HAPPINET CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥196.44B
• Operating Income: ¥8.71B
• Net Income: ¥6.67B
• EPS: ¥303.88

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q2 was a strong earnings print for Happinet, with double‑digit topline growth translating into disproportionate profit expansion and improved margins, albeit with weak operating cash flow due to working‑capital swings. Revenue rose 16.5% YoY to 1,964.35 (100M JPY), while operating income climbed 33.5% YoY to 87.10 and net income surged 52.1% YoY to 66.71. Gross profit was 250.39, implying a gross margin of 12.7%. Operating margin expanded to 4.43% (87.10/1,964.35) from an estimated 3.87% a year ago, a gain of roughly 56 bps. Net margin improved to 3.4% from about 2.6% last year, an expansion of roughly 80 bps, aided modestly by non‑operating income (net +2.07). Ordinary income reached 89.17 (+33.9% YoY), with the ordinary income margin improving by about 59 bps to 4.54%. DuPont metrics show ROE at 11.0%, driven by a 3.4% net margin, healthy asset turnover of 1.475x, and financial leverage of 2.19x. SG&A intensity was 8.3% of sales (163.28/1,964.35), leaving meaningful operating leverage as gross profit growth outpaced overhead. Earnings quality, however, is a weakness this quarter: operating cash flow was -14.88 versus net income of 66.71, yielding an OCF/NI ratio of -0.22x (quality alert). The negative OCF is consistent with seasonal working‑capital usage in the toy/entertainment distribution cycle (AR 468.48, inventory 105.67, AP 502.48), but it warrants tracking into H2. Liquidity remains strong with a current ratio of 165.7% and cash of 365.68, and solvency appears conservative with total liabilities/equity at 1.19x and equity at 608.04. The effective tax rate was 25.3%, close to normalized levels. ROIC is reported at 26.9%, well above typical 7–8% targets, though methodology and potential seasonality should be considered. Dividend affordability looks reasonable with a calculated payout ratio of 46.9%, but free cash flow coverage cannot be confirmed this quarter given negative OCF and limited investing disclosure. Forward‑looking, margin gains and operating leverage provide a positive earnings trajectory into the holiday season, but cash conversion and inventory/receivables discipline are the key near‑term watchpoints. Overall, Happinet enters H2 with solid earnings momentum, robust balance‑sheet liquidity, and improving margins, offset by temporary cash flow pressure.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.4% × 1.475 × 2.19 ≈ 11.0%. Component changes vs last year (directional): Net margin increased ~80 bps (from ~2.6% to 3.4%); asset turnover likely improved modestly on strong revenue growth; leverage (Assets/Equity ≈ 2.19x) appears stable. Largest driver: net margin expansion contributed most to ROE improvement, followed by slight gains in asset turnover. Business reasons: improved operating margin (+56 bps) on operating leverage as revenue growth (+16.5%) outpaced SG&A growth (SG&A ratio 8.3%), and a small net boost from non‑operating income (+2.07). Sustainability: operating leverage is partially sustainable if growth persists; however, mix/seasonality in the toy distribution cycle can normalize margins post peak season. Watch for one‑time/non‑operating items (dividend/interest income totaled 1.49) being modest but not core. Concerning trends: none acute in expenses, but monitor if SG&A growth accelerates faster than sales in H2; reported OCF weakness (vs NI) could pressure future profitability if working capital remains elevated.

Growth Assessment

Topline growth of 16.5% YoY to 1,964.35 was broad‑based in wholesaling, with gross profit of 250.39 indicating healthy volume/mix. Operating income growth of 33.5% and net income growth of 52.1% reflect strong operating leverage and a stable tax rate (25.3%). Margin expansion was notable: operating margin +56 bps and net margin +~80 bps YoY. Non‑operating income was a small tailwind (2.33), with limited drag from non‑operating expenses (0.26). Revenue sustainability depends on seasonality into the holiday quarter and the sell‑through of key titles/toys; absent segment detail, we assume normalization after peak. Profit quality is mixed: accounting earnings are strong, but cash conversion is weak this half (OCF/NI -0.22x) due to working capital. Near‑term outlook: if receivables convert and inventory turns accelerate in H2, OCF should rebound; otherwise, cash conversion could lag despite solid P&L.

