Quick View
| Metric | Current | Prior | YoY |
|---|---|---|---|
| Revenue | ¥285.0B | ¥252.8B | +12.7% |
| Operating Income | ¥53.3B | ¥39.6B | +34.7% |
| Ordinary Income | ¥53.3B | ¥38.6B | +38.2% |
| Net Income | ¥35.2B | ¥38.3B | −8.0% |
| ROE | 26.7% | 37.6% | - |
Executive Summary
FY2026 Q2 results show revenue of 285.0B yen (YoY +12.7%), operating income of 53.3B yen (+34.7%), ordinary income of 53.3B yen (+38.2%), and net income of 35.2B yen (-8.0%). The company achieved strong top-line growth with operating income expanding significantly faster than revenue, reflecting improved operational efficiency. Operating margin reached 18.7% with gross margin sustained at 38.3%. Despite operating profit gains, net income declined due to higher effective tax rate of 34.2% compared to prior period. Operating cash flow of 55.1B yen exceeded net income by 1.57x, demonstrating strong cash generation quality. The company is in an active investment phase with capital expenditure of 30.8B yen representing 9.14x depreciation, while maintaining free cash flow of 24.3B yen.
Performance Drivers
Revenue grew 12.7% YoY to 285.0B yen, driven by business expansion supported by substantial facility investment. Gross profit increased to 109.0B yen with gross margin of 38.3%, reflecting favorable product mix and operational efficiency. Cost of sales rose to 176.0B yen but was well-controlled relative to revenue growth. SG&A expenses of 55.7B yen represented 19.5% of revenue, showing effective cost management as operating leverage improved. Operating income surged 34.7% to 53.3B yen, with operating margin expanding significantly from prior period to 18.7%. Non-operating income and expenses were largely balanced at 0.7B yen each, with interest expense of 0.7B yen remaining modest despite 92.3B yen in long-term loans, resulting in interest coverage ratio exceeding 75x. Ordinary income reached 53.3B yen, up 38.2% YoY. Extraordinary items were minimal, comprising gain on asset sales of 0.2B yen and disposal loss of 0.1B yen. The material gap between operating income (53.3B yen) and net income (35.2B yen) is primarily attributable to income tax expense of 18.3B yen, representing an effective tax rate of 34.2%, which is elevated and impacted net income negatively despite strong operating performance. This results in a revenue up/profit mixed pattern, with operating profit substantially up but net income down 8.0% due to tax burden.
Key Metrics
[Profitability] ROE of 26.7% demonstrates strong return on equity, driven by net profit margin of 12.3%, asset turnover of 0.842, and financial leverage of 2.57x. Operating margin of 18.7% reflects solid operational efficiency with gross margin maintained at 38.3%. The profitability metrics indicate effective scale economics as revenue growth outpaced cost increases. [Cash Quality] Cash and deposits of 108.2B yen provide strong liquidity coverage of 1.07x against current liabilities of 101.5B yen. Operating cash flow of 55.1B yen represents 1.57x net income, confirming high-quality cash-backed earnings. Cash conversion ratio of 0.97x indicates efficient conversion of EBITDA to operating cash. [Investment Efficiency] Asset turnover of 0.842 reflects moderate asset utilization. Capital expenditure of 30.8B yen at 9.14x depreciation signals aggressive growth investment phase, with property, plant and equipment increasing 41.3% to 100.8B yen. Return on invested capital positioning requires monitoring as investment effects materialize. [Financial Health] Equity ratio of 39.0% indicates moderate financial stability with total equity of 132.0B yen against total assets of 338.6B yen. Current ratio of 155.7% demonstrates adequate short-term liquidity. Long-term loans of 92.3B yen result in debt-to-equity ratio of 0.70 and debt-to-EBITDA of 1.63x, both within manageable ranges. Interest coverage exceeds 75x, indicating minimal financial burden from debt service.
