WDB coco CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.41B
• Operating Income: ¥400M
• Net Income: ¥279M
• EPS: ¥116.06

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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

WDB COCO Co., Ltd. (7079) reported FY2026 Q2 standalone results under JGAAP showing top-line softness and significant margin compression, offset by strong operating cash generation. Revenue declined 7.0% YoY to ¥2,414m, while operating income fell 40.3% YoY to ¥400m, indicating a marked deterioration in operating leverage. Despite a still-solid gross margin of 42.9%, the operating margin compressed to 16.6%, pointing to higher SG&A or mix/headcount cost pressure. Ordinary income was ¥403m and net income was ¥279m (−39.3% YoY), implying a net margin of 11.6%. DuPont analysis yields ROE of 6.37% based on a net margin of 11.56%, asset turnover of 0.454x, and financial leverage of 1.21x, reflecting conservative leverage and moderate profitability on a half-year basis. The balance sheet remains robust with total assets of ¥5,318m, equity of ¥4,382m, and total liabilities of ¥1,290m, translating to a low debt-to-equity ratio of 0.29x. Liquidity is ample with current assets of ¥4,895m and current liabilities of ¥1,080m, resulting in a current ratio of 453% and working capital of ¥3,815m. Operating cash flow was strong at ¥677m (OCF/NI of 2.43x), suggesting positive working capital movements and solid collections beyond modest non-cash charges (D&A ¥27m). Interest expense is minimal (¥0.068m) with a very high interest coverage ratio (≈5,882x), underscoring low financial risk. Dividend was not declared (DPS ¥0; payout ratio 0%), consistent with a conservative capital allocation stance. Several XBRL fields show as zero (e.g., cash and equivalents, investing CF, equity ratio), which indicates non-disclosure under certain tags rather than actual zeros; conclusions rely on available non-zero items. Notably, the reported income tax expense (¥213m) and the provided “effective tax rate: 0.0%” conflict, and ordinary income vs. net income imply additional items; we treat the net income figure as definitive for ratio work. The implied share count from EPS is approximately 2.4 million shares, but outstanding shares were not disclosed in the feed. Overall, the company exhibits strong liquidity and solvency but faces near-term profitability headwinds, likely from SG&A and/or wage inflation, pricing, or mix effects. The positive cash conversion is encouraging, but sustainability depends on stabilizing revenue and restoring operating margins in the second half. Data limitations around cash, capex, and investing flows constrain free cash flow assessment; monitoring updates in the full-year report will be important.

From Earnings Presentation: WDB Coco Co.'s Q2 FY03/2026 results showed revenue of 2,414 million yen (down 7.0% YoY), ordinary income of 403 million yen (down 40.0%), and net income of 279 million yen (down 39.3%), marking both revenue and profit declines. The primary cause of revenue decline was the revision of outsourced work scope at certain customers in safety information management services and a decrease in the number of adverse event reports collected. While new and additional projects are operational, they have not been sufficient to offset the slowdown in existing projects. On the profit side, cost of sales increased (up 72 million yen despite revenue decline) due to the impact of employee increases in the second half of the previous year and the reinforcement of management personnel to build a stable operational structure, resulting in a gross profit margin decline from 39.9% to 32.4%, a decrease of 7.5 percentage points. SG&A expenses also increased due to expansion of indirect department personnel including recruitment, causing operating profit margin to decline significantly from 25.8% to 16.6%. Full-year forecasts remain unchanged at revenue of 5,063 million yen (down 5.0% YoY), operating income of 1,112 million yen (down 14.9%), ordinary income of 1,112 million yen (down 15.1%), and net income of 750 million yen (down 17.8%). Dividend is planned to increase to 95 yen (up 15 yen from previous year) with a dividend payout ratio of 30.5%. The company is a post-marketing specialized CRO focusing on safety information management, post-marketing surveillance (PMS), and clinical research for pharmaceuticals and medical devices. Management plans to hold an online earnings briefing on November 27, 2025, to provide more detailed business explanations.

