FRONTIER INTERNATIONAL INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.47B
• Operating Income: ¥1.12B
• Net Income: ¥328M
• EPS: ¥132.13

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 strong top-line and operating profit beat in FY2026 Q2, but cash conversion was weak and below quality benchmarks. Revenue rose 67.3% YoY to 144.73, driving operating income up 169.4% YoY to 11.23 and ordinary income up 177.4% YoY to 11.33, with net income up 79.4% to 5.87. Gross profit was 16.20, implying a gross margin of 11.2%, while operating margin is estimated around 7.8% (11.23/144.73). Although prior-year margins are not disclosed, the outsized growth in operating income vs revenue indicates material margin expansion in the period (bps not precisely quantifiable from available data). EBITDA was 11.35, yielding an EBITDA margin of 7.8%, and interest coverage was extremely strong at 652.5x given low interest expense of 0.02. The effective tax rate was elevated at 35.8%, above Japan’s statutory level, dampening net profit conversion. Balance sheet strength is solid with total assets of 168.13, cash of 74.99, current assets of 118.62, and current liabilities of 47.53, resulting in a current ratio of 249.6% and D/E of 0.57x. However, cash flow quality is a key concern: operating cash flow was only 0.72 versus net income of 5.87, producing an OCF/NI ratio of 0.12x, far below the 0.8x threshold. Financing cash flow was an outflow of -1.89 and capex was modest at -0.35, so the company is not over-investing, suggesting working capital dynamics likely drove the OCF shortfall. There is a discrepancy between ordinary income (11.33) and profit before tax (5.11), implying sizable extraordinary or adjustment items not disclosed that reduced pre-tax profit. Despite these quality flags, liquidity is ample and short-term debt (1.10) is very manageable versus cash on hand. Reported payout ratio is 77.9% based on earnings, which looks rich given weak cash generation this quarter; dividend sustainability hinges on OCF normalization in the second half. Goodwill and intangibles total 11.27, introducing potential impairment risk if growth slows. Overall, the quarter exhibits strong operational momentum and operating leverage, but earnings quality and extraordinary-item opacity temper the headline strength. Near-term guidance sensitivity will depend on project timing, working capital release, and tax normalization.

Profitability Analysis

ROE decomposition: ROE 6.2% = Net Profit Margin 4.1% × Asset Turnover 0.861 × Financial Leverage 1.76x. The largest driver of improvement this quarter appears to be margin expansion, as operating income grew +169% YoY versus revenue +67% YoY, signaling stronger operating leverage and cost discipline. Asset turnover at 0.861 indicates decent capital efficiency for a marketing/event-oriented business, supported by low fixed-asset intensity (depreciation only 0.12). Financial leverage is modest at 1.76x, with D/E 0.57x, so ROE is not being artificially boosted by leverage. Business reasons for margin improvement likely include higher utilization on large-scale projects, better mix, and SG&A absorption (SG&A 12.03 did not rise nearly as fast as revenue). The sustainability of this operating leverage will depend on the continuity of large client wins and event cadence; a normalization in project mix could partially unwind margin gains. The elevated effective tax rate (35.8%) and the gap between ordinary income (11.33) and PBT (5.11) suggest non-recurring costs or extraordinary losses that suppressed net margins, which may not recur each quarter. Watch for signs of negative operating leverage if SG&A growth reaccelerates faster than revenue in subsequent quarters. Overall, ROE at 6.2% is mid-single-digit and could improve if the company sustains operating margin gains and normalizes tax and below-the-line items.

Growth Assessment

Revenue growth of +67.3% YoY to 144.73 is robust and well above typical industry growth, implying strong project execution and client demand. Operating income surged +169.4% to 11.23, revealing strong operating leverage and likely an improved revenue mix. Net income grew +79.4% to 5.87, lagging operating income growth due to higher effective taxes and sizable below-the-line adjustments inferred from the ordinary income vs PBT gap. EBITDA margin at 7.8% suggests an improved earnings profile, though gross margin at 11.2% remains thin, consistent with a pass-through-heavy model. Sustainability hinges on pipeline visibility and event timing; a high growth base raises the risk of normalization in H2. With intangibles (5.68) and goodwill (5.59), the company is leveraging past M&A or capability investments; growth durability should be cross-checked against retention of large accounts. Given limited disclosure on client concentration and segment mix, the persistence of this growth trajectory cannot be fully confirmed. Outlook: cautiously positive for revenue and operating profit if event momentum continues, but cash conversion must improve to translate growth into shareholder returns.

