Japan Animal Referral Medical Center Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.03B
• Operating Income: ¥591M
• Net Income: ¥413M
• EPS: ¥159.88

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: Strong FY2026 Q2 with double-digit top-line growth and outsized operating leverage, but a mild liquidity tightness warrants monitoring. Revenue rose 18.1% YoY to 30.33, supported by improved profitability as operating income grew 68.4% YoY to 5.91 and net income climbed 70.2% to 4.13. Operating margin expanded to roughly 19.5% (5.91/30.33), up from an estimated ~13.7% a year ago, implying about 580 bps expansion. Net margin improved to 13.6%, up by an estimated ~410 bps from ~9.5% in the prior year. Gross profit was 12.11, implying a gross margin of 39.9%; coupled with controlled SG&A of 6.20, this drove significant operating leverage. Earnings quality is solid: OCF of 5.64 exceeds net income (OCF/NI = 1.36x), indicating cash-backed earnings. Interest coverage is robust at 33.4x, reflecting a low financing burden relative to operating earnings. Capital intensity remains meaningful with depreciation and amortization of 2.83 and reported capex of 3.94, consistent with a specialty medical platform investing in equipment and infrastructure. Balance sheet shows total assets of 90.34 and equity of 44.61 (financial leverage ~2.03x), producing a calculated ROE of 9.3%—healthy but with room to improve. Liquidity is the main near-term watch-point: the current ratio is 0.98 (below 1.0) and quick ratio 0.93, reflecting a modest working capital deficit (-0.36). Cash on hand is 11.53 versus short-term loans of 2.29, which provides an immediate cushion despite the sub-1.0 current ratio. Based on OCF and capex, estimated FCF is roughly 1.70, which appears adequate for a modest dividend policy (calculated payout ratio 25.8%) but could be tight when combined with share repurchases (-1.72). Leverage (total liabilities/equity) is 1.03x, conservative for the sector, and long-term loans dominate the debt stack (26.29 vs short-term 2.29), limiting near-term refinancing pressure. Forward-looking, margin gains and cash conversion strengthen confidence in FY progress, but sustaining capex, buybacks, and potential dividend growth will require disciplined working capital and continued operating efficiency.

Profitability Analysis

ROE (9.3%) decomposition: Net Profit Margin (13.6%) × Asset Turnover (0.336) × Financial Leverage (2.03x). The largest positive change appears in net profit margin, given operating income grew 68.4% vs revenue +18.1%, indicating strong operating leverage. Operating margin expanded from an estimated ~13.7% to 19.5% (+580 bps), driven by scaling effects (revenue growth outpacing SG&A and fixed-cost absorption) and disciplined cost control. Asset turnover at 0.336 reflects the capital-intensive nature of advanced veterinary medical facilities and did not materially change based on available data. Financial leverage is stable at ~2.03x (Assets/Equity), contributing a steady multiplier to ROE without indicating excessive risk. Sustainability: Margin gains are partly structural (better utilization, mix, and scale), but some pace of expansion may moderate as growth normalizes; continued SG&A discipline is key. No signs that SG&A growth exceeded revenue growth this quarter (absolute SG&A 6.20 vs strong revenue growth), supporting quality of margin improvement.

Growth Assessment

Top-line growth of 18.1% YoY to 30.33 is robust, likely underpinned by higher case volumes, improved utilization, and potentially favorable service mix in advanced procedures. Operating income growth of 68.4% demonstrates powerful operating leverage and suggests prior capacity investments are yielding returns. Net income rose 70.2%, benefitting from margin expansion and stable non-operating items (net non-operating near zero at -0.01). With EBITDA of 8.74 (28.8% margin), the business is now operating at a healthier level of profitability than last year. Near-term outlook: If revenue growth remains double-digit and operating discipline holds, margins could remain elevated; risks include staffing costs for specialized veterinarians and ongoing capex needs to sustain capacity and technology. The effective tax rate of ~29.9% appears normal and should not be a swing factor. Reported ROIC of 6.7% trails the 7–8% target range; continued margin gains and disciplined invested capital deployment are needed to lift ROIC >7–8% over time.

