Techfirm Holdings Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.66B
• Operating Income: ¥126M
• Net Income: ¥104M
• EPS: ¥10.87

Income Statement

Balance Sheet

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

Verdict: Solid top-line growth but profitability softened, with margin compression and heavier reliance on non-operating items driving a double-digit decline in earnings. Revenue rose 9.6% YoY to 16.58, showing healthy demand momentum. Gross profit reached 5.21 and gross margin printed 31.4%, indicating acceptable unit economics for a mid-sized SI/IT services firm. Operating income fell 13.5% YoY to 1.26, pulling the operating margin down to 7.6%. Using implied prior-period figures, the operating margin compressed by roughly 202 bps YoY (from about 9.6% to 7.6%). Ordinary income declined 19.7% YoY to 1.32, reflecting both weaker operating leverage and a smaller contribution from non-operating gains net of expenses. Net income dropped 25.6% to 0.77, and the effective tax rate was 35.2%, slightly high for an IT services profile, which further pressured bottom-line conversion. Non-operating income was 0.22 (with only 0.01 in dividend income disclosed), and non-operating expenses were 0.03, implying a meaningful non-operating lift to pretax results. Interest coverage remained very strong at 103.53x, indicating negligible immediate refinancing stress despite 6.00 of short-term loans. Liquidity is robust with a current ratio of 270.6% and cash and deposits of 22.03, supporting working capital and near-term commitments. ROE, decomposed via DuPont, stood at 2.8% for the period, with a 4.6% net margin, 0.339x asset turnover, and 1.79x financial leverage. The calculated payout ratio of 78.1% looks elevated versus typical sustainability thresholds, and cash flow disclosure is missing, preventing confirmation of coverage. Cash flow quality cannot be assessed this quarter because operating and free cash flow data were not reported. Forward-looking, management will need to restore operating leverage through utilization and SG&A discipline to defend margins while sustaining growth. The balance sheet gives ample runway, but near-term earnings progression hinges on arresting margin compression and improving cash conversion as the year progresses.

Profitability Analysis

ROE decomposition: ROE (2.8%) = Net Profit Margin (4.6%) × Asset Turnover (0.339x) × Financial Leverage (1.79x). The component that changed the most versus last year is most likely net profit margin, given revenue grew 9.6% while operating income fell 13.5% and net income fell 25.6%. The business driver is negative operating leverage: SG&A (3.75; 22.6% of sales) and/or delivery costs outpaced gross profit growth, compressing the operating margin from an implied ~9.6% to 7.6%. Additional drag came from a relatively high effective tax rate (35.2%), limiting net margin conversion. This margin compression appears cyclical/operational rather than one-time; it likely reflects wage inflation, a less favorable project mix, or timing of project completions versus hiring. Sustainability: absent pricing improvements and tighter cost control, current net margin looks vulnerable; however, with improving utilization or price/mix optimization, some recovery is achievable. Flags: revenue growth outpaced operating income (9.6% vs -13.5%), indicating cost growth exceeding revenue growth; the non-operating income contribution was meaningful this quarter, implying core operating profitability was weaker than headline ordinary income suggests.

Growth Assessment

Revenue growth of 9.6% YoY to 16.58 indicates healthy demand, likely from IT services/project work. However, profit quality deteriorated as operating income fell 13.5% and net income fell 25.6%, demonstrating negative operating leverage. Gross margin at 31.4% is acceptable but leaves limited room once SG&A at 22.6% of sales is layered in. Non-operating income (0.22) supported ordinary income, but this is less controllable than operating earnings. Outlook hinges on utilization, pricing, and SG&A discipline; mid- to high-single-digit revenue growth can translate to profit growth only if cost escalation moderates. The reported ROIC of 7.2% is near a typical 7–8% target for capital-light service firms, suggesting invested capital productivity is adequate but not exceptional. Near-term, expect margin volatility until headcount, subcontracting, and pricing better align; watch for order backlog and book-to-bill trends to validate sustainability.

Financial Health

Liquidity is strong: current ratio 270.6% and quick ratio 270.6%, with cash and deposits of 22.03 comfortably covering current liabilities of 16.26. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); actual D/E is 0.79x, conservative for the sector. Short-term loans total 6.00, well covered by cash and receivables (22.03 cash + 16.92 AR), minimizing maturity mismatch risk. Total liabilities are 21.53 against equity of 27.38, indicating a solid equity buffer. Interest coverage at 103.53x supports low financial risk. No off-balance sheet obligations were disclosed in the provided data. Overall solvency risk is low.

Cash Flow Quality

Operating cash flow was not reported, so OCF/Net Income cannot be calculated and cash conversion quality cannot be assessed this quarter. Free cash flow is also unreported; therefore, we cannot judge coverage of dividends and capex. Withholding judgment on working capital dynamics (e.g., DSO, unbilled receivables) is necessary due to missing CF and WC detail. Given the project-based nature of the business, cash flow can be timing-sensitive; monitoring OCF against quarterly net income (target ≥1.0x) will be critical in subsequent filings.

Dividend Sustainability

The calculated payout ratio is 78.1%, above the typical sustainability benchmark (<60%). DPS and total dividends paid were not disclosed, and FCF is unreported, so cash coverage cannot be confirmed. The balance sheet liquidity (cash 22.03) provides near-term flexibility, but sustaining a ~78% payout would require consistent OCF generation; absent OCF visibility, prudence is warranted. Policy outlook is unclear due to missing disclosures; watch guidance, payout policy commentary, and H1 aggregate results.

Risk Assessment

Business Risks:

• Margin compression from wage inflation and subcontractor cost increases, reducing operating leverage
• Project mix and utilization variability leading to earnings volatility
• Client IT spending delays or cancellations affecting revenue growth
• Execution risk on fixed-price projects impacting gross margins

Financial Risks:

• Dependence on non-operating income in the quarter (non-operating income ratio indicated at 28.8%)
• Refinancing/interest rate risk on short-term loans (6.00), albeit mitigated by strong cash
• Potential tax rate volatility (effective tax rate 35.2%) impacting net margins

Key Concerns:

• Operating margin contracted by ~202 bps YoY to 7.6%
• Net income declined 25.6% YoY despite 9.6% revenue growth
• High payout ratio (78.1%) with unreported OCF and FCF, obscuring dividend coverage
• Limited disclosure granularity (SG&A, D&A, R&D, cash flows) reduces transparency

Investment Implications

Key Takeaways:

• Top-line growth is intact (+9.6% YoY) but profitability weakened (OP -13.5% YoY)
• Operating margin compressed to 7.6%, implying negative operating leverage
• Non-operating items provided a meaningful tailwind to ordinary income
• Balance sheet and liquidity are strong, limiting downside financial risk
• Dividend payout appears elevated at 78.1% with unknown cash coverage

Metrics to Watch:

• Order intake/backlog and book-to-bill to validate revenue sustainability
• Utilization rates, billing rates, and subcontracting ratio for margin recovery
• SG&A growth vs revenue growth to gauge operating leverage restoration
• Operating cash flow vs net income (target ≥1.0x) and free cash flow
• DSO/collections on accounts receivable (16.92) and unbilled positions
• Tax rate trajectory and any guidance on dividend policy

Relative Positioning: Within Japan small/mid-cap IT services peers, the company shows healthy growth but sits on the lower side of operating margin this quarter, offset by a strong liquidity position and moderate leverage; near-term relative performance will hinge on restoring operating leverage and demonstrating cash conversion.

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