Bushiroad (7803) FY2026 Q2 Earnings Report

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Executive Summary

This was a financial period in which earnings growth significantly outpaced revenue growth, clearly demonstrating progress toward higher revenue and earnings. Revenue was ¥27.84B (+8.2% YoY), Operating Income was ¥2.91B (+68.5%), Ordinary Income was ¥3.49B (+81.8%), and consolidated Net Income was ¥2.66B (+104.6%). Operating leverage emerged, expanding the Operating Income margin to 10.4% and resulting in earnings growth substantially exceeding the revenue growth rate.

Factors Affecting Performance

【Revenue】Revenue increased 8.2% YoY to ¥27.84B. The Company has changed to a single Entertainment Business segment, and the factors behind segment-level increases and decreases are not separately disclosed; however, overall expansion in proprietary IP, trading card games, overseas operations, and events is believed to have contributed.

【Profit and Loss】Operating Income was ¥2.91B (+68.5%), while Ordinary Income was ¥3.49B (+81.8%), with foreign exchange gains of ¥0.31B included in non-operating income boosting Ordinary Income. Consolidated Net Income was ¥2.66B (+104.6%), while Net Income attributable to owners of the parent was ¥2.58B (+107.4%). The divergence between Operating Income and Ordinary Income and Net Income was primarily attributable to foreign exchange gains, and attention should be paid to the inclusion of temporary non-operating factors. Since earnings growth substantially exceeded revenue growth of 8.2%, the results can be characterized as higher revenue and earnings.

Segment Analysis

From the current interim consolidated accounting period, the Company changed from the former two segments, “Entertainment Business” and “Sports Business,” to a single “Entertainment Business” segment. Segment-level revenue and profit-and-loss data have not been disclosed.

Key Financial Indicators

【Profitability】The Operating Income margin was 10.4%, the gross margin was 36.7%, and the Net Income margin on a consolidated basis was 9.6%; all improved from the same period of the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.65B, representing only 0.25x Net Income of ¥2.66B, indicating that cash generation is lagging accounting earnings. Work in process was ¥2.76B and constituted part of inventories of ¥1.81B; inventory stagnation is a point requiring attention. 【Investment Efficiency】ROE was 9.5%. The total asset turnover ratio was 0.55x, and financial leverage was at a level calculated from total assets of ¥50.74B / net assets of ¥28.15B, with improvement in the profit margin driving the increase in capital efficiency. 【Financial Soundness】The Equity Ratio was 55.5%. Working capital was ample, with current assets of ¥37.76B versus current liabilities of ¥15.53B. Interest-bearing debt consisted of long-term borrowings of ¥5.52B, bonds of ¥1.00B, and bonds due within one year of ¥0.70B, while cash and deposits of ¥23.40B exceeded these amounts, indicating a conservative level of financial leverage.

Cash Flow Analysis

Operating Cash Flow was ¥0.65B, an increase of 85.7% YoY, but there was a significant divergence from Net Income of ¥2.66B. Operating Cash Flow before changes in working capital was ¥1.50B; however, an increase in inventories (-¥0.86B) and a decrease in accounts payable (-¥1.08B) absorbed funds, while payments of corporate income taxes and other taxes (-¥1.05B) further reduced final OCF. Investing Cash Flow was -¥6.01B, mainly due to the acquisition of investment securities and transfers of funds to time deposits, while cash outflows for capital expenditures were limited. Financing Cash Flow was -¥0.35B, resulting in free cash flow of -¥5.36B. Cash and deposits at period-end remained substantial at ¥23.40B, and the impact on short-term liquidity is expected to be limited. However, the fact that earnings growth has not been sufficiently reflected in cash flow is an area of focus when monitoring future cash trends.

