HOSHIIRYO-SANKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.37B
• Operating Income: ¥863M
• Net Income: ¥627M
• EPS: ¥199.22

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: A steady but slightly softer quarter operationally, with resilient cash generation and a fortress balance sheet offsetting modest margin compression. Revenue grew 1.2% YoY to 73.72, while operating income dipped 1.9% YoY to 8.63, and net income was essentially flat at 6.22 (-0.1% YoY). Gross profit was 37.50, implying a robust 50.9% gross margin, supported by a stable cost structure in core home medical oxygen and related services. Operating margin stood at 11.7% this quarter, with estimated YoY compression of about 37 bps based on revenue and OI growth rates. Ordinary income was 9.17 (-0.8% YoY), indicating about 25 bps compression in ordinary margin to 12.4%, while net margin eased by roughly 11 bps to 8.4%. Non-operating income of 0.65 (10.4% of operating profit) was driven by dividend income (0.39) and interest income (0.17), cushioning ordinary profit. Cash generation was strong: operating cash flow of 12.00 was 1.93x net income, validating good earnings quality. With capex of only 0.84, implied FCF was ample (~11.2) even though full investing CF disclosure was not provided. The balance sheet remains exceptionally conservative: cash and deposits of 107.93 and total equity of 194.66 (equity ratio ~76.7% by calculation) underpin very low financial risk. Liquidity is abundant (current ratio 328%, quick ratio 322%), and interest coverage is extremely high at 128.7x given minimal interest expense (0.07). ROE, calculated at 3.2%, is constrained by low asset turnover (0.290) and low leverage (1.30x), despite a decent net margin. The payout ratio is calculated at 38.5%, appearing sustainable against operating cash flow and modest capex needs, though actual DPS was not disclosed. Overall, the quarter shows slight operational softness but healthy core profitability, robust cash conversion, and substantial financial flexibility. Forward-looking, the company’s cash-rich position allows continued investment and shareholder returns, but improving asset efficiency will be key to lifting ROE. Potential headwinds include reimbursement and pricing pressures in Japan’s medical system and competition in home healthcare services, while higher interest income provides a small tailwind. Absent major M&A or balance sheet re-leveraging, earnings growth likely tracks volume growth and operational efficiency gains.

Profitability Analysis

Step 1 (ROE decomposition): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 8.4% × 0.290 × 1.30 ≈ 3.2%. Step 2 (biggest change): The binding constraint on ROE remains low asset turnover (0.290) and modest leverage (1.30x); margin trends were slightly weaker but broadly stable. Step 3 (business reason): Large cash holdings (cash 107.93 vs total assets 253.89) depress asset turnover, while a conservative capital structure limits leverage-driven ROE uplift; slight margin compression reflects SG&A growth roughly in line to slightly above revenue and a mix shift with non-operating income supporting ordinary profit. Step 4 (sustainability): Net margin near 8.4% appears sustainable given stable gross margin (50.9%) and minimal interest burden; asset turnover improvement would likely require redeployment of cash or accelerated growth. Leverage is a management choice and likely to remain low absent a strategic shift. Step 5 (flags): Operating income declined 1.9% YoY versus revenue +1.2%, implying mild negative operating leverage. Limited SG&A disclosure prevents precise diagnosis, but the OI trend suggests opex growth modestly outpaced sales.

Growth Assessment

Revenue grew 1.2% YoY to 73.72, indicating steady but modest demand in core medical oxygen/home healthcare. Operating income fell 1.9% YoY to 8.63, reflecting slight margin pressure or higher operating costs. Ordinary income (-0.8% YoY) and net income (-0.1% YoY) were resilient, aided by higher non-operating income (dividends/interest). Operating margin is 11.7% and net margin 8.4%; both are respectable for the segment but slightly lower YoY. EBITDA of 13.14 implies a 17.8% EBITDA margin, providing cushion for reinvestment and dividends. The mix includes non-operating contributions (0.65), which are recurring to a degree (dividend/interest), but not core-operating; reliance is modest. Outlook hinges on volume growth in home care, device/service mix, and reimbursement pricing; absent pricing tailwinds, profit growth will depend on efficiency and scale benefits. With strong liquidity, the company can invest selectively (capex 0.84 YTD) or pursue small bolt-ons to accelerate growth. Near-term growth quality is solid given OCF > NI (1.93x), indicating limited accrual risk. We expect revenue and profit trajectory to be stable-to-gradually improving if cost controls hold and patient volumes grow.

