FORVAL TELECOM,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.82B
• Operating Income: ¥633M
• Net Income: ¥356M
• EPS: ¥32.43

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

Forval Telecom (94450) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability despite top-line pressure. Revenue declined 6.7% year over year to ¥11.823 billion, but operating income rose 13.4% to ¥633 million, indicating effective cost control and operating leverage. Net income increased 52.3% to ¥543 million, lifting the net margin to 4.59% and supporting a DuPont ROE of 14.81%. Gross profit of ¥2.977 billion implies a gross margin of 25.2%, suggesting a solid margin profile for a telecom/service distributor-oriented business mix. EBITDA was ¥800 million, with a 6.8% EBITDA margin, and D&A totaled ¥167 million, indicating a relatively light asset base and modest capital intensity. Interest expense was minimal at ¥5.7 million, yielding an interest coverage ratio of 110.5x and underscoring very low financial burden. Ordinary income of ¥635 million tracked operating income closely, reflecting limited non-operating volatility in the quarter. Operating cash flow was robust at ¥739 million, 1.36x net income, pointing to good earnings-to-cash conversion and working capital discipline. The balance sheet shows total assets of ¥10.153 billion and equity of ¥3.666 billion, implying an equity ratio of roughly 36% (the disclosed equity ratio field is unpopulated) and a liabilities-to-equity ratio of 1.92x. Liquidity appears adequate with a current ratio of 113.7% and quick ratio of 112.8%, supported by low inventories of ¥62 million, consistent with a services-centric model. Working capital stood at ¥931 million, providing a cushion for near-term obligations. Financing cash flow was negative ¥784 million, likely reflecting debt repayment (dividends are currently nil), helping de-risk the balance sheet. The company reported no dividend (DPS ¥0), preserving cash amid a soft revenue backdrop and ongoing structural improvements in profitability. While several disclosures are missing in XBRL (e.g., cash and equivalents, investing cash flows, equity ratio field, share count), available data indicate strengthening core earnings quality. The improvement in operating income and net income despite lower sales suggests management’s ongoing focus on cost optimization and mix enhancement. Overall, fundamentals in the period exhibit healthy profitability, strong interest coverage, and sound cash generation, though sustained revenue recovery will be important to maintain momentum.

Profitability Analysis

ROE of 14.81% is supported by a 4.59% net margin, asset turnover of 1.164x, and financial leverage of 2.77x (assets/equity), indicating a balanced DuPont profile with efficiency and moderate leverage contributing alongside improved margins. Gross margin stood at 25.2%, and EBITDA margin at 6.8%, signaling relatively stable unit economics for a telecom solutions/distribution model. Operating income increased 13.4% YoY despite a 6.7% revenue decline, demonstrating positive operating leverage via SG&A efficiencies and/or better mix (e.g., higher-margin services). Ordinary income closely matched operating income (¥635m vs ¥633m), showing limited non-operating noise. Net income growth of 52.3% outpaced operating growth, aided by low interest burden (¥5.7m interest; 110.5x coverage). Margin quality is supported by OCF/NI of 1.36x, suggesting earnings are backed by cash. Note: The gross profit figure does not arithmetically reconcile with revenue minus cost of sales; this may reflect classification differences under JGAAP or other operating revenue recognition; conclusions are based on the disclosed reported lines.

Growth Assessment

Revenue declined 6.7% YoY to ¥11.823 billion, indicating near-term top-line softness, likely from pricing pressure, churn, or cautious SME demand. Despite this, operating income rose 13.4% YoY and net income 52.3% YoY, implying successful cost discipline and potential mix shift toward higher-margin offerings. The net margin at 4.59% and EBITDA margin at 6.8% show improvements in profitability quality even amidst revenue contraction. Sustainability will hinge on stabilizing volumes and pricing while retaining recent efficiency gains. With interest costs immaterial, incremental profit flow-through from any revenue recovery could be meaningful. OCF of ¥739 million supports the view that profit growth is not purely accounting-driven. Outlook considerations include continued migration to recurring services (cloud/voice/data), customer retention in SME segments, and managing carrier pricing changes. Given the decline in revenue, watch for sequential trends and order intake to assess demand normalization. Absent capex data, we assume a relatively light investment requirement consistent with the modest D&A, which could support continued cash generation as profits recover.

