Asahi Net,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.72B
• Operating Income: ¥1.02B
• Net Income: ¥725M
• EPS: ¥27.72

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

Asahi Net (3834) reported FY2026 Q2 (cumulative) single-entity results with steady top-line growth but notable margin compression. Revenue rose 3.5% year over year to ¥6.725 billion, indicating resilient subscriber-based demand and/or modest ARPU support. Gross profit was ¥2.307 billion, implying a gross margin of 34.3%, but operating income fell 19.6% YoY to ¥1.017 billion, compressing the operating margin to roughly 15.1%. Ordinary income was ¥1.029 billion, and net income decreased 25.8% YoY to ¥725 million, yielding a net margin of 10.78%. The deterioration in profit despite higher sales suggests cost pressures and/or higher SG&A (e.g., promotions, customer acquisition, service costs) outweighed revenue gains, pointing to negative operating leverage in the period. DuPont analysis shows a calculated ROE of 5.63%, decomposed into a net margin of 10.78%, asset turnover of 0.462x, and low financial leverage of 1.13x. This profile reflects a conservatively capitalized balance sheet with limited leverage to amplify returns, making profitability dynamics (margins and turnover) the dominant ROE drivers. The balance sheet appears strong: total assets were ¥14.547 billion and total equity ¥12.873 billion, implying an equity ratio of approximately 88.5% (despite a reported 0.0%, likely due to undisclosed fields). Liquidity is ample with current assets of ¥8.924 billion and current liabilities of ¥1.696 billion, indicating a current ratio of 526%. Debt-to-equity is a low 0.13x (approximated by total liabilities to equity), underlining modest solvency risk. The effective tax rate implied by income tax expense (¥433 million) over ordinary income (¥1.029 billion) is about 42%, despite a reported 0.0% figure, which is likely an artifact of missing fields. Cash flow statement items, depreciation and amortization, interest expense, and dividend data are undisclosed in this dataset (shown as zeros), limiting direct assessment of cash conversion and payout sustainability. Nonetheless, the company’s working capital position is strong at roughly ¥7.228 billion, supporting operational resilience. Overall, FY2026 Q2 shows stable revenue but weaker operating profitability, with robust liquidity and low leverage supporting financial stability. Near-term focus should be on the drivers of margin compression and whether cost pressures are transient or structural. A moderate ROE in the mid-5% range reflects margin pressure and low leverage; improvements would likely need to come from better operating efficiency or higher asset utilization given the conservative balance sheet. Data gaps, particularly in cash flows and dividends, constrain a full quality-of-earnings and payout analysis, so subsequent disclosures will be important to confirm trends.

Profitability Analysis

ROE for the period is 5.63%, derived from a net margin of 10.78%, asset turnover of 0.462x, and financial leverage of 1.13x. Operating margin was approximately 15.1% (¥1.017b / ¥6.725b), down YoY given the 19.6% decline in operating income versus +3.5% revenue growth. Gross margin remained at 34.3% (¥2.307b / ¥6.725b), indicating the pressure likely manifested in SG&A or other operating costs rather than cost of sales alone. Ordinary margin of 15.3% (¥1.029b / ¥6.725b) is close to operating margin, consistent with minimal financial income/expense influence under a low-leverage structure. The sharp decline in net income (-25.8% YoY) versus operating income (-19.6% YoY) suggests an additional drag at or below the operating line (e.g., higher tax burden; implied effective tax rate ~42%). Operating leverage was negative in the period as modest revenue growth did not cover the increase in operating costs, compressing margins. With leverage at only 1.13x, returns are not materially boosted by financial structure, leaving margin and turnover improvements as the key ROE levers. ROA implied by DuPont is ~4.98% (10.78% × 0.462), reflecting the impact of margin compression on overall asset productivity.

Growth Assessment

Revenue grew 3.5% YoY to ¥6.725b, consistent with a recurring revenue model likely anchored by stable subscriptions. However, profit growth lagged: operating income declined 19.6% to ¥1.017b and net income fell 25.8% to ¥725m, indicating weaker profitability despite top-line growth. The gross margin of 34.3% appears stable, pointing to SG&A or service-related overhead as the main sources of pressure. Given the ISP-like model, potential drivers include promotional spend, customer acquisition costs, and network access fees. The ordinary margin of 15.3% and low leverage imply that financial items did not materially distort growth trends. Profit quality is weakened by negative operating leverage; absent pricing power or cost containment, further top-line gains may not translate proportionally to earnings. Outlook hinges on the company’s ability to optimize acquisition costs, retain customers, and manage access fees and support costs. If the cost base normalizes or subscriber mix improves, operating leverage can swing positive, restoring profit growth. Data gaps (no cash flow disclosure) limit assessment of growth funding capacity, but the strong balance sheet suggests room to invest for growth without stressing solvency.

