CUBE SYSTEM INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.14B
• Operating Income: ¥730M
• Net Income: ¥662M
• EPS: ¥36.78

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

Cube System (2335) delivered modest top-line growth but strong operating leverage in FY2026 Q2 (cumulative) under JGAAP, with revenue of ¥9.142bn (+1.3% YoY) and operating income of ¥0.73bn (+37.0% YoY). Gross profit was ¥1.869bn, implying a gross margin of 20.4%, while operating margin expanded to roughly 8.0%, signaling effective cost control and SG&A discipline. Ordinary income was ¥0.738bn, only slightly above operating income, indicating limited contribution from non-operating items. Despite the operating improvement, net income declined 16.2% YoY to ¥0.555bn, suggesting higher tax expense or prior-year one-offs affected the bottom line. Using reported income tax of ¥0.244bn, the implied effective tax rate is about 30.5% (not 0.0% as shown in the calculated metrics, which reflects unreported data). DuPont analysis shows a net margin of 6.07%, asset turnover of 0.613x, and financial leverage of 1.34x, yielding an ROE of about 4.97% for the period. Balance sheet strength is notable: total assets are ¥14.924bn and total equity is ¥11.172bn, implying an equity ratio near 75% (the displayed 0.0% equity ratio is an unreported placeholder). Liquidity is robust with a current ratio of 411% and working capital of ¥7.419bn, aided by low reported inventories (industry-consistent for SI services) and sizeable current assets. Operating cash flow was negative at ¥-44m versus positive net income of ¥555m, producing an OCF/NI ratio of -0.08, which warrants monitoring for working capital timing effects. Financing cash flow was an outflow of ¥-465m, possibly reflecting dividends and/or share repurchases or debt repayment, though dividends are not disclosed in the dataset. Depreciation was modest at ¥25m, consistent with a people-intensive, asset-light model; EBITDA was ¥0.755bn (8.3% margin). Leverage appears low with total liabilities of ¥3.491bn (D/E ~0.31x), providing financial flexibility. Reported interest expense is 0 (likely undisclosed rather than truly zero), and interest coverage ratios shown as 0.0x should be disregarded. Cash and equivalents, DPS, and share counts are shown as zero because they were not disclosed under those tags; conclusions on per-share metrics and dividend cash coverage are therefore constrained. Overall, the company exhibits improved operating performance and a strong balance sheet but softer bottom-line YoY and weak interim cash conversion; outlook hinges on sustaining margin gains while normalizing working capital and clarifying capital return policy.

Profitability Analysis

ROE decomposition: Net margin 6.07% x Asset turnover 0.613 x Financial leverage 1.34 ≈ 4.97% (consistent with reported ROE). Operating margin is approximately 8.0% (¥730m / ¥9,142m), up sharply YoY given operating income growth of +37% vs +1.3% revenue, evidencing strong operating leverage and SG&A efficiency. Gross margin at 20.4% indicates stable pricing and delivery efficiency; the gap between gross and operating margin (~12.4pp) reflects SG&A intensity typical of IT services but appears to be narrowing. Ordinary margin of ~8.1% (¥738m / ¥9,142m) suggests limited dependence on non-operating gains. The decline in net income despite stronger operations points to a higher effective tax burden or prior-year non-recurring positives. EBITDA margin of 8.3% and low D&A (¥25m) confirm an asset-light profile; earnings quality is more tied to labor utilization and pricing than to depreciation swings. With minimal reported interest expense and low leverage, financial expenses are not a material drag. Overall margin quality is improving, driven by mix and cost control, though sustaining utilization and billing rates remains key.

Growth Assessment

Revenue grew by 1.3% YoY to ¥9.142bn, indicating steady but subdued demand; growth likely reflects stable project volume rather than aggressive expansion. Operating income rose 37.0% YoY to ¥0.73bn, implying meaningful margin expansion and improved execution. Net income declined 16.2% YoY to ¥0.555bn; adjustments in taxes or prior-year one-offs likely explain the divergence from operating trends. Given limited non-operating contributions (ordinary income only ¥8m above operating), the core business is the main growth driver. Sustainability of revenue growth hinges on order intake, backlog, and client spending on DX and modernization; these data are not provided, so forward visibility is limited. Profit quality appears solid at the operating line, but weak OCF in the half tempers the near-term quality assessment. Outlook: if utilization and SG&A efficiency are maintained and working capital normalizes in H2 (seasonally stronger for many SIers), operating profit gains could persist; revenue acceleration will depend on macro IT budgets and win rates in key verticals.

