System Location Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥862M
• Operating Income: ¥322M
• Net Income: ¥189M
• EPS: ¥63.40

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

System Location Co., Ltd. (2480) delivered resilient FY2026 Q2 consolidated results under JGAAP, with revenue of ¥862.0m (+2.1% YoY) and a stronger improvement at the profit line. Operating income rose 17.7% YoY to ¥322.0m, indicating operating leverage and disciplined cost control. Net income increased 17.6% YoY to ¥223.0m, translating to a net margin of 25.9%, which is robust for a data/solutions-oriented business model. Gross profit of ¥650.6m implies a gross margin of 75.5%, underscoring a high value-add, relatively asset-light profile. EBITDA was ¥388.2m (45.0% margin), reflecting strong underlying profitability after adding back ¥66.2m of depreciation and amortization. DuPont decomposition shows a calculated ROE of 5.75% driven by a 25.9% net margin, modest asset turnover of 0.185x, and low financial leverage of 1.20x. The balance sheet is very conservative: total assets ¥4,666.0m vs total liabilities ¥681.3m and equity ¥3,879.0m (implied equity ratio ~83.1%). Liquidity is ample with current assets of ¥2,416.7m and current liabilities of ¥163.2m, yielding a current (and quick) ratio of 14.8x and working capital of ¥2,253.5m. Cash flow conversion is sound, with operating cash flow of ¥244.3m equating to 1.10x net income, suggesting reasonable earnings quality. Financing cash outflow of ¥134.0m likely reflects shareholder returns or debt service, but dividends are reported as zero and cash/equivalents are unreported; thus, capital allocation specifics are unclear. Ordinary income of ¥350.0m exceeds the implied pre-tax income (¥287.2m from net + tax), suggesting classification effects (e.g., extraordinary items or adjustments); lack of detail limits full reconciliation. Interest expense is shown as zero and interest coverage is mechanically 0.0x in the data extract; however, given low leverage, coverage is effectively very strong. The reported equity ratio of 0.0% appears unreported; the implied ratio from totals is very high, reinforcing solvency strength. With DPS and payout ratio both reported as zero and investing cash flows unreported, dividend policy and FCF deployment remain opaque in this snapshot. Overall, the company exhibits high margins, low leverage, and solid OCF conversion, but growth is modest and several disclosures (cash, capex, share data) are not available, constraining deeper per-share and FCF analyses.

Profitability Analysis

ROE (DuPont) = Net margin (25.87%) × Asset turnover (0.185x) × Financial leverage (1.20x) = 5.75%. The margin component is the dominant driver given low leverage and modest turnover. Operating margin of 37.4% (¥322.0m/¥862.0m) expanded meaningfully vs revenue growth (+17.7% OI vs +2.1% sales), evidencing operating leverage and cost discipline. Gross margin stands at 75.5%, consistent with a high-value, service-centric model with limited COGS intensity. EBITDA margin of 45.0% further confirms strong unit economics. Ordinary income margin is 40.6% (¥350.0m/¥862.0m), indicating healthy non-operating balance, though classification differences vs tax-adjusted pre-tax profits limit precision. Effective tax rate inferred from tax expense (¥64.2m) and implied pre-tax income (~¥287.2m) is ~22%, contrasting with the 0.0% displayed in the extracted metrics (likely unreported). Overall profitability quality appears high, with favorable mix and scale benefits supporting margin resilience.

Growth Assessment

Top-line grew modestly at +2.1% YoY to ¥862.0m, suggesting steady but not rapid expansion. Operating income advanced +17.7% YoY to ¥322.0m, meaningfully outpacing sales and pointing to operating leverage from fixed-cost absorption and/or pricing/mix. Net income rose +17.6% YoY to ¥223.0m, broadly in line with operating income growth, indicating limited drag from below-the-line items. The sustainability of revenue growth likely depends on client retention and wallet share with financial/auto-related customers, as well as new service modules; disclosure here is limited. High gross margin and EBITDA margin suggest pricing power and efficient delivery, supportive of durable profit quality if volumes hold. Asset turnover at 0.185x is low, consistent with a cash-rich, low-leverage balance sheet that depresses turnover; this tempers ROE despite strong margins. With no segment or backlog data provided, near-term outlook hinges on maintaining current client demand and upselling; cost base discipline should continue to support earnings even at modest growth. We will watch for normalization of operating leverage if growth slows, which could compress margins from current highs.