Cash Flow Analysis
Operating cash flow of 55.1B yen represents 1.57x net income, confirming strong cash generation with operating CF subtotal before working capital of 55.9B yen. Working capital movements were modest, with inventory increase of 0.4B yen, receivables increase of 5.6B yen partially offset by payables increase of 2.2B yen, reflecting business expansion requirements. Income taxes paid of 0.2B yen were minimal relative to tax expense, suggesting timing differences. Interest and dividends received totaled 0.1B yen while interest paid was 0.7B yen, resulting in net financial cost burden remaining low. Investing cash flow of negative 30.8B yen was driven entirely by capital expenditure of 30.8B yen, representing strategic facility investment at 9.14x depreciation and amounting to 55.9% of operating cash flow. Financing cash flow of negative 16.2B yen reflected debt repayment and dividend distributions. Free cash flow of 24.3B yen demonstrates the company's ability to fund dividends and reduce debt while maintaining growth investments, with FCF coverage of distributions indicated at 5.00x.
Earnings Quality
Ordinary income of 53.3B yen versus operating income of 53.3B yen shows minimal non-operating net impact, with non-operating income and expenses each at 0.7B yen offsetting. Non-operating income of 0.7B yen comprises primarily other non-operating income of 0.5B yen, representing less than 0.3% of revenue and indicating core earnings are not dependent on financial or non-operating activities. Non-operating expenses consist of interest expense of 0.7B yen, which is modest given long-term loans of 92.3B yen and results in interest coverage exceeding 75x. Extraordinary items were immaterial at net 0.1B yen gain, comprising asset sale gains of 0.2B yen and disposal losses of 0.1B yen, suggesting no material non-recurring distortions. Operating cash flow of 55.1B yen significantly exceeds net income of 35.2B yen, yielding an accruals ratio of negative 5.9%, which indicates conservative accounting with earnings quality strongly supported by cash generation. The cash conversion ratio of 0.97x confirms EBITDA is effectively converted to operating cash, further validating earnings quality as high with minimal concern over accounting distortions.
Guidance Update
Full-year guidance targets revenue of 532.0B yen (YoY +7.2%), operating income of 65.0B yen (+3.1%), and ordinary income of 64.0B yen (+9.5%). First-half progress rates are revenue 53.6%, operating income 82.0%, and ordinary income 83.3% against full-year targets. Operating income progress significantly exceeds the standard 50% benchmark for H1, suggesting conservative full-year guidance or potential second-half headwinds. Revenue progress of 53.6% is slightly ahead of midpoint, indicating steady top-line trajectory. The substantial H1 operating profit delivery implies either front-loaded profitability or management conservatism in annual forecasts. EPS forecast of 254.69 yen and dividend forecast of 40.00 yen per share are incorporated in full-year targets. Key assumptions to monitor include sustainment of gross margin at 38.3% levels, SG&A cost control, and effective tax rate normalization from current elevated 34.2% to support net income recovery in H2.
Shareholder Returns
Annual dividend forecast is 40.00 yen per share. Based on H1 interim dividend considerations and full-year net income guidance of approximately 36.0B yen (implied from EPS forecast of 254.69 yen), the expected payout ratio is approximately 15.7%, representing a conservative dividend policy with substantial retained earnings for growth investment. The payout ratio of 13.8% based on current period net income of 35.2B yen and annualized dividend of 40.00 yen reflects commitment to shareholder returns while prioritizing reinvestment. With free cash flow of 24.3B yen in H1 and FCF coverage ratio of 5.00x, dividend sustainability is strong. No share buyback activity is disclosed for the current period. The total return ratio equals the payout ratio at approximately 14-16% in the absence of buybacks, indicating room for enhanced shareholder returns given robust cash generation and moderate payout levels. Retained earnings increased 28.5% to 133.7B yen, demonstrating strong profit accumulation supporting both growth investment and future dividend capacity.
