ASANTE INCORPORATED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.93B
• Operating Income: ¥809M
• Net Income: ¥540M
• Earnings per Unit (EPU): ¥55.31

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Soft quarter — revenue grew slightly but profit compressed materially due to negative operating leverage and weaker cash conversion. Revenue rose 1.1% YoY to 79.34, while operating income fell 29.7% YoY to 8.09 and net income declined 24.0% to 5.40. Gross profit was 55.80 with a gross margin of 70.3%, indicating the core service mix remains high margin. Operating margin deteriorated to 10.2%, down about 448 bps from ~14.7% last year (based on implied prior figures). Net margin contracted to 6.8%, roughly 225 bps lower than an implied ~9.1% a year ago. Ordinary income of 8.11 fell 25.8% YoY, indicating the decline is not primarily due to non-operating swings. Non-operating items were small (income 0.16, expense 0.14), so earnings pressure is largely operating in nature. Cash quality weakened: operating cash flow of 4.01 covers only 74% of net income (OCF/NI 0.74x), a caution flag for earnings quality this quarter. Liquidity remains very strong with a current ratio of 461.8% and cash of 72.07 against current liabilities of 20.96, implying net cash and low refinancing risk. Leverage is conservative (D/E 0.46x; long-term loans 2.89), and interest coverage is robust at 202x. ROE is 5.4% by DuPont, with net margin compression the main drag; asset turnover and leverage are modest. Reported payout ratio appears elevated at 141.8% on this period’s earnings, suggesting dividends exceeded earnings in H1; however, ample cash reserves mitigate near-term risk. With revenue essentially flat and SG&A intensity high (SG&A 47.70), operating leverage turned negative, pressuring profits. Forward-looking, restoring operating leverage via cost discipline and sales productivity will be key to stabilizing margins. We note data gaps (capex, dividends paid, full SG&A breakdown) limit deeper diagnostics on cost drivers and FCF.

Profitability Analysis

ROE decomposition: 5.4% ROE = 6.8% Net Profit Margin × 0.541 Asset Turnover × 1.46x Financial Leverage. The biggest driver of ROE weakness this quarter is the decline in net profit margin (NI down 24.0% YoY on +1.1% revenue). Operating margin compressed from an implied ~14.7% to 10.2%, pointing to higher operating cost intensity (SG&A 47.70 vs gross profit 55.80). Business reason: negative operating leverage — modest revenue growth was insufficient to absorb higher fixed/semi-fixed costs (labor, selling expenses) and possibly increased cost-of-sales mix, though COGS detail by category is unavailable. Asset turnover at 0.541 is consistent with a service model with high cash and receivables; no evidence it changed materially this quarter. Financial leverage at 1.46x is low-moderate and not a key swing factor. Sustainability: margin pressure could persist near term if wage inflation and customer acquisition costs remain elevated; however, the structurally high gross margin provides room for recovery if SG&A is managed. Concerning trends: operating income fell 29.7% while revenue rose 1.1%, implying SG&A growth outpaced revenue (exact SG&A YoY not disclosed). Effective tax rate at 33.5% is within normal range and not the cause of net profit decline.

Growth Assessment

Top-line grew 1.1% YoY to 79.34, indicating stable but slow demand. Given the high gross margin, growth in service volumes or unit pricing typically drives operating leverage; this quarter saw the opposite as OI declined 29.7%. Profit quality weakened: NI fell 24.0%, and OCF/NI was 0.74x, below the >1.0x high-quality benchmark, suggesting working capital headwinds or timing effects. Ordinary income trends mirror operating declines, implying limited contribution from non-operating tailwinds. With EBITDA of 8.85 and EBITDA margin of 11.2%, profitability remains positive but compressed versus implied prior levels. Outlook hinges on cost containment (particularly SG&A), improving technician productivity, and stabilizing demand in core household protection services. Given cash on hand and low debt, the company has flexibility to invest in sales/ops efficiency. However, without disclosed capex and SG&A breakdown, visibility on near-term margin recovery catalysts is limited. Net-net, revenue appears sustainable near current levels, but profit recovery requires better operating leverage.

