SHINGAKUKAI HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.40B
• Operating Income: ¥-607M
• Net Income: ¥-770M
• EPS: ¥-44.31

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

FY2026 Q2 was weak with a deepening loss profile despite double-digit revenue growth, driven by negative gross margin and high operating deleverage. Revenue rose 21.1% YoY to 33.97, but cost of sales of 37.31 pushed gross profit to -3.34 and gross margin to -9.8%. SG&A was 2.73, leading to operating income of -6.07 and an operating margin of -17.9%. Ordinary income deteriorated to -6.33 after 0.15 in non-operating income and 0.41 in non-operating expenses, highlighting an interest burden of 0.25 against loss-making operations. Net income was -7.71, translating to a net margin of -22.7% and EPS of -44.31 yen. The effective tax rate was a counterintuitive -21.4% (tax expense of 1.36 despite a pretax loss), further widening the bottom-line deficit. DuPont shows ROE at -9.2%, driven by a very weak net margin (-22.7%), low asset turnover (0.197), and moderate financial leverage (2.05x). Liquidity is adequate but tight versus benchmarks: current ratio is 110.3% and quick ratio 110.2%, supported by cash and deposits of 66.39. Solvency risk is concentrated in short-term loans of 80.00 (current liabilities 84.90), raising refinancing exposure given negative operating earnings and interest coverage of -24.17x. Equity remains at 84.06 (BVPS ~493 yen), but ROIC is -6.2%, below the 5% warning threshold, indicating value destruction in the current period. Operating cash flow and capex were unreported, constraining earnings quality assessment and dividend coverage analysis. With negative gross margin and operating losses, near-term focus must be on restoring classroom utilization, pricing, and cost absorption. The revenue growth is a bright spot, but without positive gross margin, it translates into larger operating losses. Margin expansion/compression in basis points cannot be quantified YoY due to missing prior-period margins; current gross and operating margins are -980 bps and -1,790 bps, respectively. Forward-looking, stabilization hinges on improving cost-to-revenue alignment, reducing reliance on short-term borrowing, and normalizing the tax burden. Overall, the quarter indicates heightened execution risk until gross margin returns to positive territory and interest coverage improves.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-22.7%) × 0.197 × 2.05 ≈ -9.2%. The dominant drag is the net profit margin at -22.7%, reflecting a negative gross margin (-9.8%) and operating margin (-17.9%). Asset turnover of 0.197 is low, suggesting underutilized assets relative to sales scale, typical for education operators with fixed classroom capacity. Financial leverage at 2.05x is moderate but magnifies losses given negative margins. The component that changed most is likely the margin, not leverage or turnover (prior-period data not disclosed, but revenue grew while losses expanded). Business drivers: revenue growth likely came with suboptimal pricing/mix or elevated instructional delivery costs, pushing cost of sales above sales and creating negative gross margin; fixed-cost absorption appears poor. This margin pressure looks cyclical/operational rather than one-time, but the tax expense despite a loss is a non-operating headwind that may not recur at the same magnitude. Sustainability: without evidence of structural cost resets or price increases, the current negative margin is not sustainable; management must address cost of delivery, class sizes, and product mix. Concerning trends: revenue up 21.1% while operating income is deeply negative implies SG&A + cost of sales growth outpaced revenue; interest expense (0.25) compounds the earnings gap with interest coverage at -24.17x.

Growth Assessment

Top-line growth of 21.1% YoY to 33.97 indicates robust demand or successful program expansion. However, the growth is low quality operationally because gross margin is negative, indicating poor cost containment or unfavorable revenue recognition timing. The absence of equity-method income or one-time gains suggests losses are primarily operational. Non-operating income (0.15) is minor versus operating loss, and cannot offset core weakness. With ROIC at -6.2%, growth is currently value-destructive. Sustainability depends on converting enrollment growth into positive gross profit via pricing, capacity utilization, and teacher deployment efficiency. Outlook: if utilization and seasonal mix improve in the back half, margins could normalize, but the reliance on short-term loans increases sensitivity to execution. Key proof points needed are a return to positive gross margin, stabilization of SG&A intensity, and narrowing ordinary loss through better operating leverage.

