Hit Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.12B
• Operating Income: ¥268M
• Net Income: ¥165M
• EPS: ¥25.06

Income Statement

Balance Sheet

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: Solid top-line growth with modest margin compression and stable profitability; balance sheet remains very strong, but ROE and capital efficiency are subdued. Revenue rose to 11.22 (億円), up 15.4% YoY, while operating income increased 10.4% to 2.68 (億円). Ordinary income was 2.54 (億円) (+11.4% YoY) and net income came in at 1.65 (億円) (+2.0% YoY). Gross profit reached 6.54 (億円), translating to a 58.3% gross margin. Operating margin stood at 23.9% this quarter, and net margin at 14.7%. Based on the provided YoY growth rates, operating margin likely compressed by roughly 110 bps YoY (from ~25.0% to 23.9%), and net margin by about 190 bps (from ~16.6% to 14.7%). Non-operating balance was a small net expense (-0.13 (億円)), with interest expense at just 0.03 (億円), yielding a robust interest coverage of 91.6x. Effective tax rate was 35.2%, somewhat elevated and a headwind to bottom-line growth. ROE calculated at 3.3% (period basis) reflects low asset turnover (0.146x) and a cash-heavy balance sheet, despite a healthy net margin. Liquidity is a clear strength: current ratio is 349% with cash and deposits of 45.80 (億円) covering all current liabilities 3.0x. Leverage is conservative (total liabilities/equity 0.56x) with modest interest-bearing debt (short-term 0.40, long-term 7.30 (億円)). Earnings quality cannot be verified this quarter because operating cash flow was unreported; OCF/NI is thus not assessable. Dividend payout ratio is estimated at 75.5%, above a 60% benchmark; near-term affordability is supported by cash, but long-term sustainability hinges on FCF which is unreported. Forward-looking, maintaining revenue momentum while stabilizing margins will be key to lifting ROE; deploying excess cash into higher-return projects or calibrated shareholder returns could improve capital efficiency. Data gaps (OCF, capex, SG&A detail, DPS) limit depth of quality and sustainability assessment.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 14.7% × 0.146 × 1.56 ≈ 3.3%. The weakest link is asset turnover (0.146x), reflecting sizable cash holdings relative to quarterly sales. Compared to last year, inferred margin pressure was the major swing factor: operating margin compressed by ~110 bps (revenue +15.4% vs operating income +10.4%), and net margin by ~190 bps (net income +2.0% vs revenue +15.4%). Business drivers likely include higher cost of sales or SG&A intensity (exact line-item growth unreported), and a relatively high effective tax rate. The change appears partly cyclical/operational rather than one-off; non-operating items were small and stable. Sustainability: gross margin remains high at 58.3%, suggesting pricing/premium mix is intact, but cost discipline is needed to prevent further SG&A deleverage. Watch for any trend where SG&A growth exceeds revenue growth; we cannot confirm this quarter due to lack of SG&A breakdown data.

Growth Assessment

Top-line growth was strong at +15.4% YoY to 11.22 (億円), indicating healthy demand. Operating income grew +10.4% to 2.68 (億円), trailing sales growth, implying modest operating leverage headwinds. Net income grew only +2.0% to 1.65 (億円), weighed by margin compression and a 35.2% effective tax rate. Revenue sustainability appears reasonable near term given the high gross margin (58.3%) and conservative balance sheet that can fund growth. Profit quality is adequate at the P/L level (interest coverage 91.6x; non-op small), but unverified on a cash basis due to unreported OCF. Outlook: maintaining double-digit revenue growth while stabilizing operating margin around mid‑20% would be necessary to re-accelerate bottom-line growth. Absent cash flow data and SG&A detail, we assume modestly positive but normalizing growth with a focus on cost control.

Financial Health

Liquidity is very strong: current ratio 349.3% and quick ratio 349.3% with cash and deposits of 45.80 (億円) versus current liabilities of 15.24 (億円). No warning triggers (Current Ratio well >1.0). Solvency is conservative: total liabilities 27.44 (億円) vs equity 49.42 (億円), implying a liabilities-to-equity ratio ~0.56x; interest-bearing debt totals ~7.70 (億円) (ST 0.40, LT 7.30). D/E is well below any 2.0x warning level. Maturity mismatch risk is low: cash and receivables (48.73 (億円)) far exceed short-term obligations. Noncurrent liabilities 12.20 (億円) are comfortably covered by total assets and equity. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

OCF was unreported; therefore OCF/Net Income cannot be calculated, and earnings quality from a cash conversion perspective cannot be assessed this quarter. Free cash flow (FCF) is also unreported, preventing assessment of coverage for dividends and capex. Working capital appears conservative given substantial cash relative to payables, and there are no apparent signs of period-end working capital manipulation from the limited data (receivables modest at 2.93 (億円), payables 1.36 (億円)), but this is inconclusive without cash flow statements. We flag the absence of OCF and capex as a key limitation.

Dividend Sustainability

The calculated payout ratio is 75.5%, above the <60% benchmark for comfort. With FCF unreported, structural sustainability cannot be confirmed. Near-term affordability seems fine given cash and deposits of 45.80 (億円) and minimal interest burden. However, maintaining a ~75% payout alongside growth investments could pressure flexibility if margins remain compressed or if capex/working capital needs rise. Policy outlook: absent guidance, we assume a stable-to-cautious stance; future payout sustainability will hinge on FCF generation and any capital allocation toward growth or buybacks.

Risk Assessment

Business Risks:

• Margin compression risk: operating margin inferred to be down ~110 bps YoY; net margin down ~190 bps.
• Cost inflation/SG&A deleverage risk, given operating income growth lagging revenue.
• Execution risk in converting strong gross margins (58.3%) into bottom-line growth.
• Tax rate risk: effective tax rate at ~35.2% constrains net profit growth.

Financial Risks:

• Cash flow visibility risk: OCF and FCF unreported; dividend and investment capacity cannot be validated.
• Capital efficiency risk: low asset turnover (0.146x) depresses ROE despite healthy margins.
• Interest rate risk modest but present due to 7.30 (億円) of long-term loans.

Key Concerns:

• High calculated payout ratio (75.5%) vs. unknown FCF.
• Data gaps (OCF, capex, DPS, SG&A breakdown, depreciation) limit analysis.
• Potential normalization of demand could pressure revenue growth and amplify deleverage.

Investment Implications

Key Takeaways:

• Strong revenue growth (+15.4% YoY) with modest operating leverage headwind.
• Margins remain healthy but compressed: operating margin ~23.9%, net margin 14.7%.
• ROE at 3.3% is subdued due to low asset turnover despite decent profitability.
• Balance sheet strength (current ratio 349%, cash 45.80 (億円)) provides resilience and optionality.
• Dividend payout looks high at 75.5%; sustainability hinges on FCF which is unreported.

Metrics to Watch:

• Operating cash flow and FCF (to validate earnings quality and dividend coverage).
• Operating margin trajectory and SG&A intensity (bps changes QoQ/YoY).
• Asset turnover and capital deployment plans to lift ROE.
• Effective tax rate normalization potential.
• Interest-bearing debt trend and financing costs.

Relative Positioning: Versus domestic small-to-mid cap peers in services/IT-like sectors, the company exhibits stronger liquidity and similar or better operating margins, but lower capital efficiency (ROE) driven by low asset turnover; near-term resilience is high, while upside depends on margin stabilization and cash-backed growth deployment.

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