SOFTCREATE HOLDINGS CORP. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.51B
• Operating Income: ¥2.74B
• Net Income: ¥1.99B
• EPS: ¥75.05

Income Statement

Balance Sheet

Cash Flow Statement

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

Softcreate Holdings (33710) delivered steady growth in FY2026 Q2 on a consolidated JGAAP basis, with revenue up 8.8% year over year to ¥16.51bn. Profitability remained solid: operating income rose 4.7% to ¥2.74bn, and net income increased 5.7% to ¥1.87bn, translating to a net margin of 11.32%. Gross profit margin was 37.8%, indicating healthy value-add and disciplined cost of sales management in its solutions and services mix. Operating margin of roughly 16.6% and EBITDA margin of 19.9% suggest resilient unit economics despite cost pressures. Ordinary income of ¥3.04bn outpaced operating income, implying incremental contribution from non-operating gains or finance income, while interest expense was effectively negligible. The DuPont profile shows calculated ROE of 7.07% driven by an 11.32% net margin, asset turnover of 0.442x, and modest financial leverage of 1.41x. Balance sheet strength is notable: total assets were ¥37.38bn, equity ¥26.42bn, and liabilities ¥10.99bn, implying a calculated equity ratio of about 70.7% despite the reported equity ratio field showing 0.0% (likely undisclosed). Liquidity appears strong with a current ratio of 278.5% and working capital of ¥15.28bn, supporting project execution and potential growth investments. Cash generation quality was good: operating cash flow of ¥2.45bn equaled 1.31x net income, indicating earnings backed by cash. Free cash flow cannot be assessed precisely as investing cash flow was unreported, so FCF in the provided metrics shows 0 by convention. Dividend fields also show zero, which likely reflects non-disclosure for the period rather than an actual suspension; EPS was ¥75.05 and the company retains ample balance sheet capacity for distributions. Operating leverage appears positive but measured, as revenue growth outpaced operating profit growth by a modest spread, partly reflecting cost investments or mix. Tax expense was ¥0.90bn against ordinary income of ¥3.04bn, implying an effective tax rate around 29–30% despite the 0.0% placeholder in the metrics. Overall, the company enters the second half with healthy profitability, strong liquidity, and cash conversion supportive of continued growth. Key uncertainties include visibility into investing cash flows and capital allocation (capex/M&A) due to unreported items, as well as the dividend stance. Even with these disclosure gaps, fundamentals point to a well-capitalized, cash-generative operator with mid-teens operating margins and conservative leverage.

Profitability Analysis

ROE decomposition (DuPont): Net margin 11.32% × Asset turnover 0.442 × Financial leverage 1.41 = ROE 7.07%. Margins: Gross margin 37.8% and operating margin ~16.6% (¥2,739m / ¥16,508m) indicate a healthy spread between price and cost and good operating discipline. EBITDA margin at 19.9% shows manageable D&A burden (¥545m) relative to operating scale. Ordinary margin ~18.4% (¥3,039m / ¥16,508m) exceeded operating margin, consistent with non-operating contributions and negligible interest expense. Margin quality: cash conversion is supportive with OCF/NI of 1.31x, suggesting limited accrual inflation and timely collections. Operating leverage: revenue grew 8.8% while operating income grew 4.7%, implying some cost investment (e.g., SG&A/headcount, project ramp) or mix headwinds; nevertheless, stable teens margins suggest disciplined cost control. Tax burden: using income tax ¥899m and ordinary income ¥3,039m, the implied tax rate is ~29.6%, consistent with a normalized rate in Japan; the 0% shown in calculated metrics is a placeholder.

Growth Assessment

Revenue increased 8.8% YoY to ¥16.51bn, a solid mid-to-high single-digit expansion indicative of healthy demand in core IT solutions/services. Operating income rose 4.7% to ¥2.74bn, lagging top-line growth, likely reflecting investments in talent, sales capacity, or product/solution mix changes. Net income grew 5.7% to ¥1.87bn, broadly tracking operating trends. Sustainability: margins remain robust (GPM 37.8%, OPM ~16.6%), suggesting pricing power and efficient delivery, though further operating leverage will depend on utilization and mix toward higher-recurring services. Profit quality appears sound given OCF/NI of 1.31x, which reduces risk of earnings overstatement. Outlook considerations: continued digital transformation, cloud migration, and security demand should support backlog and pipeline; wage inflation and competitive pricing are the primary offsets. Non-operating tailwinds (ordinary > operating) may not be recurring; core profit growth should be assessed on operating metrics. With a strong balance sheet, the company has capacity to pursue organic expansion and selective M&A; visibility into investing cash flows would clarify growth reinvestment. Overall, mid-single to high-single-digit revenue growth with stable mid-teens operating margins appears achievable near term, subject to execution and market conditions.

