HitoMile Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥69.22B
• Operating Income: ¥909M
• Net Income: ¥372M
• EPS: ¥12.94

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

FY2026 Q2 results show modest top-line growth with improving profitability, but liquidity and leverage remain the primary concerns. Revenue rose 4.9% YoY to 692.21, while operating income increased 21.1% YoY to 9.09, evidencing better operating leverage. Net income advanced 31.6% YoY to 3.72, lifting the net margin to 0.54%. Gross margin stood at 24.0%, and operating margin is approximately 1.31% this quarter. Based on revenue growth of 4.9% and operating income growth of 21.1%, operating margin expanded by roughly 17 bps YoY (from about 1.14% to 1.31%). Net margin expanded by about 11 bps YoY (from roughly 0.43% to 0.54%) as improved operations offset a high tax rate. ROE calculated via DuPont is 8.5%, driven by very high financial leverage (8.54x) and solid asset turnover (1.85x) compensating for a thin net margin. Operating cash flow of 16.00 significantly exceeded net income (OCF/NI = 4.30x), signaling strong cash conversion this quarter. Interest coverage is robust at 19.3x despite a high debt-to-equity ratio of 7.54x. However, the current ratio is 0.85 and working capital is negative at -40.09, flagging near-term liquidity pressure. ROIC is 4.0%, below the 5% warning threshold, indicating capital efficiency remains subpar. The effective tax rate is elevated at 56.1%, muting bottom-line conversion and potentially reflecting non-deductible items or tax mix effects. Equity is thin at 43.83 against total assets of 374.38, suggesting balance sheet fragility to shocks. Non-operating items netted out roughly flat (income 0.74 vs expenses 0.72), leaving ordinary income close to operating income. Cash returns to shareholders include modest buybacks (-0.29), but dividend data is unreported; a calculated payout ratio of 312.6% suggests caution if accurate. Looking ahead, sustaining margin gains and cash generation while de-risking the short end of the balance sheet will be key to improving ROIC and dividend capacity.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 0.54% (NI 3.72 / Revenue 692.21), Asset Turnover 1.85x (Revenue 692.21 / Assets 374.38), Financial Leverage 8.54x (Assets 374.38 / Equity 43.83). Calculated ROE ≈ 0.54% × 1.85 × 8.54 ≈ 8.5%, matching the reported figure. The most influential component is financial leverage (8.54x), which amplifies a very thin net margin. YoY, operating income grew faster than revenue (+21.1% vs +4.9%), indicating modest operating margin expansion (about +17 bps), which in turn lifted net margin by ~11 bps despite a high effective tax rate (56.1%). Business drivers of the margin improvement likely include tighter SG&A control (SG&A grew slower than gross profit; operating income up 21.1% vs revenue up 4.9%) and mix/price discipline, as gross profit of 166.03 implies consistent gross margin at 24.0%. Sustainability: The margin uptick appears operationally driven and may be sustainable if revenue growth persists and SG&A discipline continues; however, the very thin EBITDA margin (1.9%) limits cushion against shocks. Watch for any reversal if wage, rent, or other SG&A lines (unreported in detail) accelerate faster than sales. Concerning trend flags: ROIC at 4.0% is below threshold, indicating returns still trail a typical cost of capital; any SG&A growth outpacing sales would quickly compress the already slim operating margin.

Growth Assessment

Top-line growth of 4.9% YoY to 692.21 is steady but not robust. Operating profit growth of 21.1% indicates positive operating leverage from improved cost containment and/or better gross profit execution. Net income growth of 31.6% outpaced revenue, helped by operating efficiency but partly constrained by a high tax rate. Revenue sustainability appears reasonable near-term given the current asset turnover (1.85x), but thin margins and high leverage elevate sensitivity to macro softness or client pricing pressure. Non-operating items were immaterial to profit growth this quarter (0.74 income vs 0.72 expense), suggesting the improvement was chiefly operational. Outlook hinges on maintaining gross margin near 24% and keeping SG&A growth below revenue growth. With ROIC at 4.0%, incremental growth must be capital-light to be value-accretive; disciplined capex and working capital management will be necessary. Absent disclosure on segment mix, R&D, or detailed SG&A, visibility into drivers is limited; guidance, backlog, or order trends (not provided) would be helpful to gauge H2 momentum.

