HOPE,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.55B
• Operating Income: ¥97M
• Net Income: ¥40M
• EPS: ¥2.65

Income Statement

Balance Sheet

Cash Flow Statement

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: Solid topline and operating profit momentum, but bottom-line underperformed due to a very high tax burden and weak cash conversion. Revenue rose to 15.54 (100M JPY), up 18.8% YoY, while operating income increased 49.9% YoY to 0.97. Gross profit reached 9.42, implying a gross margin of 60.6%. Operating margin improved to 6.24%, reflecting operating leverage as costs scaled more slowly than revenue. Ordinary income grew 53.4% YoY to 1.01, supported by net non-operating gains of roughly 0.04. Despite these positives, net income fell 20.4% YoY to 0.40, primarily due to an elevated effective tax rate of 56.5% on pre-tax profit of 0.91. Net margin compressed to 2.6%, highlighting the disconnect between operating improvement and final earnings. Using implied prior-period figures, operating margin expanded by approximately 129 bps YoY (to 6.24% from about 4.95%), but net margin contracted by roughly 127 bps (to 2.57% from about 3.84%). Cash flow quality is a concern: operating cash flow was only 0.08, yielding OCF/NI of 0.21x, well below the 0.8x benchmark. Liquidity is healthy with a current ratio of 186% and quick ratio of 151%, and interest coverage is strong at 66x, but leverage at the total level (D/E 1.33x; loans 4.83 vs EBITDA 1.08 → Debt/EBITDA ~4.5x) warrants monitoring. Balance sheet shows ample cash (12.28) relative to current liabilities (10.83), reducing short-term refinancing risk. ROE stands at 3.9% based on net margin 2.6%, asset turnover 0.649, and financial leverage 2.33x; profitability, not leverage, is the main bottleneck. Reported ROIC is 17.1%, suggesting efficient use of invested capital, though definitions may differ from standard NOPAT-based calculations. Shareholder returns included share repurchases of 1.61, financed alongside positive financing CF of 3.26, despite thin OCF and CapEx of 0.27. Forward-looking, normalization of the tax rate, improved cash conversion, and sustained operating discipline are key for translating revenue growth into durable EPS and ROE gains. Overall, execution on costs is improving, but earnings quality and tax drag must resolve for the equity story to strengthen.

Profitability Analysis

ROE decomposition: 3.9% = Net Profit Margin (2.6%) × Asset Turnover (0.649) × Financial Leverage (2.33x). The component with the most notable movement in the period’s P&L is margin: operating margin expanded meaningfully, while the net margin contracted due to an outsized effective tax rate. Business driver: revenue growth (+18.8% YoY) combined with controlled cost scaling (operating income +49.9% YoY) indicates positive operating leverage; however, tax expense of 0.51 on PBT of 0.91 (56.5% ETR) offset these gains. Sustainability: the operating leverage appears partly sustainable if growth continues and SG&A discipline holds; the elevated tax rate is more likely non-structural and could normalize, which would lift net margin and ROE. Asset turnover at 0.649 is reasonable for a small-cap, and leverage at 2.33x is moderate; the binding constraint on ROE is net margin quality, not balance sheet intensity. Concerning trends: net income declining (-20.4% YoY) despite operating profit growth highlights below-the-line headwinds; we also note we lack SG&A YoY details to confirm whether SG&A growth outpaced revenue, but operating margin improvement suggests SG&A grew slower than sales.

Growth Assessment

Revenue growth of 18.8% YoY to 15.54 demonstrates solid demand and/or improved execution. Operating income growth of 49.9% indicates better cost efficiency and mix, with operating margin at 6.24%. Ordinary income up 53.4% benefited modestly from net non-operating gains (+0.04). Net income declined 20.4% to 0.40, with the delta driven primarily by a 56.5% effective tax rate. Implied operating margin expanded by ~129 bps YoY; implied net margin compressed by ~127 bps YoY. EBITDA reached 1.08 (7.0% margin), supporting positive, but still modest, operating scale. Growth sustainability depends on maintaining gross margin (60.6%), preventing SG&A creep, and normalizing the tax rate. With inventory at 3.80 and cash at 12.28, the company appears able to support near-term growth, but cash conversion must improve to fund expansion internally. Non-operating items were a small positive this quarter; outlook should not rely on them. Near-term, the key to translating revenue growth into EPS/ROE is tax normalization and improved working capital management.