Earnings Quality

Of non-operating income of ¥0.62B, foreign exchange gains accounted for ¥0.31B, constituting a factor that boosted Ordinary Income and Net Income but should be distinguished from recurring business operating results. Non-operating expenses were small at ¥0.04B, and non-operating income and expenses overall worked to increase profit. Comprehensive income was ¥3.14B, and the ¥0.48B divergence from consolidated Net Income of ¥2.66B was primarily attributable to foreign currency translation adjustments of ¥0.41B, reflecting valuation changes in overseas assets and investments. Since OCF was weak relative to Net Income, an accrual-related discrepancy exists between accounting earnings and cash-earning capacity, primarily due to changes in working capital items such as inventories and accounts payable.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥56.00B (-0.3% YoY), Operating Income of ¥4.50B (-7.6%), and Ordinary Income of ¥4.60B (-5.1%), all representing projected declines from the previous year. First-half progress rates were 49.7% for Revenue, 64.6% for Operating Income, 75.8% for Ordinary Income, and 95.4% for Net Income attributable to owners of the parent, significantly exceeding the standard interim progress rate of 50% on the earnings side. The Company has not revised either its earnings forecast or dividend forecast. The second-half plan appears to assume increases in content-related expenses and event expenses, and therefore the high first-half earnings progress rate does not necessarily imply an upside to the full-year results.

Shareholder Returns

The dividend at the end of Q2 was ¥0 (no dividend), while the full-year dividend forecast is ¥2.5 per share. Based on the Company’s forecast of Net Income attributable to owners of the parent of ¥2.70B, the forecast Payout Ratio is approximately 12.6%, which remains low for a dividend-only payout ratio. In addition, the Company conducted a 1-for-2 stock split effective October 1, 2025; converting the June 2025 fiscal year dividend before the split to a post-split basis results in an annual dividend of ¥2.25. The policy appears to be one of no interim dividend and a single year-end dividend. Given that recent free cash flow is negative, the source of dividends is supported by balance sheet capacity, including cash and deposits of ¥23.40B.

Risk Factors

1. Cash Conversion Risk: OCF was ¥0.65B, representing only 0.25x Net Income of ¥2.66B. The high level of inventories, including work in process of ¥2.76B, is also putting pressure on working capital, indicating that earnings growth has not been sufficiently converted into cash generation.

2. Dependence on Temporary Factors: Foreign exchange gains of ¥0.31B, which boosted Ordinary Income, accounted for more than half of non-operating income of ¥0.62B. If foreign exchange trends reverse, the boost to profit at the Ordinary Income level could diminish.

3. Reduced Transparency Due to Segment Consolidation: Following the shift to a single Entertainment Business segment, individual revenue trends for IP, trading card games, events, and sports-related operations are no longer separately disclosed, making it more difficult to verify the composition of the Company’s growth drivers.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability exceeded the industry median in both categories, with the Net Income margin particularly ranking among the higher levels within the industry.

Growth and Capital Efficiency

The Revenue growth rate was slightly below the industry median but remained within the IQR and does not represent extremely low growth.

※Source: Compiled by the Company

Key Takeaways from the Results

1. In the first half, Revenue increased +8.2% while Operating Income increased +68.5%, clearly demonstrating an improvement in the profit margin driven by the emergence of operating leverage. Both the Operating Income margin of 10.4% and ROE of 9.5% improved from the previous year.

2. Although the full-year progress rate for Net Income was high at 95.4%, OCF remained at only 0.25x Net Income. The divergence between accounting earnings growth and cash flow is an issue that warrants continued monitoring of inventory and working capital trends.

3. As the shift to a single segment has reduced the disclosure of profitability by business, future performance assessments will primarily rely on company-wide indicators such as Revenue and profit margins.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

Bushiroad delivered a strong FY2026 Q2 earnings outcome, with profit growth materially outpacing revenue growth. Cumulative Q2 revenue increased 8.2% year on year to ¥27.84bn. Operating income rose 68.5% to ¥2.91bn, while ordinary income increased 81.8% to ¥3.49bn. Net income attributable to owners of parent more than doubled, rising 107.4% to ¥2.58bn. Gross profit increased to ¥10.23bn and the gross margin expanded by approximately 220bp year on year to 36.7%. The operating margin expanded by approximately 370bp to 10.4%, placing profitability within the good range of the stated benchmark. The net margin expanded by approximately 450bp to 9.3%, reflecting both operating leverage and a favorable non-operating result. SG&A increased only 2.2% year on year, materially below the 8.2% revenue increase, demonstrating favorable fixed-cost absorption. Ordinary income benefited from ¥0.62bn of non-operating income, including ¥0.31bn of foreign-exchange gains. This FX contribution was equivalent to 10.8% of operating income, so a portion of the ordinary-profit outperformance is exposed to currency-market variability. Reported annualized ROE was strong at 18.3%, supported by a 9.3% net margin, 1.097x asset turnover, and 1.80x financial leverage. Balance-sheet liquidity remained ample, with ¥23.40bn of cash and deposits and a 243.2% current ratio. However, cash conversion was weak: operating cash flow was ¥0.65bn, only 0.25x net income, and free cash flow was negative ¥5.36bn. The cash-flow shortfall reflected working-capital outflows and substantial investing cash flow, including time-deposit placements, purchases of non-current assets, and investment securities. Management retained its full-year forecast, but Q2 progress is uneven: sales are broadly on pace whereas operating profit, ordinary profit, and net income have already exceeded normal first-half progress rates. The full-year plan therefore implies a significantly less profitable second half, making the durability of margin gains, FX gains, and investment-related cash deployment the central issues for the remainder of FY2026.

