dividend policy cannot be assessed without disclosed DPS and target payout frameworks; coverage should be reassessed when profitability normalizes.

Risk Assessment

Business Risks:

• Revenue contraction of 18.2% YoY indicates demand or competitive pressure risk.
• Negative operating leverage with SG&A > gross profit suggests execution risk in cost control.
• High proportion of intangibles and goodwill (~24% of assets) raises impairment risk if performance weakens.
• Limited disclosure on segments/customers obscures concentration risks.
• Industry-specific: digital/app-based transit and information services face rapid technological change and commoditization pressure.

Financial Risks:

• Negative ROIC (-14.8%) indicating value destruction at current returns.
• Negative interest coverage (operating loss vs interest expense) increases sensitivity to further profit deterioration.
• Potential equity erosion if losses persist, despite currently strong liquidity.
• Dependence on working capital to support OCF while reporting losses may not be repeatable.

Key Concerns:

• Sustained operating losses and negative EBITDA margin.
• Topline visibility and recovery path unclear from disclosures.
• Impairment risk on goodwill/intangibles if cash-generating units underperform.
• Data gaps (SG&A breakdown, investing cash flows, dividend policy) hinder full risk quantification.

Investment Implications

Key Takeaways:

• Topline down 18.2% YoY; operating and net losses posted.
• Gross margin of 28.7% cannot support current SG&A run-rate.
• OCF positive (0.48) despite net loss, aided by D&A and likely working capital.
• Liquidity very strong (current ratio 337%, cash 11.59 vs CL 4.68).
• Leverage modest (D/E 0.46x), but interest coverage negative.
• ROE -5.7% and ROIC -14.8% highlight profitability challenges.
• Buybacks of -0.30 executed despite losses; dividend stance unclear.

Metrics to Watch:

• Quarterly revenue trajectory and gross margin trend.
• SG&A absolute level and as a percent of revenue.
• Operating margin and EBITDA margin inflection toward break-even.
• OCF/NI ratio and working capital changes (AR, AP, deferred revenue if any).
• Impairment indicators for goodwill/intangibles.
• Cash balance vs debt maturities and any changes in financing costs.

Relative Positioning: Versus Japanese small-cap IT/service peers, the company exhibits stronger liquidity and lower leverage but weaker recent growth and negative returns (ROE/ROIC), placing it defensively positioned on balance sheet quality yet challenged on profitability 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