CHARM CARE CORPORATION FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥11.02B
• Operating Income: ¥1.10B
• Net Income: ¥631M
• EPS: ¥23.02

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: A solid Q1 with double-digit top-line growth and strong operating leverage, offset by liquidity tightness and sub-target capital efficiency. Revenue rose 11.7% YoY to 110.24, driven by continued scale-up of care operations, while operating income increased 26.5% YoY to 11.04, evidencing margin execution. Net income climbed 19.1% YoY to 7.52, with ordinary income up 18.9% to 11.08, indicating stable non-operating impacts. Operating margin improved to about 10.0%, and net margin reached 6.8%, both up from last year by our estimates. Using the disclosed growth rates, we estimate operating margin expanded roughly 117 bps YoY (from ~8.8% to ~10.0%). Net margin likely expanded about 43 bps YoY (from ~6.4% to ~6.8%). Gross margin is 16.0%, showing decent conversion after cost of sales, though gross margin YoY is not disclosed. Non-operating income (0.80) modestly supported ordinary profit; interest expense remains low (0.16), yielding a very strong interest coverage of 69x. Earnings quality cannot be assessed fully because operating cash flow is unreported; thus, any divergence between OCF and net income is unknown. On balance sheet, equity totals 203.87 (equity ratio ~39.7%), but current ratio is 0.894, indicating tight near-term liquidity. Debt-to-equity is 1.52x (loans of 111.73 vs cash of 70.60), implying manageable leverage but above the conservative benchmark. ROE is calculated at 3.7% for the period, and ROIC is 3.1%, below the 5% warning threshold, underscoring capital efficiency headwinds typical of asset-heavy care models. Goodwill and intangibles sum to 49.13, about 24% of equity, implying some impairment sensitivity if profitability falters. The reported payout ratio (calculated) is 147.9%, appearing high versus earnings capacity, though dividends are otherwise unreported and cash coverage is unknown. Forward-looking, sustaining operating margin gains will hinge on occupancy, pricing, and labor cost control; liquidity management (short-term debt rollover) is a near-term focus. Overall, execution is improving at the P&L level, but liquidity and low ROIC temper the quality of the beat.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.7% = Net Profit Margin 6.8% × Asset Turnover 0.214 × Financial Leverage 2.52x. Component changes vs last year are not fully disclosed; however, with revenue +11.7% and operating income +26.5%, the biggest implied driver is margin expansion (operating margin +~117 bps YoY by our estimate), lifting net margin modestly. Business rationale: better operating leverage from higher occupancy and scale (SG&A ratio 8.12% of sales this quarter) and controlled interest burden (interest expense 0.16) helped translate growth into profit. This improvement appears partially sustainable if occupancy and pricing hold, but the care industry’s labor intensity means wage inflation or staffing shortfalls could quickly compress margins. Asset turnover at 0.214 reflects the asset-heavy nature of care facilities and likely limits ROE without further mix improvement or asset-light growth. Financial leverage at 2.52x provides a boost to ROE but raises sensitivity to refinancing and rate conditions. Watch for signs of negative operating leverage if SG&A growth outpaces revenue; current quarter suggests the opposite (OP growth > revenue growth), which is positive.

Growth Assessment

Revenue grew 11.7% YoY to 110.24, consistent with capacity additions and maturing facilities; the growth looks organic and recurring rather than one-off. Operating income rose 26.5% to 11.04, indicating improved operating leverage and cost discipline. Non-operating line contributed modestly (+0.80), with limited reliance on volatile items. Net income up 19.1% to 7.52 confirms earnings growth breadth after taxes. Given the sector, sustainability rests on occupancy stabilization, reimbursement environment, and wage control; absent exogenous shocks, mid-teens revenue growth is plausible if the opening pipeline continues. Profit quality would be better evidenced with OCF data (unreported); until then, we treat the quality as unverified. ROIC at 3.1% remains below cost of capital benchmarks, so incremental growth must come with improved unit economics or capital efficiency to be value-accretive.