Financial Analysis

Profitability

ROE (DuPont) is 6.37%, decomposed as net margin 11.56% × asset turnover 0.454× × financial leverage 1.21×. Gross margin is 42.9%, indicating healthy value-add, but operating margin of 16.6% (¥400m/¥2,414m) shows substantial SG&A drag versus the prior year (operating income −40.3% YoY). EBITDA was ¥427m (17.7% margin), only modestly above operating income due to low D&A (¥27m), suggesting limited depreciation burden and that the margin compression is largely in cash SG&A. Ordinary margin was 16.7% (¥403m/¥2,414m), implying minimal non-operating losses or gains at this stage. Net margin of 11.6% remains decent but is lower YoY given the sizable operating decline. Operating leverage appears unfavorable in the period: a 7% revenue decline translated into a 40% drop in operating profit, indicating a high fixed-cost component (personnel, selling expenses, and/or capacity costs). Interest costs are negligible (¥0.068m), so financial leverage does not materially influence earnings quality. On a half-year asset base, turnover of 0.454x is modest; if annualized, it implies near 0.9x, consistent with an asset-light services model. Overall profitability remains positive but under pressure; restoring SG&A efficiency and pricing power is key to stabilizing ROE.

Growth

Revenue decreased 7.0% YoY to ¥2,414m, suggesting softer demand or intentional pruning of lower-margin business. The magnitude of the operating income decline (−40.3% YoY) versus revenue indicates either elevated fixed costs, wage inflation, or a shift to lower-margin projects. Gross margin of 42.9% implies that cost of sales remained controlled; thus, the primary headwind likely sits in SG&A or utilization. Net income fell 39.3% YoY to ¥279m; despite this, cash conversion was strong (OCF/NI 2.43x), indicating resilient collections and working capital tailwinds. The implied ordinary margin stability versus operating margin suggests limited deterioration in non-operating items. Near-term outlook hinges on volume recovery, utilization rates, and containment of SG&A growth. If revenue stabilizes and cost actions take hold, operating leverage could turn positive in H2; conversely, continued volume pressure would weigh disproportionately on profits. Given the standalone, half-year context and missing disclosures (e.g., order backlog, capex), visibility on sustainable growth is limited. Monitoring pricing, project mix, and headcount productivity will be crucial for assessing the durability of earnings.

Financial Health

The balance sheet is conservative with total assets of ¥5,318m, equity of ¥4,382m, and liabilities of ¥1,290m (debt-to-equity 0.29x). Liquidity is strong: current assets of ¥4,895m versus current liabilities of ¥1,080m yield a current ratio of 453% and ample working capital of ¥3,815m. Quick ratio equals current ratio given no reported inventories, consistent with a service-centric model; however, note inventories reported as 0 may reflect non-disclosure. Interest coverage is extremely high at ~5,882x, as operating income far exceeds nominal interest expense. The reported equity ratio field is 0.0% in the feed, but based on assets and equity, the implied equity ratio is approximately 82% (¥4,382m/¥5,318m), reinforcing solvency strength. Cash and equivalents are shown as 0 in the data extract, which likely reflects missing tags; therefore, point-in-time cash liquidity cannot be precisely assessed from the provided data. Overall, the company maintains a low-risk capital structure with substantial equity buffer and negligible financial strain.

Cash Flow

Operating cash flow was ¥677m versus net income of ¥279m, producing an OCF/NI ratio of 2.43x, which indicates strong cash realization likely driven by favorable working capital movements (e.g., receivables collections or payables timing) in addition to modest non-cash D&A (¥27m). EBITDA of ¥427m versus OCF of ¥677m further underscores a working capital release in the half. Investing cash flow is reported as 0, but this is likely an unreported item; hence, we cannot infer capex intensity or asset additions from the provided data. Free cash flow is listed as 0 in the extract, but without capex or investing detail, FCF cannot be reliably computed; the true FCF is likely positive given large OCF unless capex was unusually high. Working capital appears favorable with large current assets versus liabilities; however, sustainability of the OCF outperformance depends on the persistence of collections and the absence of receivable build in subsequent periods. Earnings quality appears reasonable given the low non-operating influence and strong cash conversion, but the reliance on working capital tailwinds warrants monitoring.

