Nippon Information Development Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.77B
• Operating Income: ¥1.45B
• Net Income: ¥1.08B
• EPS: ¥99.03

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 top-line growth with mild margin compression and stable cash conversion; earnings slightly down but quality remains healthy. Revenue grew 6.5% YoY to 127.74, while operating income declined 5.0% YoY to 14.46 and ordinary income fell 8.7% to 15.65. Net income decreased 4.3% YoY to 10.81, implying a net margin of 8.5%. Operating margin was 11.3% this quarter, down from an estimated 12.7% a year ago, a compression of roughly 137 bps as revenue growth did not translate into operating profit growth. Gross profit was 28.97, yielding a gross margin of 22.7%, indicating cost pressure likely from personnel costs typical in SI/project businesses. Non-operating income was 1.26, largely supported by dividend income of 1.04, cushioning ordinary income. The effective tax rate was 30.9%, broadly within a normal range for domestic operations. Cash generation was solid with operating cash flow (OCF) of 11.09 versus net income of 10.81, giving an OCF/NI of 1.03x, indicating acceptable earnings quality. Balance sheet strength is notable: cash and deposits of 168.45 and investment securities of 55.79 support abundant liquidity. Current assets of 212.76 against current liabilities of 33.15 yield a current ratio of 642%, and total liabilities to equity are a conservative 0.29x. Working capital is ample at 179.61, and interest coverage is extremely strong, indicating negligible financial stress. Capex was restrained at 1.28, and financing cash outflow of -3.08 suggests shareholder returns with minimal buybacks. Based on OCF and capex, analyst-derived free cash flow is approximately 9.81, comfortably covering a calculated payout ratio of 34%. ROE (DuPont) stands at 4.8% driven by an 8.5% net margin, 0.438x asset turnover, and 1.29x financial leverage, suggesting value creation is primarily margin-led rather than leverage-driven. Forward-looking, the key will be restoring operating margin via pricing, utilization, and mix, while maintaining strong cash generation. Overall, fundamentals are sound with robust liquidity and acceptable cash conversion, although cost inflation and project mix appear to be weighing on margins near-term.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.8% = Net Profit Margin (8.5%) × Asset Turnover (0.438x) × Financial Leverage (1.29x). The largest change factor this quarter is the margin component: operating margin compressed from ~12.7% to 11.3% (≈137 bps) despite revenue growth of 6.5%, indicating cost pressure and/or project mix dilution. Asset turnover at 0.438x (revenue/total assets) looks stable for a half-year period and leverage remains conservative at 1.29x (assets/equity), so neither appears to be the main driver. Business reason: in systems integration and IT services, wage inflation, subcontracting rates, and a higher share of lower-margin projects can depress operating margin even when volumes rise; the strong dividend income also means ordinary income benefited from financial assets rather than core operations. Sustainability: personnel cost inflation and tight labor markets are ongoing, but pricing resets and utilization management can gradually restore margin; thus, part of the compression could be cyclical rather than structural. Watch for SG&A or COGS growth outpacing revenue—while SG&A YoY detail is unreported, the divergence between revenue (+6.5%) and operating income (-5.0%) implies total operating costs grew faster than sales, a cautious signal on operating leverage.

Growth Assessment

Revenue grew 6.5% YoY to 127.74, indicating steady demand. However, operating income declined 5.0% YoY to 14.46, implying negative operating leverage this period. Ordinary income fell 8.7% to 15.65, with non-operating dividend income (1.04) partially offsetting weaker operations. Net income decreased 4.3% to 10.81, with the net margin at 8.5%. Margin pressure likely stems from higher delivery costs or less favorable project mix (fixed-price risk or increased subcontracting). With OCF at 11.09 and capex contained (1.28), cash-backed growth remains intact. Outlook: near-term profit growth hinges on margin recovery via pricing, utilization, and mix improvements rather than leverage. If wage inflation persists, incremental revenue growth may not fully translate into profit unless rate cards are adjusted. Given the large cash position, the company has capacity to invest in higher-margin domains or automation to support future growth. Non-operating dividend income provides a buffer, but sustainable growth should come from operating profit normalization.

