HIKARI TSUSHIN,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥361.69B
• Operating Income: ¥57.59B
• Net Income: ¥72.30B
• EPS: ¥1,602.08

Income Statement

Balance Sheet

Cash Flow Statement

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

Hikari Tsushin (94350) delivered FY2026 Q2 consolidated results under IFRS showing solid top-line expansion with mixed quality of earnings. Revenue grew 11.0% YoY to 3,616.95, demonstrating continued momentum across its recurring fee-based distribution and agency businesses. Gross profit rose to 1,645.09, translating to a healthy gross margin of 45.5%, indicative of a high value-add service mix and low inventory intensity. Operating income was 575.90, up a modest 0.3% YoY, implying operating margin compression to roughly 15.9% as SG&A increased faster than gross profit. Profit before tax jumped to 882.01 and net income to 703.28 (+45.9% YoY), highlighting a significant lift from non-operating contributions and a favorable effective tax rate of 21.5%. Equity-method income of 64.52 and very large total comprehensive income of 1,625.99 suggest material gains in the investment portfolio and other OCI items (e.g., FVTOCI securities). DuPont metrics show a 19.4% net margin and 2.37x leverage, but a low asset turnover of 0.140, resulting in a calculated ROE of 6.4%, in line with the reported figure. The low turnover is consistent with a balance sheet carrying substantial financial assets and receivables relative to operating revenue. Operating cash flow was 365.18 (OCF/NI 0.52x), reflecting weak cash conversion versus accounting profit, likely due to working capital build and non-cash investment-related gains. Free cash flow was negative at -830.71, as investing cash outflows of -1,195.89 outpaced OCF; given Hikari Tsushin’s business model, these outflows are likely discretionary financial investments rather than maintenance capex. The balance sheet remains solid with total assets of 25,828.34 and equity of 10,917.34 (equity ratio 41.0%), while liabilities of 14,274.56 imply a debt-to-equity ratio of 1.31x; detailed interest-bearing debt is unreported. Liquidity assessment is constrained by missing current liability data, although current assets are 8,488.80 and cash & equivalents stand at 4,702.73, offering ample flexibility. Dividend signals remain progressive with Q1 DPS 156 JPY and Q3 DPS 167 JPY, and the payout ratio is conservative at 21.3% on reported earnings, though FCF coverage is negative due to heavy investment activity. Overall, underlying operating performance grew slower than revenue, but total earnings benefited from portfolio-related gains; sustainability depends on normalizing non-operating items and maintaining operating margin discipline. Key watchpoints are cash conversion, the durability of non-operating gains, and any changes in investment appetite that could pressure FCF. Data gaps (notably non-operating breakdown, current liabilities, and capex) limit precision, but available figures indicate a resilient financial position with earnings volatility tied to investments.

Profitability Analysis

ROE_decomposition: DuPont shows Net Profit Margin 19.4% x Asset Turnover 0.140 x Financial Leverage 2.37x = ROE 6.4%. High net margin is buoyed by non-operating/investment gains; core operating margin is about 15.9%. Low turnover reflects sizable financial assets and receivables relative to sales. margin_quality: Gross margin at 45.5% is strong and consistent with a service-heavy, low-inventory model. Operating margin is 15.9% and essentially flat YoY (+0.3% operating income vs +11.0% revenue), implying cost pressure within SG&A or business mix shifts. Net margin (19.4%) materially exceeds operating margin due to non-operating items and a favorable tax rate, which may not be recurring. operating_leverage: Revenue growth (+11.0%) did not translate into commensurate operating profit growth (+0.3%), indicating negative operating leverage in the period. SG&A of 1,107.72 rose faster than gross profit, compressing incremental margins. Sustained leverage improvement requires tighter SG&A control and stable gross margins.

Growth Assessment

revenue_sustainability: Top-line growth to 3,616.95 (+11.0% YoY) appears broad-based and consistent with recurring-fee businesses and distribution scale. Minimal inventories (23.56) underscore a capital-light revenue model, though sustainability will depend on churn, partner retention, and cross-sell in telecom/utility/insurance agency channels. profit_quality: Operating income growth lagged materially, suggesting underlying margin strain. Net income growth (+45.9%) is driven by non-operating gains (equity-method income 64.52 and likely valuation gains), which are episodic. OCF/NI at 0.52x flags weaker cash realization relative to accounting profit this half. outlook: Near-term earnings will be sensitive to investment performance and market conditions affecting OCI. If SG&A efficiency improves and gross margin holds, operating earnings can better track revenue growth. Guidance not provided; absent visible headwinds, mid-term growth hinges on retention-driven ARR expansion and disciplined capital allocation within the investment portfolio.

