SHUEI YOBIKO Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.89B
• Operating Income: ¥-241M
• Net Income: ¥-396M
• EPS: ¥-59.02

Income Statement

Balance Sheet

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: FY2026 Q2 was weak with a continued operating loss, though slightly narrower YoY, and liquidity remains a key concern. Revenue in the half was 48.87 (100M JPY), up a modest 0.3% YoY, indicating flat demand in a competitive cram school market. Gross profit was 4.82 with a gross margin of 9.9%, insufficient to cover SG&A of 7.23, resulting in an operating loss of -2.41. Operating loss improved by 6.5% YoY in absolute terms, suggesting some incremental cost control or mix improvements, but profit structure remains fragile. Ordinary loss was -2.40 as non-operating items were net neutral (income 0.15 vs expenses 0.14), implying limited financial buffer from below-the-line items. Net loss widened to -3.96 (-32.9% YoY), driven by factors below ordinary income, including a positive tax expense of 0.23 despite losses (effective tax rate -6.2%), likely reflecting non-deductible items or tax equalization adjustments. Operating margin was -4.9% and ordinary margin -4.9%, underscoring limited operating leverage at current scale. SG&A-to-sales stood at 14.8%, above gross margin, indicating insufficient scale and/or pricing to cover fixed costs. Interest expense was 0.09, and with operating loss, interest coverage was -27.5x, highlighting debt service pressure if losses persist. Liquidity weakened: current ratio is 79.2% and quick ratio the same, with negative working capital of -3.71, implying a maturity mismatch (short-term obligations exceed liquid assets). Balance sheet is asset-heavy (noncurrent assets 75.08, 84% of total), constraining flexibility to absorb shocks without refinancing. Leverage by total liabilities is elevated (D/E 1.19x), but loan-based leverage appears moderate (short-term 2.18 and long-term 6.44), making liquidity more pressing than solvency. ROE is -9.7% driven primarily by a negative net margin (-8.1%) and middling asset turnover (0.548), while financial leverage (2.19x) amplifies losses. ROIC of -5.9% is below any acceptable hurdle, indicating value destruction at present returns. Cash flow data were not disclosed, preventing a direct OCF vs. NI quality check; this is a key limitation. Forward-looking, the company needs either revenue density improvements (enrollment, pricing, utilization) or structural SG&A reductions to reach breakeven, while shoring up liquidity to mitigate refinancing risk.

Profitability Analysis

ROE decomposition (DuPont): ROE (-9.7%) = Net Profit Margin (-8.1%) × Asset Turnover (0.548) × Financial Leverage (2.19x). The dominant drag is the negative net profit margin; asset turnover is moderate for an education service business, and leverage contributes only modestly. Business drivers: flat revenue (+0.3% YoY) combined with a low gross margin (9.9%) and SG&A ratio (14.8%) produced an operating margin of -4.9%. The slim non-operating contribution (net +0.01) could not offset operating weakness; the positive tax expense further widened net losses. Sustainability: absent a material mix shift or cost restructuring, margin pressure appears structural rather than one-off. With limited pricing power and fixed cost intensity (facilities, personnel), achieving margin breakeven likely requires enrollment growth or capacity rationalization. Concerning trends: (1) SG&A exceeds gross profit, signaling scale shortfall; (2) Net income deteriorated -32.9% YoY despite a slightly better operating result, implying unfavorable below-the-line items; (3) ROIC at -5.9% fails to cover any reasonable WACC, indicating ongoing value erosion.

Growth Assessment

Top-line growth of +0.3% YoY to 48.87 is essentially flat, suggesting limited momentum in enrollments or average tuition per student. The operating loss narrowed by 6.5% YoY, implying minor efficiency gains, but not enough to offset structural cost burden. Gross margin at 9.9% is weak for the sector and below SG&A intensity, indicating insufficient capacity utilization or discounting to sustain volumes. With no disclosed segment data, the sustainability of revenue is unclear; seasonality and entrance exam cycles typically concentrate earnings in Q3–Q4 for cram schools, but current run-rate indicates elevated risk to full-year breakeven. The lack of disclosed depreciation or capex obscures whether facility investments will pressure future earnings through higher fixed costs. Outlook hinges on: recruitment for winter and spring terms, retention rates, class utilization, and any price actions. Given negative ROIC and weak liquidity, growth is unlikely to be pursued aggressively without external funding or asset optimization, which could cap near-term revenue upside. Overall growth quality is low until the company either improves unit economics or realigns cost structure.

