HARIMA B.STEM CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.42B
• Operating Income: ¥541M
• Net Income: ¥402M
• EPS: ¥43.82

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

Verdict: Solid topline growth with slight margin compression and stable cash generation; earnings dipped marginally due to higher below-OP items and tax burden. Revenue rose 7.8% YoY to 144.19, while operating income increased 2.8% YoY to 5.41, and ordinary income grew 2.0% YoY to 5.84. Net income declined 0.7% YoY to 4.01, indicating modest pressure below the operating line despite resilient operations. Gross margin printed at 14.5%, and operating margin was 3.8%, reflecting the labor-intensive, contract-based nature of the business. Based on reconstructed prior-period figures, the operating margin compressed by roughly 18 bps (from ~3.93% to 3.75%). Net margin compressed by about 24 bps to 2.8%, weighed by a higher effective tax rate of 34.6% and limited non-operating tailwinds. Non-operating income contributed 0.66 (dividends 0.22, interest 0.03), partially offset by 0.23 non-operating expenses, yielding a non-operating income ratio of 16.4%—a modest, recurring support but not a primary driver. Cash flow quality was strong: operating cash flow of 5.81 exceeded net income (OCF/NI 1.45x), aided by low inventory needs and manageable receivables. Estimated FCF (OCF minus capex) was approximately 4.35, implying healthy coverage for maintenance investments and dividends. The balance sheet is conservative with net cash of roughly 41.8 (cash 50.35 minus total loans 8.55) and a current ratio of 205.8%, mitigating liquidity concerns. Debt-to-equity of 0.73x (total liabilities-to-equity basis) is comfortably within conservative thresholds, further supported by a 101x interest coverage ratio. ROE is 4.2%, held back by thin net margins despite reasonable asset turnover (0.873x) and moderate leverage (1.73x). Reported ROIC is 6.6%, below the 7–8% target range, suggesting room for efficiency and profitability improvements. Dividend payout is estimated at 62.4% of net income—slightly above the 60% benchmark—but still likely covered by FCF given current cash generation. Forward-looking, the company appears well-positioned to sustain stable operations given contract stickiness and net cash, but earnings acceleration will require margin initiatives (pricing, mix, productivity) to lift ROIC toward management targets. Risks include wage inflation, competitive bidding pressure, and potential goodwill impairment, which could constrain margin recovery if not offset by pricing and efficiency gains.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.2% = Net Profit Margin 2.8% × Asset Turnover 0.873 × Financial Leverage 1.73x. The most notable movement YoY appears to be the net profit margin, which compressed by roughly 24 bps (from ~3.0% to 2.8%) as revenue growth outpaced operating profit growth and the effective tax rate held elevated at 34.6%. Asset turnover at 0.873 is reasonable for a service-heavy model; given revenue growth of 7.8% and likely modest asset base movement, AT is likely stable to slightly improved, but exact prior-period assets are unreported. Financial leverage at 1.73x reflects a conservative structure (net cash), so leverage contribution to ROE is limited and stable. Business drivers: mild operating margin compression (approx. -18 bps) suggests wage and SG&A absorption against contract pricing; rent expense (1.45) and directors’ compensation (1.37) are disclosed pieces of SG&A, but total SG&A cadence vs revenue cannot be fully assessed due to partial disclosure. Sustainability: margin pressure looks manageable and consistent with industry dynamics; normalization could occur via annual pricing revisions and productivity measures, but absent mix upgrades, a large re-expansion is uncertain. Watchouts: given that operating income growth (+2.8%) lagged revenue growth (+7.8%), operating leverage was negative in the period; if SG&A growth exceeds revenue growth, it would be a concern, but SG&A YoY data are unreported, so we flag this as a monitoring point rather than a confirmed risk.

Growth Assessment

Topline growth of 7.8% is healthy for building maintenance/services, implying steady contract wins/renewals and possible price pass-through. Operating income growth of 2.8% indicates partial cost absorption and competitive pricing pressure. Ordinary income (+2.0%) benefitted from dividend and interest income but was mostly operationally driven. Net income (-0.7%) reflects tax and minor non-operating drags. Revenue quality appears recurring and diversified typical of the sector (multi-year maintenance contracts), and inventories are negligible, aligning with a service model. Margin headwinds stem from labor costs and rent, with limited evidence of one-offs. Outlook: Sustained mid-single-digit revenue growth seems achievable if contract momentum persists; margin improvement hinges on wage management, pricing revisions, and efficiency. ROIC at 6.6% trails the 7–8% benchmark; elevating ROIC requires either a mix shift to higher-margin services or improved asset utilization. Non-operating income (dividends) provides a small recurring cushion but is not a growth engine. With a net cash balance and strong OCF, the company has dry powder for selective investments or efficiency-enhancing digital/automation tools, which could support medium-term margin expansion.

