Information Strategy and Technology Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.79B
• Operating Income: ¥367M
• Net Income: ¥202M
• EPS: ¥19.59

Income Statement

Balance Sheet

Profitability Ratios

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

For FY2025 Q3 (cumulative), 株式会社情報戦略テクノロジー reported revenue of ¥5,791m, effectively flat year over year, indicating a pause in top-line growth momentum. Gross profit was ¥1,541m, translating to a gross margin of 26.6%, which supports a sustainable contribution margin for a services-heavy model without carrying inventories. Operating income came in at ¥367m (also flat YoY), implying an operating margin of roughly 6.3%, suggesting limited operating leverage in the current period. Ordinary income was ¥351m and net income ¥202m, yielding a net margin of 3.49%, consistent with the DuPont inputs provided. DuPont decomposition points to ROE of 12.71%, driven by a modest net margin (3.49%), healthy asset turnover (1.506x), and financial leverage of 2.42x. The balance sheet shows total assets of ¥3,846m and total equity of ¥1,589m; while the equity ratio field is unreported, the implied equity ratio is approximately 41.3% (equity/assets). Liquidity appears strong with current and quick ratios both at 214.6%, supported by the absence of inventories and sizeable working capital of ¥1,472m. Interest expense is minimal at ¥8.6m with interest coverage of 42.6x, indicating low short-term financial risk from financing costs. The reported effective tax rate field is unreported; however, the relationship between net income and taxes implies an effective tax rate of roughly 42% this period, higher than Japan’s statutory baseline, potentially due to non-deductible items or temporary differences. Cash flow data (OCF/FCF/cash) and EBITDA are shown as zero, indicating non-disclosure rather than actual zeros, so cash conversion and free cash flow quality cannot be directly assessed. The company reported EPS of ¥19.59; with shares outstanding not disclosed, per-share interpretability is limited beyond this EPS figure. Debt-to-equity of 1.42x (liabilities/equity) is moderate, consistent with the 41% equity ratio and supporting the 2.42x financial leverage used in DuPont. Ordinary income and net income stability, despite flat revenue, suggest stable pricing/utilization, though the thin net margin leaves limited shock absorption. The absence of inventory aligns with an IT services/SES/SI business model, where receivables management and billable utilization are key value drivers. Dividend fields are zero/unreported; policy visibility is low, and payout capacity cannot be evaluated without cash flow disclosure. Overall, profitability is steady and ROE is respectable for a domestic IT services peer set, but the lack of cash flow disclosure constrains assessment of earnings quality and dividend capacity. We rely on the provided non-zero datapoints and computed ratios, acknowledging several fields are unreported and thus not reflective of true zeros.

Profitability Analysis

ROE of 12.71% is explained by: Net Profit Margin 3.49% × Asset Turnover 1.506× × Financial Leverage 2.42×. Operating margin is about 6.3% (¥367m/¥5,791m), and ordinary margin about 6.1% (¥351m/¥5,791m), indicating limited non-operating drag this period aside from modest interest costs. Gross margin at 26.6% suggests adequate value-add over subcontracting and personnel costs, typical for a systems engineering/services model. The spread between gross margin (26.6%) and operating margin (6.3%) implies SG&A intensity around 20% of sales, leaving room for incremental operating leverage if growth re-accelerates. Net margin at 3.49% is compressed relative to operating margin, partially due to an implied high effective tax rate (~42%) and small interest costs. Interest coverage at 42.6x demonstrates that financing costs are not a material profitability headwind. The flat YoY trend in revenue and operating income indicates muted operating leverage this quarter; cost structure appears relatively flexible, preventing deleverage despite no growth. ROA is approximately 5.3% (¥202m/¥3,846m), reasonable for an asset-light model. Margin quality appears stable, but without EBITDA/D&A disclosure we cannot parse non-cash cost components or normalize for depreciation.

Growth Assessment

Revenue was flat YoY at ¥5,791m, suggesting a plateau in demand or project timing effects in FY2025 Q3. Operating income was also flat, indicating stable pricing and utilization, with limited cost inflation impact or effective cost control offsetting any wage pressure. Net income stability is consistent with operational steadiness but leaves little headroom for unforeseen costs given a 3.49% net margin. Absent segment/geographic breakdowns, sustainability of revenue is best inferred from the services model and working capital; the sizeable working capital base suggests ongoing operations but does not inform growth cadence. With asset turnover at 1.506x, efficiency remains solid; further growth could lift ROE through operating leverage if SG&A is semi-fixed. Near-term outlook depends on demand for systems integration/SES and the company’s hiring and utilization, but no guidance is provided. Profit quality appears acceptable from the income statement alone, though lack of cash flow disclosure restricts assessment of revenue collectability and accrual build. Pipeline visibility, bookings, and headcount trends (not disclosed) will be key to assessing sustainability. Overall, the growth profile is currently neutral, with potential upside if order intake improves and tax rate normalizes.