Financial Health

Liquidity is strong: current assets ¥9.806bn vs current liabilities ¥2.387bn yield a current ratio of 410.8% and sizable working capital of ¥7.419bn. Quick ratio matches current ratio due to zero-reported inventories (consistent with services; not necessarily true zero but likely immaterial). Solvency is robust: total liabilities ¥3.491bn vs equity ¥11.172bn implies D/E of ~0.31x and an implied equity ratio around 75% (calculated from balance sheet figures). Low leverage provides ample cushion against cyclical downturns. Interest burden appears negligible (interest expense unreported), and ordinary income closely tracks operating income, indicating minimal financial income/expense distortion. The balance sheet supports ongoing investment in talent and potential shareholder returns.

Cash Flow Quality

Earnings-to-cash conversion is weak in the half: OCF of ¥-44m vs net income of ¥555m (OCF/NI = -0.08). The shortfall likely reflects working capital timing (e.g., receivables build on project milestones) common in SI, rather than structural cash burn, but this requires confirmation in H2. Free cash flow cannot be reliably assessed because investing cash flows (capex) are undisclosed in the dataset (shown as 0). Low D&A (¥25m) is consistent with an asset-light model, so maintenance capex is likely modest, but actual capex levels are unknown. Financing CF of ¥-465m indicates cash outflows to shareholders and/or debt service; without DPS and buyback disclosures we cannot attribute precisely. Key working capital items (AR days, AP days, unbilled receivables) are not provided; monitoring these is essential to gauge cash conversion normalization.

Dividend Sustainability

Dividends (DPS) and payout ratio are shown as 0.00 due to non-disclosure, so we cannot assess actual distributions from this dataset. EPS for the period is ¥36.78, and net income totals ¥555m; with a strong equity base and low leverage, capacity for distributions appears adequate in principle. However, negative OCF in the half suggests interim cash coverage was weak; sustainability should be evaluated against full-year OCF/FCF once working capital normalizes. Financing CF outflow of ¥-465m hints at possible dividends and/or buybacks during the period, but details are absent. Policy outlook cannot be inferred without explicit guidance; historically, SI companies target stable or progressive dividends, but no assumption is made here.

Risk Assessment

Business Risks:

• IT investment cyclicality and budget tightening by key clients
• Project execution risk (fixed-price contracts, scope creep, delivery delays)
• Talent retention and wage inflation for engineers compressing margins
• Client concentration in core verticals (e.g., finance, manufacturing) increasing revenue volatility
• Utilization rate fluctuations impacting profitability
• Competitive pricing pressure in system integration and outsourcing
• Seasonality with heavier H2 deliveries affecting interim comparisons

Financial Risks:

• Weak interim OCF versus net income indicating working capital volatility
• Potential receivables buildup and collection timing risk
• Limited visibility on capex and FCF due to undisclosed investing cash flows
• Unclear dividend/buyback commitments given missing DPS data
• Accounting presentation differences under JGAAP affecting comparability

Key Concerns:

• Negative OCF (¥-44m) despite positive earnings
• Net income down 16.2% YoY despite strong operating profit growth
• Multiple key cash and capital return datapoints undisclosed (cash balance, DPS, shares)
• Relying on H2 normalization of working capital to support FCF

Investment Implications

Key Takeaways:

• Revenue growth modest at +1.3% YoY, but operating income up +37% indicates strong operating leverage
• Margins improved across operating levels; ordinary income closely tracks operating income
• Net income declined YoY, likely on higher taxes/one-offs despite better operations
• Balance sheet is very strong with implied equity ratio ~75% and D/E ~0.31x
• Interim cash conversion is weak (OCF/NI -0.08); watch for H2 normalization
• Financing outflows suggest capital returns or repayments, but dividend details are not disclosed

Metrics to Watch:

• Order backlog and book-to-bill for revenue visibility
• Utilization rate and average billing rate
• SG&A ratio and labor cost inflation
• Receivables days, unbilled receivables, and OCF trajectory
• Capex and disclosed FCF once investing CF is reported
• Dividend/buyback announcements and payout policy
• Net margin and ROE progression versus DuPont components

Relative Positioning: Within Japanese SI peers, Cube System appears conservatively financed with solid liquidity and improving operating efficiency, though near-term cash conversion lags; sustained margin discipline and clearer capital return disclosure would strengthen its relative profile.

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