Integroup Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥622M
• Operating Income: ¥4M
• Net Income: ¥5M
• EPS: ¥2.35

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: A weak FY2026 Q2 with severe revenue compression and near-breakeven earnings, partially cushioned by strong cash generation and a fortress balance sheet. Revenue fell 53.4% YoY to 6.22 (100M JPY), with gross profit at 2.77 and SG&A at 2.72, yielding operating income of just 0.04 (down 99.1% YoY). Ordinary income was 0.07 and net income 0.05 (down 98.5% YoY), highlighting an abrupt profit contraction versus last year’s strong base. Gross margin held at a solid 44.5%, but operating margin compressed to 0.6% (down dramatically from prior period’s implied high teens/40% based on 5.30 OI on 13.34 revenue), indicating severe negative operating leverage. The EBIT margin deterioration of more than 4,000 bps underscores an unfavorable revenue/SG&A mix and likely project timing gaps. DuPont shows ROE at 0.3% (NPM 0.8%, asset turnover 0.301x, leverage 1.14x), all well below healthy benchmarks. The 5-factor breakdown indicates a low EBIT margin (0.6%), a tax burden of 0.649 (slightly heavy), and an interest burden >1 due to small positive non-operating income. Despite weak earnings, cash generation outperformed: OCF was 0.17, 3.45x net income, signaling decent earnings quality and working capital discipline this quarter. The balance sheet remains exceptionally liquid with cash of 18.34 against total assets of 20.67 and minimal liabilities of 2.57; current and quick ratios are 7.27x, with D/E at 0.14x. Financing cash outflow of -0.96 likely reflects dividend payment (approx. 45 JPY per share), which is not covered by H1 OCF or net income this period but is covered by ample cash on hand. However, the calculated payout ratio of 1,926% on H1 earnings is not sustainable if earnings do not recover in H2. The quality alerts (low operating efficiency; negative ROIC) are consistent with the reported collapse in profitability and a large idle cash position depressing capital efficiency. Forward-looking, earnings recovery depends on revenue normalization (deal/project flow) and tighter SG&A control; otherwise, dividend policy may face pressure. The cash-rich, debt-light balance sheet provides ample runway, but capital allocation efficiency and revenue visibility are the key debate points for the next quarters.

Profitability Analysis

Step 1 (ROE decomposition): ROE 0.3% = Net Profit Margin 0.8% × Asset Turnover 0.301 × Financial Leverage 1.14x. Step 2 (largest change): Net profit margin deteriorated the most, driven by an EBIT margin collapse to 0.6%. Step 3 (business reason): Sharp revenue decline (-53.4% YoY) against a relatively sticky SG&A base (2.72 vs gross profit 2.77) led to minimal operating profit; limited non-operating income (interest income 0.03) provided only a small offset. Step 4 (sustainability): The margin compression appears cyclical/project-timing related rather than structural on gross margin, but sustainability depends on H2 revenue recovery and SG&A flexibility; without top-line normalization, ultra-thin EBIT margins could persist. Step 5 (flags): SG&A effectively grew as a percentage of sales and outpaced revenue, creating negative operating leverage; EBIT and net margins are below concern thresholds (<5% and <3%, respectively).

Growth Assessment

Revenue contracted 53.4% YoY to 6.22, indicating significant volatility and likely project timing or deal slowdowns. Gross margin at 44.5% suggests underlying pricing/service mix remains acceptable, but the cost structure proved inflexible in the face of lower revenues. Operating income collapsed 99.1% YoY to 0.04, and net income fell 98.5% to 0.05, reflecting pronounced operating deleverage. The quarter’s ordinary income modestly benefited from interest income (0.03), but this is not a growth driver. Near-term growth hinges on pipeline conversion and client activity normalization; without visible data on backlog or order intake, revenue sustainability is uncertain. Management’s ability to right-size SG&A or leverage variable compensation will be critical to restoring operating leverage.

