DIGITAL GRID Corporation FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥2.00B
• Operating Income: ¥1.07B
• Net Income: ¥791M
• EPS: ¥20.43

Income Statement

Balance Sheet

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

Digital Grid (350A0) reported FY2026 Q1 consolidated results under JGAAP with modest top-line growth but notable profit contraction. Revenue rose 2.1% year over year to 20.05 (100M JPY), while operating income declined 13.8% to 10.67 and net income fell 21.0% to 7.91. Despite the earnings decline, margins remain very strong for an asset-light platform model: gross profit margin was 81.9% and operating margin stood at approximately 53.2%. Ordinary income decreased 18.6% to 10.66 as non-operating items were largely neutral (non-operating income 0.14 and expenses 0.14), with net interest slightly negative (interest income 0.06 versus interest expense 0.11). The effective tax rate was 25.8%, consistent with a normalized statutory range and not the primary driver of net profit contraction. Balance sheet quality is solid: total assets were 191.69 with total equity of 90.68 (equity ratio by our calculation ~47.3%), and cash and deposits of 46.48 exceed interest-bearing debt of 12.59, implying a net cash position of about 33.89. Liquidity is strong with a current ratio of 193.6% and a quick ratio of 193.6%, supported by low inventory needs and an asset-light model. DuPont decomposition indicates ROE of 8.7% based on a high net margin of 39.5%, low asset turnover of 0.105 (quarterly), and financial leverage of 2.11x; the low turnover likely reflects quarterly seasonality and a cash-heavy balance sheet. Interest coverage is robust at roughly 99x, limiting near-term solvency risk. Working capital dynamics appear favorable: accounts receivable of 13.68 versus quarterly revenue imply DSO around the 60-day range, while accounts payable of 5.75 versus cost of sales of 3.64 imply long DPO, potentially yielding a negative cash conversion cycle. However, operating, investing, and financing cash flows were not disclosed, limiting direct assessment of cash conversion. EPS (basic) was 20.43 JPY and diluted 17.08 JPY; book value per share is calculated at 234.05 JPY. The decline in profit despite revenue growth points to operating leverage working in reverse this quarter, with SG&A rising to 5.74 and compressing margins. Given retained earnings of 34.55 and strong cash, dividend capacity exists, but dividend policy was not disclosed this quarter. Overall, the business exhibits high structural margins and healthy liquidity, but near-term profit softness and reliance on working capital discipline warrant monitoring. All assessments are constrained by missing cash flow statements, segment details, and SG&A breakdowns.

Profitability Analysis

ROE_decomposition: ROE 8.7% = Net Profit Margin 39.5% x Asset Turnover 0.105 x Financial Leverage 2.11x. The high net margin reflects an asset-light, fee/take-rate driven model, while asset turnover is low on a quarterly snapshot given sizable cash balances relative to sales. margin_quality: Gross margin at 81.9% and operating margin at 53.2% (10.67/20.05) are exceptional, indicating strong unit economics and pricing power. Non-operating items net to approximately zero, so core operating performance primarily drives profitability. The effective tax rate of 25.8% is in a normal range. operating_leverage: Revenue grew 2.1% YoY while operating income declined 13.8% and ordinary income declined 18.6%, evidencing negative operating leverage this quarter. SG&A of 5.74 increased relative to sales, compressing the operating margin. Monitoring the SG&A-to-sales ratio and scaling efficiency will be key for margin stabilization.

Growth Assessment

revenue_sustainability: Top-line growth was modest at +2.1% YoY to 20.05 (100M JPY). The high gross margin suggests a resilient platform model, but limited disclosure on customer cohorts, active users/volumes, and take-rate trends constrains visibility into sustainability. profit_quality: Net income decreased 21.0% YoY to 7.91 despite modest revenue growth, primarily due to higher SG&A and possibly mix effects. With non-operating results neutral and tax rate normalizing, the decline appears operational rather than driven by one-offs. outlook: If SG&A normalization and scale benefits resume, margins could re-expand given the structurally high gross margin. Key to sustaining growth will be transaction volume expansion, retention, and maintaining take rates amid competitive and regulatory dynamics in the power market. Absent segment and KPI disclosures, near-term growth outlook should be treated cautiously.