Financial Health

Liquidity is weak: current ratio 0.85 (<1.0 warning), quick ratio 0.85, and working capital is negative at -40.09, implying reliance on supplier credit (AP 173.93) and short-term debt (ST loans 51.70) to fund operations. Solvency risk is elevated given D/E 7.54x, although interest coverage is strong at 19.3x due to low interest expense (0.47) relative to EBIT. Total liabilities are 330.54 vs equity of 43.83, underscoring a thin equity buffer. Maturity mismatch risk exists: current liabilities (262.71) exceed current assets (222.62), and cash is modest at 33.83; rollover of short-term borrowings appears critical. Long-term loans are 50.72, indicating some terming out, but more rebalancing could reduce liquidity stress. Off-balance sheet obligations are not disclosed; absent data, potential lease or guarantee exposures cannot be assessed.

Cash Flow Quality

Earnings quality is strong this quarter: OCF/Net Income is 4.30x (16.00 vs 3.72), indicating robust cash conversion, likely aided by working capital dynamics. Free cash flow cannot be computed due to unreported investing cash flows and capex; however, with EBITDA at 13.31 and OCF at 16.00, pre-capex cash generation appears healthy for the period. Financing CF was +9.18, suggesting net borrowing or other financing inflows; combined with negative working capital, this highlights dependence on external and trade financing to support operations. Potential working capital manipulation signs are limited; negative WC is structural for some models, but reliance on AP (173.93) vs AR (99.19) should be monitored for reversals that could consume cash. Sustainability of the high OCF/NI ratio is uncertain if AR rises or AP unwinds in subsequent quarters.

Dividend Sustainability

Dividend amounts are unreported; a calculated payout ratio of 312.6% implies potential overdistribution relative to earnings if accurate, which would be unsustainable. With OCF at 16.00, cash capacity exists for modest shareholder returns, but liquidity constraints (current ratio 0.85) and high leverage (D/E 7.54x) argue for balance sheet strengthening over higher payouts. Share repurchases of 0.29 were executed, indicating some capital return. Without FCF and dividend data, we cannot confirm coverage; prudence suggests maintaining a low payout until ROIC improves above the cost of capital and short-term funding reliance is reduced.

Risk Assessment

Business Risks:

• Very thin operating and EBITDA margins (1.31% and 1.9%), leaving little buffer against revenue or cost shocks
• Potential pricing pressure and cost inflation impacting gross margin (24.0%) and SG&A, with limited disclosure by line item
• Execution risk in sustaining operating leverage as growth moderates (+4.9% YoY revenue)

Financial Risks:

• Low liquidity: current ratio 0.85 and negative working capital (-40.09), reliance on short-term funding
• High leverage: D/E 7.54x with thin equity (43.83), increasing sensitivity to earnings volatility
• Refinancing/maturity mismatch risk: short-term loans 51.70 vs cash 33.83 and current liabilities 262.71
• Elevated effective tax rate (56.1%) suppresses net profitability; potential volatility if tax items normalize

Key Concerns:

• ROIC at 4.0% below warning threshold, indicating subpar capital efficiency
• Sustainability of strong OCF relative to NI if working capital reverses
• Potential covenant constraints given leverage (details not disclosed)

Investment Implications

Key Takeaways:

• Margin inflection: operating income grew 21.1% vs revenue 4.9%, expanding operating margin ~17 bps
• OCF quality strong (4.30x NI), but liquidity remains tight with current ratio at 0.85
• Leverage is high (D/E 7.54x) though interest coverage is ample (19.3x)
• ROE 8.5% is leverage-driven; underlying ROIC 4.0% remains below target levels
• Tax rate elevated (56.1%); normalization could aid net margins

Metrics to Watch:

• Current ratio and short-term loan rollover, including cash balance trajectory
• Operating margin and SG&A growth relative to revenue
• ROIC progression and capital intensity (capex, if disclosed)
• Working capital turns: AR and AP movements and OCF sustainability
• Effective tax rate normalization
• Net debt/EBITDA and interest coverage trends

Relative Positioning: Versus domestic small/mid-cap peers, the company shows improving operational efficiency and strong cash conversion this quarter, but ranks below-average on liquidity and capital efficiency (ROIC), with higher-than-peer leverage as the main overhang.

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