Financial Health

Liquidity is very strong: current assets ¥2,416.7m vs current liabilities ¥163.2m yield a current (and quick) ratio of ~14.8x, with negligible inventories (¥10k). Working capital is ¥2,253.5m, providing ample cushion for operations and investment needs. Solvency is robust with total liabilities of ¥681.3m and equity of ¥3,879.0m, implying a debt-to-equity ratio of ~0.18x and an implied equity ratio of ~83.1% (reported equity ratio field is unreported at 0.0%). Interest expense is shown as zero; combined with low leverage, financial risk from indebtedness appears minimal. The absence of disclosed cash and cash equivalents and the 0 values for certain items limit precise assessment of liquidity buffers and cash composition, but overall balance sheet strength is evident from low liabilities and high current assets.

Cash Flow Quality

Operating cash flow of ¥244.3m is 1.10x net income (¥223.0m), indicating solid cash conversion and suggesting accruals are not a major driver of earnings in the period. EBITDA of ¥388.2m vs OCF of ¥244.3m implies normal working capital and tax cash outflows; detailed working capital components are not disclosed. Investing cash flow is reported as 0 (unreported), so free cash flow cannot be reliably derived; the displayed FCF of 0 should not be interpreted as actual. Depreciation/amortization of ¥66.2m implies modest capital intensity; however, actual capex is not disclosed, creating uncertainty around maintenance vs growth investment. Financing cash outflow of ¥134.0m suggests capital returns or debt repayment, but with DPS reported as zero and no share data, we cannot attribute this precisely. Overall, earnings quality appears good, but FCF quality cannot be fully assessed without capex and cash disclosures.

Dividend Sustainability

Annual DPS and payout ratio are both reported as 0.00 (unreported), so no conclusion can be drawn on actual dividends from this dataset. Financing cash outflow of ¥134.0m could reflect share repurchases or other distributions, but specifics are not provided. OCF of ¥244.3m would provide decent coverage for potential dividends, assuming maintenance capex is modest (D&A ¥66.2m), but actual FCF is unknown due to missing investing cash flows. Policy outlook is therefore unclear; given strong balance sheet and high margins, the capacity for shareholder returns exists, but visibility on management’s dividend/buyback stance is limited in this period’s disclosure.

Risk Assessment

Business Risks:

• Customer concentration in financial/auto-related clients could pressure revenue if key accounts churn or reduce volumes
• Regulatory changes in credit, data privacy, or financial services could impact service demand and compliance costs
• Technology and cybersecurity risks given data-centric services
• Talent retention and wage inflation in IT/analytics roles
• Modest top-line growth raises sensitivity to demand cycles and pricing pressure

Financial Risks:

• Low asset turnover depresses ROE despite strong margins
• Unreported cash and capex data limit visibility on FCF and liquidity composition
• Potential variability between ordinary income and tax-basis pre-tax profits indicates classification risk in below-the-line items
• Small-cap liquidity risk in equity markets (valuation/volatility not assessed here)

Key Concerns:

• Sustainability of operating leverage if revenue growth slows
• Lack of capex disclosure obscures true FCF and reinvestment needs
• Dependence on a concentrated client base and sectoral exposures

Investment Implications

Key Takeaways:

• High-margin, asset-light model with OPM 37.4% and EBITDA margin 45.0%
• ROE of 5.75% constrained primarily by low asset turnover and conservative leverage
• Solid OCF/NI of 1.10 indicates reasonable earnings quality
• Very strong liquidity and low leverage (D/E ~0.18x; implied equity ratio ~83%)
• Revenue growth modest (+2.1% YoY) but profits rising faster (+17.7% OI), evidencing operating leverage
• Disclosure gaps (cash, capex, dividend details) limit FCF and capital return analysis

Metrics to Watch:

• Revenue growth vs operating income growth to gauge persistence of operating leverage
• OCF/Net income ratio and working capital movements
• Capex levels and investing cash flows to establish true FCF
• Client concentration metrics and renewal/retention rates
• Ordinary income vs pre-tax reconciliation and any extraordinary items
• Capital allocation (dividends/buybacks) and changes in leverage

Relative Positioning: Within Japan small-cap, data/solution-oriented names, the company exhibits above-average margins and balance sheet strength but delivers modest top-line growth and lower ROE due to conservative asset structure; visibility on FCF and capital returns is weaker than best-in-class peers given current disclosure.

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