Risk Factors
Capital investment recovery risk represents the primary concern, with capital expenditure of 30.8B yen at 9.14x depreciation driving property, plant and equipment up 41.3% to 100.8B yen. If anticipated revenue and profit benefits from facility expansion do not materialize as planned, return on invested capital will decline and future profitability may be impaired by elevated depreciation expenses. Tax burden variability poses earnings risk, as effective tax rate of 34.2% in current period significantly reduced net income despite strong operating performance. Fluctuations in tax rates or adverse tax adjustments could continue to suppress net income translation from operating profit. Interest rate and refinancing risk warrants monitoring given long-term loans of 92.3B yen, representing debt-to-capital of 41.2%. While current interest expense of 0.7B yen is modest with coverage exceeding 75x, rising interest rates or need for additional borrowing to fund ongoing capital investment could increase financial costs and pressure margins.
Industry Benchmark (Reference - Proprietary Data)
[Industry Position] (Reference - Proprietary Analysis) The company demonstrates strong relative positioning within the IT and Telecommunications industry. Profitability metrics significantly exceed industry benchmarks, with ROE of 26.7% versus industry median of 5.6%, placing the company in the top tier. Operating margin of 18.7% compares favorably to industry median of 14.0%, while net profit margin of 12.3% substantially exceeds the median of 9.2%. Financial efficiency shows divergence, as asset turnover of 0.842 is well above industry median of 0.35, reflecting superior asset utilization. Financial health indicators show equity ratio of 39.0% below industry median of 60.2%, indicating higher financial leverage with financial leverage ratio of 2.57x versus median of 1.55x, which contributes to elevated ROE but represents moderately higher financial risk. The company's revenue growth of 12.7% trails industry median of 21.0%, suggesting more moderate top-line expansion relative to peers. Current ratio of 155.7% is materially lower than industry median of 7.74x, though absolute liquidity remains adequate. Capital expenditure intensity at 9.14x depreciation vastly exceeds industry median of 0.34x, positioning the company as the most aggressive investor in capacity expansion within the sector. Cash conversion ratio of 0.97x is below industry median of 1.22x, though still indicates healthy cash generation. Overall, the company exhibits superior profitability and asset efficiency relative to industry peers, with higher financial leverage and aggressive growth investment strategy differentiating its profile.
(Industry: IT and Telecommunications (7 companies), Comparison: 2025-Q2 median and interquartile ranges, Source: Proprietary analysis)
Key Takeaways from Earnings
Operating leverage expansion is a defining characteristic, with operating income growth of 34.7% significantly outpacing revenue growth of 12.7%, driving operating margin to 18.7% and demonstrating strong scalability of the business model as fixed cost absorption improves with scale. This operational efficiency improvement is a structural strength if sustained. Aggressive growth investment phase is evident from capital expenditure at 9.14x depreciation and property, plant and equipment expansion of 41.3%, representing the highest investment intensity in the industry peer group. This positions the company for potential future revenue and market share gains, with investment payoff representing key medium-term catalyst pending operational metrics from new facilities. Cash generation quality remains robust despite high investment, with operating cash flow at 1.57x net income, free cash flow positive at 24.3B yen, and accruals ratio of negative 5.9% indicating conservative accounting and cash-backed earnings, supporting financial flexibility for continued investment and shareholder returns.
This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.
