H.I.S.Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥373.11B
• Operating Income: ¥11.63B
• Net Income: ¥158M
• EPS: ¥63.16

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

H.I.S. (9603) reported FY2025 Q4 consolidated results under JGAAP showing steady top-line expansion but weaker bottom-line due to below-operating items. Revenue grew 8.7% YoY to 3,731.06, with gross profit of 1,179.74 and a gross margin of 31.6%, indicating healthy take rates for a travel intermediary model. SG&A of 1,063.46 kept operating income at 116.27 (+7.1% YoY), translating to a 3.1% operating margin, broadly stable but not fully leveraging the revenue growth. Ordinary income was 113.81, essentially operating income less a small net non-operating loss (non-operating income 38.14 vs expenses 40.60), with interest expense at 20.25. Profit before tax fell to 70.67, implying material below-ordinary items (e.g., extraordinary losses) not detailed in disclosures. Net income dropped 45.9% YoY to 47.19 despite higher operating income, primarily reflecting those below-ordinary items and taxes. DuPont analysis yields ROE of 7.0% (net margin 1.3% × asset turnover 0.966 × financial leverage 5.75x), with leverage and asset turnover doing the heavy lifting against a thin net margin. Cash generation outpaced accounting earnings: operating cash flow (OCF) was 212.19 and free cash flow (FCF) 102.06, implying solid cash conversion (OCF/NI 4.50x). The balance sheet shows total assets of 3,863.30 and total equity of 672.05; we estimate an equity-to-asset ratio of about 17.4% despite the reported equity ratio being N/A. Liquidity is tight with a current ratio of 74.4% and negative working capital of -621.19, a structure typical for travel agencies due to advances/deferred revenue, but still a monitoring point. Cash and deposits are sizeable at 1,139.32, while interest-bearing loans disclosed total at least 559.33 (short-term 86.98 + long-term 472.35), within total liabilities of 3,191.25. Interest coverage (operating income/interest expense) is 5.74x, adequate but sensitive to margin compression. Dividend data are largely unreported; reported DOE is 0.0% and payout metrics are N/A, so distribution policy cannot be inferred from the filing. Overall, fundamentals show improving core operations and strong cash conversion offset by elevated leverage, thin profitability, and earnings volatility from non-recurring items. Data gaps (e.g., SG&A breakdown, inventories/receivables, DPS) limit deeper granularity, but the available metrics support a view of cautious improvement in operations with ongoing balance sheet constraints. Key focuses ahead are sustaining gross margin, controlling SG&A, minimizing extraordinary losses, and preserving liquidity while deleveraging.

Profitability Analysis

ROE is 7.0% via DuPont: net profit margin 1.3% × asset turnover 0.966 × financial leverage 5.75x. The core drag is the thin net margin, as asset turnover is healthy and leverage is high. Operating margin is 3.1% (116.27/3,731.06), modestly positive and up in absolute yen but not expanding faster than revenue (+7.1% OI vs +8.7% revenue suggests slight negative operating leverage this period). Gross margin at 31.6% indicates resilient take rates; however, the translation to operating margin implies SG&A intensity remains high. Ordinary income roughly equals operating income minus a small net non-operating loss, with interest expense (20.25) being the key headwind. The step-down from ordinary income (113.81) to PBT (70.67) points to notable extraordinary/one-off losses under JGAAP, compressing net margin. EBITDA is 229.56 (EBITDA margin 6.2%), providing some buffer for interest and depreciation but still thin for a highly seasonal travel business. Interest coverage at 5.74x (Operating income/Interest expense) is acceptable but dependent on maintaining current margins. Overall, margin quality is fair at the gross level, but the conversion to net income is weak due to SG&A intensity and below-ordinary charges.

Growth Assessment

Revenue grew 8.7% YoY to 3,731.06, reflecting continued recovery/expansion in travel volumes and/or pricing. Operating income increased 7.1% YoY, lagging revenue growth, indicating limited operating leverage this period—likely from reinvestment in sales capacity, higher personnel/IT costs, or inflationary pressures within SG&A. Net income declined 45.9% YoY to 47.19, driven by non-operating/extraordinary items rather than core trading, as implied by the gap between ordinary income and PBT. Gross profit growth (implied by stable 31.6% margin) suggests revenue quality is intact; sustaining this margin will be key for future leverage on SG&A. Profit quality at the operating level is improving, but bottom-line quality is volatile due to below-ordinary items and tax effects (effective tax rate 18.4%). Outlook hinges on sustaining demand, managing cost inflation, and avoiding extraordinary losses. With asset turnover at 0.966, incremental revenue should support returns if SG&A growth is controlled. Given the strong cash conversion this period (OCF/NI 4.50x), underlying demand and collection dynamics appear supportive, but sustainability depends on booking mix, payment timing, and seasonality typical to the sector.

