Avex Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥64.03B
• Operating Income: ¥1.12B
• Net Income: ¥1.77B
• EPS: ¥20.38

Income Statement

Balance Sheet

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

Avex Inc. (TSE: 7860) delivered FY2026 Q2 consolidated results showing solid topline momentum but muted earnings progression and thinner margins. Revenue rose 14.1% year on year to ¥64.0bn, indicating robust demand across entertainment activities, likely supported by live events recovery and steady digital/content monetization. Despite the double‑digit revenue growth, operating income was flat at ¥1.12bn, compressing the operating margin to roughly 1.7%, which signals cost inflation and/or adverse sales mix. Gross profit is ¥15.95bn, implying a gross margin of 24.9%; this margin is respectable but not expanding with scale, suggesting limited operating leverage in the period. Net income declined 47.0% YoY to ¥0.86bn, meaning below‑the‑line items and/or tax effects weighed materially on bottom line. Ordinary income of ¥1.33bn exceeded operating income, pointing to positive non‑operating contributions, but the reported income tax expense (¥1.78bn) appears heavy versus earnings and likely reflects special items or JGAAP‑specific classifications. The DuPont analysis indicates a low but positive ROE of 1.71%, driven by a slim 1.35% net margin, asset turnover of 0.591x, and moderate financial leverage of 2.14x. Liquidity remains comfortable with a current ratio of 147% and quick ratio of 146%, supported by ¥77.8bn in current assets versus ¥52.8bn in current liabilities. Capital structure is balanced: total liabilities of ¥54.8bn against equity of ¥50.6bn implies a liabilities‑to‑equity multiple near 1.09x, while the implied equity ratio is about 46.6% based on totals. Interest expense is de minimis (¥1m), yielding very high interest coverage (over 1,000x), so refinancing risk from interest burdens appears low. Cash flow disclosure is not available in this dataset (operating, investing, and financing CF reported as 0 indicate unreported), limiting assessment of earnings quality and free cash flow. Depreciation and amortization are also unreported, so EBITDA and non‑cash expense dynamics cannot be evaluated here. Dividend information is not included (DPS and payout shown as 0.00 indicate undisclosed), so distribution policy assessment requires additional disclosures. Overall, the quarter shows demand resilience but profit conversion challenges, with bottom‑line volatility likely influenced by tax/extraordinary factors under JGAAP. While the balance sheet looks sound, the absence of cash flow and D&A details is a key limitation to assessing sustainability of earnings and investment capacity.

Profitability Analysis

ROE_decomposition: ROE 1.71% = Net margin 1.35% × Asset turnover 0.591 × Financial leverage 2.14. Profitability is constrained primarily by the thin net margin; asset utilization is moderate and leverage is not excessive. margin_quality: - Gross margin: 24.9% (¥15.95bn GP on ¥64.03bn revenue), stable but not expanding in line with revenue growth. - Operating margin: ~1.7% (¥1.12bn/¥64.03bn), indicating sizable SG&A/content costs and limited operating leverage. - Ordinary margin: ~2.1% (¥1.33bn/¥64.03bn), aided by non‑operating gains. - Net margin: 1.35% (¥0.86bn/¥64.03bn), pressured by below‑the‑line items and tax effects. operating_leverage: Revenue grew 14.1% YoY while operating income was flat, implying negative operating leverage in the period (costs rose at least as fast as gross profit). This suggests higher variable cost intensity (e.g., live events, production costs, artist royalties) and possibly elevated promotional or personnel expenses.

Growth Assessment

revenue_sustainability: Topline growth of 14.1% YoY suggests continuing recovery/expansion in entertainment activities. Sustainability will depend on live event cadence, catalog/IP monetization, and digital distribution trends. profit_quality: Profit growth lagged revenue due to margin compression. Ordinary income exceeded operating income, implying reliance on non‑operating contributions, while net income was hit by tax/extraordinary items. Without cash flow data and D&A, earnings quality cannot be validated. outlook: If demand normalization persists, revenue growth can remain positive, but margin recovery is necessary for earnings to re‑accelerate. Cost control, ticket pricing, mix toward higher‑margin digital/IP, and disciplined content investment will be key to restoring operating leverage.

