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

Techfirm Holdings (TSE:36250) reported FY2026 Q1 consolidated results under JGAAP showing solid top-line growth but weaker profitability. Revenue was ¥1,658 million, up 9.6% year on year, indicating healthy demand momentum in the quarter. Gross profit reached ¥521 million, translating to a gross margin of 31.4%, suggesting decent project-level economics. Operating income was ¥126 million, down 13.5% YoY, with operating margin at approximately 7.6%, pointing to cost pressures or a negative mix shift despite revenue growth. Ordinary income was ¥132 million (ordinary margin ~8.0%), highlighting minimal non-operating drag given the small interest burden. Net income declined 25.6% YoY to ¥77 million, with net margin at 4.64%, reflecting higher below-the-line headwinds and a normalized tax burden. By DuPont, ROE is calculated at 2.81% for the quarter, driven by a 4.64% net margin, 0.339x asset turnover, and 1.79x financial leverage. The company’s balance sheet shows total assets of ¥4,891 million and total equity of ¥2,738 million; this implies an equity ratio of roughly 56.0% (based on reported totals), despite the displayed equity ratio metric being zero due to non-disclosure formatting. Liquidity appears strong with a current ratio of 261% and working capital of ¥2,764.9 million, affording operational flexibility. Interest expense was modest at ¥1.217 million and interest coverage a robust 103.5x, signaling low financial risk from borrowing costs. Income tax expense was ¥56.4 million; based on net income, the implied effective tax rate is in the low 40% range for the quarter, even though a displayed effective tax rate metric is shown as zero due to non-disclosure. Cash flow statements and certain line items (e.g., depreciation and amortization) were not disclosed in the dataset, limiting cash flow quality analysis and EBITDA calculation. The company paid no dividends in the period (DPS ¥0), consistent with a payout ratio of 0%, which is aligned with conserving cash for growth or balance sheet strength; however, the absence of cash flow data constrains dividend capacity assessment. Overall, Q1 shows resilient revenue growth but profitability compression, likely driven by higher operating costs or project mix. The sturdy liquidity and low interest burden mitigate financial risk, but the decline in operating and net income warrants monitoring of cost controls, utilization, and pricing. Absent cash flow disclosure, earnings quality and free cash flow conversion cannot be validated this quarter. Management’s outlook clarity (orders, backlog, utilization rates) will be critical to assess the sustainability of growth and margin normalization.

Profitability Analysis

ROE decomposition (DuPont): net margin 4.64% × asset turnover 0.339 × financial leverage 1.79 = ROE 2.81%. Operating margin was ~7.6% (¥126m/¥1,658m), while ordinary margin was ~8.0% (¥132m/¥1,658m), indicating minimal non-operating headwinds. Gross margin at 31.4% implies stable project-level profitability, though the drop in operating income suggests elevated SG&A or personnel/subcontracting costs limiting operating leverage. The YoY decline in operating income (-13.5%) despite +9.6% revenue growth points to negative operating leverage in the quarter (costs growing faster than revenue). Net income decline (-25.6% YoY) outpaced operating income decline, indicating additional pressure from taxes or non-operating items; implied effective tax around low 40% magnified the bottom-line compression. Interest burden is immaterial (interest coverage 103.5x), so financing costs did not drive margin contraction. EBITDA cannot be assessed due to undisclosed D&A (displayed as zero), but given low interest expense and no disclosed D&A, operating profitability is the key driver. Margin quality depends on utilization, rate realization, and subcontracting mix; the data suggests cost creep or mix shift offsetting revenue gains. Sustained gross margin above 30% is constructive for a domestic IT services peer set, but operating margin below ~8% leaves limited cushion if wage inflation or bench costs rise. Overall profitability remains positive but compressed, with the need for improved cost discipline or pricing to restore operating leverage.

Growth Assessment

Revenue growth of 9.6% YoY to ¥1,658 million is healthy for a Q1 period, implying steady client demand and order execution. However, profit growth lags materially: operating income -13.5% YoY and net income -25.6% YoY signal that scaling is not currently translating into improved profitability. The divergence suggests higher SG&A investments (e.g., hiring, sales) or increased subcontracting costs relative to in-house delivery, and/or a less favorable project mix. Ordinary income remained close to operating income, indicating limited reliance on non-operating gains for growth quality. The implied effective tax rate elevated the gap between operating and net profit growth, further pressuring EPS. With no cash flow disclosures, we cannot validate revenue-to-cash conversion; sustainability assessment must rely on income statement and balance sheet signals. The sizable working capital base suggests the business model requires upfront staffing and receivables funding; sustainable growth will depend on maintaining billing discipline and collection efficiency. Near-term outlook hinges on the order backlog, headcount/utilization, and pricing power; if demand remains solid, margins could recover with better utilization and cost control. Conversely, if growth is driven by lower-margin projects, revenue sustainability may not translate into earnings growth. Overall, top-line momentum is positive, but profit quality is mixed, and visibility would improve with disclosure of bookings, backlog, and OCF.