Financial Health

Liquidity is very strong: current ratio 461.8% and quick ratio 461.8% (cash 72.07, AR 19.02 vs current liabilities 20.96). No warning on current ratio; it is far above 1.0. Solvency is conservative: D/E 0.46x; long-term loans 2.89 against total equity 100.40, and net cash position given large cash holdings. Interest coverage at 202x indicates minimal interest burden. Maturity mismatch risk is low: cash and receivables (≈91.09) comfortably exceed current liabilities (20.96); short-term borrowing is unreported (treated as N/A, not zero). No off-balance sheet obligations are disclosed in the provided data. Equity base is solid (owners’ equity 100.26) with BVPS around 1,026–1,027 JPY.

Cash Flow Quality

OCF/Net Income at 0.74x is below the 0.8 threshold, flagging a potential quality issue this quarter. With OCF at 4.01 vs NI 5.40, earnings did not fully translate into cash, possibly due to working capital build (e.g., receivables) or timing of payments; exact drivers are not disclosed. Free cash flow cannot be assessed due to unreported investing cash flows and capex. Financing CF was -2.33, likely reflecting dividends and/or debt service, though dividends paid are not disclosed. Given the strong cash balance, near-term liquidity is not at risk, but sustained sub-1.0 OCF/NI over multiple periods would be concerning. No clear signs of working capital manipulation can be concluded without period-on-period movements; AR stands at 19.02 (~24% of H1 revenue), which appears within a reasonable range for the business model.

Dividend Sustainability

The calculated payout ratio is 141.8%, indicating distributions exceeded earnings over this period; however, detailed dividend payments, DPS, and capex are unreported. OCF of 4.01 is below NI, and FCF coverage cannot be calculated. On balance sheet strength alone (cash 72.07, low debt), dividends appear serviceable short term. For medium-term sustainability, improving operating cash conversion and restoring operating margin will be necessary to align dividends with internally generated cash. Policy outlook cannot be inferred due to lack of disclosed DPS schedule and payout framework; we assume the high interim payout may reflect seasonality and policy consistency rather than a structural reset.

Risk Assessment

Business Risks:

• Negative operating leverage from rising SG&A vs modest revenue growth, pressuring margins
• Demand sensitivity to housing activity/renovation cycles and consumer sentiment
• Labor cost inflation and technician availability affecting service capacity and profitability
• Seasonality and weather-related fluctuations impacting service volumes
• Customer acquisition costs and marketing effectiveness influencing top-line growth

Financial Risks:

• Earnings quality risk: OCF/NI at 0.74x below quality threshold
• Potential dividend over-distribution relative to H1 earnings (calculated payout 141.8%)
• Working capital volatility (receivables timing) could constrain cash conversion
• Tax rate variability (effective tax 33.5%) affecting net margin

Key Concerns:

• Operating margin compression of ~448 bps YoY
• Net margin compression of ~225 bps YoY
• Limited disclosure on capex and SG&A breakdown reduces visibility into cost drivers
• Reliance on maintaining high gross margins to offset operating cost pressure

Investment Implications

Key Takeaways:

• Stable revenue (+1.1% YoY) but significant profit compression (-29.7% OI, -24.0% NI)
• Operating margin down to 10.2% from an implied ~14.7% due to higher operating cost intensity
• Cash conversion weak this quarter (OCF/NI 0.74x), warranting monitoring
• Balance sheet strength (net cash, current ratio ~4.6x) provides resilience
• ROE at 5.4% is constrained by margin pressure; leverage is intentionally low
• Dividend affordability short term supported by cash; medium-term sustainability depends on margin and OCF recovery

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• OCF/NI and working capital changes (AR days, collection efficiency)
• Order intake/booking trends and service volumes (seasonality-adjusted)
• Headcount and labor cost trends vs revenue growth
• DPS announcements and payout guidance vs cash generation
• Asset turnover progression and utilization of cash (capex/M&A vs buybacks/dividends)

Relative Positioning: Within domestic home services/termite protection peers, Asante maintains superior liquidity and low leverage, but faces near-term operating leverage headwinds; margin recovery and cash conversion will be pivotal to re-rate profitability metrics toward historical norms.

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