Profitability Analysis

The reported annualized DuPont ROE of 18.3% decomposes into a 9.3% net profit margin, 1.097x annualized asset turnover, and 1.80x financial leverage. The principal improvement has been profitability rather than balance-sheet leverage: the operating margin rose to 10.4% from approximately 6.7% in the prior-year period, while gross margin increased to 36.7% from approximately 34.5%. Revenue growth of 8.2% combined with only 2.2% SG&A growth created meaningful operating leverage, lifting operating income by 68.5%. Cost of sales increased more slowly than revenue, supporting the gross-margin expansion. The 9.3% net margin is strong relative to the 5-10% benchmark range, though it remains below the 10% excellent threshold. The five-factor analysis indicates a normal 0.739 tax burden and an interest burden of 1.200, the latter reflecting net non-operating income rather than debt-service pressure. Foreign-exchange gains of ¥0.31bn augmented ordinary income, and their contribution means ordinary-income growth was faster than operating-income growth. EBITDA was ¥3.23bn and the EBITDA margin was 11.6%, broadly confirming that the operating-income improvement is not solely a depreciation-related accounting effect. JGAAP goodwill amortization was not a material drag in the current period based on the reported results. The single-segment structure reflects management's integration of entertainment and sports activities under its Vision 2030 strategy; consequently, profitability attribution by former business line is no longer disclosed. Margin sustainability will depend on continued monetization of proprietary IP, trading-card-game expansion, live-event execution, and overseas growth without a commensurate reacceleration in SG&A.

Growth Assessment

Top-line growth of 8.2% to ¥27.84bn is constructive, especially because gross profit grew faster than sales. Operating income growth of 68.5% indicates that the period's expansion was profit-rich rather than volume-only. The strategic emphasis on revitalizing and creating proprietary IP, becoming the global leader in card games, and accelerating overseas expansion provides identifiable growth vectors. The move to a single entertainment segment aligns reporting with this integrated operating model, although it prevents external assessment of the relative growth and profitability of card games, digital content, live entertainment, and professional wrestling. Against full-year guidance of ¥56.0bn in revenue, Q2 sales progress is 49.7%, essentially in line with the standard 50% first-half pace. Operating-income progress is 64.6% versus the ¥4.50bn full-year target, 14.6 percentage points above the standard pace. Ordinary-income progress is 75.8% versus guidance of ¥4.60bn, 25.8 percentage points above the standard pace. Net-income progress is 95.4% versus the ¥2.70bn plan, 45.4 percentage points above standard pace. Since management did not revise guidance, the plan implies much lower second-half profit than first-half profit. This could reflect seasonality, planned content and promotional spending, international expansion investment, or conservatism, but it also means first-half run-rate earnings should not be directly extrapolated. The prior-year period included a ¥0.17bn extraordinary gain on sale of subsidiary shares, whereas the current period's earnings are generated without a reported extraordinary gain, improving the comparability of the current net-income result. FX gains remain a variable contributor to ordinary-income growth and should be distinguished from core operating momentum.