Financial Health

Total assets were ¥4,891 million and total equity ¥2,738 million; this implies an equity ratio of roughly 56.0% based on reported totals (the displayed 0.0% should be treated as non-disclosed). Total liabilities were ¥2,245 million, yielding a modest leverage profile (assets/equity 1.79x). Liquidity is strong: current assets ¥4,482 million vs current liabilities ¥1,717 million, current ratio 261% and quick ratio 261% (no inventories disclosed), and working capital ¥2,764.9 million. Interest expense was only ¥1.217 million with interest coverage 103.5x, indicating low sensitivity to interest rate changes and comfortable debt serviceability. The provided debt-to-equity ratio is 0.82x; given limited detail on interest-bearing debt vs total liabilities, we interpret overall solvency as sound due to ample equity and liquidity. Absence of cash and equivalents disclosure limits assessment of immediate cash buffers; however, the large current asset base relative to current liabilities provides a cushion. No information on off-balance-sheet commitments or lease liabilities is provided; solvency assessment relies on available balance sheet metrics.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed in the dataset (shown as zero due to non-reporting), so OCF/Net income and FCF cannot be evaluated this quarter. As a result, earnings-to-cash conversion, working capital consumption, and capital expenditure intensity remain unknown. Gross profit and operating profit are positive, which is supportive, but without OCF we cannot confirm collection timing, DSO trends, or whether growth is consuming cash. Working capital is sizable at ¥2,764.9 million; changes therein typically drive OCF variability for IT services (receivables and unbilled work). Depreciation and amortization were not disclosed, preventing EBITDA and cash earnings reconciliation. Key items to monitor when available: OCF vs net income, FCF after maintenance capex, receivables days, unbilled receivables, and subcontractor prepayments.

Dividend Sustainability

The company reported DPS of ¥0 and a payout ratio of 0%, indicating no dividend for the period. With FCF undisclosed, coverage cannot be assessed; the displayed FCF coverage of 0.00x reflects non-reporting, not actual capacity. Balance sheet strength (implied equity ratio ~56% and strong liquidity) suggests capacity to prioritize reinvestment or maintain optionality for future distributions, but recurring OCF is the foundation for sustainable dividends. Given net income of ¥77 million for the quarter, a future payout would depend on full-year profitability, cash conversion, and investment needs. Absent a stated policy in the data, we assume a conservative stance prioritizing growth and financial flexibility over near-term dividends.

Risk Assessment

Business Risks:

• Project mix and pricing pressure reducing gross and operating margins despite revenue growth
• Utilization volatility and wage inflation raising delivery costs
• Dependence on large clients or specific verticals (not disclosed) leading to order variability
• Execution risk on fixed-price projects and potential scope creep
• Competitive pressure from domestic SIers and offshore providers
• Timing of client IT budgets and macro sensitivity affecting orders
• Human capital retention and hiring in a tight labor market

Financial Risks:

• Working capital swings impacting operating cash flow and liquidity
• Receivables concentration and collection risk (DSO not disclosed)
• Limited visibility on cash balances and capex due to non-disclosure
• Potential tax rate volatility impacting net margins
• Exposure to subcontractor cost inflation compressing margins

Key Concerns:

• Operating income decline (-13.5% YoY) despite 9.6% revenue growth indicates negative operating leverage
• Net income decline (-25.6% YoY) highlights sensitivity to below-the-line items (taxes) and margin compression
• Lack of cash flow disclosure prevents validation of earnings quality and FCF generation

Investment Implications

Key Takeaways:

• Top-line growth is solid at +9.6% YoY, but profitability contracted at operating and net levels
• Gross margin of 31.4% is healthy, yet operating margin of ~7.6% suggests cost pressures
• ROE of 2.81% reflects modest net margin and moderate asset turnover with low leverage
• Balance sheet and liquidity are strong; interest burden is minimal (coverage 103.5x)
• Cash flow visibility is limited this quarter; earnings quality cannot be confirmed
• Dividend stance remains conservative (DPS ¥0) pending profit and cash flow trends

Metrics to Watch:

• Order intake and backlog (book-to-bill)
• Headcount, utilization rate, and billable rate trends
• Subcontractor cost ratio and wage inflation impact
• SG&A growth vs revenue growth to gauge operating leverage
• DSO, receivables quality, and OCF versus net income
• Capex and any disclosures on depreciation/amortization
• Segment or client concentration, if later disclosed

Relative Positioning: Within Japan’s small-to-mid cap IT services and system integration peer set, Techfirm’s revenue growth is competitive while operating margins sit in the mid-to-high single digits, leaving it somewhat below top-tier peers on profitability but supported by a solid balance sheet and low financial risk.

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