Systems Engineering Consultants Co.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.32B
• Operating Income: ¥827M
• Net Income: ¥623M
• EPS: ¥61.10

Income Statement

Balance Sheet

Cash Flow Statement

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

SEC Co., Ltd. (37410) reported solid FY2026 Q2 (non-consolidated, JGAAP) results with top-line acceleration and resilient bottom-line growth. Revenue rose 18.3% YoY to ¥5,317m, while operating income increased 8.2% YoY to ¥827m, indicating positive but moderated operating leverage. Net income grew 10.1% YoY to ¥623m, translating to an EPS of ¥61.10. Profitability remains sound: gross margin is 26.2%, operating margin 15.6%, and EBITDA margin 15.9%, supported by low depreciation (¥19m) and minimal interest burden (¥0.4m). Ordinary income of ¥889m exceeded operating income by ¥62m, suggesting net non-operating gains (likely interest income or other recurring gains). Cash generation is a highlight: operating cash flow (OCF) was ¥1,717m, 2.76x net income, pointing to strong earnings quality and favorable working capital dynamics. The balance sheet is conservative: total assets are ¥11,181m versus total liabilities of ¥2,445m and equity of ¥9,440m, implying an equity ratio of roughly 84–85% based on the provided totals (the reported “0.0%” equity ratio appears undisclosed rather than actually zero). Liquidity is robust with a current ratio of 409% and a quick ratio of 392%, and working capital of ¥7,045m provides ample operational flexibility. Leverage is low with debt-to-equity at 0.26x and interest coverage at ~2,078x. DuPont analysis indicates a calculated ROE of 6.6%, driven by an 11.7% net margin, asset turnover of 0.476x, and modest financial leverage of 1.18x; this profile suggests returns are primarily margin-driven rather than asset-intensity or leverage. Operating leverage appears muted this half as operating income growth (+8.2%) lagged revenue growth (+18.3%), hinting at higher cost of delivery, hiring/training, or a mix shift to lower-margin projects. Tax expense of ¥243m implies a roughly 27% effective tax rate against ordinary income (the listed “0.0%” ETR should be treated as not disclosed). Financing cash outflow of ¥443m likely reflects shareholder returns or other financing activities, though DPS and share data are not disclosed in this dataset. Cash and equivalents and several cash flow sub-components are undisclosed (shown as zero), which limits precision on liquidity buffers and free cash flow after capex. Overall, fundamentals show solid growth, healthy profitability, strong cash conversion, and a very conservative balance sheet, albeit with some margin pressure and data gaps.

Profitability Analysis

ROE (DuPont): 6.60% = Net margin 11.72% × Asset turnover 0.476 × Financial leverage 1.18. The return profile is mainly margin-led, with low leverage and modest asset turnover typical of project-based engineering/services. Gross margin is 26.2%, operating margin 15.6%, and EBITDA margin 15.9%, indicating a low D&A burden (D&A ¥19m). Operating income growth (+8.2% YoY) lagged revenue growth (+18.3% YoY), signaling tempered operating leverage this half; likely drivers include wage inflation, subcontracting costs, or mix effects toward lower-margin engagements. Ordinary margin is ~16.7% (¥889m/¥5,317m), above operating margin due to non-operating gains (e.g., interest income). Net margin of 11.7% remains healthy given the business model. Interest expense is negligible (¥0.4m), and interest coverage is extremely strong (~2,078x), underscoring minimal financing drag. Overall margin quality is solid, but sustaining operating leverage will depend on execution discipline, pricing power, and utilization.

Growth Assessment

Revenue growth of +18.3% YoY indicates robust demand and/or increased project throughput. Profit growth is positive but slower: operating income +8.2% and net income +10.1% YoY, reflecting some cost growth outpacing revenue or a less favorable mix. The low D&A suggests growth is largely organic through headcount and capacity rather than heavy capital deployment. Ordinary income outperformance relative to operating income indicates some support from non-operating items; sustainability of these contributions should be monitored. The OCF/NI ratio of 2.76 suggests that recognized revenue is converting well to cash, hinting at good billing/collection cycles or advance receipts. Given the sizable working capital base (¥7,045m) and strong liquidity, the company appears well-positioned to fund ongoing growth. Outlook hinges on maintaining utilization and pricing as the order backlog converts; near-term margins may face pressure if hiring leads revenue or if subcontracting intensity remains elevated. Without order/backlog disclosures in this dataset, revenue sustainability assessment is constrained, but current momentum is favorable.