Financial Health

Liquidity: Current assets 1,803.88 vs current liabilities 2,425.07 yield a current ratio of 74.4% and working capital of -621.19. Quick ratio is also 74.4% due to lack of disclosed inventory, underscoring reliance on short-term liabilities typical of travel agencies (customer advances, payables). Cash and deposits are 1,139.32, offering a liquidity cushion despite the sub-1.0 current ratio. Solvency: Total liabilities 3,191.25 vs equity 672.05 implies a liabilities-to-equity ratio of 4.75x; estimated equity-to-asset ratio is ~17.4% (672.05/3,863.30), indicating a leveraged balance sheet. Interest-bearing loans disclosed total at least 559.33 (short 86.98; long 472.35); actual interest-bearing debt may be higher as some items are unreported. Interest coverage is 5.74x, adequate but not robust in a downturn. Capital structure: Heavy short-term liabilities align with the business model; maintaining ample cash and access to credit lines is critical. Financing CF of -364.57 suggests net debt repayment and/or limited distributions, aiding de-risking. Overall: liquidity is tight but buffered by large cash, and solvency is acceptable but leverage remains elevated relative to earnings power.

Cash Flow Quality

Earnings quality appears solid at the cash level: OCF of 212.19 vs net income of 47.19 yields OCF/NI of 4.50x, indicating strong cash conversion. Free cash flow is positive at 102.06 (OCF 212.19 plus Investing CF -110.13), supporting balance sheet repair and optionality. The OCF strength likely reflects favorable working capital dynamics (e.g., customer prepayments/advances common in travel), but this can reverse with seasonality or mix shifts; sustained multi-period observation is needed. Depreciation and amortization of 113.29 underpin EBITDA 229.56, suggesting non-cash charges are significant versus EBIT. Investing CF of -110.13 indicates moderate reinvestment; capex is not separately disclosed, so we treat total investing cash outflow as a proxy. Financing CF of -364.57 implies deleveraging and/or limited shareholder returns; dividends and buybacks are unreported. Overall cash quality is good this period, but reliance on working capital movements and the inherently negative working capital model require careful monitoring for reversals.

Dividend Sustainability

Dividend-related disclosures are largely unreported (annual DPS, total dividends, payout ratio N/A; reported DOE 0.0% is not informative). With net income of 47.19 and positive FCF of 102.06, the capacity to pay dividends exists in principle; however, the weak current ratio (74.4%), elevated leverage (liabilities/equity 4.75x), and earnings volatility from extraordinary items argue for balance sheet strengthening over distributions. Without DPS and policy disclosures, we cannot assess payout consistency or target metrics. FCF coverage of hypothetical dividends cannot be calculated from the filing. Our base interpretation is that near-term dividend flexibility depends on preserving cash and continuing deleveraging, given the business model’s negative working capital and exposure to demand shocks.

Risk Assessment

Business Risks:

• Demand volatility in outbound/inbound travel due to macro conditions, FX, and geopolitics
• Exposure to exogenous shocks (pandemics, natural disasters) affecting bookings and cancellations
• Thin operating margins (3.1%) leave limited cushion against cost inflation or pricing pressure
• Seasonality and working-capital swings inherent to travel intermediation
• Reliance on supplier relationships and inventory access (airlines, hotels) affecting gross margin
• Potential extraordinary losses (impairments, litigation, restructuring) impacting net income under JGAAP

Financial Risks:

• Tight liquidity (current ratio 74.4%) despite large cash balance
• Elevated leverage (liabilities/equity 4.75x) relative to earnings power
• Interest rate risk on borrowings (interest expense 20.25; coverage 5.74x)
• Negative working capital model increases sensitivity to booking cycle reversals
• Refinancing risk on short-term obligations (short-term loans 86.98 plus large current liabilities not itemized)

Key Concerns:

• Large gap between ordinary income (113.81) and PBT (70.67) suggests significant non-recurring losses
• Net income decline (-45.9% YoY) despite higher operating income
• Sustainability of strong OCF relative to NI (4.50x) given potential working capital reversals
• Low equity buffer (estimated equity-to-asset ~17.4%) in a cyclical sector

Investment Implications

Key Takeaways:

• Core operations improved: revenue +8.7% YoY, operating income +7.1% with a 31.6% gross margin
• Net income fell 45.9% YoY due to below-ordinary items; earnings quality at the bottom line is volatile
• ROE 7.0% is mainly leverage- and turnover-driven; net margin remains the main drag
• OCF strong (212.19) and FCF positive (102.06), supporting deleveraging
• Liquidity is tight (current ratio 74.4%) but cash is sizable (1,139.32)
• Interest coverage 5.74x is adequate but sensitive to margin compression

Metrics to Watch:

• Operating margin trajectory and SG&A efficiency
• Extraordinary items bridge from ordinary income to PBT/net income
• OCF/NI conversion and working capital movements (customer advances, payables)
• Cash balance versus short-term obligations; refinancing schedule
• Leverage metrics (equity-to-asset ratio, net debt where available)
• Booking trends and inbound/outbound mix sensitivity to FX

Relative Positioning: Within Japanese travel/intermediary peers, H.I.S. shows healthy gross margins and asset turnover but carries higher balance-sheet leverage and tighter liquidity than desirable, with bottom-line volatility driven by extraordinary items; strong cash generation this period partially offsets these structural constraints.

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