Mitsubishi Research Institute,Inc. FY2026 Q2 Earnings Report

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Executive Summary

The interim period produced higher revenue and profit, with Operating Income expanding at a faster pace than Revenue, driven by control of SG&A expenses and growth in high-margin segments. Revenue was ¥725.7B (+10.9% YoY), Operating Income was ¥92.9B (+36.3%), Ordinary Income was ¥100.9B (+32.1%), and interim Net Income attributable to owners of the parent was ¥84.7B (+73.5%). The Operating Income margin improved to 12.8% (10.4% in the same period last year), while the growth in Net Income also benefited from the one-time gain on the sale of investment securities of ¥12.5B.

Factors Affecting Performance

【Revenue】Revenue increased 10.9% YoY to ¥725.7B. By segment, Think Tank and Consulting Services led growth with revenue of ¥335.6B (+16.1%), while the core revenue-generating IT Services business recorded ¥390.1B (+6.8%), accounting for 53.8% of total revenue. Both businesses posted higher revenue, but Think Tank and Consulting Services achieved the higher growth rate.

【Profit and Loss】Operating Income increased 36.3% YoY to ¥92.9B, while Ordinary Income rose 32.1% to ¥100.9B, with profit expanding at a faster pace than revenue. The Gross Profit margin improved to 26.6%, and the increase in SG&A expenses (+3.8%) remained below the revenue growth rate (+10.9%), contributing to operating leverage. On a segment-profit basis (Ordinary Income basis), Think Tank and Consulting Services posted a substantial increase in profit to ¥84.3B (+49.3%; 25.1% margin), whereas IT Services reported a decline to ¥16.6B (-16.7%; 4.3% margin). Pretax Income of ¥112.8B included a ¥12.5B gain on the sale of investment securities (extraordinary gain). In addition, the absence of the ¥5.9B impairment loss recorded in the same period last year contributed to a substantial 73.5% increase in interim Net Income attributable to owners of the parent, to ¥84.7B. In conclusion, this was a higher-revenue, higher-profit result supported by both growth in the core business and one-time factors.

Segment Analysis

Think Tank and Consulting Services generated revenue of ¥335.6B (+16.1%) and segment profit (Ordinary Income basis) of ¥84.3B (+49.3%), with a 25.1% margin, making it the primary driver of company-wide profit. Meanwhile, the core IT Services business, which accounts for 53.8% of revenue, secured higher revenue of ¥390.1B (+6.8%) but reported lower profit of ¥16.6B (-16.7%), with a 4.3% margin. The structure was one in which growth in Think Tank and Consulting Services absorbed the decline in IT Services profit, with the disparity in margins between the two businesses (25.1% versus 4.3%) representing a key feature of the company-wide earnings structure.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 12.8% from 10.4% in the same period last year, while the Ordinary Income margin rose to 13.9% (11.7% in the same period last year) and the interim Net Income attributable to owners of the parent margin increased to 11.7% (7.5% in the same period last year). The Gross Profit margin was 26.6%.【Cash Flow Quality】Operating Cash Flow (OCF) was an outflow of ¥119.9B (-3.6% YoY), and the difference from interim Net Income attributable to owners of the parent of ¥84.7B was substantial, indicating limited cash conversion of current-period profit. The primary factor was a ¥239.6B increase in trade receivables, only partly offset by a ¥64.5B increase in accounts payable.【Investment Efficiency】ROE was 9.9%. Equity-method investment income of ¥6.2B accounted for 6.1% of Ordinary Income, making the performance of investees one factor affecting earnings fluctuations.【Financial Soundness】The Equity Ratio was 63.1%. With total assets of ¥1404.1B and Net Assets of ¥885.5B, the capital base remains stable. Cash and deposits decreased 48.3% YoY to ¥156.7B; however, current assets of ¥906.2B substantially exceeded current liabilities of ¥388.9B, indicating limited concern regarding short-term liquidity.