Financial Health

liquidity: Current assets ¥77.77bn vs current liabilities ¥52.83bn yields a current ratio of 147.2% and quick ratio of 145.5%, indicating ample short‑term coverage. Working capital stands at ¥24.94bn. solvency: Total assets ¥108.40bn and equity ¥50.55bn imply an equity ratio around 46.6% (the reported 0.0% is undisclosed). Debt‑to‑equity of 1.09x (liabilities/equity) is moderate. Interest expense is only ¥1m, supporting very strong interest coverage (~1,119x). capital_structure: Leverage appears balanced with room for investment; low interest burden reduces financial strain. A relatively high proportion of current liabilities may include advances/contract liabilities typical in events businesses, but detailed breakdown is not provided.

Cash Flow Quality

earnings_quality: Operating cash flow is undisclosed (reported as 0), so reconciliation of accrual earnings to cash cannot be performed. With net income at ¥0.86bn and no OCF data, OCF/NI ratio shown as 0.00 is not informative. FCF_analysis: Investing and financing cash flows are also undisclosed (0). Free cash flow is not available; therefore, capital intensity and reinvestment needs cannot be assessed from this dataset. working_capital: Inventories are modest at ¥0.91bn, suggesting low inventory risk relative to scale; however, receivables, advances, and payables dynamics are unknown. The positive working capital position (¥24.94bn) supports liquidity, but cash conversion efficiency is unassessable without OCF.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are undisclosed (shown as 0.00). With H1 net income of ¥0.86bn, payout capacity depends on full‑year earnings and cash generation, neither of which can be triangulated here. FCF_coverage: Free cash flow is not reported, so coverage cannot be evaluated. Any assessment would require actual OCF and capex. policy_outlook: No guidance or policy details are provided in this dataset. Given moderate leverage and strong liquidity, distributions are possible in principle, but clarity on cash generation and capex is needed to judge sustainability.

Risk Assessment

Business Risks:

• Margin compression from higher event production costs, artist royalties, and promotional spend
• Sales mix volatility between live events (lower margin) and digital/IP (higher margin)
• Dependence on hit‑driven content cycles and artist roster performance
• Event cancellation/postponement risks and attendance variability
• Platform dependency for digital distribution and changing revenue shares
• Macroeconomic sensitivity affecting discretionary spending on entertainment

Financial Risks:

• Bottom‑line volatility from tax/extraordinary items under JGAAP
• Working capital swings tied to event prepayments and settlements
• Counterparty credit risk on receivables from distributors and partners
• Potential capex/content investment needs without disclosed cash flow coverage

Key Concerns:

• Operating income flat despite 14.1% revenue growth, indicating weak operating leverage
• Net income down 47% YoY, reflecting below‑the‑line and tax impacts
• Lack of OCF, capex, and D&A disclosure limits assessment of earnings durability and FCF
• Apparent discrepancy between reported cost of sales and gross profit implies classification nuances; margin interpretation should rely on the provided gross profit

Investment Implications

Key Takeaways:

• Topline growth is solid, but profitability conversion is weak in the period
• ROE of 1.71% is constrained by a thin 1.35% net margin
• Liquidity is strong and leverage moderate, reducing near‑term financial stress
• Interest burden is negligible, so earnings sensitivity is mainly operational, not financial
• Cash flow and D&A data gaps are the primary limitation to evaluating sustainability

Metrics to Watch:

• Operating margin trajectory and SG&A ratio
• Gross margin mix between live events and digital/IP
• Operating cash flow and working capital movements (receivables/advances/payables)
• Content investment/capex and resulting amortization (D&A)
• Ordinary vs net income gap and tax/extraordinary items
• Asset turnover and inventory turns
• Contract liabilities (advances) and ticket pipeline indicators

Relative Positioning: Among Japan entertainment/content peers, Avex exhibits strong revenue momentum but thinner margins and lower ROE relative to higher‑margin content owners; balance sheet strength is a support, but margin recapture and cash flow visibility are needed to close the gap.

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
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