SYSTEMS DESIGN Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.93B
• Operating Income: ¥198M
• Net Income: ¥80M
• EPS: ¥38.54

Income Statement

Balance Sheet

Cash Flow Statement

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

Systems Design Co., Ltd. (TSE: 3766) delivered solid topline growth in FY2026 Q2, with revenue up 6.9% YoY to ¥4,928m. Profitability improved more markedly, as operating income rose 48.6% YoY to ¥198m and net income increased 64.2% YoY to ¥131m, signaling successful margin expansion and operating leverage. Gross profit reached ¥1,003m, implying a gross margin of 20.4%, while operating margin expanded to roughly 4.0%. Ordinary income of ¥210m exceeded operating income, suggesting modest non-operating gains. DuPont metrics indicate a calculated ROE of 2.85%, driven by a 2.66% net margin, 0.775x asset turnover, and 1.38x financial leverage. The balance sheet remains conservative, with total assets of ¥6,362m against total liabilities of ¥1,778m and equity of ¥4,603m, yielding a low debt-to-equity of ~0.39x. Liquidity is strong: current assets of ¥4,829m and current liabilities of ¥1,214m translate to a 398% current ratio and ample working capital of ¥3,615m. Operating cash flow was ¥51.6m, resulting in a low OCF/Net Income ratio of 0.39, indicating weaker cash conversion this half, likely due to working capital outflows. Reported zeros for interest expense, cash and equivalents, investing CF, and certain ratios (e.g., equity ratio, interest coverage, effective tax rate) appear to reflect non-disclosure rather than true zeros; analysis focuses on disclosed non-zero items. Depreciation and amortization were modest at ¥13.1m, producing an EBITDA of ¥211.1m and an EBITDA margin of 4.3%. The effective tax burden inferred from disclosed income tax and ordinary income is roughly low-30%s, even though the reported metric shows 0.0% due to data limitations. Dividend figures show 0.00 DPS and 0.0% payout, which likely indicates non-disclosure for the period rather than policy change; we therefore do not infer any change in dividend stance. Overall, the company demonstrates improving profitability on moderate revenue growth, backed by a strong liquidity position and modest leverage. The key offset is weaker cash conversion in the half, warranting monitoring of receivables and unbilled work. With a low financial leverage profile, earnings growth is being driven primarily by margin expansion and asset efficiency rather than balance sheet gearing. Given the interim nature of the period and several unreported line items, conclusions about full-year cash generation and dividends should be made cautiously. Near-term focus should be on sustaining margin gains, normalizing cash conversion, and managing working capital in the seasonally stronger back half.

Profitability Analysis

roe_decomposition: ROE 2.85% = Net margin 2.66% × Asset turnover 0.775× × Financial leverage 1.38×. Net margin improved alongside a 48.6% YoY rise in operating income versus 6.9% revenue growth, indicating positive operating leverage. Asset turnover at 0.775× reflects moderate efficiency for an IT services/BPO model with relatively light asset intensity. Leverage remains low, so equity returns are predominantly driven by margin and turnover changes rather than gearing. margin_quality: Gross margin is 20.4% (¥1,003m/¥4,928m). Operating margin is ~4.0% (¥198m/¥4,928m). Ordinary margin is ~4.3% (¥210m/¥4,928m). Net margin is 2.66% (¥131m/¥4,928m). The step-up from operating to ordinary income suggests minor non-operating tailwinds. Tax expense of ¥67.8m implies an effective tax rate in the low-30%s based on ordinary income, though the reported effective tax metric is not reliable due to data gaps. Overall margin expansion indicates better mix, pricing, utilization, or SG&A discipline. operating_leverage: Operating income grew 48.6% on 6.9% revenue growth, demonstrating strong operating leverage. D&A is modest (¥13.1m), so EBITDA movement is largely driven by operating profit. The improvement suggests fixed-cost absorption benefits and SG&A efficiency; sustaining this will depend on revenue cadence and project execution.

Growth Assessment

revenue_sustainability: Revenue increased 6.9% YoY to ¥4,928m, consistent with steady demand for systems development/ITO/BPO services. Inventories are minimal (¥52m), indicating a service-heavy revenue model less reliant on physical stock. profit_quality: Net income rose 64.2% to ¥131m, outpacing revenue, reflecting mix and cost controls. Ordinary income exceeded operating income, adding small non-operating support. However, OCF/NI of 0.39 indicates earnings did not fully convert to cash in H1, likely due to receivable growth or unbilled work. outlook: Margin momentum is favorable entering H2, but sustainability hinges on backlog conversion, delivery quality, and working capital normalization. With low leverage and strong liquidity, the company has capacity to invest in talent and tools to sustain growth. Absent guidance data, we assume mid-single-digit revenue growth with continued, but moderating, margin gains if operating discipline holds.