Cash Flow Analysis

Cash flow from operating activities was an outflow of ¥119.9B, showing no significant improvement from the same period last year (an outflow of slightly less than ¥119.9B). The primary factor was a ¥239.6B increase in trade receivables, compounded by cash outflows associated with a ¥64.5B increase in accounts payable and ¥21.4B in corporate income taxes paid. Cash flow from investing activities was an outflow of ¥3.0B, with proceeds from the sale of investment securities and other items largely offsetting capital expenditures of ¥12.1B. Cash flow from financing activities was an outflow of ¥18.5B, mainly reflecting dividend payments and other items. Free Cash Flow (OCF + investing CF) was an outflow of ¥123.0B, resulting in a contrast between earnings growth and weak cash-generation capacity during the period.

Earnings Quality

Profit for the interim period included one-time factors in addition to recurring business results. Of the ¥12.5B in extraordinary gains, gains on the sale of investment securities accounted for ¥12.5B, providing a boost equivalent to 1.1% of Pretax Income of ¥112.8B. Meanwhile, the ¥5.9B impairment loss recorded in the same period last year did not recur in the current period. Non-operating income of ¥8.2B consisted primarily of items such as dividend income of ¥0.9B and remained limited at 1.1% of Revenue. While OCF was an outflow of ¥119.9B, interim Net Income attributable to owners of the parent was positive at ¥84.7B. This divergence was primarily attributable to accruals arising from the increase in trade receivables (the accumulation of uncollected revenue). Accordingly, the increase in Net Income was supported not only by higher revenue and profit in the core business but also by the non-recurring gain on the sale of investment securities. From an earnings-quality perspective, cash conversion requires monitoring.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥1250.0B (+2.9% YoY), Operating Income of ¥84.0B (+4.9%), and Ordinary Income of ¥95.0B (-2.4%). The interim-period progress rates were 58.1% for Revenue (above the standard Q2 benchmark of 50%), 110.6% for Operating Income, and 106.3% for Ordinary Income, meaning that both profit metrics had already exceeded their full-year forecasts during the first half. The company revised its earnings forecast during the period (with no revision to the dividend forecast). Key points to monitor include expense recognition, project profitability, and the presence or absence of one-time factors such as sales of investment securities in the second half, all of which will affect the achievability of the full-year forecasts.

Shareholder Returns

The interim dividend was ¥80.00 per share, while the full-year dividend forecast is ¥165.00 (with no revision to the dividend forecast). Based on forecast full-year Net Income attributable to owners of the parent of ¥66.0B and forecast EPS of ¥418.88, the annual Payout Ratio is approximately 39.4%. Interim-period Free Cash Flow was an outflow of ¥123.0B, indicating that dividend funding depends not on cash flow generated during the interim period but on existing liquidity, including cash and deposits of ¥156.7B.

Risk Factors

1. Declining profitability in the core business: IT Services, which accounts for 53.8% of revenue, recorded a 4.3% margin on an Ordinary Income basis and a 16.7% YoY decline in profit. Improvement in the profitability of this business will be a key inflection point for company-wide profit growth.

2. Increase in trade receivables and weak cash conversion: Trade receivables increased ¥239.6B YoY to ¥668.7B (47.6% of total assets). OCF was an outflow of ¥119.9B, making the delayed cash conversion of current-period profit the most significant financial point of concern.

3. Reproducibility of one-time gains and losses: Pretax Income includes a ¥12.5B gain on the sale of investment securities. Fluctuations in the market prices of the ¥195.1B in investment securities held, as well as whether further sales are executed, may cause fluctuations in Net Income.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Company's Operating Income margin and Net Income margin are both below the industry median, although the gap in Net Income margin is small.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median, indicating relatively moderate growth within the industry.

※Source: Company analysis

Key Earnings Highlights

1. As part of the higher-revenue, higher-profit result, the high-margin Think Tank and Consulting Services business (25.1% margin) drove company-wide profit, while the core IT Services revenue business (53.8% revenue share; 4.3% margin) posted lower profit, widening the disparity in earnings structures between the businesses.

