EXEO Group,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥321.31B
• Operating Income: ¥16.40B
• Net Income: ¥10.17B
• EPS: ¥49.76

Income Statement

Balance Sheet

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

Verdict: A strong FY2026 Q2, with solid topline growth and pronounced margin expansion driving a sharp rebound in profitability. Revenue rose 17.5% YoY to 3,213.08, while operating income surged 59.1% YoY to 164.03, evidencing operating leverage as project execution and mix improved. Net income climbed 62.6% YoY to 102.45, supported by higher operating profits despite a drag from net non-operating items. Gross margin printed at 14.4%, and operating margin improved to 5.1%, up meaningfully from an estimated 3.8% in the prior-year period. The operating margin expansion is estimated at about +133 bps YoY, and net margin expanded to 3.2% from roughly 2.3%, about +89 bps. Ordinary income of 160.99 (+39.0% YoY) implies an ordinary margin of 5.0% versus an estimated 4.2% a year ago, an improvement of roughly +77 bps. Non-operating income of 13.60 (dividends 4.07; interest 1.63) was more than offset by non-operating expenses of 16.65, with interest expense at 5.79, resulting in a modest ordinary income drag versus operating income. The effective tax rate was elevated at 41.8%, tempering net profit conversion. Liquidity remains strong with a current ratio of 200% and a quick ratio of 197%, while solvency is moderate with D/E at 0.87x and interest coverage at a comfortable 28.33x. Balance sheet quality appears sound with cash and deposits of 424.96 against total loans of 1,035.16, and ample working capital of 1,756.47. Capital efficiency is the weak point: ROE is 3.1% and ROIC is 2.5%, below the 5% warning threshold, indicating the earnings recovery has yet to translate into attractive returns on capital. Earnings quality cannot be fully assessed due to unreported operating cash flow; therefore, cash conversion and working capital behavior are data gaps. Dividend sustainability is uncertain: the calculated payout ratio of 128.3% suggests potential over-distribution relative to earnings absent stronger free cash flow. Goodwill of 200.44 and intangible assets of 299.07 warrant continued monitoring for impairment risk if profitability softens. Overall, the quarter’s performance is directionally positive for profitability and margins, but sustained improvement in ROIC, clarity on cash flows, and normalization of the tax rate are key for durability. Forward-looking, if revenue momentum persists and cost discipline holds, there is room for additional operating margin gains, which, coupled with measured balance sheet leverage, could gradually lift returns toward more acceptable levels.

Profitability Analysis

ROE decomposition: ROE (3.1%) = Net Profit Margin (3.2%) × Asset Turnover (0.524) × Financial Leverage (1.87x). The largest driver of improvement this quarter is the margin component, as operating income grew +59.1% vs revenue +17.5%, implying significant operating margin expansion (estimated +133 bps YoY to 5.1%). Asset turnover at 0.524 remains modest and likely constrained by sizable working capital and intangible assets; leverage at 1.87x is moderate and not the primary ROE lever. Business drivers of margin expansion likely include: better project mix (higher value-added ICT/5G/NW integration work), improved execution reducing cost overruns, and SG&A operating leverage with revenue scale (SG&A at 300.18 grew slower than revenue, inferred from margin expansion). The tax rate (41.8%) curtailed net margin conversion; normalization would boost ROE without additional operating risk. Sustainability: margin gains tied to mix and execution can persist if order quality remains high, but construction/resource constraints and fixed-price project risk could cap further expansion. Watch for any re-acceleration in SG&A outpacing revenue; at present, operating leverage appears favorable. Note that non-operating items were a net drag (−3.05), so core operations were the key contributor to profit growth.

Growth Assessment

Topline growth was robust at +17.5% YoY to 3,213.08, indicating strong demand in core communications and systems integration domains. Operating profit growth of +59.1% outpaced revenue, reflecting positive operating leverage, likely from improved productivity and mix toward higher-margin projects. Net income growth of +62.6% benefited from the stronger operating base despite higher tax incidence. Revenue sustainability hinges on domestic capex cycles (telecom carriers, public infrastructure, enterprise digitalization); current momentum suggests a healthy order environment. Profit quality skewed toward recurring operations rather than one-time non-operating gains, as non-operating items were a net negative this quarter. Outlook: If order intake and backlog remain solid and execution risks are controlled, mid-single-digit operating margins appear defensible, with upside from cost management and mix. Key swing factors include carrier capex timing, labor availability, and inflation pass-through in fixed-bid contracts.