Financial Health

Total assets were ¥10.153 billion, liabilities ¥7.042 billion, and equity ¥3.666 billion, implying an equity ratio near 36% (versus an unpopulated equity ratio field) and liabilities/equity of 1.92x. Liquidity is adequate: current ratio 113.7%, quick ratio 112.8%, and working capital ¥931 million. Inventories are low at ¥62 million, consistent with a service-heavy model and reducing obsolescence risk. Interest-bearing debt detail is not provided, but the very low interest expense and high coverage suggest limited debt burden or low-cost funding. Financing cash outflow of ¥784 million indicates net outflow (likely debt repayment) and balance-sheet prudence given no dividend distributions. Cash and equivalents are not disclosed; thus short-term liquidity buffers cannot be quantified from reported cash. Overall solvency appears manageable with moderate leverage and strong coverage metrics.

Cash Flow Quality

Operating cash flow was ¥739 million, 1.36x net income, indicating healthy conversion and supportive working capital movements. D&A of ¥167 million versus EBITDA of ¥800 million suggests moderate non-cash add-backs and a relatively light asset base. Investing cash flow is unreported in the period, so free cash flow cannot be reliably calculated; the stated FCF placeholder of zero reflects missing data, not actual cash generation. Given the business profile, maintenance capex is likely modest relative to EBITDA, but this is an assumption and should be verified when capex is disclosed. Working capital appears well-managed, with low inventory intensity and sufficient receivable/payable balance implied by OCF strength. Earnings quality is reinforced by the alignment between profitability gains and cash generation in the half.

Dividend Sustainability

The company did not pay a dividend in the period (DPS ¥0; payout ratio 0%), opting to retain earnings. FCF coverage cannot be assessed because investing cash flows (and thus capex) are not disclosed; the reported FCF coverage metric of 0.00x reflects missing data rather than an inability to fund distributions. With OCF at ¥739 million and low interest expense, internal funding capacity appears solid for operations and potential debt reduction. Absent a dividend, policy appears conservative, prioritizing balance sheet flexibility amid revenue softness. Future dividend capacity will depend on sustained OCF, clarity on capex needs, and stabilization of top-line trends.

Risk Assessment

Business Risks:

• Revenue pressure from pricing competition and carrier wholesale rate changes
• Customer churn and contract renewals in SME-focused telecom and ICT services
• Technology shifts (cloud/VoIP/security) requiring continual service refresh and investment
• Supplier/carrier concentration risk affecting terms and availability
• Regulatory changes in telecom and data privacy/cybersecurity requirements
• Margin compression risk from hardware mix or promotional activity
• Execution risk in cross-selling higher-margin services to offset declines in legacy lines

Financial Risks:

• Short-term liquidity reliance given current liabilities at 86.9% of total liabilities
• Limited visibility on cash and capex due to unreported investing CF and cash balances
• Potential working capital volatility in receivables/payables cycles
• Refinancing/interest rate risk is currently low but could rise if leverage increases

Key Concerns:

• Top-line decline (-6.7% YoY) despite profit improvement
• Incomplete disclosures (cash, investing CF, equity ratio field) hinder full FCF and liquidity assessment
• Non-reconciling gross profit vs. revenue minus cost of sales suggests classification differences that warrant clarification

Investment Implications

Key Takeaways:

• Profitability strengthened despite revenue decline, with operating income +13.4% and net income +52.3% YoY
• Healthy DuPont profile (ROE 14.81%) driven by improved margin, solid asset turnover, and moderate leverage
• Strong cash conversion (OCF/NI 1.36x) underscores earnings quality
• Balance sheet appears sound with implied equity ratio ~36% and interest coverage 110.5x
• Dividend on hold (DPS ¥0), evidencing a conservative capital allocation stance amid revenue softness

Metrics to Watch:

• Sequential revenue growth and order/contract trends
• Gross margin sustainability and SG&A ratio
• OCF/NI and working capital days (AR/AP/Inventory)
• Capex and disclosed investing cash flows to assess true FCF
• Leverage (liabilities/equity) and any changes in interest expense
• Churn rates and ARPU/mix shift toward higher-margin services

Relative Positioning: Within Japan’s SME-focused telecom and ICT solutions space, the company exhibits above-average cash conversion and strong interest coverage but faces near-term revenue headwinds; execution on service mix and customer retention will determine whether its improved margin profile can be sustained relative to peers.

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