Financial Health

Liquidity is very strong: current ratio 408.7% and quick ratio 392.2% reflect substantial liquid assets versus short-term obligations. Working capital stands at ¥7,044,504m, providing a large buffer for operations and growth. Solvency is conservative with total liabilities at ¥2,445m versus equity at ¥9,440m, yielding a debt-to-equity ratio of 0.26x. Based on total equity and assets provided, the implied equity ratio is approximately 84–85%, despite the reported 0.0% figure being undisclosed in this dataset. Interest coverage of ~2,078x underscores minimal financial risk from debt servicing. Inventory is modest at ¥378m, consistent with a services/engineering-centric model. Cash and equivalents are not disclosed here (shown as zero), which limits visibility on immediate cash on hand but is mitigated by the very strong current assets total.

Cash Flow Quality

Earnings quality appears high with OCF of ¥1,717m at 2.76x net income (¥623m), indicating strong cash conversion, likely aided by favorable working capital movements (e.g., receivables collection or advances). EBITDA of ¥846m versus OCF of ¥1,717m also suggests working capital inflows this period. Capex is not disclosed; investing cash flow is shown as zero (undisclosed), so free cash flow cannot be precisely determined from this dataset. Nonetheless, given low D&A and historically low capital intensity for similar models, underlying FCF is likely positive in principle for the period, contingent on capex actuals. Financing cash outflow of ¥443m likely reflects dividends, share repurchases, or lease/debt repayments; specific components are not provided. Working capital remains ample, and no stress indicators are evident in the current figures.

Dividend Sustainability

DPS and payout ratio are shown as 0.00, which should be treated as undisclosed in this interim dataset rather than actual zero distributions. With net income of ¥623m and strong OCF of ¥1,717m, coverage for potential dividends appears adequate, subject to actual capex and policy. Financing CF outflow of ¥443m suggests some shareholder returns and/or debt repayments occurred. Without disclosed DPS, payout ratio, FCF, or share count, we cannot quantify precise coverage or yield. Policy outlook cannot be inferred from the provided data; however, the conservative balance sheet and robust cash generation provide capacity to sustain or increase distributions if management so chooses.

Risk Assessment

Business Risks:

• Margin compression risk from wage inflation and higher subcontracting costs reducing operating leverage.
• Project execution and utilization risk affecting revenue recognition and profitability.
• Customer concentration or contract timing risk inherent in project-based businesses.
• Mix shift toward lower-margin projects/services impacting overall margins.
• Competitive pricing pressure in engineering/software development services.

Financial Risks:

• Working capital volatility affecting cash flow timing despite strong current metrics.
• Limited disclosure on cash and investing flows reduces visibility on true liquidity runway and capex needs.
• Dependence on non-operating income elements for part of ordinary income.

Key Concerns:

• Operating income growth lagging revenue growth in the half, indicating moderated operating leverage.
• Undisclosed cash and cash equivalents and investing cash flows complicate free cash flow assessment.
• Reliance on project mix and timing could challenge margin stability.

Investment Implications

Key Takeaways:

• Strong revenue growth (+18.3% YoY) with positive but moderated operating leverage (+8.2% YoY OI).
• Healthy profitability: GM 26.2%, OPM 15.6%, EBITDA margin 15.9%.
• Robust cash conversion: OCF ¥1,717m equals 2.76x net income.
• Very conservative balance sheet: implied equity ratio ~84–85%, D/E 0.26x, interest coverage ~2,078x.
• Non-operating gains support ordinary income; sustainability should be monitored.
• Data limitations on cash, capex, DPS, and shares restrict per-share and FCF precision.

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability.
• Operating margin trajectory and subcontracting ratio to assess operating leverage.
• Working capital movements (receivables, unbilled, advances) for cash flow durability.
• Capex and investing cash flows to refine FCF outlook.
• Non-operating income components and their recurrence.
• Headcount and utilization rates versus revenue growth.

Relative Positioning: The company appears financially conservative with strong cash generation and margins in line with high-quality engineering/services peers; however, asset turnover is modest and operating leverage in the half was subdued versus the pace of revenue growth.

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