Dream Incubator Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.69B
• Operating Income: ¥767M
• Net Income: ¥-69M
• EPS: ¥83.59

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Dream Incubator (4310) delivered strong top-line momentum in FY2026 Q2 with revenue of ¥3.693bn, up 30.2% YoY, while operating income was flat at ¥767m, indicating margin compression as growth was absorbed by higher operating costs. Gross profit of ¥1.314bn implies a gross margin of 35.6%, but the operating margin settled at 20.8%, suggesting elevated SG&A or a mix shift toward lower-margin projects. Ordinary income came in at ¥818m and net income at ¥735m, both broadly flat YoY, pushing the net margin to a healthy 19.9% despite minimal tax expense. Depreciation and amortization were light at ¥29m, consistent with an asset-light model where EBITDA of ¥796m (21.6% margin) closely tracks operating profit. DuPont analysis yields a ROE of 6.74%, driven by a high net margin (19.9%), low asset turnover (0.27x), and modest financial leverage (1.25x). The combination points to solid profitability on sales but underutilized assets and conservative leverage limiting ROE. Cash conversion was weak: operating cash flow was ¥179m (OCF/NI ~0.24), indicating a working capital build or timing effects, and free cash flow cannot be reliably assessed because investing cash flows were not disclosed (reported as zero). The balance sheet appears robust with low leverage (liabilities ¥2.699bn vs. assets ¥13.672bn) and ample reported liquidity (current ratio ~1,210%), though data show classification inconsistencies (current assets exceed total assets) and several unreported items. Financing cash outflow of ¥1.269bn likely reflects buybacks or liability reductions; with DPS at zero and a reported payout ratio of 0%, capital returns may have been channeled through non-dividend means. The effective tax rate appears near zero (income tax ¥2m), supporting near-term earnings but unlikely to be a stable long-term rate. Interest expense is unreported (0), consistent with low debt and no meaningful interest coverage metrics. Overall, results show strong revenue growth but limited operating leverage, solid margins, conservative capital structure, and weak cash conversion this half. Key watchpoints are SG&A discipline, cash generation versus earnings, and the sustainability of a very low tax burden. Data limitations (zeros indicating undisclosed items) constrain precision on cash, capex, inventories, and share metrics, so conclusions emphasize trends in the disclosed figures.

Profitability Analysis

ROE decomposition: Reported ROE is 6.74%, derived from a net margin of 19.90%, asset turnover of 0.270x, and financial leverage of 1.25x. The main ROE drag is the low asset turnover, while leverage is conservative and margins are comparatively strong. Operating margin is 20.8% (¥767m/¥3,693m), ordinary margin 22.2%, and net margin 19.9%, indicating limited financial costs and a very low tax load. The flat operating income versus 30.2% revenue growth implies negative operating leverage this half, likely due to higher SG&A or a revenue mix shift that diluted margins. Gross margin at 35.6% supports the view that cost of sales was controlled, but the gap between gross and operating margins suggests opex inflation. EBITDA margin of 21.6% confirms the asset-light nature of the business (D&A only ¥29m). Interest expense is unreported, so interest coverage is not meaningful; still, low leverage supports profit stability. The exceptionally low effective tax expense (¥2m) boosted after-tax margins; normalization of taxes would moderately compress net margin and ROE.

Growth Assessment

Revenue growth of +30.2% YoY to ¥3.693bn is robust and likely reflects healthy project flow and/or scaling of fee-based activities. However, operating income was flat at ¥767m, implying growth was offset by higher operating costs or a less profitable revenue mix, limiting operating leverage. Ordinary and net income were similarly flat, despite higher sales, underscoring pressure below gross profit. Given EBITDA grew in line with operating profit, incremental margins appear thin in the period. Sustainability hinges on managing SG&A and securing higher-margin engagements; without cost discipline, future growth may not translate into earnings expansion. The near-zero effective tax also aided bottom-line stability; if this reverts toward a normalized rate, net income could underperform revenue growth. With OCF at ¥179m against NI of ¥735m, cash realization of growth is currently weak and may reflect working capital needs tied to growth. The outlook improves if the company converts backlog and receivables more efficiently and limits discretionary cost growth. Absent disclosed order backlog or segment mix, we treat revenue momentum as positive but earnings scalability as uncertain near term.

