Value HR Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

The first half of FY2026 delivered higher revenue and earnings, but the substantial negative Operating Cash Flow leaves concerns regarding earnings quality. Revenue was ¥5.21B (¥4.73B in the same period of the previous year, YoY+10.1%), Operating Income was ¥0.35B (+11.3%), Ordinary Income was ¥0.38B (+9.9%), and Net Income was ¥0.25B (+78.9%). The significant increase in Net Income was largely driven by extraordinary gains, including ¥0.06B in gains on the sale of investment securities, as well as non-operating income from dividends received and gains on securities sales. Meanwhile, OCF was -¥1.39B, substantially below Net Income, with the decrease in deposits received being the primary source of cash outflow.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥5.21B, representing a 10.1% year-on-year increase. By segment, the core Value Cafeteria Business expanded to ¥4.25B (81.6% of total revenue, +10.0% year-on-year), while the HR Management Business increased to ¥0.96B (18.4% of total revenue, +10.5% year-on-year), indicating balanced growth across both segments.

【Profit and Loss】Operating Income was ¥0.35B (+11.3% year-on-year), and the Operating Margin improved slightly to 6.8% from 6.7% in the previous year. The gross margin declined by -0.9pt year-on-year to 27.9%, but this was offset by an improvement in the SG&A ratio to 21.1% from 22.1%. Ordinary Income was ¥0.38B (+9.9%), supported by ¥0.02B in dividends received and ¥0.04B in gains on securities sales. Net Income increased significantly to ¥0.25B (+78.9%), but this was heavily influenced by the one-time contribution of ¥0.06B in extraordinary gains from the sale of investment securities. The effective tax rate was high at approximately 41%, suppressing Net Income. Revenue and earnings both increased.

Segment Analysis

The Value Cafeteria Business generated revenue of ¥4.25B (¥3.86B in the previous year, +10.0%) and segment profit of ¥0.83B (¥0.81B in the previous year, +2.1%), with a segment profit margin of 19.6%. The HR Management Business generated revenue of ¥0.96B (¥0.87B in the previous year, +10.5%) and segment profit of ¥0.18B (¥0.13B in the previous year, +46.5%), with a segment profit margin of 19.1%. Both businesses maintained high profitability. However, corporate expenses (unallocated expenses) increased to ¥0.66B from ¥0.62B in the previous year, compressing consolidated Operating Income to ¥0.35B. Although standalone segment profitability remains high, the expansion of head-office costs continues to constrain growth in the consolidated margin.

Key Financial Metrics

【Profitability】The Operating Margin was 6.8%, while the Net Profit Margin improved by +1.8pt to 4.8% from 3.0% in the previous year. However, part of this improvement reflects a temporary boost from extraordinary gains.【Cash Flow Quality】OCF was -¥1.39B, substantially below Net Income of ¥0.25B, and OCF/Net Income was -5.5x, indicating challenges in converting earnings into cash.【Investment Efficiency】ROE was 3.7%, while the total asset turnover ratio was 0.31x, remaining low and stable in line with the asset-intensive business structure. Capital expenditures of ¥0.05B were approximately 2/10 of depreciation and amortization of ¥0.26B, indicating restrained investment.【Financial Soundness】The Equity Ratio was 40.7%, and the current ratio was 98.2%, below 1.0x, requiring attention to short-term liquidity management. Interest-bearing debt was approximately ¥5.49B, and Debt/EBITDA was at a high level, although indicators of debt-service capacity are currently adequate.

Cash Flow Analysis

OCF was -¥1.39B, with the outflow widening from -¥1.05B in the previous year. The primary factor was a decrease in deposits received of approximately -¥2.31B. Although the increase in contract liabilities of +¥0.51B partially offset this, OCF remained substantially negative overall. Investing Cash Flow was -¥0.26B, of which capital expenditures were limited to ¥0.05B, while the acquisition of intangible assets accounted for the majority of investing activities. Financing Cash Flow was +¥0.06B. Although an increase in short-term borrowings contributed to securing funds, share repurchases of ¥0.06B and dividend payments placed pressure on cash. Free Cash Flow was -¥1.65B, and cash and deposits decreased by -32.2% year-on-year to ¥3.34B. Cash outflows from operating activities led to both the drawdown of cash and an increase in short-term borrowings, making the normalization of working capital in the second half a key focus for liquidity management.

