UT Group Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥83.30B
• Operating Income: ¥4.94B
• Net Income: ¥3.40B
• EPS: ¥84.17

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 operating rebound with improving margins and cash generation, but headline net profit declined year over year due to non-operating/one-off factors, making dividend coverage tight. Revenue fell 6.8% YoY to 832.95, yet operating income rose 37.0% YoY to 49.37, indicating effective cost control and mix improvement. Gross profit was 159.19 with a gross margin of 19.1%, and operating margin reached 5.9%, up sharply versus last year’s implied 4.0%. Ordinary income increased 35.3% YoY to 49.93, supported by modest non-operating income (1.21) and low non-operating expenses (0.65). Net income was 32.49, down 49.3% YoY, implying net margin compression to 3.9% from an implied 7.2% last year, likely due to prior-year one-offs rather than current period deterioration. Operating cash flow was 35.89, exceeding net income (OCF/NI 1.10x), signaling decent earnings quality. Liquidity remains strong with a current ratio of 241% and cash of 311.56 against long-term loans of 83.70, indicating a net cash posture. Financial leverage is moderate (D/E 0.98x), and interest coverage is very strong at 137x, keeping solvency risk low. DuPont ROE is 10.0%, driven more by healthy asset turnover (1.30x) than by margin (3.9%), with leverage at 1.98x. Despite lower sales, operating profit growth indicates positive operating leverage and improved cost discipline. Shareholder returns were active with share repurchases of 29.11; dividend payout ratio is high at 90.9%, suggesting limited cushion if earnings volatility persists. Working capital appears well managed: accounts receivable of 197.65 against H1 revenues imply reasonable collection dynamics. Forward-looking, sustaining the higher operating margin while stabilizing net margin will be key to preserving ROE around 10%. Cash strength affords flexibility, but maintaining both a high payout and buybacks may require stable OCF in the second half. Data gaps (e.g., investing CF, detailed SG&A breakdown) limit deeper diagnostics on capex intensity and cost drivers.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (3.9%) × Asset Turnover (1.303) × Financial Leverage (1.98x) = ROE ~10.0%. The biggest change YoY is the net profit margin, which compressed from an implied ~7.2% last year to 3.9% this year, even as operating margin expanded materially. Business driver: strong operating improvement (OP +37% on revenue -6.8%) suggests effective cost control and mix/pricing, but net profit was dragged by the absence of prior-year one-offs (and/or higher tax burden at an effective rate of 31.7%), resulting in lower NI. Sustainability: operating margin gains look more durable given SG&A discipline and leverage on fixed costs, while the net margin compression appears one-time if last year had non-recurring gains; however, confirmation requires disclosure of extraordinary items. Operating leverage was positive: revenue decline with higher OP implies material fixed cost absorption improvement. Watch for SG&A growth versus revenue: while the top line fell, SG&A at 109.81 supported higher OP; lack of detailed SG&A components limits granular assessment. Overall, ROE quality hinges on maintaining the improved operating margin and stabilizing below-the-line items.

Growth Assessment

Top line declined 6.8% YoY to 832.95, pointing to demand softness or client downsizing typical in staffing cycles. Operating income rose 37.0% YoY to 49.37, evidencing margin repair and cost productivity. Ordinary income increased 35.3% YoY to 49.93, with minimal non-operating contribution (non-operating income ratio 3.7%). Net income dropped 49.3% YoY to 32.49, likely due to prior-year one-offs absent this year or mix/tax timing; current tax rate is 31.7%. Operating margin expanded by approximately 189 bps YoY to 5.9% (from ~4.0%), while net margin compressed by about 327 bps to 3.9% (from ~7.2%). EBITDA was 56.23 (margin 6.8%), supporting the view of operating resilience. Outlook hinge: sustaining improved OPM into H2 while stabilizing below-the-line items should allow ROE near 10%; revenue recovery would provide additional operating leverage. Key uncertainties include client demand normalization, wage inflation, and recruitment costs, which can pressure gross margin in staffing businesses.