Financial Health

Liquidity: Current ratio 0.98 and quick ratio 0.93 indicate mild liquidity tightness; explicit warning as CR < 1.0. Working capital is slightly negative (-0.36), but cash of 11.53 comfortably exceeds short-term loans of 2.29, mitigating immediate risk. Solvency: Total liabilities/equity is 1.03x (conservative), with long-term loans 26.29 and short-term 2.29; balance sheet is not over-levered. Interest coverage at 33.4x is strong, indicating ample capacity to service debt. Maturity profile: Predominantly long-term debt reduces near-term refinancing pressure; no material maturity mismatch given cash buffer, though sub-1.0 current ratio warrants monitoring. Off-balance sheet obligations: Not disclosed in the provided data; no assessment possible.

Cash Flow Quality

OCF/Net Income at 1.36x indicates good earnings quality, with cash generation exceeding accounting profits. Using reported OCF (5.64) and capex (3.94), estimated FCF is ~1.70 (management did not report FCF, this is a derived figure). FCF sustainability appears reasonable for a modest dividend policy, but concurrent buybacks (-1.72) largely consume estimated FCF, implying reliance on opening cash or incremental leverage for total shareholder returns. Working capital does not show signs of manipulation in the data (OCF is strong vs NI, and no abnormal swings reported in receivables/inventories beyond modest balances). Financing CF of -1.13 reflects net outflows from shareholder returns and/or debt service; detailed breakdown of dividends is unreported.

Dividend Sustainability

Calculated payout ratio is 25.8%, comfortably below the <60% benchmark and consistent with a sustainable baseline policy. Based on derived FCF of ~1.70, dividend coverage appears adequate in isolation; however, when combined with buybacks (-1.72), total shareholder returns may exceed current-period FCF. With cash of 11.53 and conservative leverage, the company can maintain dividends near current levels, but dividend growth will hinge on sustaining OCF growth and prudent capex pacing. Lack of disclosed total dividends paid limits precise FCF coverage analysis; we rely on the calculated payout ratio and inferred coverage.

Risk Assessment

Business Risks:

• Capacity and utilization risk in advanced veterinary hospitals; underutilization would compress margins.
• Talent retention and staffing costs for specialized veterinarians and technicians, potentially pressuring SG&A.
• Procedure mix and pricing risk; shift toward lower-margin services could erode profitability.
• Technology and equipment obsolescence requiring ongoing capex to maintain service quality.
• Regulatory or industry guideline changes affecting advanced animal medical procedures or pricing.

Financial Risks:

• Liquidity tightness with current ratio at 0.98 and negative working capital (-0.36).
• Capex intensity (3.94) requires sustained OCF; a slowdown could necessitate additional financing.
• Shareholder returns (buybacks) nearing estimated FCF could pressure cash if continued alongside capex.
• Interest rate risk on floating-rate borrowings, though current interest burden is low (coverage 33x).

Key Concerns:

• Sub-1.0 current ratio despite strong earnings momentum.
• ROIC at 6.7% below the 7–8% target range, indicating room to enhance capital efficiency.
• High reliance on intangible assets (goodwill 1.32, other intangibles 4.43) may concentrate value in non-tangible assets.

Investment Implications

Key Takeaways:

• Strong quarter with 18.1% revenue growth translating into 68.4% operating income growth.
• Operating margin expanded an estimated ~580 bps YoY to ~19.5%, signaling solid operating leverage.
• Earnings quality is high (OCF/NI 1.36x) and interest coverage is robust (33x).
• Liquidity is the main watch-point (CR 0.98; QR 0.93) though cash comfortably exceeds short-term debt.
• Estimated FCF (~1.70) supports dividends but is largely consumed when combined with buybacks.

Metrics to Watch:

• Case volume and ASP/mix per procedure to gauge sustainability of revenue growth.
• Operating margin trajectory and SG&A discipline versus revenue growth.
• OCF/NI ratio and working capital trends (receivables and payables days).
• Capex to sales and ROIC progression toward or above 7–8%.
• Net debt/EBITDA and interest coverage to monitor balance sheet resilience.
• Current ratio and quick ratio recovery above 1.0.

Relative Positioning: Within specialty animal healthcare providers, the company exhibits above-peer operating leverage and strong cash conversion, offset by slightly tighter liquidity and ROIC below top-tier thresholds; overall operational momentum is favorable if growth and utilization are maintained.

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