Earnings Quality

Recurring earnings primarily comprise revenue arising from contracts with customers, while non-operating income is limited at approximately 1.3% of revenue. Non-operating income consisted of ¥0.02B in dividends received, ¥0.04B in gains on securities sales, and an immaterial amount of interest income, all of which were derived from asset management activities outside the core business. Extraordinary gains of ¥0.06B from the sale of investment securities and extraordinary losses of ¥0.01B from valuation losses on investment securities were one-time items. Although they boosted Profit Before Tax, their sustainability is limited. The effective tax rate was high at approximately 41%, placing pressure on Net Income. The fact that OCF was substantially below Net Income—that is, delayed cash conversion from an accrual perspective—should be noted when assessing earnings quality. The divergence between Ordinary Income and Net Income is primarily explained by extraordinary gains and losses and the high tax burden.

Earnings Forecast and Guidance

The first-half progress rates against the full-year forecasts of revenue of ¥11.00B, Operating Income of ¥1.65B, and Ordinary Income of ¥1.63B were 47.4%, 21.3%, and 23.1%, respectively, while the progress rate for Net Income was 24.0%. Compared with the standard progress rate of 50%, revenue was broadly in line with the plan, but profit metrics clearly indicate a back-loaded second half. The full-year Operating Income forecast assumes a substantial year-on-year increase of +86.9%. Given the front-loaded corporate expenses and business seasonality in the first half, the extent to which projects are completed and earnings accumulated in the second half will be the key to achieving the plan. The increase in contract liabilities (+¥0.51B) is one factor indicating potential for revenue recognition in the second half. There have been no revisions to either the earnings forecast or the dividend forecast.

Shareholder Returns

An interim dividend of ¥14.5 was paid (the annual dividend in the same period of the previous year was ¥13), and the full-year dividend forecast is ¥28.00. The first-half Payout Ratio against Net Income of ¥0.25B attributable to owners of the parent is high. Based on the full-year Net Income forecast of ¥1.05B, the full-year Payout Ratio is expected to be approximately 71%. In addition, the Company conducted share repurchases of ¥0.06B, resulting in total shareholder returns, including dividends, exceeding the current period’s Free Cash Flow of -¥1.65B. Cash and deposits remained at a certain level of ¥3.34B, but declined by -32.2% from the previous year. The level of shareholder returns therefore requires monitoring in light of the extent of cash flow recovery in the second half.

Risk Factors

1. Operating Cash Flow Quality: OCF was -¥1.39B, substantially below Net Income of ¥0.25B, and OCF/Net Income was -5.5x. The primary cause was the significant decrease in deposits received, and if similar fluctuations recur, their impact on liquidity management may persist.

2. Short-Term Liquidity: The current ratio was 98.2%, below 1.0x, with current assets of ¥5.05B slightly below current liabilities of ¥5.14B. Short-term borrowings increased from ¥0.35B in the previous year to ¥0.99B, requiring attention to changes in the funding structure.

3. Delayed Profit Progress Against the Full-Year Plan: First-half progress for Operating Income was only 21.3% (-28.7pt versus the standard 50%), substantially below the standard level. Achievement of the full-year forecast for significant earnings growth (+86.9%) depends on restraining the growth of corporate expenses and accumulating earnings in the second half.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability metrics are substantially below the industry median, with both its Operating Margin and Net Profit Margin ranking low within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate also falls below the industry median, placing the Company at or below the middle of the industry in terms of growth rate.

※Source: Company research

Key Points from the Financial Results

1. The Operating Margin improved slightly to 6.8% due to revenue growth and improved SG&A efficiency, but the gross margin declined by -0.9pt, indicating headwinds in the cost structure. The expansion of corporate expenses continues to constrain growth in the consolidated margin.

2. OCF was -¥1.39B (OCF/Net Income -5.5x), representing a significant divergence from Net Income. Seasonal fluctuations in liability-related items such as deposits received and contract liabilities have had a substantial impact on liquidity management. Whether these fluctuations normalize in subsequent quarters will be a key consideration in assessing earnings quality.

3. The full-year plan assumes substantial earnings growth of +86.9% in Operating Income, but first-half progress was only 21.3%. The pace of earnings accumulation and the restraint of corporate expense growth in the second half are structural points of focus that will determine the likelihood of achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥290–¥306 at Cost of Equity ±1%; ¥297–¥300 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing discrepancy with the full-year forecast).

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these values do not constitute forecasts of market prices or recommendations of any specific investment action and do not predict or guarantee future share prices.)

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This report is a financial results analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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