Financial Health

Total assets are ¥13.672bn versus total liabilities of ¥2.699bn, implying a conservative balance sheet (assets/equity ~1.25x; equity of ¥10.912bn). Leverage is low, with a debt-to-equity metric reported at 0.25x (likely using total liabilities as a proxy for debt due to missing debt detail). Liquidity indicators show a very high current ratio of ~1,210% (¥15.428bn current assets vs. ¥1.275bn current liabilities), although current assets exceeding total assets points to classification inconsistencies; nevertheless, the direction suggests ample short-term liquidity. Inventories are unreported (0), consistent with an advisory/investment model rather than manufacturing. Interest expense is unreported, aligning with minimal financial risk from borrowing costs. Equity ratio is reported as 0.0% due to data limitation and should not be used; based on disclosed equity and assets, the implied equity ratio is roughly 79.8%. Overall solvency appears strong given low liabilities and substantial equity, but precise liquidity (e.g., cash balances) cannot be confirmed because cash and equivalents are unreported.

Cash Flow Quality

Operating cash flow was ¥179m versus net income of ¥735m (OCF/NI ~0.24), indicating weak cash conversion this half, likely due to working capital build (e.g., receivables growth or timing of collections and payables). Depreciation is low (¥29m), so non-cash expenses are limited; earnings quality therefore relies heavily on cash realization from operations. Investing cash flow is unreported (0), so capital expenditures and investment activity cannot be assessed; as a result, free cash flow cannot be reliably computed despite a reported FCF of 0 in the metrics. Financing cash flow was a significant outflow at ¥1.269bn, likely reflecting share repurchases or liability reductions; absent detail, we cannot attribute precisely. The gap between earnings and OCF warrants monitoring to determine whether it is timing-related or structural (e.g., longer collection cycles tied to growth). Working capital levels are not fully disclosed, but the large reported working capital (¥14.153bn) and very high current ratio indicate substantial liquid assets; however, without cash detail, liquidity quality is uncertain.

Dividend Sustainability

Annual DPS is reported at ¥0.00 and payout ratio at 0.0%, indicating no cash dividends for the period. With OCF at ¥179m and unknown capex (investing CF not disclosed), free cash flow coverage of dividends cannot be meaningfully assessed. The sizable financing outflow (¥1.269bn) suggests capital allocation may favor buybacks or other financing actions over dividends at present, though this cannot be confirmed from the data provided. Balance sheet strength (low leverage, high equity) would support capacity for distributions over time, but weak cash conversion this half and limited disclosure on cash and capex temper visibility. Policy outlook is therefore unclear; investors should track management commentary on shareholder return policy, the mix between dividends and buybacks, and cash generation trends before inferring dividend sustainability.

Risk Assessment

Business Risks:

• Margin pressure from higher SG&A and unfavorable revenue mix despite top-line growth
• Potential normalization of an unusually low effective tax rate, reducing net margins
• Project timing and collection risk impacting working capital and cash conversion
• Revenue volatility inherent in advisory/investment-driven models
• Client concentration or sector cyclicality (not disclosed but typical for consulting/investment models)

Financial Risks:

• Weak OCF relative to net income (OCF/NI ~0.24) indicating reliance on working capital improvements
• Limited visibility on cash balances and capex due to unreported items (cash and investing CF shown as 0)
• Potential use of significant financing cash outflows (¥1.269bn) for buybacks or repayments reducing liquidity if cash generation lags
• Data inconsistencies in balance sheet classifications (current assets exceeding total assets) complicate ratio reliability

Key Concerns:

• Sustainability of growth without diluting operating margins
• Earnings quality given the gap between net income and operating cash flow
• Possible rebound in effective tax rate from an unusually low level
• Lack of transparency on cash, capex, and dividend/buyback policy in the reported figures

Investment Implications

Key Takeaways:

• Strong revenue growth (+30.2% YoY) but flat operating profit indicates limited operating leverage in the period
• Healthy profitability on sales (OPM 20.8%, NPM 19.9%) supports earnings resilience, aided by minimal tax expense
• ROE of 6.74% is constrained by low asset turnover (0.27x) and conservative leverage (1.25x)
• OCF/NI of ~0.24 signals weak cash conversion and a need to improve working capital efficiency
• Balance sheet appears conservative with low liabilities and substantial equity, though disclosure gaps limit precision
• Capital returns skew toward financing outflows (¥1.269bn), potentially buybacks rather than dividends (DPS ¥0)

Metrics to Watch:

• SG&A ratio and incremental operating margin on new revenue
• OCF/NI and changes in receivables/payables to gauge cash conversion
• Effective tax rate trajectory and any utilization of loss carryforwards
• Asset turnover (revenue-to-asset) as a driver of ROE improvement
• Details on financing cash flows (buybacks vs. debt changes) and shareholder return policy
• Disclosure of cash and capex to assess true free cash flow

Relative Positioning: Within Japanese advisory/strategic consulting and investment-oriented peers, Dream Incubator shows above-average margins but below-peer ROE due to low asset turnover and conservative leverage. Balance sheet strength is a differentiator, yet cash conversion lags, making execution on working capital and cost discipline critical to close the ROE gap.

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