Area Quest Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥621M
• Operating Income: ¥52M
• Net Income: ¥15M
• EPS: ¥2.25

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

Area Quest Co., Ltd. reported FY2026 Q1 consolidated results under JGAAP showing steady topline growth and strong operating leverage. Revenue was ¥621.0 million (+4.2% YoY), with gross profit of ¥160.1 million and operating income of ¥52.0 million (+30.7% YoY). The operating margin improved to approximately 8.4%, supported by stable gross margin of 25.8% and disciplined SG&A control. Ordinary income of ¥76.0 million exceeded operating income, implying net non-operating gains (e.g., investment income or other non-operating income) more than offset interest expenses of ¥4.45 million. Net income jumped to ¥36.0 million (+136.9% YoY), but the step-down from ordinary income suggests below-the-line charges and/or non-controlling interest allocations not fully detailed in the quarterly disclosure. The DuPont profile reflects a calculated ROE of 2.35%, driven by a 5.80% net margin, 0.154x asset turnover, and 2.64x financial leverage. Liquidity is tight with a current ratio of 60.9% and negative working capital of approximately ¥398 million, highlighting dependence on short-term funding or rapid cash conversion of receivables. Solvency appears reasonable with total equity of ¥1.531 billion versus assets of ¥4.045 billion, implying an equity ratio near 37.8% (the 0.0% field appears undisclosed) and a debt-to-equity ratio of 1.68x. Interest coverage is solid at about 11.7x on operating income, suggesting manageable financial costs at current earnings levels. Cash flow data were not disclosed in this XBRL extract, limiting assessment of earnings-to-cash conversion and free cash flow. Dividend distributions were not reported for the quarter, with DPS at zero and a payout ratio of zero, in line with the company retaining earnings. The improvement in operating income outpacing revenue growth indicates positive operating leverage, potentially from mix and SG&A efficiency. However, the significant gap between ordinary income and net income raises questions about extraordinary losses or minority interest impacts in the quarter. Overall, profitability momentum is improving, but liquidity constraints and opaque below-the-line items warrant close monitoring. Data gaps (notably cash flows and certain per-share metrics) constrain full quality-of-earnings evaluation.

Profitability Analysis

ROE (DuPont, 3-step): Net margin 5.80% x Asset turnover 0.154 x Leverage 2.64 = ROE 2.35%. Margins: Gross margin 25.8% (¥160.1m/¥621.0m). Operating margin ~8.4% (¥52.0m/¥621.0m). Ordinary margin ~12.2% (¥76.0m/¥621.0m), aided by net non-operating gains that more than offset interest expense. Net margin 5.8% reflects material below-the-line charges or allocations, given net income of ¥36.0m versus ordinary income of ¥76.0m. Cost structure: Implied SG&A ~¥108.1m (gross profit minus operating income), about 17.4% of sales, indicating disciplined overhead relative to revenue. Operating leverage: Operating income growth (+30.7% YoY) far outpaced revenue growth (+4.2% YoY), evidencing favorable operating leverage likely from improved mix and SG&A efficiency. Interest burden/financial result: Interest expense of ¥4.45m is well covered by operating income (11.7x), and ordinary income above operating income signals positive non-operating contributions this quarter. ROA proxy: NI/Assets ≈ 0.9%, modest and constrained by low asset turnover (0.154x), typical of businesses with sizable asset bases relative to quarterly revenue.

Growth Assessment

Revenue growth of 4.2% YoY indicates steady but not rapid expansion. Profit growth is stronger: operating income rose 30.7% YoY, signaling improving scalability and cost control. The uplift from operating to ordinary income suggests contributions from non-operating items; sustainability of such gains is less certain than operating improvements. Net income surged 136.9% YoY, but the large gap from ordinary income to net income implies one-off or below-the-line headwinds that could normalize in future quarters. Without segment detail, the durability of revenue growth by business line cannot be fully assessed; mix may be contributing to margin performance. Asset turnover of 0.154x (quarterly) remains modest, limiting ROE; improving turnover would support further earnings growth. Outlook hinges on maintaining gross margin near current levels and containing SG&A, while reducing below-the-line volatility. Given tight liquidity, growth may be constrained by working capital unless collection cycles improve or credit lines expand. Non-operating income that lifted ordinary income may not be repeatable; core operating momentum is the more reliable driver. Overall, the near-term trajectory is positive on profitability, with moderate top-line momentum and some uncertainty in below-the-line items.