Financial Health

Total assets were ¥14.547b and equity ¥12.873b, implying an equity ratio of ~88.5% (despite a reported 0.0%), denoting a highly conservative capital structure. Total and current liabilities are both ¥1.696b, implying no long-term liabilities disclosed in this dataset. Current assets of ¥8.924b support a current ratio of 526% and quick ratio equal to the same given no inventories reported, underscoring very strong liquidity. Working capital is ¥7.228b, providing a sizable buffer against operational volatility. Debt-to-equity of ~0.13x (liabilities/equity) suggests low solvency risk and limited interest burden. The low financial leverage (assets/equity 1.13x) reduces refinancing risk but also caps ROE. Given missing cash and equivalents disclosure, liquidity quality cannot be precisely verified here, but the magnitude of current assets vs. current liabilities suggests ample coverage. Overall, financial health is strong, with conservative leverage and high liquidity.

Cash Flow Quality

Cash flow data (operating, investing, financing) and D&A are undisclosed in this dataset (shown as zeros), so we cannot directly assess earnings-to-cash conversion or free cash flow. Consequently, the reported OCF/Net Income ratio of 0.00 and FCF of 0 should be treated as not available rather than actual figures. Given the subscription-based revenue model and stable gross margin, earnings quality is often supported by predictable cash inflows, but confirmation requires OCF disclosure. Working capital appears healthy, with current assets exceeding current liabilities by ¥7.228b, which should support cash generation stability, assuming no unusual receivable or deferred revenue dynamics. Without D&A, EBITDA cannot be computed, limiting the ability to isolate non-cash components of earnings. Once cash flow statements are disclosed, focus should be on OCF/NI consistency (>90% over time for high-quality earnings), capex intensity, and changes in receivables/payables that might explain profit-cash gaps.

Dividend Sustainability

Dividend information (DPS, payout ratio, FCF coverage) is undisclosed in this dataset. As such, we cannot compute payout ratios or FCF coverage, nor can we infer policy direction from the provided figures. Given the strong balance sheet (equity ratio ~88.5%, low liabilities), the company appears to have capacity to sustain reasonable distributions absent large capex or strategic investments, but this remains unverified without OCF and capex data. If and when dividend details are provided, assess: (1) payout ratio versus net income (targeting a sustainable band that accommodates earnings variability), (2) FCF coverage over multiple periods (>1.0x across cycles), and (3) alignment with any stated shareholder return policy.

Risk Assessment

Business Risks:

• Margin pressure from customer acquisition costs and promotions amid competitive ISP market dynamics
• Access/network fee inflation from wholesalers (e.g., fiber access costs) compressing gross-to-operating margin
• ARPU pressure and churn risk due to price competition and discounting
• Potential increases in customer support and service delivery costs as subscriber base scales
• Regulatory or policy changes in telecom/broadband markets affecting pricing and profitability
• Technological shifts requiring ongoing investment (network quality, security, content filtering, educational services)

Financial Risks:

• Limited operating leverage headroom evident as revenue growth did not translate into profit growth
• Potential tax rate volatility; implied effective tax rate ~42% in the period
• Information risk from undisclosed cash flow, D&A, and dividend data impeding cash-based analysis
• Concentration risk if revenue is reliant on specific service lines or partners (e.g., single wholesale network providers)

Key Concerns:

• Negative operating leverage in FY2026 Q2 with operating income down 19.6% versus revenue up 3.5%
• ROE constrained at 5.63% amid margin compression and low financial leverage
• Lack of disclosed cash flow and dividend data limits visibility on cash conversion and payout sustainability

Investment Implications

Key Takeaways:

• Top-line growth (+3.5% YoY to ¥6.725b) was solid but overshadowed by margin compression
• Operating margin of ~15.1% and net margin of 10.78% declined, signaling cost pressures
• ROE at 5.63% is modest, driven by margins and turnover rather than leverage
• Balance sheet strength is notable with an implied equity ratio of ~88.5% and current ratio >5x
• Cash flow and dividend data are not disclosed; confirmation of cash conversion is a key next step

Metrics to Watch:

• Operating margin trend and SG&A ratio (evidence of cost normalization)
• Subscriber additions, churn, and ARPU to gauge revenue sustainability
• Gross profit per subscriber and access fee trends to assess unit economics
• OCF/Net income and FCF once disclosed to verify earnings quality
• Effective tax rate normalization and its impact on net income
• Asset turnover progression as an indicator of efficiency gains

Relative Positioning: Asahi Net appears financially conservative with low leverage and strong liquidity versus many small-cap peers, but its mid-single-digit ROE and recent negative operating leverage place it behind higher-ROE, more efficient operators unless margin recovery is demonstrated.

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