Pro-Ship Incorporated FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.90B
• Operating Income: ¥1.40B
• Net Income: ¥998M
• Earnings per Unit (EPU): ¥40.17

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: FY2026 Q2 was a very strong quarter with broad-based margin expansion and high-quality earnings conversion to cash. Revenue rose to 38.96, up 24.9% YoY, while operating income surged 179.8% YoY to 14.04 and net income rose 132.9% YoY to 9.98. Gross profit reached 22.72 for a gross margin of 58.3%, reflecting favorable mix and execution. Operating margin expanded to 36.0% (14.04/38.96), up roughly 1,991 bps versus an estimated 16.1% in the prior-year period. Net margin improved to 25.6%, up about 1,180 bps from an estimated 13.8% a year ago. Ordinary income was 14.51 (+168.4% YoY), with non-operating income contributing 0.47 (about 4.7% of revenue), mainly from interest income (0.27) and investment securities gains (0.18). Earnings quality was strong: operating cash flow of 22.89 was 2.29x net income, indicating robust cash conversion. The balance sheet remains conservative with total assets of 124.47 and equity of 94.33 (equity ratio ~75.8%), cash and deposits of 78.50, and low overall leverage (D/E 0.32x). Liquidity is ample with a current ratio of 406% and working capital of 78.48. The effective tax rate was 30.2%, roughly in line with statutory levels. ROE calculated at 10.6% reflects the combination of very high margins, moderate asset turnover (0.313), and low financial leverage (1.32x). ROIC was reported at 61.8%, highlighting strong returns on invested capital in the current period. A reported payout ratio of 199.7% appears inconsistent with cash flow data (Financing CF -5.16 vs OCF 22.89), suggesting either TTM/one-off effects or definitional differences; DPS details were unreported. Forward-looking, the step-up in operating margin is the key swing factor for sustainability given likely normalization of non-operating tailwinds and potential wage cost pressure. Overall, the quarter positions the company well to fund growth and shareholder returns while maintaining balance sheet strength.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (25.6%) × Asset Turnover (0.313) × Financial Leverage (1.32x) = ~10.6% ROE. The largest driver of the YoY improvement is Net Profit Margin, with net margin rising from an estimated ~13.8% to 25.6% (+1,180 bps). Operating margin expanded materially from ~16.1% to 36.0% (+1,991 bps), indicating strong operating leverage as revenue growth outpaced cost growth and SG&A efficiency improved (current SG&A ratio 22.3% of revenue). Asset turnover at 0.313 suggests capital-light operations characteristic of software/services; leverage remains low at 1.32x, so ROE is margin-led rather than leverage-driven. Business reasons for margin expansion likely include higher software license/professional service mix, improved utilization, and interest income uplift in non-operating results. This level of operating margin may not be fully sustainable if wage inflation resumes or if project timing normalizes; however, the structurally high gross margin (58.3%) supports above-average profitability. No evidence that SG&A growth exceeded revenue growth (prior SG&A not disclosed), but the notable drop in the SG&A-to-sales ratio implies positive operating leverage. Watch for the persistence of non-operating income (interest and securities gains), which contributed modestly (0.47) and may be partly non-recurring.

Growth Assessment

Top-line grew 24.9% YoY to 38.96, a solid acceleration indicative of healthy demand and/or large project deliveries. Operating income growth (+179.8% YoY) far exceeded sales growth, driven by mix and cost discipline. Net income +132.9% YoY benefits from operating leverage and modest non-operating tailwinds; tax rate remained normal at 30.2%. The sustainability of growth will depend on backlog/order intake and recurring maintenance revenues (not disclosed). Interest income (0.27) reflects a large cash balance and higher rates; this tailwind may persist but at a smaller magnitude relative to operating gains. Investment securities gains (0.18) are inherently volatile and should be treated as non-core. With ROIC at 61.8%, reinvestment opportunities could be value-accretive if demand remains robust, though hiring capacity and delivery bandwidth may be constraints. Outlook: expect moderation from peak margins as personnel costs catch up, but revenue momentum and high gross margins support continued double-digit operating profit growth if the pipeline holds.