AI Financial Analysis
Executive Summary
Greens delivered a strong FY2026 H1 operating performance, with revenue growth, substantial margin expansion, and cash generation more than offsetting a tax-driven decline in reported net income. Revenue increased 12.7% year on year to JPY28.50bn. Operating income rose 34.7% to JPY5.33bn, materially outpacing sales growth. Ordinary income increased 38.2% to JPY5.33bn, supported by sharply lower interest expense as well as operating growth. The operating margin expanded by 300bp to 18.7% from 15.7% in the prior-year period. Gross margin improved by approximately 270bp to 38.3%, indicating that revenue growth was achieved with favorable hotel-level profitability and/or pricing and occupancy mix. SG&A increased 10.6% to JPY5.57bn, slower than revenue growth, demonstrating positive operating leverage. Net income nevertheless declined 8.0% to JPY3.52bn. The principal reason was a normalization of income tax expense to JPY1.83bn from only JPY0.31bn a year earlier, lifting the effective tax rate to 34.2% from an exceptionally low prior-year level. Therefore, the decline in net income does not indicate a weakening in underlying operating earnings. Cash-flow quality was high, with operating cash flow of JPY5.51bn exceeding net income by 1.57x. Free cash flow remained positive at JPY2.43bn despite JPY3.08bn of capital expenditure, which was nearly five times depreciation and amortization. The investment program drove PPE up 41.3% year on year to JPY10.08bn, consistent with active hotel property, renovation, or capacity investment. H1 revenue has reached 53.6% of the full-year forecast, while operating income has reached 82.1% and net income 97.8% of guidance. This front-loaded profit progress suggests the full-year target is conservative or assumes material second-half seasonality, investment-related costs, and/or tax burdens. Liquidity is sound, with JPY10.82bn of cash, a 155.7% current ratio, and JPY5.65bn of working capital. Leverage remains meaningful given the property-intensive hotel model, but debt service capacity is strong, as reflected in debt/EBITDA of 1.63x and EBITDA interest coverage of 79.87x. The FY2026 forecast DPS of JPY40 implies a moderate 15.7% dividend payout ratio against forecast EPS of JPY254.69, leaving considerable room for reinvestment and balance-sheet strengthening.
Profitability Analysis
Annualized DuPont ROE is 53.4%, comprising a 12.3% net profit margin, 1.684x annualized asset turnover, and 2.57x financial leverage. The strongest year-on-year improvement came from operating profitability: operating income grew 34.7%, versus 12.7% revenue growth, and the operating margin expanded 300bp to 18.7%. Gross-margin expansion to 38.3% and SG&A growth of 10.6%, below revenue growth, indicate favorable operating leverage. Asset turnover is also robust for a lodging operator, although the 41.3% expansion in PPE may moderate future turnover unless newly invested assets produce commensurate revenue growth. Financial leverage remains a significant enhancer of ROE, so the headline annualized return should not be viewed solely as an operating-return measure. The net margin fell by approximately 280bp from 15.1% to 12.3%, but this reflected the effective tax rate normalizing to 34.2% rather than deterioration in pre-tax profitability. Ordinary income was essentially equal to operating income, confirming that earnings were generated predominantly from core operations rather than non-operating items. Extraordinary gains and losses were small, with a JPY0.24bn gain on asset sales and a JPY0.08bn disposal loss; their net JPY0.16bn benefit was immaterial relative to JPY5.35bn pre-tax income. EBITDA was JPY5.67bn and EBITDA margin was 19.9%, reinforcing the strength of recurring cash operating profitability. The investment phase warrants monitoring because capital expenditures of JPY3.08bn, equal to 9.14x depreciation, raise the required future return hurdle on the enlarged hotel asset base.
Growth Assessment
Revenue growth of 12.7% to JPY28.50bn demonstrates continued expansion in the core lodging business. Operating profit growth of 34.7% materially exceeded sales growth, showing that incremental revenue converted efficiently into earnings. The 300bp operating-margin expansion indicates that the growth was profitable rather than purely volume-led. The FY2026 full-year revenue forecast is JPY53.20bn, up 7.2% year on year, implying second-half revenue of JPY24.70bn and a more moderate growth profile than H1. H1 operating income of JPY5.33bn equals 82.1% of the JPY6.50bn full-year target, versus a standard 50% H1 progress rate. H1 ordinary income equals 83.3% of its JPY6.40bn forecast, also substantially ahead of a standard seasonal progression. H1 net income of JPY3.52bn equals 97.8% of the JPY3.60bn forecast, leaving very limited profit implied for the second half after tax. The implied second-half operating margin based on guidance is approximately 4.7%, far below the H1 18.7% margin, which points to conservative guidance, expected off-season demand effects, higher operating costs, and/or continued investment spending. The major expansion in PPE and capital expenditure creates a route to future capacity and revenue growth, but makes execution and returns on newly deployed capital central to the outlook. Hotel demand, room-rate discipline, occupancy, and labor-cost control will determine whether H1 margin gains are sustainable.
