Broad-Minded Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.40B
• Operating Income: ¥279M
• Net Income: ¥148M
• EPS: ¥27.56

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: Despite a 9.3% revenue decline, FY2026 Q2 delivered a clear earnings recovery with operating leverage driving an 85.2% YoY surge in operating income and a 208.1% YoY jump in net income. Revenue was 23.97, gross profit 23.94 (gross margin 99.9%), and operating income 2.79 (operating margin 11.6%). Ordinary income reached 2.89, and net income came in at 1.57 with EPS (basic) of 27.56 yen. Using implied prior-period math, the operating margin expanded from roughly 5.7% to 11.6% (+590 bps), and net margin improved from about 1.9% to 6.5% (+460 bps). The improvement was achieved despite top-line pressure, indicating stringent SG&A control (21.14) and mix benefits in high-margin fee-based businesses. However, earnings quality is weak this quarter: operating cash flow was -9.05 versus net income of 1.57, yielding an OCF/NI ratio of -5.76x, well below the >1.0 quality threshold. Liquidity is ample (current ratio 380%) and leverage conservative (D/E 0.28x; interest coverage 1,651x), limiting near-term financial risk. ROE stands at 4.2% (DuPont: NPM 6.5% × AT 0.499 × leverage 1.28x), which is still subpar relative to an implied cost of equity, but directionally improved via margin expansion. ROIC is reported at 5.4%, below the 7–8% target range, indicating value creation is not yet robust. Tax burden is heavy (effective tax rate 44.4%), tempering bottom-line conversion. Cash deployment included share buybacks (-0.43) and negative financing CF (-2.61), suggesting shareholder returns continued despite weak cash generation. Balance sheet strength (cash 8.97, working capital 25.82) provides cushion to absorb short-term OCF volatility. Forward-looking, sustainability hinges on normalizing working capital, stabilizing revenue, and maintaining SG&A discipline. If OCF reverts to positive and tax rate normalizes, current profitability gains could translate into healthier ROE/ROIC. Conversely, if negative OCF persists, dividend capacity and buyback pace may need reassessment. Overall, a margin-led earnings beat on P/L optics with significant cash flow caveats that must be resolved to underpin durability.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.2% = Net Profit Margin 6.5% × Asset Turnover 0.499 × Financial Leverage 1.28x. The largest delta YoY appears in margin expansion: operating income rose 85.2% on a 9.3% revenue decline, implying a sharp improvement in operating margin from 5.7% to 11.6% (+590 bps), which cascaded into net margin rising from 1.9% to 6.5% (+460 bps). Business drivers: higher-margin fee revenue mix (evidenced by 99.9% gross margin) and tight SG&A control supported operating leverage. Asset turnover remains modest at 0.499, consistent with an advisory/agency model where balance sheets hold ample liquidity and receivables. Financial leverage is low at 1.28x, limiting amplification of ROE—appropriate for risk, but a headwind to headline ROE. Sustainability: Margin gains from mix/discipline can be partly sustainable if cost control endures; however, revenue contraction raises questions on volume durability, and an elevated tax rate (44.4%) may compress net margin if it persists. Watchouts: SG&A at 21.14 remains high versus revenue (SG&A/revenue ~88%), so any revenue softness could quickly erode margins. Also note that OCF was deeply negative despite higher earnings, which undermines profitability quality and suggests working capital drag that could reverse some margin gains in cash terms.

Growth Assessment

Top line fell 9.3% YoY to 23.97, signaling demand softness or deliberate pruning of lower-margin business. Despite this, operating income rose 85.2% to 2.79 and ordinary income rose 78.2% to 2.89, driven by cost discipline and favorable mix; non-operating items were minor (income 0.10, expenses 0.01). Net income rose 208.1% to 1.57 as operating leverage and small non-operating tailwinds helped, albeit muted by a high tax rate. Revenue sustainability is uncertain without segment disclosure; given the fee-heavy profile (gross margin ~100%), client activity levels, retention, and new contract wins are critical. Profit quality is mixed: P/L margins improved, but cash conversion deteriorated materially (OCF/NI -5.76x). Outlook: To sustain growth, the company must stabilize revenue trajectories while maintaining SG&A efficiency; normalization of working capital could convert current P/L gains into cash. Near-term catalysts include cost run-rate discipline, improved receivables collection, and any product/mix enhancements; risks include regulatory changes to commission structures and macro-sensitive demand.