Financial Health

Liquidity: Current assets ¥621.1m vs current liabilities ¥1,019.2m yields a current ratio of 60.9% and negative working capital of about ¥398m, indicating reliance on short-term financing or rapid receivable turnover. Inventories were not disclosed; quick ratio equals current ratio at 60.9%, reinforcing tight short-term liquidity. Solvency: Total liabilities ¥2,565.4m and equity ¥1,531.0m; debt-to-equity 1.68x signals moderate leverage. Using disclosed balances, equity ratio can be approximated at ~37.8% (equity/assets), despite the reported field showing 0% (undisclosed). Interest coverage is comfortable at ~11.7x on operating income, suggesting manageable interest costs relative to earnings. Capital structure: Financial leverage of 2.64x aligns with the balance sheet (assets/equity), supporting ROE but increasing sensitivity to earnings volatility. Overall, solvency is acceptable, but short-term liquidity is a key watchpoint.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed in this extract, so OCF/NI, FCF, and cash balance metrics cannot be evaluated. As such, reported OCF/NI of 0.00 and FCF of 0 should be treated as undisclosed rather than zero. Earnings quality inference must rely on accrual metrics: gross and operating margins appear healthy, but the sizable difference between ordinary and net income points to below-the-line items that could distort cash conversion in the quarter. Working capital pressure (negative working capital and low current ratio) implies sensitivity to collection and payment timing. Until OCF data are available, conclusions on free cash flow coverage and accrual intensity remain tentative.

Dividend Sustainability

DPS is undisclosed for the quarter and shown as zero; payout ratio is therefore indicated as zero despite EPS of ¥2.25. With no cash flow data, free cash flow coverage of dividends cannot be assessed. Given tight liquidity (current ratio ~61%) and the presence of leverage (D/E 1.68x), a conservative stance on distributions would be consistent with balance sheet preservation, but actual policy details are not provided here. Sustainability of future dividends, if any, depends on maintaining operating margins and improving cash conversion to alleviate working capital strain. Monitor annual guidance and board policy statements for payout intentions.

Risk Assessment

Business Risks:

• Moderate revenue growth (+4.2% YoY) may be vulnerable to macro slowdown or competitive pricing pressure.
• Margin sensitivity to mix and SG&A control; operating leverage can reverse if volumes soften.
• Dependence on non-operating gains to lift ordinary income may be non-recurring.
• Potential exposure to real estate market cycles and transaction volumes (inferred from industry classification code 8912).
• Limited disclosure at quarterly stage increases uncertainty around segment and extraordinary items.

Financial Risks:

• Tight liquidity: current ratio 60.9% and negative working capital of ~¥398m.
• Leverage: debt-to-equity 1.68x; earnings volatility could pressure covenants or refinancing.
• Below-the-line charges reducing net income from ordinary income suggest potential extraordinary losses or minority interests.
• Cash flow opacity: OCF/FCF not disclosed; uncertain earnings-to-cash conversion.
• Interest rate risk affecting financing costs despite current interest coverage of ~11.7x.

Key Concerns:

• Gap between ordinary income (¥76.0m) and net income (¥36.0m) without detail on extraordinary/minority items.
• Short-term liquidity strain and reliance on working capital management.
• Sustainability of non-operating gains that boosted ordinary income.

Investment Implications

Key Takeaways:

• Improving operating leverage: operating income +30.7% on revenue +4.2%.
• Solid gross margin (25.8%) and controlled SG&A (~17.4% of sales) support an 8.4% operating margin.
• Ordinary income benefits from net non-operating gains; quality and repeatability need verification.
• Net income impacted by below-the-line items, compressing net margin to 5.8%.
• Liquidity remains the main pressure point with a 60.9% current ratio and negative working capital.
• Leverage moderate (D/E 1.68x; equity ratio ~37.8%), interest burden manageable (11.7x coverage).
• ROE of 2.35% constrained by low asset turnover (0.154x).
• Cash flow data absent; defer firm conclusions on FCF and dividend capacity.

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed for FY2026.
• Working capital trends: receivable days, payable days, and any inventory movements.
• Non-operating income/expense composition and any extraordinary items.
• Gross and operating margin trajectory versus prior quarters.
• Leverage and interest coverage as rates and funding conditions evolve.
• Asset turnover improvement as a lever for ROE.

Relative Positioning: Within small-cap Japanese real estate-related names, the company shows improving operating efficiency and adequate solvency but weaker short-term liquidity and higher uncertainty around below-the-line items compared with peers that disclose more stable cash flow profiles.

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