Advantage Risk Management Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.56B
• Operating Income: ¥280M
• Net Income: ¥187M
• EPS: ¥11.89

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

Verdict: FY2026 Q2 was a solid rebound with strong top-line growth and sharp operating leverage, underpinned by exceptionally strong cash conversion. Revenue rose 35.7% YoY to 45.59, while operating income increased 76.9% YoY to 2.80 and ordinary income grew 70.7% to 2.83. Net income increased modestly by 4.8% YoY to 1.86, dampened by a 34.2% effective tax rate. Gross profit reached 29.90, translating to a high gross margin of 65.6%, indicating favorable mix and pricing versus cost of sales. Operating margin printed at 6.1% (2.80/45.59), ordinary margin at 6.2%, and net margin at 4.1%. With operating income growth outpacing revenue growth, operating margin likely expanded YoY, though exact basis points cannot be quantified due to lack of prior-period margin data. Cash flow quality was a standout: operating cash flow of 15.14 was 8.1x net income, signaling robust cash realization and likely working capital release. EBITDA was 7.73 (17.0% margin), providing an ample 28.9x interest coverage against interest expense of 0.10. The balance sheet remains sound with current ratio at 1.13x and debt-to-equity at 1.26x; liquidity is adequate though below the 1.5x comfort benchmark. Intangible assets are sizeable at 39.50 (plus goodwill 6.23), which boosts capital efficiency needs and introduces impairment sensitivity. Non-operating income (0.13) is small and mostly dividend income (0.12), confirming earnings are primarily operating-driven. ROE stands at 4.5% via net margin 4.1%, asset turnover 0.493x, and financial leverage 2.26x; returns are improving but still modest. ROIC is 5.1%, below the 7–8% management-type targets often cited in Japan, implying further margin or capital efficiency improvements are needed to exceed the cost of capital. Shareholder returns included share repurchases of 3.08 in financing CF, but the calculated payout ratio of 140% flags potential pressure unless earnings step up; OCF coverage, however, appears ample in the period. Forward-looking, sustaining double-digit revenue growth with SG&A discipline is the key lever for margin and ROE expansion. We note data gaps (no prior-period margins, incomplete investing CF, DPS unreported), which limit precision in some assessments.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.5% = Net Profit Margin (4.1%) × Asset Turnover (0.493x) × Financial Leverage (2.26x). The profitability engine is currently constrained by a modest net margin, while leverage provides a moderate uplift and asset turnover is sub-0.5x, consistent with a services/solution model carrying substantial intangibles. The most improved component this quarter appears to be the margin dimension, inferred from operating income (+76.9% YoY) outpacing revenue (+35.7% YoY); exact YoY basis-point changes are unavailable. Business drivers likely include favorable revenue mix, pricing, and gross margin resilience (65.6%) combined with operating leverage as SG&A growth lagged gross profit expansion in absolute terms (gross profit 29.90 vs SG&A 27.10). Sustainability: margin gains can persist if scale effects and utilization stay favorable and SG&A remains controlled; however, wage inflation for specialists and client pricing pressure could cap further expansion. Asset turnover at 0.493x reflects a balance sheet heavy in intangibles; improving turnover will hinge on accelerating revenue without commensurate capital additions. Watch for any sign of SG&A growth re-accelerating faster than revenue—currently, operating leverage appears positive, but detailed SG&A breakdown is unreported, limiting a granular cost diagnosis.

Growth Assessment

Revenue growth of 35.7% YoY indicates strong demand and/or increased penetration of services. Operating income growth of 76.9% YoY signals clear operating leverage as fixed costs were absorbed over a larger revenue base. Net income growth of 4.8% lagged operating profit growth due to a relatively high effective tax rate (34.2%) and limited non-operating tailwinds. Gross margin at 65.6% suggests solid pricing and mix; sustaining this level would underpin further operating margin expansion. The non-operating contribution is minor (0.13, mostly dividends), so growth quality is predominantly core-operating. EBITDA margin at 17.0% provides cushion for investment, but ROIC at 5.1% remains below a typical 7–8% target, signaling more work to improve capital efficiency. Outlook hinges on maintaining double-digit top-line growth while constraining SG&A; given the strong OCF, the company appears positioned to fund growth initiatives internally. Data gaps (no segment or product breakdown) limit assessment of which growth vectors are driving results and their durability.