Financial Health

Liquidity is strong: Current Ratio 406.2% and Quick Ratio 406.2% (no inventories reported), with cash and deposits of 78.50 against current liabilities of 25.63. Solvency is conservative: D/E 0.32x and equity ratio ~75.8% (94.33/124.47), with no interest-bearing debt disclosed. Working capital is ample at 78.48, reducing refinancing risk. Maturity mismatch risk appears low given high cash relative to short-term obligations; accounts payable are modest at 1.78. No off-balance sheet obligations were reported in the provided data. There are no explicit warning triggers (Current Ratio well >1.0, D/E well <2.0).

Cash Flow Quality

OCF/Net Income is 2.29x, indicating high-quality earnings and strong cash conversion. With capex of only 0.25, implied free cash flow would be robust if other investing outflows are limited; however, total investing CF was unreported, so reported FCF cannot be confirmed. Financing CF was -5.16, likely reflecting dividend payments (buybacks negligible at -0.00), which were covered comfortably by OCF. No clear signs of working capital manipulation can be identified due to lack of comparative AR/AP and deferred revenue data; AR stands at 16.78 but without prior-period benchmarks. Depreciation & amortization is low at 0.89, consistent with a capital-light model and supports cash conversion.

Dividend Sustainability

The calculated payout ratio of 199.7% appears at odds with cash flow-based capacity (OCF 22.89 vs Financing CF -5.16), suggesting data definitional issues (e.g., TTM basis, special dividends, or non-cash adjustments). DPS and total dividends paid were unreported, limiting precision. On a cash basis, the company appears capable of funding dividends from OCF with substantial headroom, given low capex requirements (0.25). Without confirmed DPS and policy guidance, we assume a stable or modestly progressive dividend policy is supportable, contingent on sustaining current cash generation. Key watchpoints: confirmation of total dividend cash outflow, any shift toward larger buybacks, and investing CF needs that could compete with distributions.

Risk Assessment

Business Risks:

• Project timing and revenue recognition risk in license/implementation-heavy quarters, potentially driving margin volatility.
• Competitive pressure from ERP and accounting software vendors, which could compress pricing and margins.
• Hiring and retention of skilled engineers/consultants amid wage inflation, risking SG&A creep and delivery constraints.
• Client IT budget cyclicality; delays or cuts could impact new licenses and large projects.
• Dependence on a concentrated product suite (fixed asset/accounting solutions) increasing exposure to product lifecycle risk.

Financial Risks:

• Market risk on investment securities (6.62) leading to valuation volatility and non-operating gains/losses.
• Interest income sensitivity to rate cycles affecting non-operating contributions.
• Potential working capital swings (receivables/deferred revenue) that can create quarter-to-quarter OCF volatility.

Key Concerns:

• Sustainability of unusually high operating margin (36.0%) as cost normalization and hiring catch up.
• Limited disclosure on investing CF and dividends introduces uncertainty around true FCF and payout.
• Non-operating income (0.47) contains market-sensitive elements (securities gains) that are non-recurring.

Investment Implications

Key Takeaways:

• Material operating and net margin expansion (+1,991 bps and +1,180 bps YoY, respectively) drove outsized profit growth.
• Earnings quality is strong with OCF/NI at 2.29x and capex-light model (capex 0.25).
• Balance sheet is cash-rich (78.50) with low leverage (D/E 0.32x), supporting reinvestment and shareholder returns.
• Non-operating tailwinds (interest income, securities gains) were additive but not core to the thesis.
• Reported payout ratio appears inconsistent with cash data; confirm DPS and dividend policy for clarity.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio for signs of normalization.
• Order backlog, book-to-bill, and recurring maintenance revenue ratio (not disclosed) for growth durability.
• Accounts receivable days and deferred revenue for working capital health and revenue visibility.
• Investing cash flows and capital allocation (M&A, product investment) versus dividends/buybacks.
• Non-operating income composition and sensitivity to rates/markets.

Relative Positioning: Within Japan software/IT service peers, ProShip currently exhibits superior margin performance and cash conversion with a very conservative balance sheet; the key debate is the durability of elevated margins versus expected normalization as growth investments and wage inflation resume.

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