Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥161.8B | ¥144.2B | +12.2% |
| Operating Income | ¥61.0B | ¥51.6B | +18.2% |
| Profit Before Tax | ¥58.3B | ¥49.0B | +19.0% |
| Net Income | ¥40.7B | ¥31.8B | +27.9% |
| ROE | 15.1% | 11.0% | - |
Executive Summary
The second quarter delivered higher revenue and earnings, with profitability improving year on year, resulting in a strong performance. Revenue was ¥161.8B (+12.2% YoY), Operating Income was ¥61.0B (+18.2%), and Net Income was ¥40.7B (+27.9%), securing growth in both revenue and earnings, with the earnings growth rate exceeding the revenue growth rate. The Operating Income margin was 37.7%, with cost control and operating leverage serving as the primary factors driving profit growth. Progress against the Full-Year plan was also broadly in line with a linear trajectory, at 48.9% for Revenue, 51.3% for Operating Income, and 51.5% for Net Income.
Factors Affecting Performance
【Revenue】Revenue increased 12.2% YoY to ¥161.8B. Although segment information is not disclosed, continued business expansion from the previous year appears to have contributed to the revenue increase.
【Profit and Loss】Operating Income was ¥61.0B (+18.2% YoY), Profit Before Tax was ¥58.3B (+19.0%), and Net Income was ¥40.7B (+27.9%), with each showing growth exceeding the revenue growth rate. The Operating Income margin rose to 37.7%. The impact of non-operating financial income of ¥0.3B and financial expenses of ¥2.9B was limited, with most of the earnings growth attributable to improved profitability in the core business. The fact that Net Income growth further exceeded Operating Income growth reflects that the tax burden, with an effective tax rate of 30.2%, did not change significantly from the previous year, resulting in the growth in Profit Before Tax being directly reflected. Overall, the current period delivered higher revenue and earnings and can be evaluated as high-quality growth, with the earnings growth rate exceeding the revenue growth rate.
Key Financial Indicators
【Profitability】The Operating Income margin was 37.7% and the Net Income margin was 25.2%, both at high levels, while ROE reached 15.1%. ROE can be explained by the combination of a Net Income margin of 25.2%, total asset turnover of 0.219x, and financial leverage of 2.74x. While the high profit margin is the primary driver of ROE, total asset turnover is relatively low due to the significant proportion of fixed assets, primarily goodwill.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥42.5B, exceeding Net Income of ¥40.7B, resulting in an OCF/NI ratio of approximately 1.04x and indicating strong cash conversion of earnings.【Investment Efficiency】Capital expenditures were small at ¥1.1B, indicating a light investment burden.【Financial Soundness】The Equity Ratio was 36.5%, down slightly from 37.9% in the previous year. Goodwill was ¥360.4B, exceeding net assets of ¥269.9B, and accounted for 48.7% of total assets, which should be noted as a feature of the financial structure.
Cash Flow Analysis
Operating Cash Flow was ¥42.5B, down 16.8% from ¥51.1B in the previous year, but remained above Net Income of ¥40.7B, indicating strong cash backing for earnings. In terms of working capital, trade receivables increased by ¥9.9B, while income taxes and other taxes paid amounted to ¥25.6B, reducing OCF from the subtotal of ¥70.8B. Investing Cash Flow was -¥2.8B, with both capital expenditures and intangible asset acquisitions remaining small, securing Free Cash Flow of ¥39.7B. Financing Cash Flow was a substantial -¥66.0B, primarily due to dividend payments of ¥18.2B and share repurchases of ¥49.6B. Total returns, comprising dividends and share repurchases, amounted to ¥67.9B, exceeding Free Cash Flow of ¥39.7B, and cash and cash equivalents declined to ¥133.6B.
Earnings Quality
Current-period earnings were primarily generated by the core business, and earnings quality can be evaluated as high. Non-operating items, including financial income of ¥0.3B and financial expenses of ¥2.9B, as well as other income of ¥2.1B and other expenses of ¥0.0B, were small relative to Revenue, and the impact of temporary factors on Profit Before Tax of ¥58.3B was limited. The effective tax rate was approximately 30.2%, calculated as income taxes and other taxes of ¥17.6B divided by Profit Before Tax of ¥58.3B, and remained stable with no significant change from the previous year. As Operating Cash Flow exceeded Net Income, the divergence between accounting earnings and cash flow was small, with no deterioration in earnings quality due to accrual factors. Comprehensive income was equal to Net Income at ¥40.7B, with no unusual factors causing fluctuations through other comprehensive income.
