TAC CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.35B
• Operating Income: ¥861M
• Net Income: ¥549M
• EPS: ¥30.26

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

Verdict: A mixed FY2026 Q2 with solid top-line and operating growth but weaker below-OP results and softer cash conversion. Revenue grew 2.1% YoY to 103.53, supported by resilient demand, while operating income rose 4.7% YoY to 8.61, indicating disciplined cost control against SG&A of 35.52. Gross profit reached 44.14, implying a gross margin of 42.6% that remains healthy for a human-capital/light-asset education model. Operating margin expanded modestly to 8.3%, with our estimate suggesting c.+17 bps YoY as OI growth outpaced sales. However, ordinary income fell 4.4% YoY to 8.07 and net income declined 5.1% YoY to 5.48, reflecting higher non-operating expenses (0.63) and interest costs (0.22). Net margin compressed to 5.3% (about -43 bps YoY by our estimate), highlighting the sensitivity of bottom line to financial costs despite operational improvements. Cash flow quality is a near-term weak spot: operating cash flow was 3.83 vs net income of 5.48 (OCF/NI 0.70x), indicating working capital absorption or timing effects. Liquidity is adequate with a current ratio of 137.7% and quick ratio of 132.2%, backed by cash and deposits of 56.71 versus short-term loans of 22.00. Leverage is elevated with a D/E of 1.96x and Debt/EBITDA around 5.9x, though interest coverage remains very strong at ~40x. ROE stands at 8.1%, supported by leverage (financial leverage 2.96x) and moderate asset turnover (0.519x). ROIC of 7.8% is at the industry ‘target’ threshold, suggesting investments are roughly covering the cost of capital but leave limited buffer if growth slows. Capex was modest at 1.11, implying an asset-light growth approach and leaving pre-dividend FCF positive. The implied payout ratio is low at 13.5%, and appears covered by OCF even in a soft-conversion quarter. Forward-looking, managing financing costs, stabilizing working capital, and sustaining enrollment/mix to protect margins will be key to maintain ROE/ROIC above thresholds.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (approx. 5.3%) × Asset Turnover (0.519x) × Financial Leverage (2.96x) = ROE ~8.1%. The most notable change driver versus last year’s profile appears to be margin pressure below operating profit (ordinary and net), given ordinary income and net income declined despite revenue and operating income growth. Business context suggests operating discipline (slight operating margin expansion) was offset by higher non-operating expenses, mainly interest and other charges. This mix indicates operating improvements are likely recurring (cost control, efficiency), while the non-operating drag could persist if debt is not reduced or if rates rise. Sustainability: operating margin gains look modest and potentially sustainable; however, net margin is vulnerable to financial costs until leverage is lowered. Watch for warning signs such as SG&A growth outpacing revenue; in this quarter, OI growth (+4.7%) exceeded revenue growth (+2.1%), implying SG&A was contained relative to sales.

Growth Assessment

Revenue growth of 2.1% YoY to 103.53 suggests stable demand in core education/certification segments. Operating income increased 4.7%, indicating positive operating leverage from a controlled SG&A base versus gross profit expansion. Ordinary income (-4.4% YoY) and net income (-5.1% YoY) signal that growth quality is tempered by higher non-operating costs, particularly interest. Margin dynamics: estimated operating margin expanded by c.+17 bps to 8.3%, ordinary margin compressed by c.-56 bps to 7.8%, and net margin contracted by c.-43 bps to 5.3%. Outlook hinges on enrollment trends, course/pricing/mix, utilization of instructors/classrooms, and digital platform monetization; modest revenue growth with disciplined costs can sustain OP momentum. However, bottom-line growth will depend on managing financing costs and stabilizing working capital to improve cash conversion.

