ECOMIC CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥677M
• Operating Income: ¥-188M
• Net Income: ¥-175M
• 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

Ecomic Co., Ltd. (TSE: 38020) reported FY2026 Q2 (cumulative) consolidated results under JGAAP showing revenue of ¥677.0m (+9.9% YoY) but a deep operating loss of ¥188.0m (+220.4% YoY deterioration). Gross profit was ¥43.7m, implying a very slim gross margin of 6.5%, which, combined with SG&A, produced negative EBITDA of ¥136.8m (EBITDA margin -20.2%). Ordinary loss was ¥181.0m, and net loss was ¥130.0m (+168.4% YoY deterioration), with EPS of -¥27.86. DuPont analysis indicates ROE of -8.05%, driven by a negative net margin (-19.20%), low asset turnover (0.386x), and modest leverage (1.08x). Operating cash flow was -¥142.2m, slightly more negative than net income (OCF/NI = 1.09), suggesting working capital and other non-cash items exacerbated cash outflows beyond accounting losses. The balance sheet appears conservatively structured: total assets ¥1,752.0m, liabilities ¥168.6m, and equity ¥1,615.0m, implying low financial leverage (Debt-to-Equity 0.10x) and high working capital of ¥1,440.8m. Current and quick ratios are both 1,107%, reflecting large current assets (¥1,583.9m) relative to current liabilities (¥143.1m), although reported cash and equivalents are undisclosed (shown as 0, which per instruction indicates unreported). Financing cash flow was an outflow of ¥71.0m; investing cash flow is undisclosed. The company paid no dividend (DPS ¥0.00), and payout/FCF coverage are both effectively nil given losses and OCF deficit. The negative operating leverage amid rising sales indicates cost inflation, utilization inefficiencies, or pricing pressure in the BPO mix. A tax benefit (income tax -¥46.2m) partially offset the loss, likely reflecting deferred tax effects. Several key items are undisclosed (cash, FCF, shares outstanding, equity ratio, BVPS, investing CF), which limits precision in liquidity and per-share analysis; however, the provided leverage, current ratio, and working capital figures indicate ample balance sheet headroom. Near-term priorities appear to be gross margin repair, SG&A control, and stabilization of working capital to arrest cash burn. Without a turnaround in H2, profitability and OCF for FY2026 look challenging. Dividend resumption appears unlikely until earnings and FCF recover. Overall, Ecomic faces a profitability inflection challenge despite a solid capital base and liquidity cushion.

Profitability Analysis

ROE_decomposition: Net Profit Margin -19.20% x Asset Turnover 0.386 x Financial Leverage 1.08 = ROE -8.05%. The negative ROE is almost entirely margin-driven; low leverage slightly dampens ROE volatility. margin_quality: Gross margin of 6.5% (¥43.7m GP on ¥677.0m revenue) is very low for a payroll/BPO service, suggesting heavy subcontracting or personnel costs in cost of sales. EBITDA margin of -20.2% and operating loss of ¥188.0m indicate SG&A pressure on top of thin gross margin. A tax credit (income tax -¥46.2m) mitigated the bottom line but does not improve operating quality. operating_leverage: Despite +9.9% YoY revenue growth, operating income deteriorated by +220.4% (more negative), evidencing negative operating leverage: fixed/semi-fixed costs and/or wage/subcontract inflation outpaced revenue growth. Depreciation of ¥51.2m indicates a notable fixed cost base; utilization must rise or costs must be reset to restore leverage.

Growth Assessment

revenue_sustainability: Revenue rose to ¥677.0m (+9.9% YoY), signaling demand resilience. However, low asset turnover (0.386x) and slim gross margin suggest that growth may be driven by lower-yield contracts or mix effects rather than high-quality, high-margin expansion. profit_quality: Net loss of ¥130.0m and operating loss of ¥188.0m, alongside a negative EBITDA margin (-20.2%), indicate that growth has not translated into operating scale benefits. Accounting tax benefits (-¥46.2m) softened net loss but do not reflect recurring operating improvements. outlook: Without demonstrable gross margin repair and SG&A containment in H2, profitability for FY2026 is likely to remain negative. Key drivers for improvement include pricing adjustments, contract repricing to reflect cost inflation, utilization gains, and tighter subcontracting spend. Watch for signs of margin normalization and stabilization of OCF.

