COVER Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.75B
• Operating Income: ¥2.67B
• Net Income: ¥2.00B
• EPS: ¥30.46

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

For FY2026 Q2 (single-entity, JGAAP), カバー株式会社 delivered strong top-line growth with revenue of ¥21.754bn, up 27.2% YoY, but experienced margin compression, leading to a YoY decline in operating income (-20.9%) to ¥2.666bn and net income (-5.7%) to ¥1.999bn. Operating margin stands at 12.3% (operating income/revenue), and EBITDA margin is 13.6%, reflecting modest depreciation and amortization of ¥0.299bn relative to the revenue base. The company’s DuPont breakdown shows ROE of 10.55%, driven by a 9.19% net profit margin, asset turnover of 0.658x, and financial leverage of 1.75x, indicating a balanced contribution from profitability and efficiency with moderate leverage. Gross margin is indicated at 41.8% per the provided calculated metric; this suggests a high-value-add content/service model, although reported cost classifications may vary under JGAAP and cumulative interim reporting. Ordinary income of ¥2.674bn is close to operating income, consistent with negligible interest expense and limited non-operating items. Cash generation is a bright spot: operating cash flow (OCF) of ¥2.903bn represents a healthy 145% conversion of net income, supportive of earnings quality. Liquidity is solid with a current ratio of 151.2% and working capital of ¥7.744bn, underpinned by current assets of ¥22.872bn against current liabilities of ¥15.128bn. The balance sheet shows total equity of ¥18.947bn and liabilities of ¥16.112bn (D/E of 0.85x), implying a conservative capital structure; our computed equity ratio is approximately 57.3% (equity/total assets), noting the provided 0.0% equity ratio field appears undisclosed rather than truly zero. The effective tax rate implied by the income statement is approximately 26–27% (income tax ¥0.719bn vs pre-tax proxy of ordinary income ¥2.674bn), despite the provided 0.0% figure in the calculated metrics. No dividend was declared (DPS ¥0; payout 0%), consistent with reinvestment and growth posture. Investing cash flows and cash & equivalents were not disclosed in this dataset, and free cash flow cannot be reliably computed without capex detail; the FCF value shown as 0 should be treated as “not disclosed.” Despite the margin pressure evident in the YoY decline in operating income, the company maintains robust liquidity, prudent leverage, and good cash conversion. The key to the outlook will be sustaining revenue momentum while normalizing operating expense growth and content-related costs to stabilize margins. Overall profitability remains respectable for the growth profile, and ROE at 10.55% is reasonable given the capital structure. Data limitations (notably undisclosed investing cash flows, cash balance, and share count) temper precision, but the available figures support a view of solid fundamentals with near-term margin headwinds.

Profitability Analysis

ROE is 10.55%, decomposed into a 9.19% net profit margin, 0.658x asset turnover, and 1.75x financial leverage. Operating margin is approximately 12.3% (¥2.666bn / ¥21.754bn), down YoY given the -20.9% decline in operating income despite strong revenue growth (+27.2%), indicating cost growth outpaced sales. Gross margin is indicated at 41.8%, suggesting healthy unit economics in aggregate; however, cost classification under JGAAP and interim seasonality may affect comparability within the year. EBITDA of ¥2.965bn (margin 13.6%) reflects light D&A (¥0.299bn), which limits non-cash support to earnings and implies limited fixed-asset intensity. Ordinary margin is also ~12.3%, with negligible interest expense (reported as 0), so non-operating items did not materially affect profitability. The implied effective tax rate is roughly 26–27% based on income tax of ¥0.719bn, consistent with typical Japanese statutory ranges. Operating leverage appears unfavorable this period: revenue growth did not translate into operating profit growth, pointing to higher content production, talent/creator costs, promotion, or platform fees growing faster than sales. Scaling efficiency will be critical; incremental margins need to improve to close the gap between top-line momentum and bottom-line softness. Given asset turnover at 0.658x on a cumulative H1 basis, efficiency is reasonable for a content/IP-driven business but leaves room for improvement through better monetization per asset base. The stability of ordinary income versus operating income signals low financial income/expense sensitivity, so future margin changes will primarily reflect core operations.

Growth Assessment

Revenue growth of +27.2% YoY to ¥21.754bn demonstrates strong demand and successful monetization initiatives. However, operating income declined 20.9% YoY to ¥2.666bn, indicating near-term margin pressure and rising opex intensity. Net income decreased 5.7% to ¥1.999bn, cushioned by low financing costs and manageable taxes, but still reflecting reduced operating leverage. Sustainability of growth hinges on maintaining engagement and IP monetization, controlling content-related costs, and improving pricing/mix or international contributions. The solid net margin (9.19%) and healthy OCF/NI ratio (1.45x) support the quality of earnings despite compression at the operating line. With D&A low, growth is less capex-heavy, but undisclosed investing cash flows make it difficult to gauge the scale of intangible investments or strategic spend in H1. Outlook-wise, if cost growth normalizes in H2 and revenue momentum persists, incremental margins could recover; absent that, profitability could remain under pressure. Near-term comps will be sensitive to event timing, release schedules, or campaign cadence typical of digital/content models. Revenue mix quality (first-party IP vs. third-party/platform, domestic vs. overseas) is not disclosed here, which constrains the depth of sustainability assessment. Nonetheless, the combination of top-line expansion and positive cash conversion suggests underlying demand remains intact, with execution on cost discipline the key swing factor.