Financial Health

Liquidity is strong: current ratio 205.8% and quick ratio 205.7% comfortably exceed benchmarks; no warning for current ratio <1.0. Solvency is robust: total liabilities-to-equity ratio of 0.73x and interest coverage at 101x indicate conservative leverage and low refinancing risk; D/E is well below the 2.0 warning threshold. Net cash position of approximately 41.8 (cash 50.35 vs total loans 8.55) underscores capacity to absorb shocks. Maturity mismatch risk is low: short-term loans of 4.95 are more than covered by cash and near-term receivables (46.07). No off-balance sheet obligations are disclosed in the provided data; however, recurring rent expense (1.45) implies ongoing lease commitments typical for the sector. Goodwill (9.84) and intangible assets (11.73) are meaningful (together ~13% of total assets), introducing potential impairment sensitivity if acquired units underperform.

Cash Flow Quality

Earnings quality is solid with OCF/Net Income at 1.45x (>1.0 benchmark), indicating that accruals and working capital movements are supportive rather than masking earnings. Estimated free cash flow is approximately 4.35 (OCF 5.81 minus capex 1.46), noting investing cash flow is otherwise unreported; this suggests capacity to fund dividends and maintenance capex. Working capital discipline appears stable: receivables of 46.07 versus H1 revenue imply an estimated DSO of ~57 days (assuming 180-day period), reasonable for the industry; inventories are negligible (0.04). No signs of aggressive working capital management (e.g., outsized receivable buildup or payables stretching) are evident in the provided snapshot. Financing cash inflow of 9.32 suggests net borrowing or other financing inflows; with net cash already large, leverage usage appears opportunistic rather than necessity-driven.

Dividend Sustainability

The calculated payout ratio is 62.4%, slightly above the <60% benchmark and marginally stretched on a pure earnings basis. Using net income of 4.01 implies estimated dividends of ~2.50, which are likely covered by estimated FCF of ~4.35 (FCF/Dividend ≈ 1.7x), indicating sustainability under current conditions. Cash on hand (50.35) and net cash position provide additional buffer for distribution stability. However, absent disclosed DPS and total dividends paid, precision is limited; actual cash distributions could vary with year-end decisions. Policy outlook: With ROE at 4.2% and ROIC at 6.6%, reinvestment at higher returns would be desirable; management may balance shareholder returns with investments that enhance productivity and margins. Unless margins deteriorate or growth capex accelerates significantly, the current payout appears maintainable.

Risk Assessment

Business Risks:

• Wage inflation and labor availability pressures in a labor-intensive service model may compress margins.
• Competitive bidding and price pressure on contract renewals could limit pricing power.
• Goodwill and intangible assets (~13% of total assets) present impairment risk if acquired businesses underperform.
• Client concentration or public-sector exposure (not disclosed) could elevate renewal risk if present.
• Service quality incidents or contract non-performance could lead to penalties or non-renewals.

Financial Risks:

• Tax rate volatility (effective tax 34.6%) can add earnings variability.
• Potential lease commitments (implied by rent expense) create fixed-cost rigidity in downturns.
• Financing CF inflow (+9.32) implies some reliance on external funding in the period; while net cash is ample, higher rates could raise future cost of capital.

Key Concerns:

• ROIC at 6.6% below the 7–8% target range suggests limited value creation headroom without margin uplift.
• Slight margin compression (OPM down ~18 bps, NPM down ~24 bps) despite solid revenue growth indicates negative operating leverage.
• Non-operating income provides only modest support; core margin expansion is needed to lift ROE from 4.2%.

Investment Implications

Key Takeaways:

• Resilient topline growth (+7.8% YoY) with modest operating income growth (+2.8%).
• Margins compressed slightly; operating margin ~3.75% and net margin 2.8%.
• Cash flow quality is strong (OCF/NI 1.45x) and estimated FCF ~4.35 supports distributions and capex.
• Balance sheet is conservative with net cash ~41.8 and current ratio ~206%.
• ROE 4.2% and ROIC 6.6% point to modest capital efficiency; upside tied to margin and mix improvements.

Metrics to Watch:

• Operating margin trajectory versus wage inflation and pricing pass-through.
• ROIC progression toward or above 7–8% target range.
• OCF sustainability and FCF after growth capex.
• Receivables/DSO trends as a proxy for billing and collection discipline.
• Tax rate normalization and its impact on net margin.

Relative Positioning: Within Japan’s building maintenance/services space, the company exhibits above-average balance sheet strength (net cash, high liquidity) and stable cash conversion, but margins are thinner and capital efficiency (ROE/ROIC) trails sector leaders; execution on pricing, productivity, and service mix upgrades will determine convergence toward best-in-class profitability.

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