Dividend Sustainability

No dividend was declared for the period (DPS ¥0; payout ratio 0%). With OCF of ¥677m and low leverage, the capacity to fund dividends appears adequate in principle, but missing information on capex and period-end cash prevents a full free cash flow coverage assessment. The reported FCF coverage ratio of 0.00x stems from unreported investing/FCF fields and should not be interpreted as a constraint. Given the year-on-year profit decline and an apparent focus on preserving balance sheet strength, the current policy stance appears conservative. Future dividend sustainability would depend on stabilizing operating profit, maintaining positive OCF after working capital normalization, and clarity on maintenance and growth capex requirements.

Business Outlook

Full-year forecasts remain unchanged at revenue of 5,063 million yen (down 5.0% YoY), operating income of 1,112 million yen (down 14.9%), ordinary income of 1,112 million yen (down 15.1%), and net income of 750 million yen (down 17.8%). Q2 cumulative progress rates are 47.7% for revenue, 36.0% for operating income, 36.3% for ordinary income, and 37.2% for net income, with profit accumulation planned for the second half. Second-half assumptions are inferred to include stabilization of work scope revisions at existing customers, revenue growth from full-scale operation of new and deepening projects, and manifestation of personnel increase effects along with controlled growth in SG&A expenses. However, specific second-half assumptions and measures are not explicitly stated in the PDF materials, and detailed disclosure is expected at the upcoming briefing. There remains risk that external factors such as customer-driven revisions to outsourced scope in safety information management services and decreases in adverse event collection numbers may continue, requiring close monitoring of quarterly trends. The key to achieving full-year forecasts will be whether new customers and additional projects accelerate in the second half.

Management Guidance

The management philosophy emphasizes solving customer challenges through 'guaranteed results' and 'providing new value' to contribute to the future of healthcare. Regarding this fiscal year's performance deterioration, management explains the primary causes as revisions to outsourced work scope at certain customers and decreases in adverse event collection numbers, positioning these as temporary external factors. Meanwhile, they actively disclose the reinforcement of management personnel to build a stable operational structure, suggesting a policy of prioritizing medium- to long-term quality and delivery stability even while accepting short-term cost increases. The expansion of indirect department personnel including recruitment is also explicitly stated, suggesting a possible advance investment phase in preparation for future growth. Regarding dividends, the company forecasts an increase (95 yen, up 15 yen from previous year) despite profit decline, with a policy to raise the payout ratio from 21.1% to 30.5%, clearly indicating continued strengthening of shareholder returns. This is consistent with the statement 'We will continue to strengthen returns to our shareholders to further accelerate the enhancement of corporate value,' indicating a shift from previous emphasis on internal reserves to enhanced returns. More detailed strategy is expected to be discussed at the November 27 briefing, with management demonstrating a commitment to dialogue with investors.

Strategic Initiatives

• Reinforcement of management personnel to build a stable operational structure (advance investment-type personnel enhancement in cost of sales)
• Expansion of indirect department personnel including strengthened recruitment to establish foundation for future growth
• Operation of projects from new customers and deepening sales to existing customers (acquisition of additional projects)
• Enhancement of customer problem-solving capabilities leveraging specialized expertise as a post-marketing specialized CRO
• Continued strengthening of shareholder returns (raising payout ratio, implementing dividend increases despite profit decline)
• Strengthening dialogue with investors (expansion of information disclosure and IR activities including online briefings)

Risk Assessment

Business Risks:

• Demand volatility leading to revenue declines and negative operating leverage
• Wage inflation and hiring costs compressing SG&A and operating margins
• Project mix or pricing pressure reducing unit economics
• Client concentration or timing of large projects affecting quarterly variability
• Talent retention and utilization risks in a services-heavy model
• Execution risk on cost controls needed to restore margins