Financial Health

Liquidity is strong: current assets ¥23.83bn vs current liabilities ¥8.56bn yield a current ratio of 278.5% and ample working capital of ¥15.28bn. Quick ratio equals current ratio due to unreported inventories, implying a conservative liquidity position. Solvency: total liabilities ¥10.99bn vs equity ¥26.42bn indicates low leverage; calculated equity ratio is ~70.7%, and total liabilities-to-equity is ~0.42x. Interest expense is reported as 0, and interest coverage is thus not meaningful but effectively very high given positive operating income. Capital structure is conservative with substantial equity funding and limited reliance on interest-bearing debt. The asset base of ¥37.38bn supports revenue of ¥16.51bn (asset turnover 0.442x), consistent with a service/solution provider with moderate working capital needs. Overall, the balance sheet provides resilience and flexibility for growth and shareholder returns.

Cash Flow Quality

Earnings quality is good with OCF of ¥2,449m at 1.31x net income of ¥1,869m, indicating cash-backed profits and effective working capital management. Depreciation & amortization of ¥545m vs EBITDA of ¥3,284m shows a moderate non-cash component and supports cash earnings. Free cash flow cannot be fully assessed: investing cash flow is unreported (shown as 0 by convention), so calculated FCF of 0 in the metrics is not reflective of reality. Working capital: strong current ratio and positive OCF suggest limited build-up in receivables or payables drag during the period; however, without detail on AR/AP/inventories (inventories unreported), we infer discipline but maintain caution on quarter-to-quarter swings. Financing CF of -¥1,258m implies outflows likely related to dividends, share repurchases, or debt changes, but specifics are not disclosed here. Overall, cash conversion supports the income statement, but a full FCF view awaits investing cash flow disclosure.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0, which likely reflects non-disclosure for the period rather than an actual zero dividend. With EPS at ¥75.05 and OCF of ¥2.45bn, internal cash generation appears sufficient to fund ordinary dividends if policy supports it. Balance sheet strength (calculated equity ratio ~70.7%) and minimal interest burden further underpin capacity. FCF coverage cannot be evaluated due to unreported investing cash flows; thus, any assessment of dividend coverage by FCF is limited. Policy outlook depends on the company’s capital allocation priorities including growth investments and potential M&A; absent clear disclosure, we assume a balanced approach with capacity to maintain or gradually increase distributions over time. We refrain from conclusions on actual payout trajectory until DPS and capex/M&A details are reported.

Risk Assessment

Business Risks:

• Project execution and delivery risk in systems integration and managed services
• Competitive pricing pressure from peers and hyperscaler-aligned partners
• Talent acquisition and retention amid wage inflation in IT services
• Vendor concentration and changes in partner programs/licensing by major software vendors
• Demand cyclicality tied to corporate IT spending and macro conditions
• Cybersecurity incidents impacting service continuity or client trust
• Mix shift risk between lower-margin hardware/resale and higher-margin services/recurring revenue

Financial Risks:

• Working capital volatility affecting quarterly OCF (receivables collection timing, unbilled exposure)
• Potential increases in capex or M&A outlays (investing CF unreported), impacting future FCF
• Customer credit risk concentrated in enterprise clients
• Limited disclosure on interest-bearing debt structure, though interest expense is negligible
• Tax rate variability vs normalized ~29–30% effective rate

Key Concerns:

• Lack of visibility on investing cash flows limiting FCF assessment
• Dividend data not disclosed, obscuring payout sustainability analysis
• Operating leverage modestly weaker than revenue growth suggests near-term cost pressure
• Key-person/talent dependency in a competitive labor market

Investment Implications

Key Takeaways:

• Solid topline growth (+8.8% YoY) with resilient margins (OPM ~16.6%, EBITDA margin 19.9%)
• Quality of earnings supported by OCF/NI of 1.31x
• Conservative balance sheet with calculated equity ratio ~70.7% and current ratio 2.79x
• Ordinary income above operating income, aided by non-operating items and negligible interest expense
• Operating leverage positive but muted as OI growth (+4.7%) trails revenue growth

Metrics to Watch:

• Backlog and recurring revenue/ARR mix and associated gross margin
• SG&A ratio and headcount utilization to assess operating leverage
• DSO and working capital turns to sustain cash conversion
• Capex and M&A cash outflows (investing CF) for FCF clarity
• Dividend policy disclosures (DPS, payout ratio) and any share repurchases

Relative Positioning: Positioned as a well-capitalized, cash-generative IT solutions/services provider with stable mid-teens operating margins and low leverage, offering resilience relative to peers more reliant on debt or hardware-heavy mixes; continued mix shift toward higher-recurring services could enhance margins and cash flow durability.

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