ZENKOKU HOSHO Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Operating Income: ¥14.93B
• Net Income: ¥12.24B
• EPS: ¥87.08

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

Zenkoku Hosho (7164) reported FY2026 Q2 consolidated results under JGAAP with resilient profitability and a strong balance sheet despite data gaps in revenue line items common to financial guarantors. Operating income was ¥14.926bn, essentially flat YoY (-0.1%), indicating stable core profitability. Ordinary income reached ¥16.858bn, reflecting sizeable non-operating contributions typical for financial institutions (e.g., financial income), while net income declined 4.6% YoY to ¥11.674bn, implying some normalization in credit costs or non-operating items. EPS was ¥87.08 for the half-year. With income tax expense of ¥5.048bn, the implied effective tax rate is roughly 30% (reconstructed), versus the reported 0% figure that is a byproduct of missing denominators in the XBRL (not an actual tax rate). The company’s financial leverage (assets/equity) is 2.09x (¥480.733bn / ¥230.023bn), in line with a conservatively leveraged specialty finance model. Liquidity remains very strong: current assets of ¥160.396bn and current liabilities of ¥39.498bn translate to a current ratio of 4.06x and working capital of ¥120.898bn. Operating cash flow was ¥8.752bn (OCF/NI ~0.75), indicating modestly lower cash conversion this half, likely driven by working capital movements intrinsic to guarantee portfolios. Financing cash flow was a net outflow of ¥18.708bn, suggesting meaningful shareholder returns (dividends and/or buybacks), though DPS and payout data were not disclosed in the feed. Depreciation and amortization were modest at ¥0.411bn, underscoring the asset-light nature of the business, and interest expense was ¥0.412bn, resulting in a strong interest coverage of about 36x. On the balance sheet, total liabilities were ¥253.719bn and total equity ¥230.023bn, yielding a reported D/E of about 1.10x. DuPont components based on reported revenue are not meaningful due to unreported operating revenue; however, a simple period ROE approximation (NI/Equity) is ~5.1% for the half, or roughly ~10% annualized, indicating healthy returns for a low-capex, risk-managed franchise. Certain system-calculated metrics (gross margin, EBITDA margin, asset turnover, effective tax rate, ROE) default to zero because key line items were not disclosed under standard labels; these should be disregarded. Overall, results show stable income, ample liquidity, and disciplined leverage alongside active capital returns, with the main watchpoint being cash conversion and credit cost trends within the guarantee portfolio.

Profitability Analysis

ROE decomposition is constrained by undisclosed revenue and thus uninformative system DuPont metrics. Using available data, period ROE ≈ 11,674 / 230,023 = 5.1% for H1 (roughly ~10.2% annualized), supported by low capital intensity and moderate leverage (assets/equity = 2.09x). Operating income of ¥14.926bn was essentially flat YoY (-0.1%), reflecting stable core profitability despite potential shifts in guarantee fee income recognition and credit cost cycles. Ordinary income (¥16.858bn) exceeded operating income by ¥1.932bn, indicating net positive non-operating contributions (e.g., financial income, investment gains), which are common for financial institutions and can modestly elevate overall returns. Net income declined 4.6% YoY to ¥11.674bn, implying some pressure from tax, credit cost normalization, or a lower non-operating tailwind. Margin quality: system-reported gross and EBITDA margins at 0% are artifacts of missing revenue; real economic margins remain strong based on high operating income relative to tangible expense base (D&A only ¥0.411bn). Interest coverage is robust at ~36.2x (14.926 / 0.412), signaling limited sensitivity to funding costs. Operating leverage appears muted in this period given flat operating income and the nature of fee-based guarantee earnings; cost discipline likely offset any topline variability. Effective tax rate reconstructed at ~30% (5,048 / (11,674 + 5,048)), consistent with normal levels. Overall profitability remains solid, underpinned by fee-based income, low capex needs, and prudent leverage.

Growth Assessment

Revenue/operating revenue was not disclosed in the data feed, limiting direct topline analysis; we therefore anchor on income measures. Operating income was -0.1% YoY, effectively stable, suggesting that guarantee fee income and credit cost dynamics remained broadly balanced in H1. Net income declined 4.6% YoY, pointing to modest headwinds, likely from non-operating variance or credit cost/tax normalization. The ordinary income uplift vs operating income indicates continued contribution from financial operations, though its sustainability may vary with interest rate and market conditions. Given the business model, medium-term growth hinges on new housing loan origination, guarantee outstanding growth, fee rate stability, and default/loss rate trends. The asset-light structure and limited D&A (¥0.411bn) support scalable earnings as volumes expand, contingent on credit conditions. The OCF/NI ratio of 0.75 suggests timing differences in cash realization (e.g., receivables or reserve movements) this half; monitoring whether this normalizes will be key to assessing profit quality. Outlook-wise, stable H1 OI and strong liquidity support continued investment capacity and potential for shareholder returns; however, macro-sensitive drivers (housing activity, credit performance) temper visibility. With financing CF at -¥18.708bn, management appears comfortable maintaining capital return, implying confidence in earnings durability, subject to cyclical risks. Near-term growth is likely steady rather than rapid, with profitability anchored by disciplined risk management and fee income resilience.

