JAPAN RELIANCE SERVICE CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.74B
• Operating Income: ¥71M
• Net Income: ¥162M
• EPS: ¥16.80

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

RSC Co., Ltd. (4664) reported a materially weaker FY2026 Q2, with revenue of ¥3,744 million declining 26.3% YoY and operating income falling 70.8% to ¥71 million. Profitability compressed sharply, as evidenced by an EBITDA margin of 2.3% and operating margin of 1.9%, highlighting thin operating buffers in a labor-intensive model. Net income decreased 70.2% to ¥48 million, translating to an ROE of 2.19% via DuPont (net margin 1.28%, asset turnover 0.948x, financial leverage 1.80x). Gross profit is disclosed at ¥845 million (22.6% margin), indicating positive value-add despite pressured volume and pricing; however, the reported cost of sales figure appears inconsistent with gross profit, so we rely on the disclosed gross profit and the provided margin metric. Cash generation deteriorated markedly: operating cash flow was -¥960 million, implying an OCF/Net income ratio of -20.0x, indicative of significant working capital outflows and/or revenue recognition/collection timing issues. Financing cash inflow of ¥337 million suggests reliance on external funding to bridge operating cash needs, while investing cash flow is undisclosed (shown as zero), limiting free cash flow assessment. Liquidity appears strong on a snapshot basis with current ratio 236% and working capital of ¥1,689 million, but the negative OCF tempers comfort and raises questions about cash conversion. Leverage is moderate (debt-to-equity 0.90x), and interest burden remains manageable with interest coverage at 29.8x, consistent with low absolute interest expense of ¥2.4 million. The effective tax rate metric is shown as 0.0% despite a disclosed tax expense, indicating classification/timing differences or partial-period effects; we place greater weight on profitability and cash metrics than on the tax line for this interim period. Dividend is currently nil (DPS ¥0, payout 0%), consistent with the need to conserve cash amid negative OCF and compressed earnings. Asset turnover below 1x and subdued margins indicate limited operating leverage and a need for scale or mix improvement to restore profitability. The equity ratio is shown as 0% but is likely undisclosed rather than truly zero; based on total equity of ¥2,196 million versus total assets of ¥3,948 million, balance-sheet solvency appears adequate. Overall, the quarter underscores pressure from volume declines and cost rigidity, with the most acute concern being poor cash conversion that contrasts with reported profitability. Data limitations (several line items undisclosed or internally inconsistent) require caution; our analysis prioritizes the provided calculated ratios and non-zero disclosures.

Profitability Analysis

ROE_decomposition: Reported ROE is 2.19%, consistent with DuPont components: net margin 1.28% x asset turnover 0.948x x financial leverage 1.80x. The primary drag is extremely low net margin; leverage moderately supports ROE but does not compensate for margin compression. margin_quality: Gross margin is disclosed at 22.6% (gross profit ¥845 million). Operating margin is roughly 1.9% (operating income ¥71 million on revenue ¥3,744 million), and EBITDA margin is 2.3% (EBITDA ¥84.7 million), indicating high fixed/semi-fixed cost pressure and weak operating efficiency. The large YoY decline in operating income (-70.8%) versus revenue (-26.3%) suggests negative operating leverage and/or unfavorable mix/pricing. operating_leverage: Revenue contraction amplified profit decline, pointing to limited variable cost flexibility. D&A is modest (¥13.7 million), so the operating model is largely labor-driven; wage inflation, overtime, and utilization likely drive margin volatility. Restoring volume and improving unit economics (bill rates vs. labor costs) are key to leveraging fixed overhead.

Growth Assessment

revenue_sustainability: Revenue fell 26.3% YoY to ¥3,744 million, implying loss/downsizing of contracts or demand softness in traffic guidance/security services. Without disclosed backlog or segment granularity, sustainability is uncertain; seasonality and contract timing could also be factors. profit_quality: Operating income down 70.8% to ¥71 million and net income down 70.2% to ¥48 million point to deteriorating earnings quality. The OCF/Net income ratio of -20.0x highlights weak cash realization, likely from receivables build or advance cost recognition vs. later billing/collection. outlook: Near-term recovery hinges on contract wins/renewals, bill rate adjustments to offset wage pressures, and normalization of working capital. Given thin EBITDA margins (2.3%) and negative OCF, visibility is low until evidence of revenue stabilization and cash conversion improves.