2. The increase in interim Net Income attributable to owners of the parent (+73.5%) included the one-time gain on the sale of investment securities of ¥12.5B, as well as the impact of the absence of the ¥5.9B impairment loss recorded in the same period last year. This should be distinguished from the pace of core business profit growth (Operating Income +36.3%).

3. While OCF was an outflow of ¥119.9B, Operating Income and Net Income increased, indicating a divergence between profit and cash flow trends. The collection trend for trade receivables in the second half, following the primary-factor increase of +¥239.6B, will be a key point to monitor as it will influence full-year cash flow trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,226–¥5,527 at Cost of Equity ±1%; ¥5,365–¥5,378 at ω±0.1.

Notes:

• Because progress toward forecast full-year Net Income (128%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of schedule tend to outperform their forecasts; in businesses with strong seasonality, the adjustment may be excessive).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net Assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because Net Assets include non-controlling interests, the theoretical value may be calculated at a somewhat higher level.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional where necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q2 was operationally strong for Mitsubishi Research Institute, with revenue rising 10.9% YoY to ¥72.57bn and operating income increasing 36.3% to ¥9.29bn. The operating result materially outpaced sales growth, indicating favorable mix and operating leverage. Gross profit increased 17.3% YoY to ¥19.28bn, faster than revenue, while SG&A rose only 3.8% to ¥9.98bn. Consequently, gross margin expanded 140bp YoY to 26.6%. Operating margin expanded 240bp to 12.8%, placing profitability in the good range for an IT-services and consulting business. Ordinary income increased 32.1% to ¥10.09bn. Profit attributable to owners rose 73.5% to ¥8.47bn, supported by a ¥1.25bn gain on sale of investment securities recorded as extraordinary income. This non-recurring securities gain means the 11.7% net margin and the reported annualized 19.1% ROE overstate the underlying recurring earnings run-rate. Excluding the pre-tax ¥1.25bn securities gain, pre-tax profit would have been closer to ¥10.03bn, broadly in line with ordinary income. Cash-flow conversion was weak in the half year: operating cash flow was negative ¥11.99bn despite ¥8.47bn of profit attributable to owners. The principal driver was a ¥23.96bn increase in trade receivables and contract assets, only partly offset by a ¥6.45bn increase in trade payables. Receivables reached ¥66.87bn, or 47.6% of assets, and cash declined 48.3% YoY to ¥15.67bn. Liquidity nevertheless remains sound, supported by a 233.0% current ratio, ¥51.73bn of working capital, and low leverage. The full-year forecast is a central near-term issue: Q2 progress already stands at 58.1% for sales, 110.6% for operating income, 106.3% for ordinary income, and 128.3% for profit attributable to owners versus the full-year plan. The revised plan therefore embeds a second-half operating loss of approximately ¥0.89bn and a sharp reversal of first-half profit, suggesting either pronounced seasonal cost recognition, project execution uncertainty, or a highly conservative revised outlook. Investors should focus on the conversion of receivables into cash, the extent of second-half delivery costs, and whether segment profitability in IT services can recover.