Financial Health

Liquidity is solid: current ratio 186.1% and quick ratio 151.0% both exceed healthy benchmarks; no warning on Current Ratio (<1.0). Solvency/Leverage: D/E of 1.33x is within conservative-to-moderate range; Interest coverage of 66.0x indicates minimal near-term interest burden risk. Maturity profile: short-term loans of 2.00 are well covered by cash (12.28) and current assets (20.15) versus current liabilities (10.83), suggesting low maturity mismatch risk. Total loans (ST 2.00 + LT 2.83 = 4.83) vs EBITDA 1.08 implies Debt/EBITDA ~4.5x—manageable but requires continued earnings growth or deleveraging. Equity stands at 10.29, with retained earnings 6.62 supporting capital strength. No explicit off-balance sheet obligations were reported in the provided data. Overall financial health is adequate with strong liquidity and moderate leverage; maintain vigilance on leverage if cash flows remain weak.

Cash Flow Quality

OCF was 0.08 versus net income of 0.40, yielding OCF/NI of 0.21x—flagged as low earnings quality this quarter. The weak conversion likely reflects working capital outflows (specific components unreported), not operating deterioration, given the margin improvement. CapEx was 0.27; using OCF - CapEx, implied FCF is approximately -0.19 (caveat: investing CF detail unreported). Financing CF of +3.26, alongside share repurchases of -1.61, indicates reliance on external funding to support shareholder returns amid thin internal cash generation. With cash at 12.28, the company has buffer, but persistent sub-0.8x OCF/NI would pressure self-funding capacity. No clear signs of aggressive working capital manipulation can be identified due to limited disclosure, but the divergence between NI and OCF warrants monitoring.

Dividend Sustainability

Dividend data (DPS, total dividends) were unreported, so payout ratios and FCF coverage cannot be calculated. Given NI of 0.40, weak OCF (0.08), and implied negative FCF after CapEx, capacity for cash dividends in the period appears limited absent cash reserves or ongoing financing. The company executed share repurchases of 1.61 despite thin OCF, funded within overall positive financing CF; this is discretionary and should be paced relative to cash generation. Policy outlook cannot be inferred without guidance; sustainability hinges on improving OCF/NI and stabilizing tax rate to lift distributable profit.

Risk Assessment

Business Risks:

• Margin volatility risk: high effective tax rate (56.5%) compressed net margin despite operating gains.
• Execution risk: sustaining SG&A discipline and gross margin (60.6%) while growing revenue.
• Inventory management risk: inventories of 3.80 require careful turnover to avoid write-downs or cash tie-up.
• Small-cap scale risk: limited diversification and sensitivity to single-project or client swings.

Financial Risks:

• Earnings quality risk: OCF/NI at 0.21x indicates weak cash conversion.
• Leverage risk: Debt/EBITDA ~4.5x with D/E 1.33x needs earnings growth or deleveraging to maintain headroom.
• Refinancing/use-of-proceeds risk: Share repurchases (1.61) amid thin OCF imply reliance on financing CF.
• Tax rate risk: elevated tax burden materially impacts bottom line and ROE.

Key Concerns:

• Net income decline (-20.4% YoY) despite operating income growth (+49.9% YoY).
• High effective tax rate (56.5%) driving net margin compression.
• OCF lagging NI (0.21x), with implied negative FCF after CapEx.
• Data limitations (unreported SG&A breakdown, receivables, investing CF) obscure drivers of cash flow and cost structure.

Investment Implications

Key Takeaways:

• Topline growth (+18.8% YoY) and operating margin expansion to 6.24% show improving execution.
• Bottom-line underperformance due to a 56.5% effective tax rate; normalization would materially lift EPS/ROE.
• Cash conversion is weak (OCF/NI 0.21x); improving working capital is critical.
• Balance sheet liquidity is strong (current ratio 186%, cash 12.28), though leverage is moderate (D/E 1.33x; Debt/EBITDA ~4.5x).
• Share buybacks (1.61) were financed despite thin OCF; pacing capital returns to cash generation is advisable.

Metrics to Watch:

• Effective tax rate trajectory and drivers.
• OCF/Net income and working capital movements (receivables, payables, inventory turnover).
• Operating margin sustainability and SG&A intensity.
• Debt/EBITDA and interest coverage as earnings evolve.
• Revenue growth durability and gross margin stability.

Relative Positioning: Versus small-cap peers, the company shows solid revenue momentum and operating leverage but lags on cash conversion and net margin quality due to tax drag; liquidity is a relative strength, while leverage and earnings quality are watch points.

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