Financial Health

Financial health is solid, supported by a highly liquid balance sheet and moderate reported leverage. Current assets of ¥37.76bn exceeded current liabilities of ¥15.53bn by ¥22.24bn, producing working capital of ¥22.24bn and a current ratio of 243.2%. The quick ratio of 231.5% confirms that liquidity is not dependent on inventory realization. Cash and deposits totaled ¥23.40bn, equivalent to 46.1% of total assets and comfortably exceeding current liabilities. Total equity increased to ¥28.15bn from ¥25.22bn a year earlier, while the equity ratio improved to 52.2% from 47.7%. The reported debt-to-equity ratio was 0.80x, below the 1.0x conservative benchmark and well below the 2.0x warning threshold. Debt/EBITDA of 1.71x and debt/capital of 16.4% also indicate manageable balance-sheet leverage. Current portions of long-term loans and bonds total ¥5.05bn, but these maturities are covered by cash and the substantial surplus of current assets over current liabilities; there is no apparent near-term maturity mismatch. Long-term loans were ¥5.52bn, and bonds payable including the current portion totaled ¥1.70bn. Investment securities increased ¥2.03bn year on year, or 40.6%, to ¥7.04bn and now represent 13.9% of total assets; this increases exposure to market valuation movements and the liquidity profile of the investment portfolio. Intangible assets increased ¥0.22bn, or 78.2%, to ¥0.50bn, but remain only 1.0% of total assets and therefore do not create a material intangible-asset concentration risk. Treasury stock decreased in absolute magnitude by ¥1.23bn to negative ¥0.33bn, increasing equity flexibility and lifting reported equity, although the capital-management implications should be monitored alongside future buyback and stock-compensation activity. Deferred tax assets of ¥1.28bn provide an additional asset base but should be supported by continued taxable-profit generation.

Notable B/S Changes

Investment securities: +¥2.03bn (+40.6%) to ¥7.04bn - now 13.9% of total assets; expands market-valuation exposure and makes portfolio composition important to monitor. Intangible assets: +¥0.22bn (+78.2%) to ¥0.50bn - indicates increased intangible investment, although the balance remains limited at 1.0% of total assets. Treasury stock: improved by ¥1.23bn (+79.0% toward zero) to -¥0.33bn - supports equity and capital flexibility; future capital-return and stock-compensation effects should be monitored.

Cash Flow Quality

Cash-flow quality is the principal financial concern despite strong accounting earnings. Operating cash flow was ¥0.65bn against net income of ¥2.58bn, producing an OCF/net-income ratio of 0.25x, materially below the 0.8x quality-warning threshold. Cash conversion, measured as OCF/EBITDA, was only 0.20x versus EBITDA of ¥3.23bn, also well below the 0.7x warning level. The root cause was adverse working-capital movement: inventories increased by ¥0.86bn, trade payables declined by ¥1.08bn, and other payables declined by ¥0.35bn. Lower receivables provided a ¥0.79bn operating-cash benefit, but this was insufficient to offset the inventory and payable movements, income-tax payments of ¥1.05bn, and other operating cash uses. The 3.8% accruals ratio remains below the 5% high-quality benchmark, which moderates concerns that reported profit is being driven by unusually aggressive accrual accounting. Nevertheless, the low OCF/net-income ratio means the earnings improvement has not yet translated into commensurate cash realization. The high work-in-process ratio alert is material: WIP was ¥2.76bn and represented 58.0% of the reported production inventory base, above the 40% warning threshold. This concentration can indicate longer production cycles, timing around content/product launches, or a production bottleneck; its impact is to tie up cash and raise execution and obsolescence risk if demand or release schedules change. Investing cash flow was negative ¥6.01bn, driven chiefly by ¥3.94bn of time-deposit placements, ¥4.71bn of purchases of non-current assets, and ¥1.69bn of investment-security purchases, partly offset by other investing inflows. Reported free cash flow was negative ¥5.36bn. Because a major portion of investing outflow was directed to time deposits, the negative free-cash-flow figure overstates permanent economic cash consumption relative to a conventional maintenance-capex interpretation, but it still represents a meaningful reduction in readily available cash. Cash and cash equivalents declined ¥5.59bn during the period to ¥19.43bn. Future cash-flow quality should improve only if WIP and inventory convert into sales and receivables while supplier-payment outflows normalize.

