e-Seikatsu Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.56B
• Operating Income: ¥66M
• Net Income: ¥40M
• EPS: ¥5.78

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

Verdict: A modestly positive quarter, with steady top-line growth, a return to profitability at the operating and ordinary levels, and very strong cash generation, but capital efficiency remains weak and margins are thin. Revenue grew 7.9% YoY to 15.62, while gross profit reached 9.14, translating to a robust gross margin of 58.5%. Operating income was 0.66 and ordinary income 0.65, both small in absolute terms but indicating operational profitability. Net income was 0.39, implying a net margin of 2.5% and EPS of 5.78 JPY. Operating margin was 4.2% and EBITDA margin 21.8%, supported by 2.75 of depreciation and amortization. The quarter’s OCF was exceptionally strong at 3.98, 10.2x net income, underscoring conservative accounting and strong non-cash addbacks. Liquidity is sound with a current ratio of 135%, bolstered by cash and deposits of 5.63 versus current liabilities of 5.37. Leverage is low (D/E 0.35x) and interest coverage is very strong at 155x given negligible interest expense. However, capital efficiency is a key weakness: ROE is just 2.1% and ROIC is 2.7%, both below acceptable levels (ROIC <5% warning). Balance sheet composition is asset-heavy in intangibles (15.78, about 62% of total assets), which suppresses asset turnover (0.616) and raises potential impairment risk over time. Margin trajectory in bps versus last year cannot be determined due to missing YoY margin comps (only revenue YoY is disclosed). The effective tax rate is elevated at 39.1%, limiting net profitability. Dividend payout ratio is high at 93.3%, implying most earnings are distributed, though implied FCF coverage appears ample this quarter. Forward-looking, the path to better returns hinges on scaling revenue faster than SG&A, improving operating margin, and rotating capital to lift ROIC toward a 5–8% range. Cash provides flexibility to invest in growth while maintaining balance-sheet resilience.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (2.5%) × Asset Turnover (0.616) × Financial Leverage (1.35x) = ROE ~2.1%. The weakest link is the margin component: operating margin is 4.2% and net margin 2.5%, constrained by SG&A of 8.48 nearly absorbing gross profit of 9.14. Asset turnover at 0.616 is also low, reflecting an intangible-heavy asset base (intangible assets 15.78, ~62% of total assets 25.37) and modest scale relative to invested assets. Financial leverage is conservative at 1.35x, contributing little to ROE. The largest influence on ROE is the low margin, followed by subdued asset turnover. Business drivers: a SaaS-like model with high gross margin but high operating expenses (product development, sales & marketing, and customer success embedded in SG&A) keeps operating leverage muted at current scale; amortization of intangibles depresses operating profit but boosts EBITDA. Sustainability: margin expansion could be achievable with scale and disciplined SG&A, but absent clear YoY SG&A trends we cannot confirm operating leverage. One-time factors appear limited; non-operating items were de minimis (income 0.01, expenses 0.03). Watch-outs: any acceleration in SG&A ahead of revenue would further cap margins; the high effective tax rate (39.1%) also dampens net margin. Overall, improving ROE will require margin uplift more than leverage, given already low gearing.

Growth Assessment

Revenue grew 7.9% YoY to 15.62, a healthy but moderate pace for a software/services-oriented business. Gross margin held strong at 58.5%, suggesting pricing and mix are intact. Operating profit of 0.66 and ordinary profit of 0.65 indicate the core business is profitable, though with thin margins at current scale. EBITDA reached 3.41 (21.8% margin), underpinned by sizable D&A (2.75), consistent with prior investments in software/intangibles. Profit quality is acceptable: net margin is low but OCF conversion is very strong this quarter (OCF/NI 10.2x). Outlook hinges on sustaining high-50s gross margin while driving SG&A efficiency; with cash of 5.63 and low debt, the company can continue investing in growth without balance sheet strain. Absence of segment and ARR/NRR disclosure limits visibility into the durability of growth. Given the low ROIC (2.7%), management will need to improve capital allocation or operating efficiency to deliver value-accretive growth. Near-term growth should prioritize recurring revenue expansion and churn control to build operating leverage. Overall, the growth trajectory is positive but requires better margin capture to translate into higher returns.

Financial Health

Liquidity: Current ratio 135.3% and quick ratio 135.3% are above 1.0 but below the 1.5 comfort benchmark; no immediate red flag, but buffer is modest. Cash and deposits of 5.63 cover short-term loans of 0.69 and most current liabilities (5.37), limiting maturity mismatch risk. Working capital is positive at 1.89. Solvency: Debt-to-equity is conservative at 0.35x; long-term loans 1.20 and short-term loans 0.69 are manageable; interest coverage is very strong at 155x due to minimal interest expense. There are no warnings on Current Ratio (<1.0) or D/E (>2.0). Balance sheet composition: intangible assets are high at 15.78 (~62% of assets), which elevates impairment sensitivity and depresses asset turnover. Off-balance sheet obligations are not disclosed; no data on leases or purchase commitments was provided. Overall, the company is financially sound with low leverage and adequate liquidity, though the cushion is not excessive.