Financial Health
Liquidity is healthy. Current assets of JPY15.80bn exceed current liabilities of JPY10.15bn, producing a current ratio and quick ratio of 155.7%. Cash and deposits of JPY10.82bn alone cover current liabilities by approximately 1.07x. Working capital was positive at JPY5.65bn. The JPY2.00bn current portion of long-term loans is covered by cash and by the current-asset base, limiting near-term refinancing pressure. Total liabilities were JPY20.66bn against equity of JPY13.20bn, and the reported debt-to-equity ratio was 1.57x; this is above a conservative capital structure but below the 2.0x aggressive-leverage warning threshold. Long-term loans were JPY9.23bn, representing 27.3% of total assets. Debt/EBITDA of 1.63x is comfortably within the 2.5x investment-grade benchmark, while EBITDA interest coverage of 79.87x indicates ample current debt-servicing capacity. Debt/capital of 41.2% is modestly above the 40% investment-grade reference point, but is not a stressed level given the cash position and EBITDA generation. Total equity increased 29.7% year on year to JPY13.20bn, principally supported by retained earnings growth. PPE increased JPY2.95bn to JPY10.08bn, increasing the fixed-asset exposure inherent in the lodging model. Asset retirement obligations of JPY0.63bn are relevant long-term obligations associated with the property footprint and should be considered alongside financial debt.
Notable B/S Changes
Property, plant and equipment: +JPY2.95bn (+41.3%) to JPY10.08bn - reflects a substantial property investment cycle; future asset utilization and return on invested capital are key. Buildings: +JPY2.15bn (+47.2%) to JPY6.71bn - the principal component of PPE growth, increasing exposure to hotel-property operating leverage. Land: +JPY0.58bn (+32.0%) to JPY2.40bn - indicates expansion of the owned-property base and raises the importance of location-level asset productivity. Investment securities: +JPY0.07bn (+55.4%) to JPY0.19bn - percentage growth is high but the absolute balance remains immaterial at 0.6% of total assets. Retained earnings: +JPY2.96bn (+28.5%) to JPY13.37bn - internally generated capital strengthened equity and supports investment funding and dividend capacity. Total equity: +JPY3.02bn (+29.7%) to JPY13.20bn - improved capital base partly offsets the increase in fixed-asset intensity.
Cash Flow Quality
Cash-flow quality was strong in H1. Operating cash flow was JPY5.51bn, equal to 1.57x net income of JPY3.52bn and well above the 1.0x high-quality benchmark. Cash conversion, measured as operating cash flow divided by EBITDA, was 0.97x, indicating that EBITDA converted efficiently into cash. The accruals ratio was negative 5.9%, which is consistent with conservative cash realization rather than earnings being supported by accrual build-up. Receivables increased by JPY0.56bn and inventories increased by JPY0.38bn, representing cash use associated with working-capital growth, but these movements did not prevent strong operating cash generation. Trade payables increased by JPY0.22bn, providing a modest working-capital benefit, but operating cash flow was not dependent on a large payable build. Capital expenditure was JPY3.08bn, almost entirely accounting for investing cash outflow of JPY3.08bn. Consequently, free cash flow was still positive at JPY2.43bn. Capex/depreciation of 9.14x signals a pronounced investment cycle rather than maintenance-only spending. Financing cash flow was negative JPY1.62bn, reflecting JPY1.00bn of long-term loan repayments, JPY0.56bn of dividend payments, and lease-obligation repayments. After investment and financing outflows, cash increased JPY0.81bn to JPY10.82bn. Sustained positive free cash flow through this elevated capex period would validate both the earnings quality and the returns on the expanded property base.