Financial Health

Total assets are ¥33.080bn, liabilities ¥16.112bn, and equity ¥18.947bn. We estimate an equity ratio of ~57.3% (equity/assets), despite the disclosed equity ratio field showing 0.0% (treated as not disclosed). Debt-to-equity is 0.85x on a broad liabilities-to-equity basis, indicating moderate leverage for a growing content/IP company. Current assets of ¥22.872bn versus current liabilities of ¥15.128bn yield a current ratio of 151.2% and quick ratio of 151.2% (inventories not disclosed), supporting short-term liquidity. Working capital stands at ¥7.744bn, providing a buffer against operating volatility. Interest expense is reported as 0, so coverage ratios based on interest are not meaningful; nonetheless, operating profitability and cash generation are adequate. The balance sheet appears conservatively financed with meaningful equity, reducing solvency risk. Absence of disclosed cash & equivalents limits precision on liquidity assessment, but the strong current asset base and positive OCF mitigate concerns. No evidence of covenant pressure or short-term refinancing needs is observable from the provided data.

Cash Flow Quality

Operating cash flow of ¥2.903bn exceeds net income of ¥1.999bn (OCF/NI 1.45x), indicating solid earnings-to-cash conversion and implying either favorable working capital dynamics or non-cash expense contribution. D&A is modest at ¥0.299bn, so the majority of OCF quality likely stems from working capital management and true cash profitability rather than heavy non-cash add-backs. Investing cash flow is undisclosed (shown as 0), preventing assessment of capital intensity, capex discipline, or M&A/intangible investments in H1. Free cash flow cannot be reliably computed without capex; the FCF figure shown as 0 should be treated as not disclosed rather than an actual zero. Financing cash flow of ¥0.059bn is minimal, suggesting limited reliance on external financing during the period. Given positive OCF and moderate leverage, the company appears capable of self-funding operations and selective investments, barring large-scale strategic outlays. Working capital components are not broken out, but the favorable OCF/NI ratio suggests no material deterioration in receivables or payables during the period. Continued monitoring of OCF versus operating income will be important to validate the persistence of cash conversion.

Dividend Sustainability

The company did not declare a dividend for the period (DPS ¥0; payout 0%), consistent with a growth-focused capital allocation strategy. With net income of ¥1.999bn and positive OCF of ¥2.903bn, internal cash generation appears sufficient to support operations and potential investments. However, without disclosed capex/investing cash flows and cash balances, we cannot confirm free cash flow coverage of any hypothetical dividend; the FCF coverage shown as 0 should be treated as undisclosed. Balance sheet strength (estimated equity ratio ~57%) and moderate leverage (D/E 0.85x) provide flexibility for future shareholder returns if strategically appropriate. Near-term, management appears to be prioritizing reinvestment to support growth and margin recovery. Any future dividend policy would need to balance growth investment needs, cash flow visibility, and potential volatility inherent in content-driven revenues.

Risk Assessment

Business Risks:

• Margin pressure from rising content production, creator/talent costs, platform fees, or marketing spend outpacing revenue growth
• Revenue volatility due to event timing, release schedules, and consumer engagement patterns typical of digital/content businesses
• Platform dependency risk (distribution/monetization channels) and potential policy or algorithm changes
• Regulatory and compliance risks related to digital content, IP licensing, and international operations
• Competitive intensity in the creator economy/digital entertainment space affecting pricing power and talent retention
• Concentration risk in key franchises, talents, or regions (mix not disclosed here)

Financial Risks:

• Operating leverage risk given YoY decline in operating income despite strong revenue growth
• Limited visibility on investing cash flows and capex, obscuring free cash flow sustainability
• Potential working capital swings affecting cash conversion in subsequent quarters
• Tax rate normalization risk around 26–27% impacting net margins
• Exposure to FX if overseas revenue/costs are material (not disclosed)

Key Concerns:

• Sustained margin compression if opex growth is not controlled
• Lack of disclosed investing cash flows and cash balance restricts assessment of FCF and liquidity cushions
• Dependence on content performance and platform dynamics for top-line growth

Investment Implications

Key Takeaways:

• Strong top-line growth (+27.2% YoY) but weaker operating leverage (-20.9% YoY operating income)
• ROE of 10.55% supported by a 9.19% net margin and moderate leverage (1.75x)
• Healthy cash conversion (OCF/NI 1.45x) offsets some earnings pressure
• Solid liquidity (current ratio 151%) and conservative solvency (estimated equity ratio ~57%)
• EBITDA margin at 13.6% with modest D&A, indicating limited fixed-asset intensity
• Dividends suspended (DPS ¥0), consistent with reinvestment focus

Metrics to Watch:

• Operating margin and opex ratios (sales promotion, content/talent costs) for signs of normalization
• OCF versus operating income to validate cash earnings quality
• Capex and investing cash flows to assess true FCF and capital intensity
• Revenue mix and international exposure (if disclosed) to gauge sustainability
• Effective tax rate trend relative to statutory benchmarks
• Balance of liabilities to equity (D/E) and maintenance of working capital buffer

Relative Positioning: Within Japan’s digital entertainment/creator economy cohort, the company exhibits above-average revenue growth with moderate leverage and solid liquidity, but near-term operating margin pressure places it behind peers that are converting growth to profits more efficiently; sustained cash conversion is a relative strength.

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