FORVAL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥33.93B
• Operating Income: ¥1.20B
• Net Income: ¥927M
• EPS: ¥23.10

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

For FY2026 Q2 (cumulative), Forval reported revenue of ¥33.934bn (+0.3% YoY), indicating essentially flat top-line momentum. Despite stable revenue, profitability deteriorated: operating income fell 24.7% YoY to ¥1.202bn, and net income declined 26.6% YoY to ¥0.602bn, signaling margin compression and negative operating leverage. Gross profit of ¥12.207bn implies a solid gross margin of 36.0%, but SG&A growth likely outpaced revenue, compressing operating margin to 3.5%. Ordinary income of ¥1.348bn outpaced operating income, suggesting non-operating gains or financial income partially offset operating pressure. The implied effective tax rate appears elevated (~56%), weighing on bottom-line results. Cash generation was robust relative to earnings, with operating cash flow (OCF) of ¥1.018bn and an OCF/Net Income ratio of 1.69, indicating reasonably good earnings quality. Liquidity remains healthy: current ratio 155.9%, quick ratio 150.0%, and working capital of ¥10.239bn. The balance sheet shows moderate leverage, with total liabilities/equity of 1.13x; the implied equity ratio (equity/assets) is approximately 51.8%, despite a reported 0.0% equity ratio metric that appears undisclosed rather than truly zero. Interest coverage is strong at 40.2x, reflecting low interest burden and resilient operating earnings capacity. Asset efficiency (DuPont asset turnover 0.885) and financial leverage (1.93x) translate to a calculated ROE of 3.03%, which is modest for the sector and depressed by weaker margins. EBITDA of ¥1.961bn (5.8% margin) provides some buffer, but the drop in operating income points to near-term pressures on cost control or mix. Free cash flow cannot be assessed due to undisclosed investing cash flows; the reported FCF of 0 should be treated as unreported rather than zero. Dividend data for the period appear undisclosed (DPS and payout shown as 0), so dividend capacity and policy cannot be directly inferred, though positive earnings and OCF indicate potential flexibility. Overall, Forval’s H1 shows stable sales but notable margin headwinds; balance sheet strength and cash conversion mitigate risk, but recovery in operating margin is key for ROE improvement into H2.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 1.77%
• asset_turnover: 0.885
• financial_leverage: 1.93
• calculated_ROE: 3.03%
• commentary: Modest ROE is primarily constrained by a low net margin; asset turnover is reasonable and leverage is moderate. margin_quality:
• gross_margin: 36.0%
• operating_margin: 3.5%
• ordinary_margin: 4.0%
• EBITDA_margin: 5.8%
• observations: Stable gross profitability but significant SG&A pressure compressed operating margin; ordinary income exceeding operating income suggests non-operating support. operating_leverage: Revenue grew +0.3% YoY while operating income fell -24.7% YoY, indicating negative operating leverage in H1. Cost inflation, personnel additions, or weaker mix in higher-margin services are likely drivers.

Growth Assessment

revenue_sustainability: Top-line growth is essentially flat at +0.3% YoY, suggesting stable but subdued demand. Sustainability depends on execution in higher-value services and cross-selling to SME clients. profit_quality: OCF/Net Income of 1.69 signals sound earnings quality despite compressed margins. Elevated tax burden (~56% implied) dampened net profit. outlook: To achieve full-year profit targets, H2 margin recovery is needed via SG&A discipline, pricing/mix improvement, and utilization. Absent acceleration in higher-margin segments, ROE may remain subdued.

Financial Health

liquidity:

• current_ratio: 155.9%
• quick_ratio: 150.0%
• working_capital: ¥10,239,167,000
• assessment: Comfortable liquidity cushion supports operations and seasonality. solvency:
• total_assets: ¥38,343,000,000
• total_liabilities: ¥22,425,579,000
• total_equity: ¥19,847,000,000
• equity_ratio_implied: 51.8%
• debt_to_equity_ratio: 1.13x (total liabilities/equity)
• interest_coverage: 40.2x
• assessment: Moderate leverage with strong interest coverage; balance sheet resilience is a positive offset to earnings volatility. capital_structure: Leverage is predominantly from operating liabilities given low interest expense; capacity exists for incremental investment if returns improve.

Cash Flow Quality

earnings_quality: OCF of ¥1,017,907,000 exceeds net income of ¥602,000,000 (OCF/NI 1.69), indicating solid conversion and limited accrual risk in the period. FCF_analysis: Investing cash flows are undisclosed (reported as 0), so Free Cash Flow cannot be reliably determined this period. working_capital: Healthy working capital of ¥10.239bn; inventory at ¥1.082bn appears manageable. Continued attention to receivables collection is key to sustaining OCF.

Dividend Sustainability

payout_ratio_assessment: Payout ratio is shown as 0.0%, but dividend data appear undisclosed for the period. With positive EPS (¥23.10) and positive OCF, capacity exists, but visibility is limited. FCF_coverage: FCF coverage cannot be assessed due to undisclosed investing cash flows (reported as 0). policy_outlook: Without disclosed DPS or stated policy updates, we assume a conservative stance; future distributions will hinge on H2 margin recovery and investment needs.

Risk Assessment

Business Risks:

• Margin compression from rising SG&A and wage inflation.
• Mix shift away from higher-margin services or commissions.
• Price competition in SME ICT and network solutions markets.
• Dependence on carrier/vendor incentives and procurement terms.
• Execution risk in scaling advisory/recurring service lines.

Financial Risks:

• Tax rate volatility impacting net income (implied ~56%).
• Working capital swings affecting OCF timing.
• Potential exposure to contingent liabilities not visible in disclosed data.
• Sensitivity to macro conditions influencing SME capex demand.

Key Concerns:

• Negative operating leverage in H1 despite flat revenue.
• Low net margin (1.77%) limiting ROE to 3.03%.
• Undisclosed investing CF obscures FCF and capex intensity.
• Dividend visibility is low due to undisclosed DPS.

Investment Implications

Key Takeaways:

• Stable revenue but significant margin pressure; operating income down 24.7% YoY.
• Strong cash conversion (OCF/NI 1.69) and robust liquidity provide cushion.
• Balance sheet is solid with implied equity ratio ~52% and interest coverage 40x.
• ROE of 3.03% is constrained by low net margins; margin recovery is critical.
• Limited visibility on FCF and dividends due to undisclosed items.

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory in H2.
• Ordinary income drivers (non-operating gains/losses) and sustainability.
• Effective tax rate normalization versus H1 elevated level.
• OCF trends and receivables/inventory turns.
• Investing cash flows (capex/M&A) to gauge FCF and capital allocation.
• Leverage of higher-margin recurring service revenues.

Relative Positioning: Within domestic SME-focused ICT and solutions peers, Forval shows steadier top-line but weaker recent margin dynamics; balance sheet and cash conversion are supportive, yet ROE trails peers pending margin recovery.

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