Financial Health

Liquidity: Current ratio 79.2% and quick ratio 79.2% are below 1.0 (warning), indicating reliance on rollover of payables/short-term borrowings or cash drawdown. Working capital is negative at -3.71, highlighting a maturity mismatch as current liabilities (17.84) exceed current assets (14.14). Cash and deposits total 8.73 versus short-term loans of 2.18, but against total current liabilities cash coverage is only 0.49x, stressing near-term liquidity. Solvency: Debt-to-equity (total liabilities/equity) is 1.19x, not extreme but elevated given losses; loan-based leverage (ST loans 2.18, LT loans 6.44) appears manageable if profitability improves. Interest coverage is deeply negative (-27.5x), reflecting the current loss-making status rather than high interest burden per se. Asset structure: Noncurrent assets are 84% of total, potentially limiting flexibility to meet short-term needs without refinancing or asset sales. No off-balance sheet obligations were reported; however, absence of lease disclosure data limits assessment of hidden liabilities.

Cash Flow Quality

OCF, FCF, and cash reconciliation were not disclosed, so OCF/Net Income and FCF coverage cannot be assessed. This is a material limitation given the negative earnings and tight liquidity. Potential risks include working capital strain due to enrollment timing and receivables collection; however, receivables are small (1.89), implying limited collection risk but also limited working capital release potential. With operating losses and negative interest coverage, internally generated cash is likely inadequate to fund both maintenance capex and any dividends without drawing on cash or debt. No clear signs of working capital manipulation can be identified from the limited data; monitoring deferred revenue and tuition prepayments would be critical, but such items were not disclosed.

Dividend Sustainability

Dividend data were not reported, but a calculated payout ratio of -16.9% implies dividends were paid despite a net loss. Based on net loss of -3.96, this suggests an estimated total dividend outflow of roughly 0.67 (100M JPY) if the calculation methodology is standard; this is an assumption given missing DPS/total dividends figures. With unreported OCF and ongoing operating losses, dividend coverage from free cash flow cannot be confirmed and appears risky. Equity remains positive (40.74), but persistent losses would erode capacity to fund distributions. Unless profitability and OCF recover, maintaining cash dividends could pressure liquidity, particularly with the current ratio below 1.0.

Risk Assessment

Business Risks:

• Flat revenue growth (+0.3% YoY) amid intense competition in the cram school market pressures pricing and utilization.
• Low gross margin (9.9%) versus SG&A intensity (14.8%) indicates structurally weak unit economics.
• Seasonality risk around entrance exam cycles may concentrate performance in later quarters, amplifying volatility.
• Teacher recruitment/retention and wage inflation risk could further compress margins.
• Potential demand headwinds from demographic decline in school-age population in Japan.

Financial Risks:

• Liquidity risk: Current ratio 0.79 and negative working capital (-3.71) imply a maturity mismatch and reliance on refinancing/rollover.
• Debt service risk: Interest coverage -27.5x with operating losses raises covenant and refinancing concerns if losses persist.
• ROIC -5.9% signals value destruction and potential constraints on funding future investments.
• Tax cash outflows despite losses (effective tax rate -6.2%) reduce financial flexibility.

Key Concerns:

• Sustained operating losses despite slight YoY improvement in operating income.
• Balance sheet rigidity with 84% in noncurrent assets limits short-term flexibility.
• Lack of cash flow disclosure obscures earnings quality and FCF capacity.
• Ordinary income near operating income indicates limited non-operating buffers to absorb shocks.

Investment Implications

Key Takeaways:

• Earnings remain loss-making; slight YoY improvement at operating level offset by larger net loss.
• Liquidity is the immediate pressure point (CR 0.79, negative working capital).
• Unit economics need improvement: gross margin below SG&A leads to structural operating losses.
• Leverage is moderate on a loan basis, but debt service is strained due to negative EBIT.
• ROE (-9.7%) and ROIC (-5.9%) indicate ongoing value erosion absent a turnaround.

Metrics to Watch:

• Enrollment growth, student retention, and average tuition per student.
• Classroom utilization and capacity rationalization progress.
• SG&A trajectory vs. revenue growth (target SG&A-to-sales below gross margin).
• Operating margin and interest coverage improving toward positive territory.
• Operating cash flow and free cash flow, including working capital movements (deferred revenue, receivables).
• Liquidity metrics: current ratio, cash-to-current liabilities, refinancing of short-term loans.

Relative Positioning: Within Japan's education/cram school peers, the company currently lags on profitability (negative operating margin) and capital efficiency (ROIC -5.9%), with weaker liquidity than desirable. Competitive recovery would require either above-peer enrollment/pricing gains or decisive cost restructuring.

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
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