Profitability Analysis

The reported annualized DuPont ROE of 19.1% decomposes into an 11.7% net profit margin, 1.034x asset turnover, and 1.59x financial leverage. The principal source of the strong ROE is margin performance rather than aggressive leverage: financial leverage is moderate and the balance sheet is equity-funded. The operating margin rose to 12.8% from 10.4% in the prior-year half, a 240bp expansion, while gross margin improved by 140bp to 26.6%. This indicates that gross-profit growth, rather than cost cutting alone, drove the earnings acceleration. SG&A grew 3.8% YoY, substantially below the 10.9% revenue increase, generating favorable operating leverage. Segment mix was also important. Think Tank & Consulting Services generated revenue of ¥33.56bn, up 16.1% YoY, and segment profit of ¥8.43bn, up 49.3%; its segment-profit margin was 25.1%. IT Services generated revenue of ¥39.01bn, up 6.8%, but segment profit declined 16.7% to ¥1.67bn, with a 4.2% segment-profit margin. The Think Tank & Consulting Services segment is therefore the core business by profit contribution, accounting for roughly 84% of combined segment profit. The widening margin gap between the core consulting segment and IT Services is a key sustainability consideration, because company-wide profit growth currently depends disproportionately on the higher-margin segment. The tax burden of 0.751 and effective tax rate of 22.2% are normal, while the interest burden of 1.213 reflects non-operating and extraordinary gains rather than debt stress. Interest coverage of 1,032.56x confirms that financing costs are immaterial. However, the ¥1.25bn gain on sale of securities lifted pre-tax and net income and is not a recurring operating-profit driver. EBITDA was ¥11.07bn and the EBITDA margin was 15.2%, supporting the view that underlying operating profitability improved even before the extraordinary gain.

Growth Assessment

Top-line growth of 10.9% was led by Think Tank & Consulting Services, where revenue rose 16.1%, versus 6.8% growth in IT Services. The consulting segment's 49.3% segment-profit growth suggests a favorable project mix, improved utilization, and/or stronger pricing, although its sustainability should be assessed against future order intake and staffing capacity. IT Services remains the larger revenue segment, contributing ¥39.01bn of external sales, but its 16.7% decline in segment profit indicates margin pressure that offsets part of the group-level operating leverage. The combination of robust consulting growth and weaker IT profitability raises concentration risk around the high-margin consulting portfolio. Revenue progress against the ¥125.00bn full-year forecast is 58.1%, 8.1 percentage points above the standard 50% Q2 progress level. Operating-income progress is 110.6%, 60.6 percentage points above the standard level, and ordinary-income progress is 106.3%. Profit attributable to owners has reached 128.3% of the full-year forecast, although the first-half result includes the ¥1.25bn securities-sale gain. The forecast consequently implies second-half revenue of ¥52.43bn, but operating income of negative ¥0.89bn, ordinary income of negative ¥0.59bn, and profit attributable to owners of negative ¥1.87bn. Such implied second-half deterioration makes execution timing, project-cost recognition, and any further forecast assumptions more important than the favorable first-half comparison. The disclosed full-year plan calls for only 2.9% sales growth and 4.9% operating-income growth, which is materially more conservative than first-half performance.

Financial Health

Financial health is robust from a liquidity and capital-structure perspective. Current assets of ¥90.62bn exceeded current liabilities of ¥38.89bn, producing a current ratio of 233.0% and a quick ratio of 232.3%. Working capital was ¥51.73bn, providing a substantial liquidity buffer despite the decline in cash and deposits. Total equity was ¥88.55bn, equal to 63.1% of total assets, and the capital adequacy ratio was 56.4%. The reported debt-to-equity ratio of 0.59x is conservative and remains well below the 2.0x level associated with aggressive balance-sheet risk. There is no apparent maturity mismatch because current assets materially exceed current liabilities. Interest expense was only ¥0.09bn against EBITDA of ¥11.07bn, resulting in EBITDA interest coverage of 1,229.44x. The primary balance-sheet concern is working-capital concentration rather than solvency. Accounts receivable increased ¥23.96bn YoY, or 55.8%, to ¥66.87bn, representing 47.6% of total assets and exceeding cash and deposits by more than four times. Cash and deposits declined ¥14.64bn YoY to ¥15.67bn, reflecting the cash absorbed by receivables. Accounts payable rose ¥6.45bn YoY, or 133.4%, to ¥11.29bn, partly financing the receivables build, but this increase did not fully offset the operating cash outflow. Net defined-benefit liability of ¥9.74bn and asset-retirement obligations of ¥1.47bn are relevant long-term obligations within an otherwise sound capital structure. Investment securities of ¥19.51bn, or 13.9% of assets, provide financial-asset value but also expose equity and earnings to market valuation and disposal-gain volatility.

