ECOMIC CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥677M
• Operating Income: ¥-188M
• Net Income: ¥-131M
• EPS: ¥-27.86

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: FY2026 Q2 was weak with revenue growth failing to offset a deepening operating loss and negative cash generation. Revenue rose 9.9% YoY to 6.77, but gross profit was only 1.14, yielding a thin 16.8% gross margin. Operating income deteriorated to -1.88 (+220.4% YoY in loss terms), and ordinary income was -1.81 (+156.0% YoY), resulting in net income of -1.30 (+168.4% YoY). Operating margin stood at -27.8%, ordinary margin -26.7%, and net margin -19.2%, indicating severe operating deleverage. We cannot precisely quantify YoY basis point changes due to missing prior-period margin disclosures, but the direction is clear: margins compressed materially as costs outpaced revenue growth. SG&A of 3.02 exceeded gross profit (1.14) by a wide margin, driving the operating deficit despite a 0.56 depreciation/amortization burden. Cash flow from operations was -0.85, trailing net income (-1.30) with an OCF/NI ratio of 0.66x, signaling pressured earnings quality. Liquidity remains a strong mitigant: cash and deposits were 11.76 against total liabilities of 1.37, supporting a current ratio of 990% and very conservative leverage (D/E 0.09x). Interest coverage is negative (-270x) due to the operating loss, but interest expense is de minimis (0.01), and balance sheet strength limits near-term solvency risk. The effective tax rate appears ~28%, reflecting tax expense dynamics amid losses (likely valuation allowance or non-deductible items). ROE was -8.1% per DuPont (net margin -19.2%, asset turnover 0.386, leverage 1.08x), with profitability the primary drag. ROIC was deeply negative (-30.8%), indicating value dilution from loss-making operations. Financing cash outflow of -0.61 and capex of -0.10 imply total cash burn, but the cash buffer is ample for the near term. Near-term focus should be on cost control and restoring gross margin while scaling revenue to cover fixed SG&A. Forward-looking, the company must either accelerate topline growth or execute cost rationalization to return to break-even; absent that, continued OCF deficits could erode the cash cushion over time despite low leverage.

Profitability Analysis

ROE decomposition (DuPont): ROE (-8.1%) = Net Profit Margin (-19.2%) × Asset Turnover (0.386) × Financial Leverage (1.08x). The largest change driver is the net profit margin, given the sharp operating loss and thin gross profitability; leverage is low and stable, and asset turnover is modest. Business reason: gross margin of 16.8% is insufficient to absorb SG&A of 3.02, leading to operating margin of -27.8%; D&A of 0.56 and minimal non-operating income (0.07) provide little offset. The margin pressure likely stems from fixed-cost absorption issues, upfront investments (intangible assets 2.02 and goodwill 0.25 suggest product/platform spending), and possibly pricing/subcontracting mix weighing on gross margin. Sustainability: absent a structural uplift in gross margin or SG&A rationalization, the negative margin is not sustainable; however, if current losses reflect investment phase spending, partial recovery could be achievable with scale. Concerning trends: revenue grew 9.9% YoY, but operating loss expanded (+220% YoY), implying SG&A growth and/or gross margin compression outpaced revenue—an adverse operating leverage signal. Monitor whether SG&A as a percentage of sales trends down in H2 and whether gross profit growth starts to exceed SG&A growth.

Growth Assessment

Revenue growth of 9.9% YoY to 6.77 indicates demand momentum, but profit quality is weak as gross profit (1.14) and operating income (-1.88) show negative operating leverage. With EBITDA at -1.32 (margin -19.6%), the current growth is not translating into cash-earning scale. Non-operating income is minimal (0.07), so earnings are primarily driven by core operations. The path to sustainable growth requires either improved gross margin (pricing, mix, delivery efficiency) or SG&A optimization. Outlook hinges on H2 seasonality and cost actions; without improvement, full-year losses are likely. Given negative ROIC (-30.8%), incremental growth must be high-margin or low-cost to avoid further value dilution.