Financial Health

liquidity: Current assets of ¥2,928 million vs. current liabilities of ¥1,238 million yield a current ratio of 236% and working capital of ¥1,689 million, indicating ample short-term buffer. However, negative OCF of ¥960 million challenges liquidity quality absent clear cash balances (cash is undisclosed). solvency: Debt-to-equity is 0.90x (moderate), and interest coverage is strong at 29.8x due to low interest costs (¥2.4 million). Total equity is ¥2,196 million vs. total assets ¥3,948 million, implying an equity ratio in the mid-50% range by construction (the reported 0% is an undisclosed placeholder). capital_structure: The company supplemented liquidity via ¥337 million net financing inflow. With compressed earnings, maintaining conservative leverage is prudent; room remains, but sustained negative OCF could pressure the balance sheet if prolonged.

Cash Flow Quality

earnings_quality: OCF of -¥959.8 million vs. net income of ¥48 million (OCF/NI -20.0x) signals poor cash conversion, likely from working capital outflows (receivables or unbilled revenues) and/or timing mismatches. This undermines the quality of reported earnings. FCF_analysis: Investing cash flow is undisclosed (shown as zero), preventing a reliable free cash flow calculation. Given deeply negative OCF, true FCF is likely negative in the period. working_capital: The magnitude of negative OCF suggests significant WC consumption; monitoring receivables days, unbilled work, and payables terms is critical. Without cash and C&CE detail (undisclosed), visibility into liquidity runway is limited.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 and payout ratio 0.0%, consistent with conserving cash amidst earnings pressure. With net income at ¥48 million and negative OCF, capacity to pay dividends is currently constrained. FCF_coverage: FCF coverage cannot be assessed due to undisclosed investing cash flows; however, negative OCF implies inadequate coverage for any meaningful distribution. policy_outlook: Until profitability normalizes and cash conversion improves, dividend resumption appears unlikely. Capital allocation may prioritize working capital and balance-sheet resilience.

Risk Assessment

Business Risks:

• Contract loss/downsizing leading to a 26.3% YoY revenue decline
• Labor cost inflation (minimum wage hikes, overtime) compressing margins
• Pricing pressure in security/traffic guidance services limiting pass-through
• Utilization and staffing mismatches causing negative operating leverage
• Customer concentration risk if revenue is reliant on a few large contracts
• Execution risk in winning/renewing contracts at acceptable margins

Financial Risks:

• Negative operating cash flow of ¥960 million despite positive earnings
• Potential liquidity strain if working capital outflows persist
• Reliance on financing inflows (¥337 million) to bridge cash needs
• Moderate leverage (0.90x D/E) could rise if cash burn continues
• Limited visibility due to undisclosed cash and investing cash flows

Key Concerns:

• Weak cash conversion (OCF/NI -20.0x)
• Thin EBITDA margin (2.3%) and low ROE (2.19%)
• Revenue contraction (-26.3% YoY) indicating demand or contract risk
• Data inconsistencies (CoGS vs. gross profit, tax line) and undisclosed items

Investment Implications

Key Takeaways:

• Top-line declined 26.3% YoY to ¥3,744 million; scale pressure evident
• Operating income fell 70.8% to ¥71 million; EBITDA margin at 2.3%
• ROE at 2.19% driven by low net margin (1.28%); leverage moderate at 1.80x
• Operating cash flow -¥960 million contrasts with positive earnings
• Liquidity ratios appear strong, but quality is weakened by cash burn
• Dividend suspended (DPS ¥0) consistent with cash preservation

Metrics to Watch:

• Order intake/contract renewals and revenue run-rate
• Billing rates vs. labor cost inflation and overtime levels
• Receivables days, unbilled revenue, and OCF trajectory
• Headcount utilization and SG&A discipline
• Leverage (D/E) and reliance on external financing
• EBITDA margin recovery toward mid-single digits

Relative Positioning: Within Japan’s labor-intensive security/traffic guidance services, RSC currently exhibits weaker growth and profitability with heightened cash conversion risk versus a stable peer set; restoring volume and improving pricing-power-to-wage dynamics are essential to regain competitiveness.

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