Financial Health

Liquidity is strong: current ratio 241% and quick ratio 241% with cash and deposits of 311.56 versus current liabilities of 218.58. No warning triggers: Current Ratio >> 1.0 and D/E = 0.98x (< 2.0). Solvency is solid with long-term loans of 83.70 and substantial cash, implying net cash; interest coverage at 137x further lowers financial risk. Maturity mismatch risk is low: current assets of 526.84 comfortably exceed current liabilities, and accounts payable is minimal (1.14), typical for a service-centric model. Off-balance sheet obligations are not disclosed; no explicit commitments provided. Equity is 323.68 with owners’ equity 252.58; goodwill/intangibles total 86.78 (incl. goodwill 43.21), indicating some M&A exposure but manageable relative to equity.

Cash Flow Quality

OCF/Net Income is 1.10x (>1.0), indicating decent cash conversion. Free cash flow is not fully derivable due to unreported investing CF, though disclosed capital expenditures were modest at -0.24, suggesting an asset-light model. Financing CF of -40.16 reflects active shareholder returns, notably share repurchases of -29.11, largely funded by OCF of 35.89. Working capital quality looks reasonable: accounts receivable of 197.65 against H1 revenue implies typical DSO for staffing; no signs of aggressive WC release or buildup evident from provided data. No indications of factoring or large non-recurring OCF drivers are disclosed. Overall, cash flow quality supports operations, but full sustainability assessment would benefit from complete investing CF detail.

Dividend Sustainability

Calculated payout ratio is high at 90.9% based on EPS 84.17 and Q3 DPS of 60.98 JPY (annual DPS unreported), implying limited buffer if earnings weaken. OCF of 35.89 appears to cover ordinary dividends, but we lack total cash dividend paid; combined with buybacks of 29.11, aggregate shareholder returns are sizable versus OCF. With strong cash on hand (311.56) and low net debt, short-term dividend capacity is supported; however, sustaining a ~90% payout through cycles in a staffing business could be challenging without steady earnings and OCF. Policy outlook likely prioritizes balance between shareholder returns and M&A/organic investment; monitoring DPS trajectory into H2 and full-year guidance is key.

Risk Assessment

Business Risks:

• Cyclical demand in staffing/dispatch segments leading to revenue volatility
• Wage inflation and recruiting costs pressuring gross margins
• Client concentration or sector exposure (e.g., manufacturing/electronics/auto) demand swings
• Regulatory risk around labor dispatch laws and compliance
• Goodwill impairment risk from past M&A (goodwill 43.21, intangibles 86.78)

Financial Risks:

• High dividend payout ratio (~90.9%) reduces buffer in downturns
• Potential reinvestment trade-off given active buybacks (-29.11) vs growth investment
• Interest rate risk on large cash balances and any floating-rate loans
• Data gaps on interest-bearing debt composition (short-term portion unreported)

Key Concerns:

• Headline net income down 49.3% YoY despite stronger operations; prior-year one-offs likely, but lack of detail adds uncertainty
• Reliance on maintaining improved operating margin to keep ROE ~10%
• Visibility limited by unreported investing cash flows and SG&A breakdown

Investment Implications

Key Takeaways:

• Operational turnaround evident: OPM expanded ~189 bps YoY to 5.9% on -6.8% revenue
• Cash generation healthy with OCF/NI at 1.10x; liquidity strong (current ratio 241%)
• ROE at ~10% driven by asset turnover; margin remains the main lever for further improvement
• Headline NI decline (-49.3% YoY) likely reflects prior-year non-recurring factors; confirm with company disclosures
• Shareholder returns sizable (buybacks -29.11) but payout ratio high (~90.9%), warranting scrutiny of sustainability

Metrics to Watch:

• Operating margin trajectory in H2 and full-year guidance
• OCF conversion (OCF/NI) and working capital movements (AR and days sales outstanding)
• Dividend policy (full-year DPS) and total shareholder return vs OCF
• Headcount trends, utilization rates, and wage inflation impacts on GPM
• Goodwill impairment indicators and M&A pipeline disclosures

Relative Positioning: Within Japan’s staffing/services peers, UT Group shows stronger near-term operating leverage and cash liquidity, with moderate leverage and high interest coverage; however, its elevated payout ratio and headline NI volatility introduce higher sensitivity to cyclical swings versus more conservatively distributing 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
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