Financial Health

Liquidity is strong: current ratio 200.1% and quick ratio 197.1% comfortably exceed benchmarks, with working capital of 1,756.47. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.87x, indicating a conservative to moderate capital structure. Short-term loans total 470.91 against cash and deposits of 424.96 and broad current assets of 3,511.70, suggesting low maturity mismatch risk. Long-term loans of 564.25 are manageable given equity of 3,283.08 and strong interest coverage of 28.33x. Off-balance sheet obligations are not disclosed in the provided data; no explicit guarantees or contingencies can be assessed here. Goodwill (200.44) and intangibles (299.07) are material; while not a liquidity issue, they represent potential impairment risk if earnings weaken.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be assessed; earnings quality thus cannot be validated via cash conversion. With net non-operating items negative, profit quality appears operationally driven, which is positive, but without OCF and working capital details (AR, AP), potential timing effects cannot be ruled out. Dividend payments and capex are unreported, preventing an assessment of FCF coverage of shareholder returns and reinvestment. No clear signs of working capital manipulation can be identified from the limited data, but the absence of AR/AP details is a constraint.

Dividend Sustainability

The calculated payout ratio is 128.3%, which exceeds the <60% benchmark for comfort and implies potential over-distribution relative to earnings if sustained. However, DPS and total dividends are unreported for the period, and OCF/FCF data are unavailable, limiting certainty. With healthy liquidity and moderate leverage, near-term dividend capacity appears supported, but medium-term sustainability would require stronger cash generation or earnings growth. Policy-wise, if management targets stable to rising dividends, improving ROIC and cash conversion will be necessary to align payouts with internally generated funds.

Risk Assessment

Business Risks:

• Capex cycle dependency on telecom carriers and public infrastructure budgets, affecting order intake and utilization.
• Fixed-price project execution risk leading to cost overruns and margin volatility.
• Labor availability and wage inflation affecting project delivery and gross margin.
• Goodwill and intangible impairment risk (goodwill 200.44; intangibles 299.07) if segment profitability weakens.
• Tax rate volatility (effective rate 41.8%) impacting net margin and EPS.
• Supply chain and subcontractor capacity constraints impacting delivery timelines.

Financial Risks:

• Moderate leverage (D/E 0.87x) with net debt implied given cash 424.96 vs total loans 1,035.16.
• Cash flow visibility is low due to unreported OCF/FCF, complicating dividend and capex coverage assessment.
• Interest rate risk on floating-rate debt affecting interest expense (5.79) and earnings sensitivity.
• Working capital intensity risk given project-based billing; AR/AP not disclosed.

Key Concerns:

• Low capital efficiency: ROIC at 2.5% (<5% warning) and ROE at 3.1%, despite margin recovery.
• Non-operating items were a net drag; limited financial income diversification this quarter.
• Elevated effective tax rate reduced net profit conversion.
• Dividend sustainability question marked by a calculated payout ratio of 128.3% without corroborating FCF.

Investment Implications

Key Takeaways:

• Strong revenue growth (+17.5% YoY) and robust operating leverage (+59.1% OI) drove meaningful margin expansion.
• Core profitability is improving, but net income conversion is constrained by a high tax rate and non-operating expense drag.
• Balance sheet is liquid and conservatively leveraged, supporting flexibility.
• Capital efficiency remains subpar (ROIC 2.5%, ROE 3.1%), a key medium-term improvement area.
• Dividend sustainability requires confirmation via cash flow, as the calculated payout exceeds 100%.

Metrics to Watch:

• Operating margin trajectory (currently ~5.1%) and gross margin resilience (14.4%).
• Order intake/backlog and book-to-bill to gauge revenue visibility.
• OCF and FCF once disclosed, including working capital days (AR/AP, inventory).
• Effective tax rate normalization and its EPS impact.
• ROIC progress toward >5% and ultimately >7–8% targets.
• Net debt trend and interest coverage amid rate environment.
• Impairment indicators for goodwill/intangibles.

Relative Positioning: Within Japan’s communications and systems construction space, the company demonstrates better-than-peer margin momentum this quarter and strong liquidity, but lags on capital efficiency (ROIC/ROE). Sustained execution and cash conversion improvement are required to close the return gap versus higher-ROIC peers.

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