Financial Health

Liquidity: Current ratio 0.894 and quick ratio 0.894 are below 1.0—explicit warning for near-term liquidity tightness. Working capital is negative at -24.43, indicating reliance on short-term funding and rapid cash conversion. Maturity mismatch: Current liabilities 231.13 vs current assets 206.70 suggests rollover risk; short-term loans of 52.39 are material relative to cash (70.60) and receivables (38.75). Solvency: Total loans (short + long) are 111.73; with cash 70.60, net debt is ~41.13; debt-to-equity is 1.52x (above conservative 1.5x but not extreme). Equity ratio is ~39.7% (203.87/514.18), providing a reasonable capital buffer. Interest coverage is very strong at 69x, mitigating near-term interest burden concerns. No off-balance sheet obligations are reported in the data provided.

Cash Flow Quality

OCF, investing CF, and FCF are unreported, so OCF/Net Income and FCF coverage cannot be assessed—no quality flag can be made from absent data. Earnings appear supported by operating leverage, but without working capital details (inventories unreported, payables limited disclosure), potential timing effects on cash are unknown. Negative working capital (-24.43) and current ratio <1.0 imply dependence on continuous cash conversion and/or debt rollover to support operations and growth. Dividend and capex cash coverage cannot be evaluated due to missing CF data. No clear signs of aggressive working capital manipulation are detectable from the limited dataset, but monitoring AR levels (38.75; ~35% of quarterly sales) relative to billing cycles is prudent.

Dividend Sustainability

Reported dividend data is largely unreported; the calculated payout ratio of 147.9% appears elevated relative to Q1 earnings capacity. Without OCF and FCF, coverage is indeterminable, but a payout above 100% would not be sustainable over a full year absent special factors (e.g., past retained earnings draw, seasonality, or planned increases). The balance sheet shows adequate equity (203.87) but tight liquidity (current ratio 0.894), arguing for prudence in cash distributions if growth capex and debt service remain needs. Policy outlook: Expect emphasis on stable dividends, but room for growth likely hinges on improving FCF and ROIC; we cannot validate either this quarter due to missing CF and capex data.

Risk Assessment

Business Risks:

• Labor cost inflation and staffing shortages pressuring margins in an employee-intensive care model
• Occupancy rate volatility affecting revenue and operating leverage
• Regulatory/reimbursement changes in long-term care impacting pricing and profitability
• Infection outbreaks (e.g., seasonal flu) driving temporary costs and occupancy dips
• Execution risk on new facility openings and ramp-up curves

Financial Risks:

• Liquidity risk: current ratio 0.894 and negative working capital requiring short-term funding
• Refinancing risk on short-term loans (52.39) amid potential rate increases
• ROIC at 3.1% below 5% threshold, risking value dilution if growth remains capital intensive
• Impairment risk: goodwill and intangibles totaling 49.13 (~24% of equity)

Key Concerns:

• Sustaining operating margin gains amid wage and utility cost pressures
• Cash flow visibility is low due to unreported OCF/FCF
• High calculated payout ratio (147.9%) vs earnings capacity
• Asset turnover constraints (0.214) limiting ROE upside without efficiency improvements

Investment Implications

Key Takeaways:

• Solid P&L momentum: revenue +11.7% YoY; operating income +26.5% YoY
• Margin expansion: operating margin ~10.0% (+~117 bps YoY est.); net margin 6.8% (+~43 bps YoY est.)
• Strong interest coverage (69x) but tight liquidity (current ratio 0.894)
• Capital efficiency remains weak: ROIC 3.1%, ROE 3.7%
• Net debt moderate (~41.13) with equity ratio ~39.7%, providing some solvency cushion

Metrics to Watch:

• Operating cash flow and FCF (coverage of dividends and capex)
• Occupancy rates and unit price per resident
• Personnel cost ratio and SG&A as a percentage of sales
• Short-term debt rollover and average interest rate
• ROIC trend by cohort of facilities (mature vs new)
• Working capital dynamics (AR days, payables terms)

Relative Positioning: Within the Japanese elderly care space, the company demonstrates above-peer operating leverage this quarter but remains constrained by low ROIC and tight short-term liquidity; its solvency and interest coverage are solid, positioning it as operationally improving yet financially cautious.

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