H.I.S.Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

The interim period produced higher revenue but lower earnings: although revenue growth was secured against a backdrop of recovering travel demand, profitability declined due to lower earnings quality in the core business and increases in non-operating expenses and tax burden. Revenue was ¥1931.3B (+6.5% YoY), Operating Income was ¥64.5B (-4.1%), Ordinary Income was ¥62.0B (-9.9%), and interim Net Income attributable to owners of the parent was ¥30.0B (-21.0%). The gross margin declined to 31.2% from 32.6% in the previous year, confirming a structure in which revenue growth is not translating into profit growth.

Factors Affecting Business Performance

【Revenue】Revenue was ¥1931.3B, up +6.5% YoY. The Travel Business, which accounts for approximately 82% of consolidated revenue, was the largest driver of revenue growth at ¥1588.8B (+6.2%). The Hotel Business generated ¥138.6B (+11.7%), while the Kyushu Sanko Group generated ¥136.4B (+7.7%), with both contributing to the increase in revenue.

【Profit and Loss】Operating Income decreased by 4.1% YoY to ¥64.5B, while Ordinary Income decreased by 9.9% to ¥62.0B, with the decline in earnings widening. The primary factor was the contraction in segment profit of the Travel Business to ¥47.5B (-15.3%), with its profit margin declining from 3.8% to 3.0%. Meanwhile, the Hotel Business secured ¥24.9B (+29.6%, profit margin 17.9%), and the Kyushu Sanko Group secured ¥6.1B (+19.3%), resulting in diverging performance across the business portfolio. Non-operating expenses included ¥10.0B in interest expense and ¥1.9B in foreign exchange losses, with total non-operating expenses of ¥17.9B weighing on Ordinary Income. An impairment loss of ¥1.2B was recorded as an extraordinary loss, although its scale was small. Net Income was ¥37.7B (-16.7%), also reflecting the increased burden of income taxes and other taxes of ¥25.1B (effective tax rate approximately 40%). Overall, the results were characterized by higher revenue but lower earnings, with declining profitability in the Travel Business weighing on consolidated profits.

Segment Analysis

The Travel Business was the largest segment, generating revenue of ¥1588.8B (+6.2%) and accounting for more than 80% of consolidated revenue; however, segment profit declined to ¥47.5B (-15.3%), and its profit margin deteriorated to 3.0% from 3.8% in the previous year. The Hotel Business generated revenue of ¥138.6B (+11.7%) and profit of ¥24.9B (+29.6%), with a high profit margin of 17.9%, making a significant contribution to the increase in earnings. The Kyushu Sanko Group remained solid, with revenue of ¥136.4B (+7.7%), profit of ¥6.1B (+19.3%), and a profit margin of 4.4%. Other Businesses generated revenue of ¥88.1B (-0.1%) and turned to a loss of ¥0.0B. At the company-wide level, the scale of the Travel Business determines the consolidated profit margin, while the high profitability of the Hotel Business serves as a support for the overall portfolio.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 3.3% from 3.7% in the previous year, while the Net Income margin also declined to approximately 1.9% from 2.5%; the gross margin contracted to 31.2% from 32.6%. 【Cash Flow Quality】Operating Cash Flow (OCF) was -¥34.3B, representing a significant divergence from Net Income of ¥37.7B. The primary factors were a ¥104.0B increase in trade receivables and a ¥44.3B decrease in trade payables, indicating weak cash conversion of earnings. Free Cash Flow (FCF) was -¥95.7B. 【Investment Efficiency】ROE was 10.4%; asset turnover against total assets of ¥4038.8B was not high, suggesting that the effect of financial leverage is contributing to the elevated figure. 【Financial Soundness】The Equity Ratio was low at 17.9%, while current liabilities of ¥2407.8B exceeded current assets of ¥1947.1B, resulting in negative working capital. Dependence on interest-bearing debt was high, with long-term borrowings of ¥665.1B and short-term borrowings of ¥495.5B.

Cash Flow Analysis

Operating Cash Flow (OCF) deteriorated substantially to -¥34.3B from +¥13.7B in the previous year. The ¥104.0B increase in trade receivables, the ¥44.3B decrease in trade payables, and declines in other liabilities placed pressure on working capital, while income taxes and other taxes paid of ¥18.0B further impeded cash conversion of earnings. Investing Cash Flow was -¥61.5B, primarily reflecting ¥50.8B in acquisitions of property, plant and equipment and other assets. As a result, Free Cash Flow (FCF) (OCF + Investing Cash Flow) was -¥95.7B, indicating that capital expenditures were not fully funded through internal funds. Financing Cash Flow was +¥32.2B; financing activities, including proceeds from long-term borrowings (¥308.1B), repayments (¥659.1B), and changes in short-term borrowings, offset the funding shortfall from investing and operating activities. Cash and cash equivalents decreased by ¥46.5B during the period, resulting in an ending balance of ¥1017.1B. The key characteristics of the cash flow trend are weak operating cash generation despite revenue growth and increased dependence on financing.

