HIRAGA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.90B
• Operating Income: ¥77M
• Net Income: ¥71M
• Earnings per Unit (EPU): ¥24.91

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Soft quarter with significant margin compression and profit deterioration despite flat topline, cushioned by strong cash conversion and solid liquidity. Revenue grew 0.9% YoY to 48.98, but operating income fell 68.3% YoY to 0.77, ordinary income declined 59.3% to 1.14, and net income decreased 62.5% to 0.71. Gross profit was 10.26 with a gross margin of 20.9%, indicating limited pricing power or unfavorable mix versus the prior year. Operating margin compressed to 1.6% from an estimated ~5.0% last year, implying roughly 340 bps of compression. Ordinary margin likewise compressed to ~2.3% from ~5.8% (about 340 bps), and net margin fell to 1.4% from an estimated ~3.9% (250 bps compression). Non-operating income of 0.50 (incl. 0.11 dividends) provided meaningful support, offset by 0.14 in non-operating expenses; net non-operating contribution (+0.36) was nearly half of operating profit. Reported profit before tax of 2.80 appears inconsistent with net income of 0.71 given the 0.90 tax expense, suggesting unreported extraordinary losses/adjustments or classification differences; we treat this cautiously due to disclosure gaps. Earnings quality was high: operating cash flow of 3.06 was 4.31x net income, indicating strong cash conversion and likely working capital inflows. Balance sheet is sound with current ratio at 170.6% and quick ratio at 168.5%, and substantial cash (22.56) versus interest-bearing loans (short-term 4.00, long-term 1.52). Capital efficiency is weak: ROE is 1.7% and ROIC is 2.1%, well below a 5% warning threshold, highlighting structural profitability challenges. Interest coverage remains strong at 26.6x, mitigating near-term financial risk. SG&A of 7.82 remains heavy relative to gross profit, contributing to operating margin pressure. Dividend visibility is low with DPS unreported and a calculated payout ratio of 226.2% signaling potential pressure if maintained against subdued earnings. Forward-looking, the company must restore gross margin and/or reduce SG&A intensity to lift ROIC above cost of capital; otherwise, earnings improvements may depend on non-operating gains which are less controllable. Near-term focus should be on pricing discipline, mix improvement, and cost actions to stabilize operating margin toward historical levels. Monitoring working capital discipline is also key, as OCF outperformance versus NI may normalize. Overall, while liquidity is ample and cash generation was solid this half, profit quality depends on rebuilding core operating profitability.

Profitability Analysis

ROE decomposition: 1.7% ROE = 1.4% net profit margin × 0.685 asset turnover × 1.68x financial leverage. The largest change component vs last year is the net profit margin, which compressed by an estimated ~250 bps (from ~3.9% to 1.4%), while asset turnover and leverage likely moved modestly. Business drivers: operating margin dropped from ~5.0% to ~1.6% as gross margin pressure and/or higher SG&A intensity eroded profitability; the company relied more on non-operating income to support ordinary profit. Sustainability: the margin compression appears cyclical and mix-driven rather than one-time; absent pricing and cost actions, recovery may be gradual. The reliance on non-operating items (non-operating income ratio ~70%) is not a stable earnings driver. Concerning trends: revenue grew 0.9% YoY while operating income fell 68.3%, indicating negative operating leverage; SG&A at 7.82 is high relative to gross profit (SG&A/GP ~76%), leaving little buffer. ROIC at 2.1% signals returns below cost of capital, reinforcing the need for structural margin improvement.

Growth Assessment

Revenue growth was modest at +0.9% YoY, indicating stable but sluggish demand. The pronounced drop in operating income (-68.3% YoY) shows that growth was not profitable this period. Given EBITDA of 2.23 (margin 4.5%) vs operating margin 1.6%, D&A (1.46) is a significant cost burden; without capex detail, sustainability of EBITDA is uncertain. The mix of profits shifted toward non-operating income (0.50), which is less predictable; dividend income (0.11) supports recurring base but is small. Outlook: recovery depends on restoring gross margin (currently 20.9%) and lowering SG&A ratio; even a 100–200 bps improvement in operating margin would materially lift earnings given low base. The effective tax rate of 32% appears normal and should not be a swing factor absent extraordinary items. With OCF outpacing NI (4.31x), near-term cash generation looks supportive, but normalization of working capital could temper H2 cash flow. Overall growth quality is weak this half, but stabilization is achievable if pricing, product mix, and cost control improve.

