en Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥29.62B
• Operating Income: ¥2.37B
• Net Income: ¥1.75B
• EPS: ¥43.47

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: mixed quarter with resilient operating profit but materially weaker bottom line quality and cash conversion. Revenue fell 8.9% YoY to 296.2, reflecting demand softness and/or portfolio pruning, yet operating income was broadly flat at 23.7 (-0.5% YoY). Gross profit remained high at 250.1 with an 84.4% gross margin, underpinning the defensiveness of the model. SG&A was 226.4, equating to 76.4% of sales; cost control versus revenue decline supported operating margin stability. Operating margin improved to about 8.0%; using implied prior-period levels, this is a ~+67 bps expansion as revenue fell faster than operating income. Ordinary income rose 11.3% YoY to 23.8, as non-operating items were modestly positive (1.98 income vs 1.84 expense), leaving ordinary margin near 8.0%. Net income dropped 66.3% YoY to 17.5, compressing net margin to 5.9% and implying a steep ~-1,007 bps YoY margin contraction, likely driven by prior-year one-offs and/or tax normalization given PBT stability and a 26.6% effective tax rate this term. Cash conversion weakened: operating CF of 13.0 is only 0.74x net income, triggering an earnings quality flag. Liquidity is strong with a 203% current ratio and cash of 156.8 exceeding current liabilities (coverage ~1.15x). Leverage appears conservative with a reported D/E of 0.50x and interest coverage of 102.9x. Intangible assets are sizable (intangible 123.9 and goodwill 33.0, together ~31% of assets), implying some impairment sensitivity if growth stalls. ROE is 5.2% via DuPont (5.9% margin × 0.592 turnover × 1.50x leverage), below typical mid- to high-single-digit targets, though reported ROIC of 9.8% is healthy. Shareholder returns were front-loaded via financing cash outflows of -51.1, including -20.7 in buybacks, outpacing internal cash generation. The calculated payout ratio of 198.9% suggests an aggressive capital return posture that is unlikely to be sustainable without stronger FCF. Forward-looking, stabilizing operating margins and strong liquidity provide a base, but revenue headwinds, earnings quality (OCF lag), and elevated intangibles warrant caution on the durability of EPS and dividends.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.2% = Net Profit Margin 5.9% × Asset Turnover 0.592 × Financial Leverage 1.50x. The largest YoY swing is at the net margin level: net income fell 66.3% YoY while revenue declined 8.9%, implying ~-1,007 bps compression in net margin, despite a roughly +67 bps expansion in operating margin. Business drivers: operating resilience reflects SG&A discipline amid lower sales; the net margin collapse likely relates to non-recurring items and/or tax normalization versus a high prior-year base, as PBT was steady while ordinary income rose. Sustainability: operating margin improvement from cost control is moderately sustainable if revenue stabilizes, but the net margin is unlikely to recover to prior-year levels if last year benefited from one-offs. Efficiency: asset turnover at 0.592 indicates a capital-light model but slowed with the revenue decline; leverage is modest at 1.50x, limiting ROE amplification. Watch for SG&A growth relative to revenue; currently, revenue declined faster than SG&A in absolute terms, but SG&A discipline helped lift operating margin—if SG&A re-accelerates ahead of sales, margin gains could reverse.

Growth Assessment

Top-line contracted 8.9% YoY to 296.2, indicating demand softness or deliberate business mix shifts. Operating income held at 23.7 (-0.5% YoY), demonstrating operating leverage containment. Ordinary income improved 11.3% YoY on balanced non-operating items, but net income plunged 66.3% YoY to 17.5, pointing to non-recurring effects or tax/base effects below ordinary income. EBITDA was 38.7 (13.1% margin), supporting ongoing investment capacity. With ROIC at 9.8% (above a 7–8% benchmark), the core investment returns remain solid despite near-term revenue pressure. Outlook hinges on stabilizing client hiring demand and maintaining SG&A discipline; absent a revenue re-acceleration, further margin expansion will be challenging. Given OCF lag (0.74x NI) and elevated capital returns, near-term EPS growth will likely depend on organic demand recovery rather than additional financial engineering.