Financial Health

Liquidity is exceptionally strong: current ratio and quick ratio at 7.27x, driven by cash of 18.34 against current liabilities of 2.57. There is no warning on Current Ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.14x. Maturity mismatch risk is low given the predominance of cash in current assets and the absence of disclosed interest-bearing debt. Solvency risk appears minimal, with ample equity (18.10) and low liabilities (2.57). No off-balance sheet obligations were disclosed in the dataset; lack of disclosure limits full assessment.

Cash Flow Quality

OCF of 0.17 exceeds net income of 0.05 (OCF/NI = 3.45x), indicating high earnings quality this quarter despite depressed profits. Accruals ratio is -0.6% and cash conversion (OCF/EBITDA) is 2.28x, both supportive of cash-generative earnings. FCF cannot be calculated due to unreported capex, but depreciation is only 0.04, implying capex needs are likely modest for an asset-light model. Dividend outflows of approximately 0.96 (based on financing CF) exceeded OCF in H1, funded by cash reserves; this is not sustainable without stronger H2 OCF. No clear signs of working capital manipulation are evident from available data, though granularity on receivables/payables is missing.

Dividend Sustainability

Year-end DPS is guided at 45 JPY with no Q2 interim dividend, implying full-year cash outflow around 0.96 (100M JPY) for 2.14M shares. The calculated payout ratio on YTD H1 earnings is 1,926%, which is unsustainably high on current run-rate earnings. H1 OCF of 0.17 did not cover dividend outflows; however, cash of 18.34 provides coverage in the short term. Sustainability depends on H2 earnings and OCF recovery; under a flat H1 run-rate, the dividend would be funded from the balance sheet rather than cash generation. With capex likely light, medium-term affordability exists but at the cost of deteriorating capital efficiency if growth does not recover. Policy outlook should be monitored for potential adjustments if H2 does not normalize.

Risk Assessment

Business Risks:

• Revenue volatility and project/deal timing risk leading to severe operating deleverage
• Client concentration risk typical of small-cap professional services (not disclosed but likely)
• Execution risk in rebuilding pipeline and converting backlog
• Pricing pressure in advisory/services during slower macro cycles

Financial Risks:

• Dividend outflow exceeding H1 OCF and NI, increasing reliance on cash reserves
• Negative/low ROIC due to minimal NOPAT and large cash balances
• Tax burden volatility impacting thin margins (effective tax ~35%)
• Potential FX/interest income volatility affecting non-operating income

Key Concerns:

• EBIT margin at 0.6% (<5%) indicating low operating efficiency
• ROE at 0.3% and flagged negative ROIC suggest poor capital productivity
• Limited disclosure on receivables, payables, and revenue mix reduces visibility
• Sustainability of dividend if H2 recovery does not materialize

Investment Implications

Key Takeaways:

• Top-line fell 53.4% YoY; profitability collapsed with operating margin at 0.6%
• ROE at 0.3% reflects weak NPM and low asset turnover; leverage is modest at 1.14x
• OCF/NI at 3.45x and negative accruals ratio indicate decent earnings quality despite low profits
• Balance sheet is robust with cash of 18.34 and minimal liabilities (current ratio 7.27x)
• Dividend likely consumed ~0.96 cash in H1; not covered by H1 OCF, funded by cash reserves
• Quality flags (low operating efficiency, negative ROIC) are consistent with current fundamentals
• Recovery hinges on revenue normalization and SG&A flexibility to restore operating leverage

Metrics to Watch:

• Quarterly revenue trend and backlog/pipeline conversion
• EBIT margin trajectory and SG&A as a percentage of sales
• OCF and working capital movements vs. NI
• ROIC and ROE recovery as profitability improves
• Dividend policy updates and payout coverage by FCF
• Non-operating income stability (interest income) amid rate changes

Relative Positioning: Compared to small-cap Japanese professional services/advisory peers, the company currently shows weaker topline momentum and operating leverage but superior balance sheet strength (cash-rich, low debt). Capital efficiency is below peers due to low earnings on a large cash base; near-term rerating requires evidence of revenue recovery and margin normalization.

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
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