Financial Health

Total assets: ¥3,846m; total equity: ¥1,589m; implied equity ratio ~41.3% (despite the equity ratio field being unreported). Total liabilities: ¥2,258m, resulting in a liabilities-to-equity (debt-to-equity proxy) of 1.42x, moderate for the sector. Current assets: ¥2,756m vs. current liabilities: ¥1,284m yield a current ratio and quick ratio both at 214.6%, reflecting strong near-term liquidity without inventory reliance. Working capital is ¥1,472m, suggesting comfortable coverage of operating needs and project-related payables. Interest expense is ¥8.6m with operating income of ¥367m, giving 42.6x coverage, indicating low solvency risk from interest burden. Cash and equivalents are not disclosed (shown as zero), so absolute liquidity buffers cannot be quantified; however, current asset coverage mitigates near-term risk. The capital structure leans conservative-to-moderate, providing flexibility to support growth or withstand short-term demand softness.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed in the dataset (zeros indicate unreported), so we cannot compute cash conversion, free cash flow, or reinvestment intensity. The OCF/Net Income ratio shown as 0.00 reflects non-disclosure, not weak cash generation. With D&A also unreported, EBITDA and non-cash expense contributions cannot be assessed. Working capital stands at ¥1,472m, but without receivables/payables details, we cannot evaluate collection cycles or any build-up that might pressure OCF. Free cash flow cannot be calculated; thus, earnings quality must be inferred from stable margins and low interest burden rather than cash corroboration. Key unknowns include receivables aging, unbilled revenue, and subcontractor payables timing—all material for an IT services model.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero, indicating non-disclosure for this period; no policy inference should be made from these zeros. Without operating or free cash flow data, FCF coverage of dividends cannot be analyzed. Earnings capacity (EPS ¥19.59; net income ¥202m) suggests potential for distributions under typical payout policies in the sector, but actual policy, retained earnings, and cash balances are not disclosed here. The balance sheet’s moderate leverage and strong liquidity ratios are supportive in principle, yet cash generation and capital allocation priorities remain unassessed due to data gaps. Outlook on payouts is therefore uncertain pending disclosure of cash flow statements and board policy.

Risk Assessment

Business Risks:

• Client concentration and project timing risk typical of SI/SES businesses
• Utilization rate volatility due to hiring cycles and demand fluctuations
• Wage inflation for engineers versus pricing power on contracts
• Execution risk on fixed-price or scope-creep-prone projects
• Dependence on key customers or verticals amid flat growth
• Talent retention and recruiting competitiveness in a tight IT labor market
• Macro slowdown in enterprise IT spending impacting new orders
• Reliance on subcontractors and potential margin squeeze from partner costs

Financial Risks:

• Cash flow non-disclosure limits assessment of liquidity buffers and cash conversion
• Moderate leverage (liabilities/equity 1.42x) increases sensitivity to working capital swings
• Potentially elevated effective tax rate (~42%) depressing net margins
• Receivables concentration and collection risk (details not disclosed)
• Interest rate risk limited but present given some interest-bearing liabilities
• Small/mid-cap market liquidity risk for equity (shares outstanding not disclosed here)

Key Concerns:

• Flat YoY revenue and operating income suggest stalled growth near term
• Lack of cash flow and cash balance disclosure prevents evaluation of FCF and dividend capacity
• High implied tax rate compresses net profitability and ROE headroom

Investment Implications

Key Takeaways:

• ROE of 12.71% is respectable, driven by solid asset turnover and moderate leverage despite thin net margins
• Margins are stable (GM 26.6%, OPM ~6.3%), indicating cost discipline but limited operating leverage in a no-growth quarter
• Liquidity is strong (current/quick 214.6%) with ample working capital of ¥1,472m
• Interest burden is negligible (coverage 42.6x), reducing downside from financing costs
• Cash flow and dividend visibility are low due to non-disclosure of OCF/FCF/DPS

Metrics to Watch:

• Order intake, backlog, and utilization rate to gauge demand recovery
• Receivables days and OCF once disclosed to assess cash conversion
• Headcount and subcontractor ratio to monitor margin trajectory
• Effective tax rate normalization and any one-offs impacting net margin
• SG&A as a percentage of sales for operating leverage realization
• Equity ratio and liabilities mix to track balance sheet flexibility

Relative Positioning: Within domestic IT services/SES peers, the company exhibits steady mid-single-digit operating margins, healthy liquidity, and moderate leverage, supporting a mid-pack profitability profile with ROE enhanced by efficiency and leverage rather than superior margins; disclosure gaps on cash flow and dividends currently limit comparative clarity on cash generation and shareholder returns.

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