Financial Health

Liquidity is strong: current ratio 202.7% and quick ratio 202.7%, with cash of 156.8 covering current liabilities 1.15x. No warning thresholds triggered (Current Ratio >> 1.0; D/E 0.50x well below 2.0). Working capital stands at 140.3, reducing refinancing risk. Maturity mismatch risk appears low given high cash and modest payables (11.2); short-term debt is unreported, so we cannot assess reliance on ST borrowings. Solvency is robust: interest coverage 102.9x and equity of 334.4 versus total assets of 500.7 (leverage 1.50x). Balance sheet composition shows intangibles of 123.9 and goodwill of 33.0 (~31% of assets), implying sensitivity to impairment if growth or profitability in acquired units weakens. Off-balance sheet obligations are not disclosed in the provided data.

Cash Flow Quality

OCF of 13.0 vs net income of 17.5 yields 0.74x, below the >1.0 comfort threshold and flagged as a quality concern. FCF can’t be fully computed due to missing investing CF, but reported capex is light at -0.87, suggesting that absent working capital swings, the business should be structurally cash generative. Financing CF of -51.1 (including -20.7 of buybacks) exceeded OCF, implying shareholder returns funded partly by cash on hand or undisclosed financing/investing flows. Without period-on-period working capital detail, we cannot isolate whether receivables or other current items drove OCF shortfall, but the OCF/NI ratio suggests timing or accrual effects. Sustainability: to maintain current capital returns, OCF must improve (closer to NI) or returns must moderate.

Dividend Sustainability

Dividend data are unreported; however, the calculated payout ratio is 198.9%, indicating that total shareholder returns (likely including buybacks) exceeded earnings. With OCF/NI at 0.74x and investing CF unreported, FCF coverage of dividends cannot be verified but appears tight if the elevated payout persists. Balance sheet liquidity (cash 156.8, low leverage) provides near-term flexibility, but sustaining a near-200% payout would be unsound without a rebound in earnings and cash conversion. Policy outlook: expect normalization of payout toward cash generation unless earnings and OCF recover; buyback pace may moderate given this quarter’s cash outflow profile.

Risk Assessment

Business Risks:

• Revenue decline of 8.9% YoY indicates demand softness in core HR services and recruitment solutions.
• Operating leverage risk if SG&A re-accelerates ahead of sales, compressing the ~8% operating margin.
• High intangible asset base (~31% of assets) elevates impairment risk if growth underperforms.
• Client hiring cycles and macro employment conditions could prolong top-line weakness.
• Competitive intensity in online recruitment/HR tech could pressure pricing and acquisition costs.

Financial Risks:

• OCF/NI at 0.74x signals weaker cash conversion and potential working capital volatility.
• Shareholder returns (-51.1 financing CF, -20.7 buybacks) outpaced OCF, raising sustainability concerns.
• Potential earnings volatility from tax normalization or non-recurring items affecting net income.
• Limited visibility on debt structure and investing CF due to unreported items.

Key Concerns:

• Net margin compressed by ~1,007 bps YoY despite steady operating profit, highlighting bottom-line volatility.
• Payout ratio at 198.9% is unlikely to be sustainable if OCF does not improve.
• Revenue pressure may cap further operating margin expansion absent incremental cost actions.

Investment Implications

Key Takeaways:

• Operating margin improved to ~8.0% despite a near-9% revenue decline, evidencing cost discipline.
• Net income fell 66.3% YoY, likely reflecting non-recurring or tax effects; core profitability above the line is steadier.
• Cash conversion is soft (OCF/NI 0.74x); watch for normalization to support capital returns.
• Balance sheet strength (current ratio ~203%, cash > current liabilities) provides resilience.
• ROIC at 9.8% remains healthy relative to benchmarks, but ROE is subdued at 5.2% due to lower net margin and modest leverage.

Metrics to Watch:

• Revenue trajectory and bookings/pipeline indicators for HR services
• SG&A-to-sales ratio and operating margin sustainability
• OCF/NI and working capital turns (AR collections)
• Effective tax rate and any extraordinary gains/losses below ordinary income
• Buyback/dividend pace relative to OCF and available cash
• Intangible asset impairment testing outcomes

Relative Positioning: Within HR/recruitment peers, the company shows strong gross margins and liquidity with disciplined operating costs, but weaker cash conversion and a sharp YoY decline in net income leave its earnings quality and dividend capacity less robust near term.

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