Financial Health

Liquidity is strong: current ratio 249.6% (118.62 current assets vs 47.53 current liabilities) and quick ratio effectively equal given minimal inventory disclosure and large cash balance (74.99). No warnings on current ratio; it is comfortably above 1.5. Debt levels are modest with short-term loans 1.10 and long-term loans 1.40; D/E is 0.57x, within conservative bounds (<1.5x). Interest coverage is exceptional at 652.5x, reflecting low interest burden and solid operating earnings. Maturity mismatch risk is low: cash on hand (74.99) exceeds total current liabilities (47.53) and more than covers accounts payable (26.27) and short-term loans (1.10). Noncurrent liabilities are limited at 7.01. Equity is 95.45 (owners’ equity 90.74), providing a healthy capital buffer. Off-balance sheet items are not reported; absence of disclosure limits assessment of lease or guarantee obligations. Goodwill (5.59) and intangibles (5.68) are meaningful but not outsized relative to equity; impairment risk exists if performance softens.

Cash Flow Quality

OCF was 0.72 against net income of 5.87, yielding OCF/NI of 0.12x, which flags a material earnings quality issue (<0.8 benchmark). With capex of -0.35, FCF would be positive but minimal if defined as OCF - capex (~0.37), though investing CF is otherwise unreported. The weak OCF despite strong earnings suggests working capital consumption—likely higher receivables or lower advances common in project-heavy quarters; specific line items are unreported, limiting precision. There are no obvious signs of aggressive working capital release; instead, cash appears to have been absorbed (typical seasonality possible). Financing CF of -1.89 indicates net cash outflows to debt service, dividends, or other distributions, but dividends and buybacks are unreported. Given cash of 74.99 and low debt, liquidity headroom mitigates near-term risk, but sustained low OCF would challenge dividend capacity and reinvestment over time. Watch for normalization of OCF in H2 as projects bill and collect; if OCF/NI remains below ~0.8x, quality concerns intensify.

Dividend Sustainability

Reported payout ratio is 77.9%, which is high versus the <60% benchmark for comfort, especially given OCF/NI at 0.12x this quarter. DPS and total dividends are unreported, preventing precise cash payout analysis, and FCF coverage is not calculable from disclosed data. If we proxy FCF as OCF - capex (~0.37), coverage of any meaningful dividend would be tight this quarter, implying reliance on cash on hand. The company’s strong cash balance provides short-term flexibility, but sustaining a high payout ratio requires OCF normalization. Policy outlook: given growth investments and working capital needs in a project-based model, a calibrated payout aligned with FCF would be prudent; visibility is limited due to missing dividend disclosures.

Risk Assessment

Business Risks:

• Revenue volatility from project timing and event/calendar seasonality
• Client concentration risk typical of marketing/event businesses (not disclosed)
• Margin sensitivity to mix and vendor/venue cost inflation
• Execution risk on large-scale campaigns with tight timelines
• Potential slowdown in corporate marketing spend amid macro uncertainty

Financial Risks:

• Low cash conversion (OCF/NI 0.12x) indicating working capital strain
• Dependence on accounts payable and project advances (payables 26.27) with limited AR disclosure
• Elevated effective tax rate (35.8%) depressing net margins
• Gap between ordinary income (11.33) and PBT (5.11) implies undisclosed extraordinary items
• Goodwill (5.59) and intangibles (5.68) carry impairment risk if performance weakens

Key Concerns:

• Earnings quality flagged by OCF shortfall despite strong profits
• Dividend sustainability at a 77.9% payout ratio absent stronger FCF
• Limited segment and customer disclosures hinder durability assessment of growth
• Possible one-off costs/charges affecting PBT and tax, not fully explained

Investment Implications

Key Takeaways:

• Top-line growth (+67.3% YoY) translated into outsized operating profit growth (+169.4%), indicating strong operating leverage
• Operating and EBITDA margins around 7.8% reflect improved cost absorption, though gross margin remains thin at 11.2%
• Cash conversion was weak (OCF/NI 0.12x), likely driven by working capital consumption
• Balance sheet is robust with cash of 74.99 and low debt, providing flexibility
• Payout ratio of 77.9% appears elevated relative to current cash generation
• Discrepancy between ordinary income and PBT suggests below-the-line drag this quarter

Metrics to Watch:

• OCF/Net income ratio and working capital movements (receivables, unbilled revenues, advances)
• Operating margin trajectory and SG&A intensity vs revenue
• Tax rate normalization and reconciliation of ordinary income to PBT
• Project pipeline visibility and client concentration
• Dividend policy disclosures and FCF coverage
• Goodwill/intangible impairment indicators

Relative Positioning: Operational momentum appears above peers on growth and operating leverage, while cash conversion and disclosure depth lag best-in-class marketing/event companies.

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
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