Financial Health

Liquidity is strong: current ratio 170.6% and quick ratio 168.5% exceed benchmarks; no warning on liquidity (both >1.0). Cash and deposits (22.56) comfortably exceed total interest-bearing loans disclosed (short-term 4.00, long-term 1.52), indicating a net cash position. Debt-to-equity ratio at 0.72x (as reported) is within conservative bounds (<1.5x), and interest coverage is robust at 26.6x. Maturity mismatch risk appears low: current assets 39.82 vs current liabilities 23.34; accounts receivable 12.25 exceed accounts payable 7.42, and inventories are light (0.48), aligning with a low-inventory model. No off-balance sheet obligations are disclosed in the provided data. Equity base is solid at 42.46 with retained earnings of 36.17 supporting resilience. No explicit covenants or contingent liabilities were reported.

Cash Flow Quality

OCF/NI of 4.31x indicates high-quality earnings this half, with cash realization exceeding accounting profit. Operating CF of 3.06 suggests favorable working capital movements and/or strong collections; however, the durability is uncertain without detail on receivables and payables timing. Free cash flow cannot be assessed due to unreported investing CF and capex; D&A of 1.46 implies some maintenance capex needs. Financing CF of -1.34 suggests net outflows (debt repayment and/or dividends), which appear manageable given the cash balance. No obvious signs of working capital manipulation are detectable from the limited data, but the large divergence (cash > earnings) will likely normalize. Given strong liquidity, the company can fund operations and moderate investments, but sustained low margins could eventually constrain organic reinvestment.

Dividend Sustainability

DPS and total dividends were unreported; the calculated payout ratio of 226.2% signals potential unsustainability if it reflects actual distributions against current earnings. With OCF strong this period and net cash on hand, short-term dividend payments are fundable, but maintaining a payout above earnings is not prudent if operating profitability remains weak. FCF coverage cannot be determined due to missing capex and investing CF; consequently, visibility on medium-term dividend sustainability is limited. Policy outlook likely prioritizes stability, but we would expect management to align payouts more closely with earnings unless H2 profit rebounds.

Risk Assessment

Business Risks:

• Gross margin pressure from pricing and product mix, with GPM at 20.9%
• Negative operating leverage as SG&A intensity remains high relative to gross profit
• Industry secular headwinds (digital shift reducing print/promotion demand)
• Customer concentration risk typical for niche B2B manufacturing/services (not disclosed but common)
• Execution risk in cost control and pricing to restore operating margins

Financial Risks:

• Low ROIC at 2.1% indicating returns below cost of capital
• Potential dividend coverage shortfall given calculated payout ratio of 226.2%
• Earnings reliance on non-operating income (0.50) to support ordinary profit
• Disclosure gaps on investing CF and capex obscure true FCF
• Possible extraordinary items implied by the gap between PBT and NI

Key Concerns:

• Sustained margin compression (operating margin ~1.6%) versus an estimated ~5.0% prior
• Ordinary income declined 59.3% YoY despite flat sales
• ROE at 1.7% and ROIC at 2.1% highlight structural profitability issues
• Visibility on growth investments and capital allocation is limited due to unreported capex and DPS
• If working capital tailwinds reverse, cash generation could weaken

Investment Implications

Key Takeaways:

• Topline stable (+0.9% YoY) but profitability sharply deteriorated; margins compressed materially
• Operating margin down ~340 bps YoY; net margin down ~250 bps
• High cash conversion (OCF/NI 4.31x) and strong liquidity provide cushion
• Non-operating income was a meaningful profit contributor, reducing earnings quality
• Capital efficiency weak (ROIC 2.1%, ROE 1.7%) and below cost of capital
• Dividend sustainability uncertain given high calculated payout ratio and low earnings
• Balance sheet resilient with net cash and strong coverage metrics

Metrics to Watch:

• Gross margin trend and pricing/mix actions
• SG&A-to-sales and SG&A-to-gross-profit ratios
• Operating margin recovery toward 3–5%
• Working capital movements (AR, AP, inventory days) and OCF conversion
• Capex levels versus D&A to gauge reinvestment and FCF
• ROIC progression toward >5% near-term and >7% medium-term
• Any extraordinary gains/losses impacting PBT-to-NI bridge
• Dividend policy updates and payout alignment with earnings

Relative Positioning: Within small-cap peers in printing/promotion services, the company currently sits in the lower quartile on profitability (ROIC/ROE) but upper quartile on liquidity and balance sheet strength; near-term upside depends on restoring core operating margins while maintaining working capital discipline.

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