Financial Health

Liquidity is adequate: current ratio 1.13x (above 1.0 warning threshold but below the >1.5x comfort benchmark) and quick ratio 1.13x. No explicit warning triggered (Current Ratio is not <1.0). Working capital is positive at 4.46, with cash and deposits of 21.25 plus receivables of 12.47 covering current liabilities of 33.75. Solvency is moderate with debt-to-equity 1.26x and interest coverage a strong 28.9x, indicating low near-term refinancing risk. Short-term loans are 1.70 versus cash 21.25, minimizing maturity mismatch; overall, current assets (38.21) comfortably exceed current liabilities (33.75). Long-term loans stand at 14.59, implying a manageable term structure. Intangible assets (39.50) and goodwill (6.23) are sizeable relative to equity (40.96), increasing sensitivity to impairment and reducing tangible coverage. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow of 15.14 vs net income of 1.86 yields an OCF/NI of 8.14x, an excellent indicator of earnings quality, likely aided by favorable working capital movements and non-cash D&A (4.93). Capex is minimal at 0.01, suggesting a light maintenance capex burden and strong conversion of earnings to pre-M&A free cash. While total investing cash flow is unreported, a simple proxy FCF (OCF – Capex) is approximately 15.13, comfortably covering share repurchases (3.08) and potential dividends. No clear signs of working capital manipulation are evident from available figures; however, limited disclosure of receivables days and payables days prevents a forensic assessment. Financing CF of -3.69 mainly reflects buybacks; debt service appears easily covered by OCF.

Dividend Sustainability

Annual DPS and total dividends are unreported, but the calculated payout ratio of 140% exceeds the <60% benchmark and would be unsustainable if applied on an ongoing basis. Counterbalancing this, OCF is strong (15.14), implying cash capacity to fund distributions in the near term. Without investing CF details, true FCF coverage cannot be fully assessed, though low capex suggests structurally high cash conversion. Policy outlook will depend on prioritization between growth investments and shareholder returns; given ROIC at 5.1%, reinvestment to lift returns above the cost of capital may be prudent. Until DPS is disclosed, treat payout metrics as provisional.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation for professional staff and counselors in health/HR-related services
• Pricing pressure and contract renewals with corporate clients
• Execution risk in scaling services while maintaining service quality and utilization
• Potential regulatory changes in occupational health and data privacy impacting service delivery

Financial Risks:

• High proportion of intangible assets (39.50) and goodwill (6.23) vs equity (40.96), raising impairment risk
• Liquidity cushion only modest (current ratio 1.13x), below the >1.5x comfort benchmark
• Payout ratio calculated at 140% may pressure balance sheet if maintained without matching earnings growth
• Dependence on working capital timing for OCF strength; reversal could normalize cash conversion

Key Concerns:

• ROIC at 5.1% below typical 7–8% targets, implying value-creation headroom needed
• Net income growth (+4.8% YoY) lagging operating profit growth due to higher tax burden
• Limited transparency on SG&A composition and investing cash flows
• Potential sensitivity to macro employment trends and corporate health budgets (industry-specific)

Investment Implications

Key Takeaways:

• Strong top-line momentum (+35.7% YoY) with clear operating leverage (+76.9% YoY OI)
• Cash generation exceptionally strong (OCF/NI 8.1x), supporting reinvestment and buybacks
• Margins healthy (gross 65.6%, EBITDA 17.0%, operating 6.1%) with room for further operating leverage
• Balance sheet sound (D/E 1.26x, interest coverage 28.9x) though liquidity buffer is modest (current ratio 1.13x)
• ROE 4.5% and ROIC 5.1% indicate improving but still modest returns versus typical targets
• Payout ratio at 140% (calculated) may be elevated; sustainability hinges on continued earnings and cash strength

Metrics to Watch:

• Operating margin progression (bps) and SG&A-to-sales ratio
• Working capital metrics (DSO/DPO) to validate persistence of strong OCF
• ROIC trajectory vs cost of capital
• Effective tax rate normalization and its impact on net profit
• Intangible asset/goodwill impairment indicators
• Disclosure of DPS and total dividends for payout sustainability

Relative Positioning: Versus domestic health management/HR services peers, the company shows above-market revenue growth and robust cash conversion, with mid-pack operating margins and moderate leverage; returns (ROE/ROIC) are improving but still trail best-in-class, leaving upside contingent on sustained operating leverage and capital efficiency gains.

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