Financial Health

Liquidity: Current ratio 110.3% and quick ratio 110.2% are above 1.0 but below the 1.5 comfort threshold. Working capital is 8.77, supported by cash and deposits of 66.39. Solvency: D/E is 1.05x, indicating moderate leverage, but the structure is risky with short-term loans of 80.00 making up the bulk of liabilities (current liabilities 84.90 vs current assets 93.67). Maturity mismatch: Concentration in short-term funding poses refinancing risk; cash (66.39) does not fully cover short-term loans (80.00), although total current assets do. Interest burden: interest expense of 0.25 combined with negative EBIT results in interest coverage of -24.17x (warning). Off-balance sheet: no disclosures on leases or guarantees; potential lease commitments for classroom facilities may exist but are unreported here. Explicit warnings: Current ratio is not below 1.0 (no immediate red flag), D/E is below 2.0 (no mechanical breach), but the debt service profile is weak due to operating losses.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed, preventing a quantitative OCF/Net Income assessment and FCF coverage analysis. Given negative operating income and tax expense despite losses, there is a risk that accruals and working capital movements could be unfavorable, but evidence is insufficient. With cash at 66.39 and short-term loans at 80.00, internal cash generation will be crucial to avoid additional borrowings. No signs of working capital manipulation can be confirmed without AR/AP and deferred revenue details; reported inventories (0.13) are immaterial for the business model. Flag: OCF/NI cannot be calculated (data limitation), so earnings quality remains unverified.

Dividend Sustainability

Dividend data are largely unreported; payout ratios are not reliably calculable for the period. The calculated payout ratio of -6.5% is not meaningful due to negative earnings. Without OCF and FCF disclosure, coverage of any dividends cannot be assessed. Given operating losses and negative ROIC, prudence would suggest conserving cash until a return to positive operating cash flow. Equity remains at 84.06 (BVPS ~493 yen), but sustaining dividends from balance sheet or additional debt would increase financial risk in the current earnings context. Policy outlook cannot be inferred from the data provided.

Risk Assessment

Business Risks:

• Negative gross margin (-9.8%) indicating structural pricing/cost issues
• Execution risk in converting 21.1% revenue growth into positive operating profit
• Seasonality and utilization risk typical of education services affecting cost absorption
• Teacher wage inflation and facility cost pressures compressing margins
• Potential adverse tax effects despite losses (effective tax -21.4%)

Financial Risks:

• Refinancing risk from concentrated short-term loans of 80.00 versus cash of 66.39
• Very weak interest coverage (-24.17x) elevating debt service risk
• Moderate leverage (D/E 1.05x) with earnings volatility magnifying losses
• ROIC -6.2% indicating value destruction if persisted
• Liquidity buffer only modest above 1.0x current ratio benchmark

Key Concerns:

• Sustained operating losses (operating margin -17.9%)
• Tax expense despite pretax loss widening bottom-line deficit
• Absence of operating cash flow disclosure obscures earnings quality and dividend capacity
• Possible lease and other off-balance obligations not reported in the dataset
• Dependence on short-term funding in a period of negative profitability

Investment Implications

Key Takeaways:

• Top-line growth strong at +21.1% YoY, but profitability deteriorated with negative gross and operating margins
• ROE (-9.2%) and ROIC (-6.2%) indicate substantial value pressure this quarter
• Debt structure relies heavily on short-term loans, raising refinancing and interest rate sensitivity
• Liquidity is adequate but not robust; current ratio 110.3% and cash 66.39 vs ST loans 80.00
• Earnings quality cannot be confirmed due to missing cash flow data; interest coverage is deeply negative

Metrics to Watch:

• Gross margin recovery to positive territory
• Operating margin trajectory and SG&A intensity versus revenue
• Operating cash flow and free cash flow once disclosed
• Short-term loan rollover schedule and average interest rate
• Enrollment/attendance and pricing initiatives to improve utilization
• Tax cash outflow and normalization of effective tax rate

Relative Positioning: Versus domestic cram-school peers, the company exhibits weaker profitability (negative gross and operating margins), higher short-term funding reliance, and lower interest coverage, placing it at a disadvantage until margins and cash generation normalize.

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