Financial Health

Liquidity is strong: current assets 35.02 vs current liabilities 9.21 yields a current ratio of 380.4% (no warning). Quick ratio is similarly strong at 380.4% given minimal inventories reported. Solvency is conservative: total liabilities 10.42 vs equity 37.57 (D/E 0.28x); long-term loans only 0.20, and interest expense negligible with interest coverage 1650.9x. No warning thresholds breached (Current Ratio well >1.0; D/E well <2.0). Maturity mismatch risk appears low: cash 8.97 plus receivables 4.11 comfortably cover current liabilities of 9.21. Off-balance sheet obligations are not disclosed in the provided data; none can be assessed. Balance sheet capacity remains available for growth investments or to buffer cash flow volatility.

Cash Flow Quality

Earnings quality is weak this quarter: OCF -9.05 vs NI 1.57 implies OCF/NI of -5.76 (<0.8 flag). The gap suggests significant working capital outflows (e.g., receivables growth, prepayments, or reduced payables), though specific drivers are unreported. Capex was modest at -0.80; a simple FCF proxy (OCF - Capex) is approximately -9.85, indicating negative internal funding capacity this period. Financing CF of -2.61 (including share repurchases of -0.43 and likely dividends if any) further reduced liquidity, though cash on hand remains comfortable at 8.97. Sustainability: Unless OCF normalizes, the company may need to moderate shareholder returns or tap cash balances to fund operations and investments. No clear signs of working capital manipulation are evident from the limited disclosures; however, the combination of revenue decline and negative OCF warrants monitoring of receivables turnover and contract assets.

Dividend Sustainability

The reported payout ratio is unreported, but a calculated payout ratio stands at 158.0%, implying distributions exceed current period earnings; however, dividend cash outflows themselves are unreported, so this figure may be based on interim policy or estimates and should be treated cautiously. With OCF negative (-9.05) and an FCF proxy also negative (~-9.85), coverage of dividends and buybacks from internal cash is currently unsustainable if maintained at this pace. Balance sheet liquidity (cash 8.97; strong working capital) provides near-term flexibility, but persistent negative OCF would pressure future distributions. Policy outlook: Absent visibility into full-year guidance and DPS policy, we assume a preference to maintain shareholder returns; prudence may require aligning payouts with cash generation until OCF improves.

Risk Assessment

Business Risks:

• Revenue contraction (-9.3% YoY) indicating potential demand softness or client churn.
• Dependence on fee-based income with very high gross margin, exposing earnings to client activity and commission rate changes.
• Regulatory risk around financial product distribution and advisory standards impacting commissions and sales practices.
• Execution risk in maintaining SG&A discipline with revenue pressure (SG&A/revenue ~88%).

Financial Risks:

• Negative operating cash flow (-9.05) despite higher net income, raising liquidity management concerns if prolonged.
• High effective tax rate (44.4%) suppressing net margin and cash generation.
• Potential working capital volatility (receivables/contract assets) affecting cash conversion.
• Limited leverage (D/E 0.28x) reduces ROE amplification; not a risk per se, but constrains return targets.

Key Concerns:

• OCF/NI ratio -5.76x (well below >1.0 benchmark), a material earnings quality red flag.
• ROE 4.2% and ROIC 5.4% remain below typical cost of capital/management targets.
• Sustainability of margin gains amid declining revenue.
• Data limitations (lack of segment details, investing CF, dividend cash amounts) reduce transparency.

Investment Implications

Key Takeaways:

• Strong margin-led profit rebound with operating margin ~11.6% and net margin 6.5% despite revenue decline.
• Quality of earnings is weak this quarter as OCF was deeply negative relative to profit.
• Balance sheet is robust (current ratio ~380%, D/E 0.28x), providing a cushion to navigate cash volatility.
• ROE 4.2% and ROIC 5.4% remain below desirable thresholds; further improvements require sustained margin gains and better cash conversion.
• High tax rate (44.4%) meaningfully caps bottom-line conversion.

Metrics to Watch:

• Operating cash flow normalization and OCF/NI ratio (>1.0 target).
• Receivables and contract asset trends (days sales outstanding) and overall working capital swings.
• Revenue trajectory and client acquisition/retention metrics to validate top-line stabilization.
• SG&A efficiency (SG&A/revenue) and operating margin durability.
• Effective tax rate normalization and its drivers.
• ROIC progression toward 7–8% and ROE improvement without excessive leverage.
• Shareholder return pace (dividends/buybacks) versus FCF generation.

Relative Positioning: Within Japanese small-cap, fee-based financial services/advisory peers, the company shows superior balance sheet strength and near-term margin execution, but lags on cash conversion and structural returns (ROE/ROIC). Sustained improvement depends on stabilizing revenue and converting earnings to cash.

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