Financial Health

Liquidity: Current ratio 137.7% and quick ratio 132.2% indicate adequate short-term coverage; no warning on current ratio (<1.0) is triggered. Cash and deposits (56.71) plus receivables (44.96) comfortably cover current liabilities (82.68), and cash alone exceeds short-term loans (22.00), limiting maturity mismatch risk. Solvency: Total equity is 67.33 vs total assets 199.53, implying an equity ratio around 33.8%. Debt-to-equity is 1.96x (elevated and near the 2.0x warning threshold); Debt/EBITDA is ~5.9x, indicating meaningful leverage for a services business. Interest coverage is strong at ~40x, reflecting low absolute interest expense relative to EBIT, mitigating near-term solvency pressure. Maturity profile: presence of both short-term (22.00) and long-term loans (42.51) suggests balanced tenors; however, sustained deleveraging would reduce sensitivity to interest rate moves. Off-balance sheet obligations: not disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 0.70x (<0.8 threshold), flagging weaker cash conversion this half, likely driven by working capital absorption (receivables timing and seasonal factors common in education businesses). Operating CF was 3.83; with capex at 1.11, pre-dividend free cash flow was approximately 2.72, positive and supportive of investment needs. Financing CF of -11.48 indicates net outflows (likely debt repayment and/or dividends), consistent with balance sheet de-risking. No explicit signs of working capital manipulation from the limited dataset, but the OCF shortfall vs NI warrants monitoring of AR days and billing/collection cycles. Sustainability: Cash generation should improve if collections normalize in H2; maintaining capex discipline helps preserve FCF headroom for dividends and debt service.

Dividend Sustainability

Payout ratio is indicated at 13.5%, implying approximately 0.74 in dividend outlay against net income of 5.48. With operating cash flow of 3.83 and pre-dividend FCF of ~2.72 (after 1.11 capex), coverage of the implied dividend appears comfortable even in a weaker cash conversion quarter. Balance sheet liquidity is adequate, and interest coverage is strong, providing additional cushion. Policy outlook: Absent explicit guidance, a conservative payout aligned with earnings stability and FCF generation appears maintainable; deleveraging progress would enhance sustainability and potential flexibility.

Risk Assessment

Business Risks:

• Enrollment and pass-rate volatility affecting course demand and pricing.
• Competition in professional education and e-learning compressing margins.
• Content development and instructor cost inflation (human capital-intensive model).
• Seasonality in education cycles leading to uneven revenue and cash flows.

Financial Risks:

• Elevated leverage (D/E 1.96x; Debt/EBITDA ~5.9x) increasing sensitivity to interest rates.
• OCF/NI at 0.70x indicating weaker cash conversion and reliance on working capital normalization.
• Ordinary and net margin pressure from higher non-operating expenses.
• Refinancing risk if credit conditions tighten.

Key Concerns:

• Net income decline (-5.1% YoY) despite operating profit growth, highlighting non-operating drag.
• Potential AR buildup and collection timing risk impacting OCF.
• Limited buffer in ROIC (7.8%) relative to typical cost of capital if growth slows.

Investment Implications

Key Takeaways:

• Core operations improved: operating income +4.7% vs revenue +2.1%, modest operating margin expansion.
• Bottom-line weakened: ordinary -4.4% and net -5.1% YoY due to higher non-operating costs.
• Cash conversion soft (OCF/NI 0.70x), but liquidity adequate and pre-dividend FCF positive.
• Leverage elevated (D/E ~1.96x; Debt/EBITDA ~5.9x) though interest coverage is strong (~40x).
• ROE at 8.1% supported by leverage; ROIC 7.8% at target threshold.

Metrics to Watch:

• AR days and OCF/NI trajectory (>1.0x target) to confirm cash conversion recovery.
• Ordinary and net margin trends vs interest expense and other non-operating items.
• Debt/EBITDA and D/E path to assess deleveraging progress.
• Enrollment growth, course mix, and pricing to sustain gross and operating margins.
• Capex and digital content investment efficiency (ROIC > 8% target).

Relative Positioning: Within Japan’s education/training sector, TAC shows stable top-line and operating discipline but sits on the higher end of leverage with solid interest coverage; execution on working capital and deleveraging will determine whether ROE/ROIC can improve above sector medians.

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