J ESCOM HOLDINGS,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥719M
• Operating Income: ¥46M
• Net Income: ¥32M
• EPS: ¥2.01

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 mixed FY2026 Q2 with solid top-line growth and margin resilience, but cash flow quality deteriorated sharply and capital efficiency remains weak. Revenue rose 20.2% YoY to 7.19, lifting gross profit to 4.67 and sustaining a high gross margin of 64.9%. SG&A was 4.20, equating to 58.4% of sales, resulting in operating income of 0.46 and an operating margin of about 6.4%. Ordinary income was 0.44 after a small net non-operating loss (income 0.07 vs expenses 0.10), and net income printed at 0.23 with EPS of 2.01 yen. EBITDA was 0.55, implying an EBITDA margin of 7.6% and interest coverage of 6.85x, comfortably above our 5x benchmark. The net margin was 3.2%, consistent with the DuPont decomposition that yields an ROE of 3.0% (net margin 3.2% × asset turnover 0.377 × leverage 2.50x). On margins, gross margin held at a strong 64.9% while operating margin landed near 6.4%; YoY margin basis-point changes cannot be quantified due to missing prior-period comps. Earnings quality is a key concern: operating cash flow was -2.67 against net income of 0.23, driving an OCF/NI ratio of -11.6x, which flags potential working capital pressure. Liquidity remains adequate with a current ratio of 158.1% and cash and deposits of 11.44 covering current liabilities of 11.31. Capital structure is moderate with D/E at 1.50x (at the top of our conservative threshold) and short-term loans of 1.07 largely cushioned by cash on hand. Financing cash outflow of -2.51 suggests deleveraging or other outflows, which may ease interest burden but tighten liquidity if OCF does not recover. Reported ROIC of -11.3% indicates subpar capital productivity in the period, inconsistent with the healthy accounting margins and pointing to cash-based efficiency challenges. Non-operating income dependence is modest this quarter, with a net drag from non-op items; ordinary income remains primarily driven by core operations. With revenue momentum visible and cost discipline adequate, near-term earnings can hold if working capital normalizes; however, sustained negative OCF would pressure balance sheet flexibility. Forward-looking, focus should be on converting high gross margins into cash, managing SG&A growth in line with sales, and stabilizing receivables to improve OCF. Data gaps (dividends, capex, investment cash flows) limit full capital allocation assessment; monitoring subsequent quarters for cash conversion and debt trajectory is crucial.

Profitability Analysis

ROE decomposition: ROE ≈ Net Profit Margin (3.2%) × Asset Turnover (0.377) × Financial Leverage (2.50x) = ~3.0%. The most influential constraint on ROE is low asset turnover, reflecting a cash-heavy balance sheet (cash 11.44 vs total assets 19.06) and a relatively small revenue base. Net margin of 3.2% is modest but supported by a robust 64.9% gross margin; the squeeze occurs at SG&A (58.4% of sales), limiting operating leverage. Financial leverage at ~2.50x is moderate and stable, contributing to ROE without creating excessive risk this quarter. Business drivers: strong gross margin indicates value-added services or software-like mix, while SG&A intensity (people, rent, other overheads not detailed) caps EBIT expansion. Sustainability: gross margins appear defensible near term given the high level; the key swing factor is SG&A control relative to sales growth. Warning signs: SG&A growth vs revenue growth cannot be directly compared YoY due to missing prior-period data; however, the current SG&A ratio is high and leaves little buffer should growth slow. Non-operating items were a slight net drag (0.07 income vs 0.10 expense), so ordinary income is largely operational, which is positive for quality.

Growth Assessment

Revenue grew 20.2% YoY to 7.19, demonstrating good momentum. Gross profit scaled with top line, preserving a high 64.9% gross margin, suggesting mix or pricing held firm. Operating income of 0.46 implies mid-single-digit operating margin; absent prior comps, we cannot confirm margin expansion/compression in bps. The non-operating line slightly reduced ordinary income, but the core remains the primary profit engine. Sustainability hinges on continued demand and SG&A discipline; with SG&A at 58.4% of sales, incremental margin on future growth could improve if overheads are held flat. Pipeline/visibility data are not disclosed; the order book or backlog is unknown. Without capex disclosure, we cannot judge growth investments or capacity constraints. Overall outlook: cautiously positive on revenue trajectory and margin resilience, but near-term emphasis must be on converting earnings to cash and normalizing working capital to support growth.