Earnings Forecasts and Guidance
Progress against the Full-Year forecast was 48.9% for Revenue, calculated as ¥161.8B/¥330.7B; 51.3% for Operating Income, calculated as ¥61.0B/¥119.0B; and 51.5% for Net Income, calculated as ¥40.7B/¥79.0B. These figures are close to the standard 50% progress rate at the Q2 stage, and no strong signal of either front-loaded or back-loaded performance is evident. The Full-Year forecast calls for Revenue growth of +10.9%, Operating Income growth of +20.5%, and Net Income growth of +24.9%, representing a broadly consistent trend with the current-period growth rates of Revenue +12.2%, Operating Income +18.2%, and Net Income +27.9%. There were no revisions to the earnings or dividend forecasts during the current quarter.
Shareholder Returns
The Q2 dividend was ¥38 per share. The Payout Ratio, calculated from dividend payments of ¥18.2B against Net Income of ¥40.7B, was approximately 44.8%. In addition, the company conducted share repurchases of ¥49.6B, bringing total returns, including dividends and share repurchases, to ¥67.9B, exceeding both Free Cash Flow of ¥39.7B and Net Income of ¥40.7B. Dividends alone are at a level that can be fully funded by Free Cash Flow; however, the Total Return Ratio, including share repurchases, is high, and the trend in cash generation will be critical to sustaining this level of returns going forward. A stock split at a ratio of 1 share to 2 shares was conducted in October 2025, and the Q2 dividend amount is stated on a pre-split basis.
Risk Factors
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Prolonged collection of trade receivables: Trade receivables and notes receivable were ¥127.7B, up from ¥117.8B in the previous year. Their accumulation at a pace exceeding Revenue growth suggests a risk of working capital becoming tied up.
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Scale of goodwill: Goodwill was ¥360.4B, exceeding net assets of ¥269.9B and accounting for 48.7% of total assets of ¥739.8B. If the business environment deteriorates, the structure could allow impairment risk to have a significant impact on financial indicators.
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Level of total returns: Total returns of ¥67.9B, comprising dividends of ¥18.2B and share repurchases of ¥49.6B, exceeded Free Cash Flow of ¥39.7B. Cash and cash equivalents have declined from the previous year, and securing funding sources for maintaining the same level of returns will be a challenge.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (insurance)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 37.7% | – | – |
| Net Income Margin | 25.2% | – | – |
As industry median data is not yet available, only the company’s figures are presented.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 12.2% | – | – |
As industry median data is not yet available, only the company’s figures are presented.
Source: Compiled by the Company
Key Takeaways from the Financial Results
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Net Income growth of +27.9% exceeded Revenue growth of +12.2%, and the improvement in the Operating Income margin to 37.7% indicates high-quality profit growth.
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Operating Cash Flow exceeded Net Income, indicating strong cash conversion of earnings. However, the fact that trade receivables are increasing faster than Revenue warrants attention when monitoring future cash conversion trends.
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The structure in which goodwill exceeds net assets is a distinctive feature of the company’s balance sheet. Together with the Equity Ratio declining from 37.9% in the previous year to 36.5%, this should be noted as a change in the capital structure.
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and, where necessary, after consulting with a professional.