Quality of Earnings

Operating Cash Flow (OCF) of -¥34.3B was substantially below interim Net Income attributable to owners of the parent of ¥30.0B, requiring attention to earnings quality. The primary cause of the difference was the ¥104.0B increase in trade receivables, potentially reflecting longer collection periods accompanying revenue growth and the impact of transaction terms. An impairment loss of ¥1.2B was recorded as an extraordinary loss, but its scale was limited and its impact as a temporary factor was small. Non-operating income of ¥15.4B included ¥4.8B in dividend income, while non-operating expenses of ¥17.9B included ¥10.0B in interest expense and ¥1.9B in foreign exchange losses. Comprehensive Income was ¥59.5B, exceeding Net Income of ¥37.7B, primarily due to foreign currency translation adjustments of ¥23.3B. These resulted from translation differences related to overseas assets and foreign subsidiaries and do not directly indicate the earnings power of the core business. Overall, earnings for the period diverged from cash generation, making the recovery trend in cash flow a key factor in assessing future earnings quality.

Earnings Forecast and Guidance

The Full-Year earnings forecast is revenue of ¥3950.0B (+5.9% YoY), Operating Income of ¥120.0B (+3.2%), and Ordinary Income of ¥115.0B (+1.0%). Progress against the full-year forecast in the interim period was 48.9% for revenue, 53.7% for Operating Income, and 53.9% for Ordinary Income, all tracking at or above the standard pace of approximately 50%. Meanwhile, full-year forecast EPS was -¥13.38, implying a forecast Net Loss attributable to owners of the parent in the second half. The earnings forecast was revised during the quarter, and fluctuations in extraordinary gains and losses and the tax burden in the second half could affect the final full-year results. No revision was made to the dividend forecast.

Shareholder Returns

The dividend for the interim period was ¥0 per share, and no interim dividend was paid. The full-year dividend forecast is ¥25 per share, with no revision. As a Net Loss attributable to owners of the parent is forecast for the full year, the Payout Ratio based on profit cannot be calculated. In light of interim Free Cash Flow of -¥95.7B, the source of funds for the full-year dividend may depend more on cash on hand (¥1088.8B) and financing capacity than on current-period earnings or cash generation. No share repurchases have been identified, and shareholder returns are evaluated solely on the basis of dividends.

Risk Factors

1. Declining profitability in the Travel Business: Against revenue of ¥1588.8B (+6.2%), the Travel Business generated segment profit of ¥47.5B (-15.3%), with its profit margin declining from 3.8% to 3.0%. As this business accounts for more than 80% of consolidated revenue, its profitability trend structurally determines the company-wide profit margin.

2. Cash generation capacity and cash position: Operating Cash Flow (OCF) was -¥34.3B and Free Cash Flow (FCF) was -¥95.7B, representing a significant divergence from Net Income of ¥37.7B. The primary factor was the ¥104.0B increase in trade receivables, making cash collection during the revenue growth phase a key area of focus.

3. Financial leverage and liquidity structure: The Equity Ratio was 17.9%, and current liabilities of ¥2407.8B exceeded current assets of ¥1947.1B, resulting in negative working capital. Short-term and long-term borrowings totaled more than ¥1160B, and dependence on interest-bearing debt increased from the previous year.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company’s profitability indicators are substantially below the industry median and remain below the lower bound of the IQR.

Growth and Capital Efficiency

The revenue growth rate also fell below the industry median, placing the company toward the lower end of the industry in terms of growth speed.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The trend of revenue growth continues, but both the gross margin and Operating Income margin contracted from the previous year, indicating a structural change in which revenue expansion does not directly translate into profit growth. In particular, declining profitability in the Travel Business, the core of consolidated revenue, is the primary constraint on the company-wide profit margin.

2. The Hotel Business is increasing its contribution as a highly profitable segment, with a profit margin of 17.9% and earnings growth of +29.6%; changes in the earnings structure within the business portfolio can be observed.

3. Operating Cash Flow and Free Cash Flow were both negative, with the divergence from Net Income primarily attributable to the increase in trade receivables. The full-year dividend forecast (¥25) is not expected to be covered by earnings under the forecast of a Net Loss for the current fiscal year, making monitoring of cash flow trends an important area of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥557–¥589 at ±1% in the Cost of Equity, and ¥565–¥577 at ±0.1 in ω.

Notes:

• Goodwill amortization of ¥3.8 per share has been added back to earnings (for non-cash expense treatment and comparability with IFRS companies).
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end have been used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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