Financial Health

Liquidity is very strong: current ratio 990% (cash and deposits 11.76 vs current liabilities 1.37), and quick ratio also 990%. No warnings for current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.09x. Interest-bearing debt details are unreported, but interest expense is minimal (0.01), suggesting low debt service burden. Maturity mismatch risk appears low given large cash relative to short-term liabilities. Noncurrent liabilities are small (0.26), further supporting solvency. No off-balance sheet obligations were disclosed in the data provided; absence of disclosure does not preclude their existence.

Cash Flow Quality

OCF/Net Income is 0.66x, below the 0.8 threshold, indicating weaker cash conversion of reported losses (working capital and/or non-cash items are not fully offsetting the deficit). Operating cash flow was -0.85, and with capex of -0.10, implied FCF (OCF - capex) is approximately -0.95, signaling cash burn in H1. Given the cash balance of 11.76, near-term funding capacity is ample, but sustained negative FCF would draw down liquidity over time. No explicit signs of working capital manipulation are evident from the limited detail, but receivables (1.28) and payables (0.42) appear modest relative to revenue and costs. Financing cash outflow of -0.61 (details unreported) also contributed to cash reduction. Improvement in OCF will require either margin recovery or tighter expense control; revenue growth alone has not sufficed.

Dividend Sustainability

Dividend data are unreported; calculated payout ratio (-46.9%) is not meaningful due to losses. With negative OCF and implied negative FCF, recurring dividend coverage from internal cash generation is weak in the period. However, substantial cash (11.76) and low leverage offer capacity to maintain small dividends temporarily if policy prioritizes stability. Sustainable dividends will require restoring positive FCF; absent that, continued payouts would rely on balance sheet drawdown. Policy outlook is uncertain given losses; watch for management guidance at FY-end.

Risk Assessment

Business Risks:

• Margin risk: gross margin at 16.8% and operating margin at -27.8% indicate poor operating leverage.
• Execution risk in cost control: SG&A (3.02) exceeds gross profit (1.14), necessitating rapid adjustment.
• Product/service mix and pricing risk potentially pressuring gross margin.
• Intangible asset amortization burden (D&A 0.56) weighing on profitability.

Financial Risks:

• Earnings quality risk: OCF/NI at 0.66x (<0.8).
• Negative ROIC (-30.8%) signaling value dilution if losses persist.
• Interest coverage negative due to operating loss (despite low absolute interest).

Key Concerns:

• Deepening losses despite 9.9% revenue growth (+220% YoY deterioration in operating loss).
• Potential need for further investment or restructuring to restore break-even.
• Limited disclosure on investing and financing cash flow details, obscuring capital allocation clarity.

Investment Implications

Key Takeaways:

• Topline grew 9.9% YoY but margins compressed; operating margin -27.8%.
• OCF negative (-0.85) with implied FCF around -0.95; earnings quality flagged (OCF/NI 0.66x).
• Balance sheet is a near-term buffer (cash 11.76 vs total liabilities 1.37; current ratio ~990%).
• ROE -8.1% driven by negative margin; leverage (1.08x) offers little ROE amplification.
• ROIC -30.8% underscores urgency to improve unit economics.

Metrics to Watch:

• Gross margin progression and cost of sales ratio each quarter.
• SG&A as a percentage of sales and absolute trajectory versus revenue growth.
• Operating cash flow and working capital movements (receivables/payables days).
• EBITDA margin recovery path and break-even revenue level.
• Capex intensity and any changes in intangible asset amortization.

Relative Positioning: Compared with small-cap domestic IT/BPO peers, liquidity is stronger than average due to a large cash position and minimal leverage, but profitability and ROIC are currently weaker, with significant negative operating leverage and cash burn offsetting the benefit of revenue growth.

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