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AI Financial Analysis
Executive Summary
NS Group delivered a strong FY2026 Q2 result, with revenue growth, margin expansion and faster net-income growth. Revenue increased 12.2% YoY to ¥16.18bn. Operating income rose 18.2% to ¥6.10bn, outperforming the top line. Net income increased 27.9% to ¥4.07bn, exceeding the operating-profit growth rate. The operating margin expanded by 191bp YoY to 37.7% from 35.8%. Net margin expanded by 309bp YoY to 25.2% from 22.1%. This margin performance indicates favorable operating leverage, as operating expenses increased 8.0% YoY, below revenue growth. Profit before tax increased 19.0% to ¥5.83bn. Finance costs of ¥0.29bn remained modest relative to operating income, resulting in a 0.957 interest-burden factor. The effective tax rate was 30.2%, with the tax-burden factor at 0.698. Operating cash flow was ¥4.25bn and exceeded net income by 4%, supporting the quality of reported earnings. Free cash flow was also solid at ¥3.97bn, as capital expenditure was limited to ¥0.11bn. However, receivables increased by ¥0.99bn and annualized DSO was elevated at approximately 139 days, requiring attention to collection discipline and contract billing terms. The balance sheet is heavily shaped by ¥36.04bn of goodwill, equivalent to 133.5% of equity and 48.7% of total assets. Interest-bearing debt totaled ¥25.39bn, while debt-to-equity was 1.74x and debt-to-capital was 48.5%, indicating meaningful but not excessive balance-sheet leverage. The supplied liquidity-stress alert is not supported by the reported cash and debt balances: cash of ¥13.36bn is 13.8x short-term loans of ¥0.97bn, rather than below 0.5x. Still, the current ratio is 1.39x, below the 1.5x healthy benchmark, because current liabilities are approximately ¥20.17bn. Capital returns were aggressive, with ¥1.83bn of dividends and ¥4.97bn of share repurchases; the resulting total return ratio was approximately 167% of Q2 cumulative net income. Full-year guidance was maintained, and Q2 progress is broadly in line with the annual plan, supporting the view that the earnings momentum is currently consistent with management expectations.
Profitability Analysis
Annualized DuPont ROE was 30.1%, comprising a 25.2% net profit margin, 0.437x asset turnover and 2.74x financial leverage. The exceptionally high net margin is the principal contributor to ROE, while balance-sheet leverage provides a meaningful additional uplift. Annualized ROA is approximately 10.9%, based on annualized Q2 net income of ¥8.14bn and average total assets of approximately ¥75.1bn, indicating strong underlying asset profitability. Operating margin improved to 37.7% from 35.8%, a 191bp expansion, and net margin improved by 309bp to 25.2%. The larger net-margin expansion than operating-margin expansion reflects the increase in other income to ¥0.21bn from ¥0.27bn in the prior period being less influential than core operating leverage, while the tax burden remained around 30%. Revenue grew 12.2% whereas operating expenses rose 8.0% to ¥10.29bn, demonstrating positive cost leverage. The 0.957 interest-burden factor indicates that financing costs currently impose only a limited drag on pre-tax profit despite ¥25.39bn of interest-bearing debt. The 0.698 tax-burden factor is marginally below the 0.70 normal reference point but is consistent with the reported 30.2% effective tax rate. Operating profit remains the central earnings driver, with other income representing only 1.3% of revenue and therefore not materially affecting recurring-profit interpretation. IFRS accounting means goodwill is not amortized routinely, which supports reported operating income relative to a comparable JGAAP acquirer that amortizes goodwill. Consequently, operating margins and ROE should be assessed together with the substantial goodwill concentration and potential future impairment exposure.
Growth Assessment
Growth was broad-based at the consolidated level, with revenue up ¥1.76bn YoY and operating income up ¥0.94bn. The 18.2% increase in operating income exceeded revenue growth by 6.0 percentage points, demonstrating scalability in the current earnings model. Net income increased by ¥0.89bn, or 27.9%, and therefore converted a high proportion of incremental operating profit into shareholder earnings. FY2026 full-year guidance calls for revenue of ¥33.07bn, operating income of ¥11.90bn and net income of ¥7.90bn. Q2 cumulative revenue progress was 48.9% of the full-year forecast, 1.1 percentage points below the standard 50% midpoint. Operating-income progress was 51.2%, 1.2 percentage points above the standard midpoint. Net-income progress was 51.5%, 1.5 percentage points above the standard midpoint. The combination of slightly lower revenue progress and above-midpoint profit progress suggests that the full-year target is currently supported by margin strength rather than an unusually front-loaded sales profile. The maintained forecast, with no revision to earnings or dividends, indicates management sees the first-half outcome as consistent with its plan. Revenue sustainability should nevertheless be monitored through receivable conversion, as trade receivables increased to ¥12.77bn from ¥11.78bn. The receivables build was slightly faster than revenue growth on an ending-balance basis, and high DSO makes billing, collection and customer-credit execution important determinants of cash conversion in the second half.