Financial Health

liquidity: Current assets ¥4,829m vs current liabilities ¥1,214m yields a current ratio of 397.6% and a quick ratio of 393.3%, indicating substantial short-term coverage. Working capital stands at ¥3,615m, providing a strong liquidity buffer. solvency: Total liabilities ¥1,778m against equity ¥4,603m implies a debt-to-equity of ~0.39× and low financial risk. Interest expense was not disclosed (reported as 0), so interest coverage cannot be reliably computed, but the low leverage suggests limited refinancing risk. capital_structure: Assets ¥6,362m funded primarily by equity (¥4,603m). Financial leverage is modest at 1.38× (Assets/Equity). The reported equity ratio of 0.0% is a non-disclosure artifact; based on the balance sheet, an implied equity ratio would be roughly 72%.

Cash Flow Quality

earnings_quality: Operating cash flow of ¥51.6m versus net income of ¥131m (OCF/NI 0.39) points to weaker cash conversion this half, likely from working capital build (e.g., receivables/unbilled). EBITDA of ¥211.1m provides coverage for non-cash items, but cash realization lagged. fcf_analysis: Investing cash flow is reported as 0, which likely reflects non-disclosure. True free cash flow cannot be determined without capex. Using available data, FCF is indeterminable; management’s capex and investment activity should be monitored to gauge sustainable cash generation. working_capital: Current asset intensity is high versus current liabilities, and inventories are negligible (¥52m), consistent with services. The weak OCF suggests receivables or contract assets increased; collection cycles and billing milestones should normalize in H2 seasonally.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are reported as 0.00/0.0%, which likely indicates absence of disclosure for the interim period rather than a definitive policy change. With net income of ¥131m and modest D&A, capacity exists, but payout decisions depend on full-year results and cash generation. fcf_coverage: FCF cannot be assessed due to unreported investing cash flows and capex. OCF of ¥51.6m in H1 alone provides limited coverage for a meaningful dividend absent H2 improvements. policy_outlook: Given strong balance sheet and low leverage, the company has flexibility; actual dividend stance should be inferred from full-year announcements. We refrain from conclusions until full-year DPS and cash flows are disclosed.

Risk Assessment

Business Risks:

• Project execution risk in fixed-price development and BPO contracts impacting margins
• Client concentration and renewal risk typical of mid-sized IT services vendors
• Talent retention and wage inflation pressuring gross margins
• Timing risk in milestone billing affecting revenue recognition and cash conversion
• Competition from larger SIers and offshore providers compressing pricing

Financial Risks:

• Working capital swings leading to volatile operating cash flow
• Potential receivable concentration and collection delays
• Limited non-operating income visibility; reliance on core operations for profit
• Exposure to macro slowdown impacting discretionary IT spend

Key Concerns:

• Low OCF/Net Income (0.39) in H1 indicates weak cash conversion
• Sustainability of margin expansion after a strong operating income jump
• Data gaps (cash, investing CF, DPS) limit assessment of full cash returns

Investment Implications

Key Takeaways:

• Revenue grew 6.9% YoY to ¥4,928m with strong operating leverage (OP +48.6% YoY)
• Margins improved: GM 20.4%, OP margin ~4.0%, NI margin 2.66%
• ROE 2.85% underpinned by margin gains and moderate asset turnover, not leverage
• Balance sheet conservative with D/E ~0.39× and substantial liquidity (current ratio ~398%)
• OCF weak at ¥51.6m (OCF/NI 0.39), pointing to working capital drag in H1
• FCF and dividend capacity cannot be fully assessed due to unreported investing CF and DPS

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Receivables days and unbilled balances to track cash conversion
• Operating margin trajectory and utilization rates
• Capex and investing cash flows for FCF visibility
• Client concentration metrics and renewal rates
• Headcount and wage trends impacting cost base

Relative Positioning: Relative to domestic mid-cap SI/BPO peers, the company shows solid growth with improving operating leverage and a stronger-than-average liquidity profile, but lags best-in-class peers on cash conversion this half; low leverage provides resilience but limits ROE amplification.

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