Financial Health

liquidity: Current assets of 8,488.80 and cash & equivalents of 4,702.73 provide sizable liquidity buffers; current liabilities were unreported, so traditional current/quick ratios are not calculable. Working capital is presented as 8,488.80 (driven by the disclosure gap for current liabilities), limiting precision. solvency: Equity of 10,917.34 implies an equity ratio of 41.0%, indicating a solid capital base. Total liabilities of 14,274.56 vs equity yield a debt-to-equity metric of 1.31x; interest-bearing debt details are unreported, constraining interest burden analysis. capital_structure: Leverage (DuPont 2.37x) is moderate, supported by a large equity base. Portfolio assets and receivables dominate the balance sheet (accounts receivable 3,323.27; inventories minimal), consistent with a service/investment model. Absence of debt maturity data limits refinancing risk assessment.

Cash Flow Quality

earnings_quality: OCF/Net Income is 0.52x (365.18 / 703.28), indicating weaker cash conversion, likely due to working capital build and non-cash investment gains. Effective tax rate at 21.5% reduced cash taxes, partly supporting cash flow. FCF_analysis: Free cash flow is -830.71, as operating cash inflow of 365.18 was outweighed by investing outflows of -1,195.89. Given Hikari Tsushin’s active investment posture, much of investing CF likely reflects financial asset purchases rather than maintenance capex (capex not disclosed), implying FCF cyclicality tied to allocation choices. working_capital: Receivables are sizable at 3,323.27 relative to half-year revenue, consistent with agency billing cycles; payables are 2,847.42. Inventories are negligible (23.56). Detailed movements are not provided, but OCF suggests net working capital absorption in the period.

Dividend Sustainability

payout_ratio_assessment: The calculated payout ratio is 21.3%, conservative against accounting earnings. However, the elevated reported net income includes non-operating components that may not recur at the same magnitude. FCF_coverage: FCF coverage is -5.55x in the period due to negative FCF; coverage looks weak on a strict FCF basis. Context matters: investing outflows appear discretionary and the company holds cash of 4,702.73, supporting near-term distributions. policy_outlook: Quarterly DPS trends (Q1 156 JPY, Q3 167 JPY) suggest a progressive stance. Sustainability depends on stable OCF and prudent pacing of investment outlays. With a strong equity base and modest payout, the company appears positioned to maintain dividends through cycles, absent outsized investment cash needs.

Risk Assessment

Business Risks:

• Dependence on recurring agency revenue subject to churn and partner contract renewals
• Margin pressure from rising SG&A and customer acquisition costs
• Regulatory changes in telecom, utilities, and insurance distribution affecting fee structures
• Competition in SMB solutions and distribution channels eroding pricing power

Financial Risks:

• Earnings and OCI volatility from investment portfolio valuation changes
• Weak cash conversion this period (OCF/NI 0.52x) and potential working capital swings
• Limited visibility on interest-bearing debt and maturities due to unreported breakdowns
• Negative FCF driven by sizable investing outflows, implying reliance on cash on hand and ongoing OCF

Key Concerns:

• Sustainability of non-operating gains that boosted net income
• Operating leverage turned negative despite double-digit revenue growth
• Data gaps (current liabilities, interest expense, capex) constrain full risk quantification

Investment Implications

Key Takeaways:

• Revenue growth strong at +11.0% YoY with robust 45.5% gross margin
• Operating income nearly flat (+0.3% YoY) indicating margin compression in SG&A
• Net income up 45.9% on non-operating and investment-related gains; quality mixed
• ROE at 6.4% driven by high net margin and leverage but dampened by low asset turnover
• OCF/NI 0.52x and FCF -830.71 highlight weaker cash conversion amid heavy investing
• Equity ratio 41.0% and cash 4,702.73 provide balance sheet resilience
• Dividend payout low at 21.3%, but FCF coverage negative given investment outflows

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• OCF/Net income and working capital movements (AR/AP days)
• Non-operating income breakdown, equity-method contributions, and OCI volatility
• Investing cash flows by category (financial investments vs. capex)
• Effective tax rate sustainability
• Equity ratio and any changes in interest-bearing debt

Relative Positioning: Within Japan’s diversified distributors/agency-service peers, Hikari Tsushin exhibits stronger gross margins and a capital-light operating model but lower ROE than market averages due to low asset turnover and earnings volatility tied to investment activities; balance sheet strength is a differentiator.

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
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