Financial Health
Total assets were ¥73.98bn, funded by ¥46.99bn of liabilities and ¥27.00bn of equity, producing a 36.5% equity ratio. Total equity declined from ¥28.88bn in the prior period to ¥27.00bn, primarily because owner distributions exceeded the period's retained profit contribution. Interest-bearing debt was ¥25.39bn, comprising ¥0.97bn of short-term loans and ¥24.42bn of long-term loans. Debt-to-equity was 1.74x, below the 2.0x aggressive-leverage warning threshold but still indicative of a debt-funded capital structure. Debt-to-capital was 48.5%, above the 40% investment-grade reference level but below the 60% concern threshold. Short-term debt was only 3.8% of total interest-bearing debt, which limits near-term refinancing and maturity-mismatch risk. Cash of ¥13.36bn substantially exceeded short-term loans of ¥0.97bn, providing strong direct coverage of short-term borrowings. The quality alert labeled LIQUIDITY_STRESS appears inconsistent with the reported balances, since calculated cash-to-short-term-loans coverage is 13.8x; the relevant liquidity consideration is instead the broader current-liability base. Current assets were ¥28.07bn and estimated current liabilities were ¥20.17bn, resulting in a current ratio of 1.39x. This does not breach the 1.0x warning threshold, but it is below the 1.5x healthy benchmark. Estimated working capital was ¥7.89bn, with cash and receivables together representing the principal liquid-asset base. Lease liabilities totaled ¥0.92bn and the net defined-benefit liability was ¥5.20bn; these obligations are not material relative to total debt but are relevant to fixed-commitment assessment. The dominant solvency issue is goodwill of ¥36.04bn, equal to 133.5% of equity. GOODWILL_RISK is therefore material: the balance sheet's equity value depends substantially on acquired-business value retention, and any impairment would reduce equity and increase leverage. This goodwill concentration is not a normal feature of asset-light businesses without acquisition exposure and increases sensitivity to integration performance, forecast revisions and discount-rate assumptions.
Notable B/S Changes
Goodwill: ¥36.04bn, representing 48.7% of total assets and 133.5% of equity - unusually concentrated acquisition-related asset base; impairment testing and acquired-business performance are critical to equity preservation.
Cash Flow Quality
Cash-flow quality was sound in FY2026 Q2, with operating cash flow of ¥4.25bn versus net income of ¥4.07bn. The 1.04x OCF-to-net-income ratio exceeds the 1.0x high-quality benchmark and does not indicate an accrual-led earnings shortfall. The accruals ratio was negative 0.2%, also consistent with high reported-earnings quality. Operating cash flow was reduced from the ¥7.09bn pre-working-capital and tax subtotal by ¥0.99bn of receivables growth, ¥0.05bn of lower payables, ¥0.11bn of other working-capital outflows, ¥2.56bn of taxes paid, ¥0.29bn of interest paid and ¥0.17bn of lease payments. The receivables outflow is the principal working-capital item to monitor. HIGH_RECEIVABLE_DAYS is a valid risk signal: annualized DSO was approximately 139 days using average receivables and annualized Q2 revenue, well above the 60-day reference level. Elevated DSO may be structural to the company's commercial model, but it increases sensitivity of cash conversion to collection timing and counterparty credit quality. Free cash flow was ¥3.97bn after ¥0.11bn of capital expenditure, demonstrating low capital intensity. Intangible-asset purchases were ¥0.18bn, which remains modest against operating cash flow. The business generated enough free cash flow to fund the ¥1.83bn dividend, but not the combined ¥6.79bn of dividends and share repurchases in the period. Financing cash outflow of ¥6.60bn, principally ¥4.97bn of treasury-share purchases and ¥1.83bn of dividends, exceeded internally generated free cash flow and reduced cash by ¥2.63bn. Cash therefore fell from ¥15.98bn to ¥13.36bn, despite positive operating cash generation.