Cash Flow Quality

OCF/Net Income is 10.20x, indicating very strong conversion and conservative earnings. This strength is largely explained by significant non-cash D&A (2.75) and likely stable working capital (detail not disclosed). Implied FCF (OCF - Capex) is approximately 3.86 (3.98 - 0.12), comfortably positive and more than sufficient to fund modest capex and a cash dividend at the indicated payout ratio. There are no clear signs of working capital manipulation from the disclosed figures; accounts receivable are modest (0.80) relative to revenue, and cash is high. Investing CF is unreported, so we cannot assess acquisitions or development capitalization beyond the small capex shown. Financing CF was +1.54; details are not provided, but leverage remains low post-quarter. Overall, earnings quality is high this quarter, but sustainability depends on recurring OCF generation beyond D&A addbacks.

Dividend Sustainability

The indicated payout ratio is 93.3%, implying dividends of roughly 0.36 against net income of 0.39. While high on an earnings basis, implied FCF of ~3.86 covers this level of dividends with ample headroom this quarter. However, with ROE at 2.1% and ROIC at 2.7%, returning nearly all earnings may constrain reinvestment unless OCF remains consistently strong. Lack of DPS and total dividends disclosure limits precision; timing (interim vs year-end) is unknown. Balance sheet capacity (cash 5.63, low debt) provides short-term flexibility to sustain payouts. Medium term, sustainability hinges on lifting operating margins and ROIC; a high payout at low ROIC is not ideal if attractive reinvestment opportunities exist. Policy outlook is unclear due to missing disclosures; we assume a stable-to-cautious stance pending improved profitability.

Risk Assessment

Business Risks:

• Margin compression risk if SG&A grows faster than revenue (operating margin only 4.2%).
• High intangibles (62% of assets) create impairment risk if growth underperforms.
• Execution risk in scaling recurring revenue to achieve operating leverage.
• Potentially elevated churn or weaker customer acquisition efficiency (ARR/NRR not disclosed).
• High effective tax rate (39.1%) dampens net margins.

Financial Risks:

• Capital efficiency risk: ROIC 2.7% is below the 5% warning threshold.
• Liquidity buffer is adequate but not large (current ratio 1.35x); adverse working capital swings could tighten liquidity.
• Concentration risk cannot be ruled out due to absent customer/segment disclosure.
• Financing CF positive without detail; potential reliance on external funding cannot be fully assessed.

Key Concerns:

• Sustained low ROE (2.1%) and ROIC (2.7%) despite healthy gross margins.
• Thin operating margin (4.2%) leaves limited room to absorb shocks.
• Intangible-heavy balance sheet weighs on asset turnover and could face impairment in downturns.
• Data gaps (no YoY profit comps, SG&A details, DPS) limit visibility into drivers and sustainability.

Investment Implications

Key Takeaways:

• Top-line growth of 7.9% YoY with solid gross margin at 58.5%.
• Operating profitability achieved but thin (operating margin 4.2%; net margin 2.5%).
• Excellent cash generation: OCF 3.98 (10.2x NI); implied FCF ~3.86.
• Balance sheet conservative: D/E 0.35x; interest coverage 155x; cash 5.63.
• Capital efficiency weak: ROE 2.1%, ROIC 2.7% (warning).
• Intangible assets high at 15.78 (~62% of assets), implying impairment and turnover risks.
• Dividend payout ratio high at 93.3%, covered by FCF but elevated relative to profit.
• Margin and ROIC improvement are key to value creation.

Metrics to Watch:

• Operating margin and SG&A-to-revenue ratio for signs of operating leverage.
• OCF sustainability ex-D&A; working capital movements (receivables, deferred revenue).
• ROIC trending toward >5%; capital allocation discipline.
• ARR growth, churn/NRR, and ARPU (not disclosed but critical for SaaS).
• Effective tax rate normalization and its impact on net margin.
• Intangible amortization and any impairment indicators.
• Liquidity buffer (current ratio) and changes in short-term debt.

Relative Positioning: Relative to domestic software/SaaS peers, the company exhibits stronger near-term cash conversion and low leverage but lags on capital efficiency and operating margin. The balance sheet is conservative, yet the high intangible base depresses turnover and ROIC. Upside depends on scaling recurring revenue and SG&A discipline to unlock 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
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