Wellness Communications Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.52B
• Operating Income: ¥610M
• Net Income: ¥404M
• EPS: ¥69.23

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

Wellness Communications Co., Ltd. (single-entity, JGAAP) delivered a solid FY2026 Q2 with top-line growth translating into stronger operating leverage. Revenue rose 6.5% YoY to ¥7.52bn, while operating income increased 22.0% YoY to ¥0.61bn, indicating margin expansion and disciplined cost control. Gross profit was ¥1.34bn, implying a gross margin of 17.8%, and operating margin improved to roughly 8.1%, evidencing better mix and/or scale benefits. Net income of ¥0.404bn grew 16.3% YoY, and EPS printed at ¥69.23. DuPont analysis shows a calculated ROE of 7.47%, driven by a 5.37% net margin, asset turnover of 0.822x, and financial leverage of 1.69x. Cash generation was strong: operating cash flow (OCF) was ¥1.201bn, yielding an OCF/Net Income ratio of 2.97x, signaling high earnings quality and likely favorable working capital movements. Financing cash flows were an outflow of ¥205m, consistent with debt repayments and/or shareholder returns, though dividend data are not disclosed in this dataset. The balance sheet appears conservative with current assets of ¥3.95bn and current liabilities of ¥1.67bn, producing a current ratio of 237% and working capital of ¥2.29bn. Interest expense is negligible at ¥32k, and interest coverage is extraordinarily high (over 19,000x), underscoring minimal financial risk from debt servicing. While the reported equity ratio field shows 0% (unreported), a simple inference using total equity of ¥5.41bn and total assets of ¥9.15bn suggests equity could represent roughly 59% of assets, albeit figures may not be fully comparable given partial disclosures. Reported effective tax rate is shown as 0.0%, but based on income tax of ¥154m and net income of ¥404m, the implied tax burden appears closer to the mid‑20s percent; therefore, the 0% rate should be treated as a placeholder. Investing cash flows are shown as 0, which likely reflects missing detail rather than zero investment. Several items (e.g., cash and equivalents, shares outstanding, inventories, DPS) are unreported in this feed and should not be interpreted as actual zeros. Overall, the company demonstrates improving profitability, robust cash conversion, and ample liquidity, with low financial leverage, though data limitations constrain deeper granularity on capital intensity and shareholder return policy.

Profitability Analysis

ROE_decomposition: ROE 7.47% = Net Margin 5.37% × Asset Turnover 0.822 × Financial Leverage 1.69. The ROE uplift versus many small-cap service peers is primarily from operating improvement rather than leverage, given minimal interest burden. margin_quality: Gross margin 17.8% and operating margin ~8.1% indicate positive operating discipline; EBITDA margin is 9.8%. The step-up in operating margin alongside 6.5% revenue growth suggests mix/scale benefits rather than one-off items. The implied tax rate (mid‑20s%) appears normal; the reported 0% rate is a placeholder. operating_leverage: Revenue +6.5% YoY vs operating income +22.0% YoY evidences favorable operating leverage, likely from SG&A efficiency and fixed-cost absorption. Continued leverage depends on sustaining throughput without adding comparable fixed costs.

Growth Assessment

revenue_sustainability: Top-line growth of 6.5% YoY is steady. As a likely service/platform-driven business, growth durability will depend on contract renewals, uptake of value-added services, and client retention. profit_quality: Net income +16.3% YoY with a 2.97x OCF/Net Income ratio signals high-quality earnings. The negligible interest cost limits noise from financing; no material signs of aggressive capitalization in the provided data. outlook: With improving operating margins and low financial leverage, the company is positioned to compound earnings if demand and pricing hold. Visibility would improve with disclosures on backlog, churn, and pipeline; sustaining double-digit operating profit growth will hinge on continued mix improvements and cost discipline.

Financial Health

liquidity: Current assets ¥3.95bn vs current liabilities ¥1.67bn yields a current ratio of 237% and working capital of ¥2.29bn; quick ratio equals current ratio as inventories are unreported. This indicates strong short-term liquidity. solvency: Total equity ¥5.41bn against total assets ¥9.15bn implies an inferred equity ratio around ~59% (reported equity ratio field is unreported). Interest expense is de minimis, and interest coverage exceeds 19,000x, indicating very low insolvency risk under normal conditions. capital_structure: Debt-to-equity ratio is reported at 0.32x, suggesting modest leverage. Financing CF outflow (¥205m) hints at repayments and/or returns; specifics are not disclosed. Overall capital structure appears conservative.

Cash Flow Quality

earnings_quality: OCF of ¥1.201bn versus net income of ¥0.404bn (OCF/NI 2.97x) indicates robust cash conversion, likely aided by working capital inflows and limited non-cash gains. FCF_analysis: Investing CF is unreported (shown as 0), so Free Cash Flow cannot be reliably computed despite strong OCF. If maintenance capex needs are modest (typical for asset-light service models), underlying FCF is likely positive; confirmation requires capex disclosure. working_capital: Strong positive working capital position (¥2.29bn). The OCF strength suggests efficient collections and payables management; monitoring AR days and contract billing cycles is key to durability.

Dividend Sustainability

payout_ratio_assessment: Payout ratio is shown as 0.0% due to unreported dividend data and should not be interpreted as no dividend. Without DPS/total dividend disclosure, payout cannot be assessed. FCF_coverage: FCF is shown as 0 due to missing investing/capex data; hence, dividend coverage cannot be evaluated from this dataset. policy_outlook: Given modest leverage and strong OCF, the balance sheet could support returns over time, but the absence of disclosed DPS/policy precludes conclusions. Look for management guidance on payout or capital allocation priorities.

Risk Assessment

Business Risks:

• Client concentration and contract renewal risk affecting revenue visibility
• Pricing pressure in wellness/health-related services or enterprise solutions
• Data privacy, security, and regulatory compliance requirements
• Dependence on proprietary IT systems and service uptime
• Talent retention and labor cost inflation impacting margins
• Potential delays in enterprise sales cycles and onboarding

Financial Risks:

• Limited disclosure on cash balance and capex creates uncertainty around FCF
• Possible timing/measurement differences in assets vs liabilities/equity figures
• Small-cap liquidity and market access risk despite low leverage
• Working capital swing risk that could normalize OCF conversion

Key Concerns:

• Investing cash flow and capex not disclosed, obscuring FCF and reinvestment needs
• Dividend policy and actual shareholder return framework not disclosed
• Equity ratio reported as 0% (unreported), requiring reliance on inferred solvency metrics

Investment Implications

Key Takeaways:

• Solid top-line growth with stronger operating leverage; operating income +22% YoY
• Healthy profitability: operating margin ~8.1%, EBITDA margin 9.8%
• ROE of 7.47% driven by margin improvement rather than leverage
• Exceptional earnings quality with OCF/NI at 2.97x
• Strong liquidity and low interest burden imply conservative financial risk
• Data gaps (capex, DPS, cash balance) limit full valuation of FCF and capital returns

Metrics to Watch:

• Revenue growth by segment/service and contract renewal rates
• Gross and operating margin trajectory (mix vs cost discipline)
• Capex/intangible investment and resultant FCF
• AR days, deferred revenue, and OCF/NI sustainability
• Order backlog/pipeline indicators and churn
• Capital allocation signals: dividends, buybacks, or debt changes

Relative Positioning: Within Japan small-cap service/IT-enabled healthcare and wellness solutions, the company appears to combine moderate growth with improving margins, high cash conversion, and a conservative balance sheet, though incomplete disclosures on investment and payout temper visibility versus fully transparent peers.

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