Dividend Sustainability
The Q2 dividend was ¥38.00 per share, and the full-year forecast is ¥76.00 per share. The calculated dividend payout ratio was 48.7%, which is below the 60% sustainability reference point. Dividend cash payments of ¥1.83bn were covered 2.01x by free cash flow of ¥3.97bn, indicating that the dividend alone is well covered by internally generated cash. The forecast dividend of ¥76.00 per share is also consistent with forecast EPS of ¥153.50, implying an expected full-year payout ratio of approximately 49.5%. The dividend policy outlook is therefore supported by current profitability, strong operating cash conversion and moderate dividend payout. The more material capital-allocation issue is the ¥4.97bn share repurchase program. Dividends plus buybacks totaled ¥6.79bn, equivalent to approximately 167% of Q2 cumulative net income and 171% of free cash flow. This total return ratio exceeds the 100% warning level and was funded partly through the existing cash balance rather than current-period free cash flow. Continued repurchases at this scale would reduce liquidity and may constrain deleveraging if operating cash flow weakens or acquisition-related needs arise. The capital-return framework should therefore be evaluated alongside debt reduction and preservation of equity against goodwill impairment risk.
Risk Assessment
Business risks include Receivable-collection risk is elevated: trade receivables were ¥12.77bn and annualized DSO was approximately 139 days. The high DSO alert indicates that delayed customer collections could pressure operating cash flow even if reported revenue and profit remain strong., Goodwill impairment risk is high: goodwill of ¥36.04bn equals 48.7% of assets and 133.5% of equity. Under IFRS, goodwill is subject to impairment testing rather than routine amortization, so underperformance of acquired businesses, lower growth assumptions or higher discount rates could create a material non-cash charge., Acquisition integration and acquired-business execution are industry-specific risks for an M&A-shaped business model. The size of goodwill relative to equity indicates that successful retention of acquired customers, personnel and earnings capacity is central to value preservation., Margin normalization risk remains relevant after a 191bp operating-margin expansion. A slower revenue environment or a reversal in operating leverage could limit the ability to sustain a 37.7% operating margin..
Financial risks include Debt-to-equity of 1.74x and debt-to-capital of 48.5% create meaningful leverage sensitivity, although the short-term debt ratio of 3.8% limits immediate refinancing pressure., Current-ratio liquidity is adequate but not abundant at 1.39x. Cash covers short-term loans by 13.8x, but broader current liabilities of approximately ¥20.17bn reduce the liquidity buffer., Aggressive shareholder distributions create cash-depletion risk: total dividends and repurchases of ¥6.79bn exceeded free cash flow of ¥3.97bn., Interest costs are currently manageable, with a 0.957 interest-burden factor, but future borrowing costs could rise if debt is refinanced at higher rates..
Key concerns include Highest priority: preservation of acquired-business value, because goodwill exceeds total equity by 33.5%., High priority: conversion of revenue into cash, given elevated DSO and the ¥0.99bn receivables-related operating cash outflow., Medium priority: capital-allocation discipline, as buybacks materially exceeded period free cash flow when combined with dividends., Medium priority: maintaining operating-margin gains while delivering the second-half revenue required to meet full-year guidance..
Investment Implications
Key takeaways include FY2026 Q2 showed strong operating execution: revenue grew 12.2%, operating income grew 18.2%, and net income grew 27.9%., Profitability is high, with a 37.7% operating margin, 25.2% net margin and 30.1% annualized ROE., Earnings were cash-backed, with operating cash flow equal to 1.04x net income and ¥3.97bn of free cash flow., Full-year guidance remains achievable on current progress, with operating-income and net-income progress modestly ahead of the standard Q2 midpoint., The key balance-sheet trade-off is strong earnings versus high acquisition-related goodwill concentration and meaningful financial leverage., The dividend appears sustainable on a standalone basis, while the combined dividend and buyback program is substantially more demanding of liquidity..
Metrics to watch include Trade receivables and annualized DSO, particularly whether second-half cash conversion improves from approximately 139 days., Goodwill impairment-test assumptions, acquired-business profitability and any change in goodwill relative to equity., Operating-margin durability versus the 37.7% Q2 level., Cash balance, current ratio and debt-to-equity after shareholder returns., The scale of future buybacks relative to free cash flow and debt reduction., Progress against full-year revenue guidance of ¥33.07bn and operating-income guidance of ¥11.90bn..
Regarding relative positioning, The company screens as a high-margin, high-ROE and cash-generative IFRS consolidator, with profitability stronger than standard operating-margin and ROE benchmarks. Its relative risk profile is also above that of a conservatively financed organic-growth company because goodwill exceeds equity, debt-to-equity is 1.74x, receivables convert slowly and shareholder returns currently exceed free cash flow.