Financial Health

Liquidity: strong. Current ratio 165.7% and quick ratio 149.4% indicate ample near‑term coverage; no warning (both > benchmarks). Cash and deposits at 365.68 cover 56% of current liabilities (647.60). Solvency: total liabilities/equity = 1.19x (within conservative range <1.5). Interest‑bearing debt is unreported, so interest coverage cannot be assessed; however, ordinary/operating profits imply low financial risk absent hidden debt. Maturity mismatch: current assets 1,073.19 vs current liabilities 647.60 suggests low refinancing risk; payables (502.48) dominate current liabilities, consistent with distribution model. Off‑balance sheet: none disclosed in provided data.

Cash Flow Quality

OCF quality is weak this quarter: OCF/Net Income is -0.22x (<0.8 threshold), indicating cash earnings lagged accounting profits. Likely drivers are working‑capital swings (higher receivables/inventory ahead of peak season) offset partially by large payables; exact movements are not disclosed. Free cash flow cannot be fully assessed due to missing investing CF; capex was modest at 1.92, implying that OCF minus capex was approximately -16.8 as an indicative proxy, but this excludes other investing flows. Dividend and buyback cash outflows are unreported; financing CF was -23.62, indicating cash returned to shareholders and/or debt repayment. No clear signs of aggressive working‑capital manipulation, but the magnitude of the OCF shortfall warrants monitoring of AR collections and inventory turnover in Q3–Q4.

Dividend Sustainability

Payout appears moderate with a calculated payout ratio of 46.9%, within the <60% benchmark. This is supported by strong earnings growth and stable tax rates, but current period cash coverage is unclear due to negative OCF and unreported total dividend paid. Balance‑sheet capacity is solid (cash 365.68; liabilities/equity 1.19x), which can bridge seasonal cash swings. Given capex is low (1.92), the structural cash demand is mainly working capital; thus, dividend sustainability hinges on H2 cash conversion. Policy outlook cannot be inferred without DPS guidance; however, the current payout level appears consistent with maintaining flexibility.

Risk Assessment

Business Risks:

• Seasonality and hit‑driven demand in toys/entertainment may cause revenue and margin volatility into/after the holiday season.
• Product and supplier concentration risk (dependence on leading IPs and major vendors) could affect volumes and terms.
• Inventory obsolescence risk if titles underperform; markdowns could pressure gross margin.
• Channel risk and credit risk from retailers given large receivables (AR 468.48).
• Logistics and procurement cost volatility (freight, components) impacting margins.
• FX exposure on imports can affect COGS and pricing.

Financial Risks:

• Negative operating cash flow this half (OCF/NI -0.22x), indicating cash conversion risk.
• Working‑capital intensity (AR/inventory vs AP) can drive cash volatility and funding needs.
• Interest‑bearing debt is unreported; hidden leverage cannot be fully ruled out.
• Potential reliance on trade payables (502.48) as a funding source; tightening terms could stress liquidity.

Key Concerns:

• Earnings quality flagged by negative OCF despite strong NI.
• Sustainability of margin expansion if mix/sell‑through normalizes post peak season.
• ROIC at 26.9% may reflect period effects; risk of reversion toward normalized levels.
• Limited disclosure on SG&A breakdown and investing flows reduces visibility.

Investment Implications

Key Takeaways:

• Strong quarter: revenue +16.5% YoY, OP +33.5%, NI +52.1%.
• Margin expansion: operating margin +56 bps; net margin +~80 bps YoY.
• ROE at 11.0% with healthy asset turnover (1.475x) and moderate leverage (2.19x).
• Liquidity solid (CR 165.7%, cash 365.68); solvency conservative (liabilities/equity 1.19x).
• OCF/NI -0.22x is a clear near‑term quality headwind; watch H2 cash conversion.
• Capex light (1.92); business capital needs are primarily working capital.
• Payout ratio 46.9% appears manageable if OCF normalizes in H2.
• ROIC reported at 26.9% is excellent but potentially inflated by seasonality/methodology.

Metrics to Watch:

• OCF and OCF/NI ratio in Q3–Q4 (target >1.0x over the full year).
• Receivables and inventory turnover, and AR collections post holiday season.
• Gross margin trajectory and markdown rates on slower‑moving SKUs.
• SG&A growth versus revenue growth to preserve operating leverage.
• Any disclosure on interest‑bearing debt and interest expense/coverage.
• Dividend guidance (DPS) and buyback cash outflows versus free cash flow.

Relative Positioning: Versus domestic consumer‑goods distributors, Happinet shows above‑average revenue growth, improving margins, and a solid 11% ROE with conservative balance‑sheet leverage; the main relative weakness this quarter is cash conversion, which appears seasonally driven.

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