Financial Health

Liquidity is exceptionally strong: current assets of 212.76 versus current liabilities of 33.15 deliver a current ratio of 641.8% and the same quick ratio; no warning flags (well above the >1.5x benchmark). Cash and deposits of 168.45 alone cover total liabilities (65.15) by more than 2.5x, eliminating near-term liquidity risk. Solvency is conservative with total liabilities-to-equity at 0.29x; interest-bearing debt is unreported, but interest expense is negligible (0.01), indicating minimal debt. No maturity mismatch risk is evident as short-term obligations (33.15) are dwarfed by cash and receivables (206.88 including cash and AR). Off-balance sheet obligations are not disclosed in the data provided; absence of disclosure limits visibility on lease or guarantees, but the strong liquidity acts as a buffer.

Cash Flow Quality

OCF/Net Income stands at 1.03x (11.09 / 10.81), clearing the 0.8x quality threshold and indicating profits are cash-backed. Analyst-derived free cash flow (OCF − Capex) is approximately 9.81, suggesting capacity to fund dividends and modest reinvestment. Working capital dynamics are not fully disclosed, but positive OCF alongside revenue growth suggests no aggressive working capital pull-forward. Financing cash flow of -3.08 likely reflects dividend payments (dividends paid unreported) with negligible buybacks (-0.00). No signs of working capital manipulation are evident from the available figures; however, limited itemized WC movements constrain deeper assessment.

Dividend Sustainability

The calculated payout ratio is 34.0%, comfortably below the 60% sustainability threshold. Using analyst-derived FCF of ~9.81, coverage of ordinary dividends appears adequate, supported by a large cash balance of 168.45. Although DPS and total dividends paid are unreported, financing outflow of -3.08 is consistent with distributions that are well within cash generation. With minimal leverage and low capex intensity (1.28), the dividend appears sustainable under current conditions. Policy outlook cannot be confirmed without guidance, but balance sheet capacity would support stable or modestly increasing returns, subject to maintaining operating margins.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and subcontractor rate increases impacting delivery costs
• Project mix shift toward lower-margin or fixed-price engagements increasing execution risk
• Dependence on non-operating dividend income (1.04) to support ordinary income in periods of weaker operations
• Talent acquisition and retention constraints in the IT services labor market
• Customer IT budget timing and macro-driven deferrals affecting revenue visibility

Financial Risks:

• Potential market volatility risk related to investment securities (55.79) that contribute to dividend income
• Limited disclosure on interest-bearing debt/lease liabilities, though current leverage appears minimal
• Concentration risk in receivables if a few large clients dominate, not disclosed

Key Concerns:

• Operating margin compression of ~137 bps YoY despite 6.5% revenue growth
• Ordinary income decline (-8.7% YoY) larger than operating income decline, implying less favorable non-operating balance
• Visibility on SG&A and detailed cost structure is low due to unreported breakdowns

Investment Implications

Key Takeaways:

• Top-line growth is intact (+6.5% YoY), but operating leverage turned negative this quarter
• Earnings quality is acceptable with OCF/NI at 1.03x and analyst-derived FCF ~9.81
• Balance sheet strength (cash 168.45; current ratio ~6.4x) provides a substantial downside cushion
• Dividend capacity appears secure with a 34% payout and strong cash coverage
• Near-term upside depends on restoring operating margin via pricing, utilization, and project mix

Metrics to Watch:

• Operating margin trajectory and gross margin movements
• Utilization and subcontracting ratio (proxy via COGS trends) to gauge cost pressure
• Order backlog and book-to-bill (not disclosed) for revenue visibility
• Non-operating income stability, especially dividend income from securities
• OCF/NI ratio and working capital swings as growth continues

Relative Positioning: Within Japanese small/mid-cap IT services, the company shows stronger-than-average liquidity and conservative leverage, with profitability currently pressured but underpinned by stable cash generation; margin repair is the key differentiator for relative performance.

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