Financial Health

Liquidity is very strong: current ratio 328.1% and quick ratio 322.3% (no warning triggers). Total liabilities are 59.23 vs total equity 194.66, yielding a conservative D/E of 0.30x. Calculated equity ratio is approximately 76.7% (194.66 / 253.89). Cash and deposits of 107.93 comfortably exceed current liabilities of 41.71, indicating no maturity mismatch risk; accounts receivable (24.76) plus cash provide ample coverage of payables (24.52). Interest coverage is 128.65x, reflecting minimal interest expense (0.07) and solid operating profit. No explicit short-term or long-term loan balances were disclosed; interest-bearing debt details were unreported but overall leverage appears low given the D/E ratio. No off-balance sheet obligations were reported in the data provided. Overall solvency and liquidity are exceptionally strong.

Cash Flow Quality

OCF/Net Income is 1.93x (12.00 vs 6.22), indicating high earnings quality and strong cash conversion. With capex at 0.84, implied free cash flow was robust (~11.16), though full investing cash flows were not disclosed. Financing CF was -4.01, likely reflecting shareholder returns and/or minor debt movements; dividends paid were not disclosed, but payout ratio (calculated) is 38.5%, which appears comfortably covered by OCF. Working capital appears well-managed: receivables 24.76 against half-year sales imply roughly ~60 days sales outstanding (acceptable), payables 24.52 against half-year COGS imply longer payables days (~120), providing supplier financing without evident stress. No signs of working capital manipulation are evident from available data; inventories are low (2.44), consistent with the service-centric model. Overall cash flow quality is strong and supportive of ongoing investments and dividends.

Dividend Sustainability

The calculated payout ratio is 38.5%, below the 60% benchmark threshold and compatible with OCF of 12.00. Although DPS and total dividends paid were not disclosed, cash on hand (107.93) and implied FCF (~11.16) provide ample coverage for ordinary dividend commitments and small-scale capex. With minimal leverage and high interest coverage, there is little risk of financial strain from dividends under current conditions. Policy-wise, the stable earnings and cash profile suggest room for steady dividends; upside to distributions would depend on management’s balance between growth investments and shareholder returns. Visibility is good despite partial disclosure, but final assessment of FCF coverage of total shareholder returns is constrained by unreported investing CF and dividend amounts.

Risk Assessment

Business Risks:

• Reimbursement and pricing pressure in Japan’s medical system potentially compressing margins.
• Competitive intensity in home medical oxygen and related services limiting pricing power.
• Operational cost inflation (labor, logistics, equipment maintenance) outpacing modest top-line growth.
• Dependence on non-operating income (dividends/interest) for a portion of ordinary profit, though currently modest.

Financial Risks:

• Low ROE (3.2%) relative to typical cost of equity due to low asset turnover and conservative leverage.
• Potential reinvestment risk from a large cash balance if not effectively deployed to enhance returns.
• Disclosure gaps (investing CF, interest-bearing debt details) reduce visibility on capital allocation dynamics.

Key Concerns:

• Slight negative operating leverage this quarter (OI -1.9% vs sales +1.2%).
• Margin compression of roughly 37 bps at the operating level and ~11 bps at net level.
• ROIC reported at 6.8%, below the 7–8% target range, suggesting returns improvement is needed.

Investment Implications

Key Takeaways:

• Stable topline (+1.2% YoY) with minor operational softness; core margins remain healthy.
• Strong cash generation (OCF 12.00; OCF/NI 1.93x) and modest capex support high FCF.
• Fortress balance sheet (equity ratio ~76.7%, current ratio 328%) minimizes financial risk.
• ROE constrained at 3.2% by low asset turnover and low leverage; capital efficiency is the main lever.
• Non-operating income (0.65) provides a small, recurring buffer to ordinary profit.

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue.
• Asset turnover improvement (utilization of large cash balance; growth in productive assets).
• ROIC progression toward or beyond 7–8%.
• Reimbursement/fee revisions and pricing trends in home healthcare.
• Working capital turns (DSO/DPO) and sustainability of OCF > NI.

Relative Positioning: Versus domestic home healthcare peers, the company exhibits stronger liquidity and lower leverage, average-to-strong operating margins, but lags on ROE due to low asset turnover; overall risk profile is low with room to optimize capital efficiency.

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