Financial Risks:

• Working capital reversals that could normalize OCF below current levels
• Potential capex needs not visible due to unreported investing cash flows
• Accounting/tax timing differences causing volatility in reported net income
• Disclosure gaps (e.g., cash, investing CF) limiting visibility for liquidity planning

Key Concerns:

• Operating income down 40.3% YoY despite only a 7.0% revenue decline
• Heavy reliance on SG&A efficiency to sustain margins
• OCF strength driven by working capital that may not repeat
• Inconsistencies in tax metrics and missing cash/capex disclosures in the data feed

Risk Factors from Presentation:

• Revenue decline risk from revisions to outsourced work scope at certain customers in safety information management services
• Impact on revenue from decreases in adverse event report collection numbers
• Increases in cost of sales and SG&A expenses due to rising personnel costs (employee increases and management reinforcement)
• Business performance fluctuations associated with changes in customer (pharmaceutical and medical device company) needs and lifecycles
• The handling of this material section explicitly states that changes in economic conditions, changes in customer needs and user preferences, competition with other companies, regulatory changes, etc. may significantly impact business performance
• Uncertainty in assumptions regarding future forecasts and the possibility of differences from actual results

Investment Implications

Key Takeaways:

• Top-line softness combined with significant operating deleverage compressed profitability
• Balance sheet is strong with low leverage and ample liquidity
• Cash conversion is robust this half, but durability depends on working capital normalization
• ROE of 6.37% reflects moderate profitability and conservative leverage
• Dividend remains suspended/undeclared; capital allocation is conservative pending earnings recovery

Metrics to Watch:

• Operating margin and SG&A-to-sales trajectory
• Order intake/backlog and utilization rates
• Pricing and project mix indicators
• Receivables days and OCF/NI to gauge cash conversion sustainability
• Capex and investing cash flows to assess true FCF
• Headcount growth vs. revenue growth to track productivity

Relative Positioning: Relative to domestic small-cap service peers, WDB COCO exhibits a stronger balance sheet and lower financial risk but currently weaker operating momentum, with margin sensitivity to volume evident; restoring SG&A efficiency and stabilizing demand would be necessary to narrow the profitability gap.

Supplementary Insights (Key Highlights)

• The main cause of revenue decline was the revision of outsourced work scope at existing customers (safety information management services) and a decrease in adverse event report collection numbers, with significant impact from temporary customer-side factors
• The reason for the larger profit decline relative to revenue decline is explicitly stated as the full-year impact of personnel costs from employees added as advance investment in the second half of the previous year and wage increases due to management reinforcement
• The structure is clear: cost of sales increased by 72 million yen and SG&A expenses increased by 16 million yen, totaling 88 million yen in cost increases, which combined with the 181 million yen revenue decline resulted in a 269 million yen decrease in ordinary income
• On a quarterly basis, Q1 still showed a relatively small revenue decline YoY (Q1 revenue 1,257 million yen vs. prior year Q1 1,281 million yen, down 1.9%), but Q2 alone showed 1,156 million yen vs. prior year Q2 1,314 million yen, down 12.0%, indicating accelerating deceleration, with gross profit margin declining to 30.0% in Q2 alone (38.3% in prior year Q2)
• Annual dividend is forecast to increase to 95 yen with a payout ratio of 30.5%, demonstrating a commitment to strengthen shareholder returns. As the dividend payout ratio had been around 20% through the previous year, this represents a policy shift to maintain and increase dividend amounts despite profit decline
• An earnings briefing is scheduled to be held via ZOOM webinar on November 27, 2025, where management (Director Fujiwara) will provide detailed explanations of business operations and financial results, demonstrating a commitment to dialogue with investors
• Given the nature of the business as a post-marketing specialized CRO, the structure is such that customer (pharmaceutical and medical device company) product lifecycles and changes in regulatory environment directly impact business performance

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