Financial Health

Liquidity is adequate: current ratio 158.1% and quick ratio 157.9%, with cash and deposits (11.44) roughly matching current liabilities (11.31). Solvency is moderate: total equity 7.61 vs total liabilities 11.44; D/E ~1.50x sits at our conservative threshold. Interest coverage at 6.85x is strong. Maturity profile skews short-term (short-term loans 1.07; noncurrent liabilities only 0.13), but cash coverage of short-term obligations is ample, limiting near-term rollover risk. Working capital is positive at 6.57. No explicit off-balance sheet obligations are disclosed; contingent liabilities are unknown. There is no warning trigger for current ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

OCF/Net Income is -11.6x, a clear red flag indicating poor conversion of accounting profits to cash in the half. The negative OCF likely reflects working capital build (receivables 3.71 versus H1 sales 7.19 implies DSO around the ~90-day range), but exact drivers are not disclosed. With Investing CF unreported, we cannot compute FCF; Financing CF was -2.51, suggesting debt repayment or other shareholder distributions, which further tightened cash if OCF remains negative. Earnings quality is therefore low this quarter despite clean operating profit; near-term improvement requires receivables collection and tighter working capital management. No explicit signs of manipulation are evident from disclosed items, but the magnitude of OCF shortfall versus NI necessitates close monitoring in subsequent quarters.

Dividend Sustainability

Dividend data are unreported for the period, so payout metrics cannot be calculated. Given negative OCF and unknown capex, we cannot assert FCF coverage of potential dividends. With equity of 7.61 and moderate leverage, capacity exists to maintain a small dividend if historically customary, but sustainability would depend on a near-term recovery in OCF. Policy signals are not disclosed; we will reassess once full-year guidance or dividend announcements are available.

Risk Assessment

Business Risks:

• High SG&A intensity (58.4% of sales) limiting operating leverage and profit scalability
• Execution risk in converting high gross margins into operating cash flow
• Potential customer concentration or project timing risk (not disclosed) affecting receivables and OCF

Financial Risks:

• Negative OCF (-2.67) versus positive NI (0.23) raising liquidity management risk if sustained
• Moderate leverage (D/E ~1.50x) at the top of conservative range
• Short-term debt reliance (1.07) though currently covered by cash
• Capital efficiency weakness (reported ROIC -11.3%) indicating poor cash-based returns

Key Concerns:

• OCF/NI of -11.6x indicates low earnings quality in the period
• Receivables buildup risk implied by AR 3.71 against H1 revenue 7.19
• Missing disclosure on investing cash flows and capex limits FCF visibility
• Non-operating items slightly negative; any increase in interest expense could pressure ordinary income

Investment Implications

Key Takeaways:

• Revenue up 20.2% YoY to 7.19 with strong 64.9% gross margin
• Operating margin around 6.4% and EBITDA margin 7.6% show decent cost control but high SG&A burden
• ROE at ~3.0% constrained by low asset turnover (0.377) despite moderate leverage (2.50x)
• OCF sharply negative (-2.67) versus NI 0.23; cash conversion is the primary issue
• Liquidity adequate (current ratio 158%) and interest coverage strong (6.85x), but sustained OCF weakness would erode flexibility

Metrics to Watch:

• OCF trajectory and working capital components (DSO, advances, payables)
• SG&A growth versus revenue growth to gauge operating leverage
• Debt levels and mix of short- versus long-term funding
• Ordinary income trend and any changes in non-operating income/expenses
• Capex and investing cash flows to assess ROIC recovery

Relative Positioning: Within small-cap service/IT-oriented peers, the company shows above-average gross margins and satisfactory liquidity/coverage, but lags on cash conversion and capital efficiency (negative reported ROIC), placing it mid-to-lower tier on quality of earnings until OCF normalizes.

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