Notable B/S Changes

Accounts receivable: +¥23.96bn (+55.8%) to ¥66.87bn - receivables reached 47.6% of total assets and were the principal driver of negative operating cash flow; collection timing and contract-asset conversion are the central balance-sheet monitor. Cash and deposits: -¥14.64bn (-48.3%) to ¥15.67bn - cash was absorbed mainly by working-capital outflows, although liquidity remains supported by ¥51.73bn of working capital and a 233.0% current ratio. Accounts payable: +¥6.45bn (+133.4%) to ¥11.29bn - supplier and project-related liabilities partially financed the receivables expansion, but the scale of payable growth warrants monitoring against operating-cash-flow normalization. Construction in progress: +¥11.34bn (+76.0%) to ¥26.27bn - a significant rise within PPE that may reflect ongoing facility or system investment and should be assessed for completion timing and future depreciation. Property, plant and equipment: +¥8.92bn (+6.9%) to ¥13.74bn - growth was driven principally by construction in progress despite capital expenditures of ¥1.21bn in the period, indicating a higher asset base to monitor for utilization and return generation. Total equity: +¥7.21bn (+8.9%) to ¥88.55bn - accumulation of first-half earnings reinforced capitalization and supports dividend and working-capital funding capacity.

Cash Flow Quality

Cash-flow quality was weak in FY2026 Q2. Operating cash flow was negative ¥11.99bn, compared with ¥8.47bn of profit attributable to owners, producing an OCF/net-income ratio of negative 1.42x versus the >1.0x high-quality benchmark. Cash conversion, measured as OCF/EBITDA, was negative 1.08x, substantially below the 0.7x concern threshold. The 14.6% accruals ratio also exceeds the 10% warning threshold, confirming that reported earnings were not converted into cash during the half year. The root cause was principally a ¥23.96bn increase in trade receivables and contract assets, consistent with the high 168-day DSO alert. A 130-day cash conversion cycle is also above the 120-day alert threshold, increasing dependence on timely customer collections. The ¥6.45bn increase in trade payables provided a partial offset, but reliance on supplier financing does not remove the need for receivable collection. Bonus-provision movements and accrued-expense reductions also contributed to the operating cash-flow deficit. Free cash flow was negative ¥12.30bn after ¥1.21bn of capital expenditures. This is not currently a liquidity threat given the strong current ratio and equity base, but it is not a sustainable cash profile if prolonged. Capital expenditures were 0.68x depreciation and amortization, below the 0.7x underinvestment threshold. The immediate cash-flow concern is more material than the capex level: the company must demonstrate that the receivable increase is seasonal, collectible, and reverses through second-half cash inflows. For an IT services and consulting company, prolonged collection periods can indicate project acceptance delays, billing timing pressure, or client concentration, and should be monitored alongside backlog and contract-asset trends.

Dividend Sustainability

The interim dividend is ¥80.00 per share. Based on the stated calculation, the interim payout ratio is 15.2%, which is low and well within a sustainable range relative to reported first-half earnings. The full-year forecast dividend of ¥165.00 per share implies an approximate dividend payout ratio of 39.4% against forecast EPS of ¥418.88, also below the 60% sustainability benchmark. No share repurchases are reported, so the relevant measure is the dividend payout ratio rather than a total return ratio. Dividend funding was not covered by first-half free cash flow, which was negative ¥12.30bn; the stated FCF coverage metric was negative 9.58x. However, the company paid ¥1.37bn in cash dividends during the period, an amount manageable relative to ¥15.67bn of cash, ¥51.73bn of working capital, and ¥88.55bn of total equity. Therefore, balance-sheet capacity supports the dividend in the near term, but recurring cash coverage depends on receivable collection and restoration of positive operating cash flow. The forecast dividend should be evaluated against the unusually conservative full-year earnings plan and the implied second-half loss profile.