Dividend Sustainability

No interim dividend was paid for FY2026 Q2. Full-year dividend guidance is ¥2.50 per share, following the October 2025 two-for-one stock split. Based on full-year EPS guidance of ¥19.63, the implied dividend payout ratio is approximately 12.7%. This is a low payout ratio and is well within the below-60% sustainability benchmark. The indicated cash dividend requirement is also modest relative to owners' equity of ¥26.51bn and reported cash and deposits of ¥23.40bn. However, the period's operating cash flow of ¥0.65bn and negative reported free cash flow of ¥5.36bn mean dividend coverage should be assessed alongside the conversion of working capital and the scale of investment deployment. The low planned payout leaves substantial flexibility to fund IP development, card-game expansion, overseas initiatives, and balance-sheet investment while maintaining the dividend. No dividend revision was announced. The dividend outlook is therefore financially sustainable under the stated plan, with cash-conversion normalization rather than payout capacity representing the main item to monitor.

Risk Assessment

Business risks include Content/IP execution risk: revenue and margins depend on the sustained popularity, release cadence, and monetization of proprietary IP across games, cards, events, merchandise, and related entertainment activities., Trading-card-game and live-entertainment demand risk: changes in fan engagement, product cycles, event attendance, secondary-market conditions, or competitive releases can affect sell-through and inventory conversion., Overseas-expansion risk: the Vision 2030 emphasis on international growth increases exposure to localization, distribution, regulatory, partner, and foreign-exchange risks., Production and inventory risk: WIP of ¥2.76bn, representing 58.0% of the reported production inventory base, raises the risk of delayed monetization, scheduling disruption, and inventory obsolescence if release timing or demand changes., Foreign-exchange risk: ¥0.31bn of FX gains contributed 10.8% of operating income, creating volatility in ordinary income independent of core operating performance..

Financial risks include Cash-conversion risk: OCF/net income of 0.25x and OCF/EBITDA of 0.20x show that current-period earnings were not fully converted to cash., Working-capital risk: inventory growth and reductions in trade and other payables consumed cash, and a sustained recurrence would pressure internally funded investment capacity., Investment-portfolio risk: investment securities rose 40.6% year on year to ¥7.04bn, exposing equity and comprehensive income to market-price changes., Second-half earnings-deceleration risk: full-year guidance implies profit progress well below the first-half pace, particularly after net income reached 95.4% of the annual target..

Key concerns include High priority: cash-flow conversion must improve through WIP/inventory monetization and normalization of payable movements; otherwise, high accounting profitability will have limited cash support., High priority: management must explain the expected second-half cost, seasonality, and investment profile that reconciles strong first-half earnings with unchanged full-year guidance., Medium priority: monitor whether the increased investment-security balance is strategic, liquid, and appropriately risk-controlled., Medium priority: monitor the sustainability of the 370bp operating-margin expansion as overseas expansion and content investment progress..

Investment Implications

Key takeaways include FY2026 Q2 showed strong core earnings momentum: revenue grew 8.2%, operating income grew 68.5%, and net income attributable to owners rose 107.4%., Margin expansion was substantial, with gross margin up about 220bp and operating margin up about 370bp year on year., Annualized ROE of 18.3% is strong and is driven chiefly by improved profitability rather than excessive financial leverage., Liquidity and solvency are robust, with a 243.2% current ratio, 0.80x D/E, and 1.71x debt/EBITDA., Weak operating cash conversion and the high WIP mix are the principal counterweights to otherwise favorable earnings and balance-sheet indicators., Unchanged guidance despite above-normal first-half profit progress makes second-half assumptions a key interpretive issue..

Metrics to watch include Operating cash flow relative to net income and EBITDA, Work-in-process and total inventory conversion, Gross margin and SG&A growth relative to revenue growth, Foreign-exchange gains or losses within non-operating income, Second-half operating-profit trajectory relative to the ¥4.50bn full-year forecast, Investment-security balance and comprehensive-income volatility, Cash and cash-equivalent movement after time-deposit placements and investment spending.

Regarding relative positioning, The company combines above-benchmark annualized ROE, good operating-margin performance, conservative-to-moderate leverage, and substantial liquidity. Relative to a high-quality earnings profile, however, its 0.25x OCF/net-income ratio and 0.20x OCF/EBITDA conversion are weak; improving cash realization is necessary for the strong reported profit growth to carry greater fundamental durability.