Dividend Sustainability
The full-year dividend forecast is JPY40 per share, compared with forecast EPS of JPY254.69. This implies a dividend-only payout ratio of approximately 15.7%, well below the 60% sustainability benchmark. The expected dividend cash requirement is approximately JPY0.55bn based on average shares of 13.73 million. H1 free cash flow of JPY2.43bn covers this expected annual dividend requirement by roughly 4.4x. Cash dividends paid in H1 were JPY0.56bn, also fully covered by H1 free cash flow and operating cash flow. Retained earnings of JPY13.37bn provide a substantial accounting buffer for distributions. The low expected payout ratio is appropriate while the company is undertaking an unusually high level of property investment. Dividend sustainability is therefore supported by earnings, free cash flow, and liquidity, while future dividend growth will depend on maintaining hotel operating margins and realizing returns from the current capex program.
Risk Assessment
Business risks include Hotel demand risk: occupancy, average daily rates, inbound travel, domestic leisure and corporate travel can be sensitive to economic conditions, consumer confidence, weather events, and changes in travel patterns., Labor-cost and staffing risk: the lodging sector is labor intensive; wage inflation and difficulty recruiting or retaining hotel staff could reverse part of the H1 operating-margin expansion., Property investment execution risk: JPY3.08bn of H1 capex and a 41.3% increase in PPE require new or renovated assets to achieve sufficient occupancy and room-rate returns., Competitive and pricing risk: competition from domestic hotel operators, international brands, and alternative accommodation can constrain rate increases and reduce margin resilience..
Financial risks include Leverage remains material, with reported D/E of 1.57x and debt/capital of 41.2%; a severe lodging downturn would reduce the EBITDA cushion supporting these metrics., The property-heavy balance sheet increases fixed-cost and asset-utilization sensitivity, with PPE representing 29.8% of total assets., The JPY2.00bn current portion of long-term loans requires ongoing liquidity management, although current assets and cash provide adequate coverage at present., Tax-rate normalization has a substantial effect on net income, as demonstrated by the rise in tax expense to JPY1.83bn and the 8.0% decline in net income despite higher operating profit..
Key concerns include The full-year earnings forecast implies a sharp deceleration in second-half profitability; monitoring management commentary and subsequent revisions is important to distinguish prudence from an anticipated operational slowdown., Capex/depreciation of 9.14x is growth-oriented but exceptionally high, increasing the importance of post-investment cash returns and asset utilization., The annualized ROE of 53.4% is excellent, but it is amplified by 2.57x financial leverage and should be assessed alongside debt reduction and asset-return trends..
Investment Implications
Key takeaways include H1 revenue grew 12.7%, while operating income grew 34.7%, producing a 300bp operating-margin expansion to 18.7%., Underlying earnings momentum was stronger than the 8.0% net-income decline suggests, because the decline was driven by tax normalization rather than weaker operations., Operating cash flow of JPY5.51bn and free cash flow of JPY2.43bn demonstrate strong cash conversion despite elevated capital expenditure., H1 operating-income progress of 82.1% versus full-year guidance creates potential for forecast reassessment, subject to seasonal and investment-cost factors., The balance sheet can support current debt obligations, but the enlarged property base and meaningful leverage make capital-allocation discipline important..
Metrics to watch include Revenue per available room, occupancy, and average daily rate trends, Operating margin sustainability after the H1 300bp expansion, Second-half operating-income delivery relative to the JPY6.50bn full-year forecast, Capex levels, incremental revenue contribution, and PPE utilization, Debt/EBITDA, debt/capital, cash balance, and scheduled loan repayments, Operating cash flow and free cash flow conversion during the investment cycle, Effective tax rate and its impact on the conversion of pre-tax income into net income.
Regarding relative positioning, The company exhibits above-benchmark profitability, with an 18.7% operating margin, 12.3% net margin, 53.4% annualized ROE, and strong EBITDA interest coverage. Its financial profile is stronger than a highly leveraged lodging operator on debt service capacity, although its property investment intensity and leverage mean that returns should be judged against hotel-sector demand cyclicality and asset-utilization execution.