Financial Health

Liquidity is strong: current assets ¥160.396bn vs current liabilities ¥39.498bn yields a 4.06x current ratio and ¥120.898bn in working capital, providing ample coverage for near-term obligations. Total assets are ¥480.733bn and total liabilities ¥253.719bn, resulting in a liabilities-to-equity of ~1.10x and assets-to-equity of 2.09x, consistent with conservative leverage for a financial guarantor. Interest expense is modest at ¥0.412bn, and the interest coverage ratio of ~36x reflects substantial buffer against rate increases. Equity stands at ¥230.023bn, offering meaningful loss-absorbing capacity against credit cycle volatility. The reported equity ratio of 0% is not meaningful (undisclosed), but a simple equity/asset proxy suggests ~47.8%. The minor imbalance between assets and liabilities+equity appears attributable to rounding/classification and is not unusual in interim data. No inventory is reported, consistent with the business model. Overall solvency appears robust, supported by high-quality capital and limited structural leverage.

Cash Flow Quality

Operating cash flow was ¥8.752bn versus net income of ¥11.674bn, implying OCF/NI of ~0.75 and indicating accruals or working capital outflows this half (e.g., changes in guarantee reserves or receivables/payables). D&A is low at ¥0.411bn, consistent with an asset-light platform and minimal non-cash earnings inflation from depreciation. Investing CF was unreported (0 in feed), which limits precise FCF calculation; in this business model, capex is typically modest, so economic FCF likely approximates OCF absent unusual investments. System free cash flow shows 0 due to missing investing data; this should not be interpreted as zero FCF. Financing CF of -¥18.708bn suggests substantial capital returns (dividends/buybacks) and/or debt repayments, exceeding OCF in the period and producing a net cash outflow, which remains manageable given the strong liquidity position. Working capital remains ample at ¥120.898bn, providing flexibility to absorb timing differences in cash generation. Overall, earnings quality appears solid but with slightly softer cash conversion in H1, warranting monitoring for normalization in subsequent periods.

Dividend Sustainability

Dividend data (DPS, payout ratio) were not disclosed in the feed; however, financing CF of -¥18.708bn indicates meaningful capital return activity in H1. On a coverage basis, OCF of ¥8.752bn is below the reported financing outflow, suggesting that shareholder distributions and/or debt repayments exceeded internally generated cash this half, funded by existing liquidity. Without investing CF details, FCF coverage cannot be rigorously measured; given typically low capex, underlying FCF likely tracks OCF. Implied payout ratio cannot be calculated reliably from the dataset (reported 0% is not meaningful). Sustainability hinges on consistent earnings (net income ¥11.674bn in H1), strong equity (¥230.023bn), and liquidity (current ratio 4.06x). If capital returns remain at the H1 run-rate, cumulative annual outflows could remain significant relative to OCF; management’s flexibility is supported by the balance sheet but ultimately depends on profit stability and credit conditions. Policy outlook likely emphasizes stable, progressive returns aligned with earnings and capital adequacy, but a definitive view requires disclosure of DPS/buyback authorizations not included here.

Risk Assessment

Business Risks:

• Housing market cyclicality affecting new guarantee originations and fee income
• Credit cycle deterioration increasing default and loss rates, pressuring provisions and net income
• Interest rate volatility impacting investment income and borrower behavior
• Concentration risk in key lender partners and product segments
• Regulatory and accounting changes affecting capital requirements and earnings recognition
• Competition in mortgage/credit guarantees potentially compressing fee rates
• Macroeconomic shocks or natural disasters elevating credit losses in guaranteed portfolios

Financial Risks:

• Lower cash conversion (OCF/NI ~0.75) indicating sensitivity to working capital and reserve movements
• Potential volatility in non-operating income that supports ordinary income
• Capital return outflows (-¥18.708bn financing CF) exceeding OCF in H1, increasing reliance on balance sheet liquidity
• Market valuation risk in investment portfolios under rising rate scenarios
• Model risk in guarantee loss reserving and provisioning assumptions

Key Concerns:

• Sustainability of stable operating income amid macro and credit uncertainties
• Normalization of OCF relative to net income in subsequent quarters
• Visibility on dividend/buyback policy and its alignment with earnings trajectory and capital buffers

Investment Implications

Key Takeaways:

• Core profitability stable: operating income ¥14.926bn (-0.1% YoY) with strong ordinary income of ¥16.858bn
• Net income down 4.6% YoY to ¥11.674bn; implied tax rate ~30% despite system artifact showing 0%
• Robust balance sheet: equity ¥230.023bn; assets/equity 2.09x; current ratio 4.06x
• Interest coverage ~36x reflects low sensitivity to funding costs
• OCF/NI ~0.75 shows softer cash conversion; watch for H2 normalization
• Financing CF -¥18.708bn indicates sizable capital returns/deleveraging in H1
• Reported zeros for revenue/margins/ROE are disclosure artifacts; underlying margins remain strong

Metrics to Watch:

• Guarantee origination volumes and outstanding guarantee balance
• Default frequency, loss severity, and provision for guarantee losses
• OCF/NI ratio and working capital/reserve movements
• Ordinary income composition (non-operating gains vs recurring financial income)
• Capital return cadence (dividends and buybacks) vs earnings and equity
• Interest rate sensitivity of investment income and funding costs

Relative Positioning: As a specialty financial guarantor, Zenkoku Hosho exhibits conservative leverage, high interest coverage, and low capex intensity, positioning it defensively relative to more balance-sheet-heavy lenders; earnings stability compares favorably to cyclical consumer finance peers, though exposure to housing and credit cycles remains the key differentiator.

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