Financial Health

liquidity: Current assets ¥1,583.9m vs. current liabilities ¥143.1m yields a current and quick ratio of 1,107%. Working capital stands at ¥1,440.8m, indicating substantial headroom. Note: cash and equivalents are undisclosed, so the composition of current assets (e.g., cash vs. receivables) cannot be verified. solvency: Total liabilities ¥168.6m vs. equity ¥1,615.0m imply conservative leverage (Debt-to-Equity 0.10x; DuPont financial leverage 1.08x). Interest expense is minimal at ¥0.7m, though coverage is negative due to operating losses. capital_structure: With low leverage and significant equity, the balance sheet can absorb near-term losses. Equity ratio is shown as 0.0% (undisclosed), but implied equity/asset ratio is approximately 92% (¥1,615.0m/¥1,752.0m), consistent with low leverage.

Cash Flow Quality

earnings_quality: Operating CF of -¥142.2m vs. net loss of -¥130.0m yields OCF/NI of 1.09, indicating cash outflow slightly worse than accounting loss. Adding back depreciation (¥51.2m) implies that working capital and other non-cash items reduced OCF by roughly ¥63m beyond NI. FCF_analysis: Free cash flow is reported as 0 (unreported). Investing CF is undisclosed (shown as 0), leaving true capex unknown. Given negative OCF of -¥142.2m, FCF was likely negative unless offset by asset disposals (not disclosed). working_capital: Large current asset base vs. liabilities supports liquidity, but the OCF shortfall suggests WC deterioration (e.g., higher receivables or lower payables) and/or other operating cash uses in H1. Monitoring DSO/DPO is important, though itemized WC details are not provided.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0.00 and payout ratio is 0.0% amid a net loss, which is appropriate given negative earnings. FCF_coverage: With OCF negative (¥-142.2m) and FCF undisclosed but likely negative, there is no coverage capacity for dividends. policy_outlook: Given losses and cash outflows, maintaining a suspension appears prudent until profitability and positive OCF are restored. Future distributions would depend on sustained margin recovery and WC normalization.

Risk Assessment

Business Risks:

• Cost inflation in labor/subcontracting compressing already low gross margins (6.5%).
• Negative operating leverage despite revenue growth (+9.9% YoY).
• Potential pricing pressure or unfavorable contract mix in payroll/BPO services.
• Execution risk in scaling operations to improve utilization and margins.
• Client concentration or churn risk (not disclosed).

Financial Risks:

• Sustained operating losses (operating loss ¥188.0m; EBITDA margin -20.2%) driving negative OCF (¥-142.2m).
• Working capital outflows worsening cash burn despite large reported current assets.
• Limited interest coverage (negative) if losses persist, though absolute interest burden is low (¥0.7m).
• Uncertainty over cash balance and capex due to undisclosed cash and investing CF.

Key Concerns:

• Gross margin repair from 6.5% to a sustainable level.
• Stemming OCF deterioration and clarifying the cash position.
• Visibility on contract economics and ability to reprice for inflation.
• Trajectory of SG&A and fixed cost base relative to revenue growth.

Investment Implications

Key Takeaways:

• Top-line growth (+9.9% YoY) has not translated into operating scale; profitability deteriorated materially.
• ROE of -8.05% is margin-driven; low leverage (1.08x) limits both downside and upside to ROE.
• OCF is more negative than NI, implying working capital and other cash drags beyond accounting loss.
• Balance sheet appears strong (implied equity/asset ~92%, D/E 0.10x) providing runway to execute a turnaround.
• Dividend remains suspended; restoration depends on earnings and OCF recovery.

Metrics to Watch:

• Gross margin (currently 6.5%) and EBITDA margin (-20.2%) trajectory.
• Operating cash flow and working capital movements (DSO/DPO trends).
• Contract pricing/mix and utilization rates (not disclosed).
• SG&A growth vs. revenue growth (operating leverage).
• Cash and equivalents level and any capex/investing outflows (currently undisclosed).

Relative Positioning: Within Japan’s payroll/BPO space, Ecomic currently demonstrates weaker profitability and operating leverage compared to typical asset-light service peers, but maintains a comparatively conservative balance sheet with low financial leverage, providing flexibility to pursue margin improvement.

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