Risk Assessment

Business risks include IT Services revenue grew 6.8% YoY but segment profit fell 16.7% to ¥1.67bn, leaving a low 4.2% segment-profit margin. Continued delivery-cost inflation, utilization pressure, or project overruns in this larger-revenue segment could weigh on group margins., The core Think Tank & Consulting Services segment produced approximately 84% of combined segment profit and a 25.1% segment-profit margin. Dependence on this higher-margin business increases sensitivity to consulting demand, project mix, and the availability and retention of specialized personnel., High DSO of 168 days and a 130-day cash conversion cycle create project-execution and collection risk. In IT services and consulting, delayed client acceptance, milestone billing delays, or disputed deliverables could defer cash realization., The full-year plan embeds sharply weaker second-half profitability despite first-half outperformance. This creates execution risk around second-half cost recognition, project mix, and the timing of revenue and profit recognition..

Financial risks include Operating cash flow of negative ¥11.99bn versus ¥8.47bn of profit attributable to owners produced negative 1.42x OCF/net income and negative 1.08x OCF/EBITDA. The divergence increases reliance on balance-sheet liquidity until receivables convert into cash., Accounts receivable rose 55.8% YoY to ¥66.87bn and represented 47.6% of assets, while cash declined 48.3% YoY to ¥15.67bn. This concentration heightens sensitivity to collection timing and customer credit quality., The 14.6% accruals ratio exceeds the 10% warning level, indicating elevated accrual-based earnings relative to cash generation., Capital expenditure was only 0.68x depreciation. While this supports near-term cash preservation, persistently sub-depreciation investment could constrain software, platform, and delivery-capacity renewal., Investment securities totaled ¥19.51bn, and a ¥1.25bn sale generated the principal extraordinary gain. Future earnings may remain exposed to market valuation movements and the non-recurring nature of securities transactions..

Key concerns include Highest priority: conversion of the ¥66.87bn receivables balance into operating cash flow., High priority: reconciliation of first-half operating income of ¥9.29bn with the full-year forecast of ¥8.40bn, which implies a second-half operating loss., High priority: recovery in IT Services segment profitability and containment of project-delivery costs., Moderate priority: whether capex below depreciation reflects disciplined capital allocation or deferred investment needs., Mitigant: liquidity, capitalization, and interest-service capacity remain strong, limiting near-term refinancing and covenant risk..

Investment Implications

Key takeaways include First-half operating performance was strong, with revenue up 10.9%, operating income up 36.3%, and operating margin expanding 240bp to 12.8%., Think Tank & Consulting Services is the earnings engine, posting ¥8.43bn of segment profit and a 25.1% segment-profit margin, while IT Services profitability weakened., Reported net-income growth was enhanced by a non-recurring ¥1.25bn gain on sale of investment securities., Cash earnings materially lagged accounting earnings because receivables increased sharply; operating cash flow and free cash flow were both negative., The revised full-year forecast implies unusually weak second-half profits and therefore becomes the key reference point for assessing earnings visibility., The balance sheet is a material offset to cash-flow weakness, with a 233.0% current ratio, 56.4% capital adequacy, and negligible interest burden..

Metrics to watch include Trade receivables and contract assets, DSO, and second-half operating cash flow, IT Services revenue growth, segment profit, and segment-profit margin, Think Tank & Consulting Services project mix and margin durability, Progress against the ¥125.00bn sales and ¥8.40bn operating-income full-year forecast, Second-half project costs, provisions for loss on orders, and customer acceptance timing, Capex/depreciation and software investment trends, Recurring versus securities-sale-related contributions to pre-tax and net income.

Regarding relative positioning, Mitsubishi Research Institute combines attractive first-half operating margins, an annualized 19.1% ROE, and a conservative liquidity profile with weaker-than-desired earnings cash conversion. Relative to IT-services peers, the strong consulting-segment margin is a differentiator, but the low-margin IT Services trend and unusually large receivables balance reduce the quality and visibility of reported earnings.