Financial Health

liquidity: Current ratio 193.6% and quick ratio 193.6% reflect strong short-term liquidity supported by cash and receivables; working capital is positive at 79.91 (100M JPY). solvency: Total equity of 90.68 against total assets of 191.69 implies an equity ratio of approximately 47.3% (our calculation). Interest coverage is about 99x (10.67/0.11), indicating very low near-term solvency risk. capital_structure: Interest-bearing debt totals ~12.59 (short-term 2.60, long-term 9.99). Net cash is approximately 33.89 (cash 46.48 minus interest-bearing debt 12.59). The reported debt-to-equity ratio of 1.05x aligns with total liabilities to equity, not net leverage. Capital structure is conservative.

Cash Flow Quality

earnings_quality: Cash flow statements were not disclosed, so direct OCF-to-net income or FCF assessment is not possible. However, strong margins, low interest burden, and net cash position suggest baseline resilience. FCF_analysis: Capex and investing flows were not reported; with minimal noncurrent assets (12.85) and intangibles (0.40), structural capex needs may be modest, supporting potential FCF generation in steady state. working_capital: AR of 13.68 versus quarterly revenue of 20.05 implies DSO around ~61 days. AP of 5.75 versus cost of sales of 3.64 implies DPO around ~142 days. The implied negative cash conversion cycle (approx. -81 days) indicates favorable supplier credit and likely strong cash conversion if maintained. These are indicative metrics given quarterly data and unreported inventories.

Dividend Sustainability

payout_ratio_assessment: Dividend data and payout ratio were not disclosed. With net income of 7.91 for Q1 and retained earnings of 34.55, capacity exists, but no formal policy is provided. FCF_coverage: Not calculable due to unreported OCF and capex. The balance sheet (net cash ~33.89) suggests flexibility to fund potential dividends, but sustainable coverage should be confirmed once OCF is disclosed. policy_outlook: Given the growth-stage profile and high margins, management may prioritize reinvestment. Absent explicit guidance, assume a cautious stance on near-term payouts until consistent cash flow disclosure and capital allocation policy are provided.

Risk Assessment

Business Risks:

• Regulatory and market design changes in Japan’s electricity market affecting trading volumes and pricing.
• Power price volatility impacting take rates, spreads, and customer behavior.
• Competitive pressure from incumbent utilities, brokers, or alternative platforms.
• Customer concentration risk typical of early-scale platforms.
• Operational and cybersecurity risks associated with a digital trading platform.
• Dependence on favorable supplier terms (long DPO) to maintain negative CCC.

Financial Risks:

• Working capital swings if receivables increase or payables terms tighten.
• Credit risk from counterparties embedded in accounts receivable.
• Interest rate risk is minimal currently but could affect financing costs if debt increases.
• Limited disclosure of cash flows constrains assessment of cash conversion and FCF stability.

Key Concerns:

• Margin compression due to rising SG&A despite modest revenue growth.
• Reliance on extended payables to sustain cash conversion.
• Low asset turnover (quarterly) weighing on ROE despite high margins.
• Data limitations (no CF statement, SG&A breakdown, segment KPIs) reducing visibility.

Investment Implications

Key Takeaways:

• Revenue grew 2.1% YoY to 20.05 (100M JPY) but operating and net income fell 13.8% and 21.0%, respectively.
• Exceptional margin structure (GPM 81.9%, OPM ~53.2%) remains intact despite near-term pressure.
• ROE at 8.7% is driven by very high net margin but dampened by low asset turnover and moderate leverage.
• Balance sheet strength with net cash of ~33.89 and equity ratio ~47.3% underpins resilience.
• Interest coverage ~99x and current ratio 193.6% indicate low financial stress.
• Working capital appears favorable with an implied negative CCC, supporting potential cash generation.
• Visibility is limited due to unreported cash flow data and SG&A/segment detail.

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory.
• Operating cash flow and free cash flow once disclosed.
• Receivables days (DSO) and payables days (DPO) to confirm negative CCC durability.
• Revenue growth rates, transaction volumes, and take-rate indicators.
• Customer concentration and churn/retention metrics.
• Equity ratio and net cash to monitor capacity for investment and potential distributions.

Relative Positioning: Relative to TSE-listed peers in energy trading/platform services, Digital Grid appears more asset-light with higher structural margins and a stronger net cash position, but it is smaller-scale with lower asset turnover and higher sensitivity to SG&A scaling and market design/regulatory dynamics.

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