ULS Group,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.89B
• Operating Income: ¥1.53B
• Net Income: ¥989M
• EPS: ¥17.42

Income Statement

Balance Sheet

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

Verdict: Solid top-line growth but noticeable margin compression, resulting in only modest profit growth in FY2026 Q2. Revenue rose 28.2% YoY to 78.93, demonstrating strong demand and successful execution in core IT services. Operating income increased 5.6% YoY to 15.33, and ordinary income grew 6.4% YoY to 15.46, indicating limited contribution from non-operating items (0.13). Net income advanced 7.0% YoY to 9.65, with a net margin of 12.2%. Gross margin stands at 40.3%, while operating margin is 19.4% and ordinary margin is 19.6%. Based on the YoY growth differentials, operating margin compressed by roughly 416 bps (from ~23.6% to ~19.4%), and net margin compressed by about 242 bps (from ~14.7% to ~12.2%). The effective tax rate is relatively high at 36.0%, weighing on bottom-line conversion. Liquidity is a clear strength, with a current ratio of 4.89x and cash of 73.38 against current liabilities of 24.83, supporting resilience. Financial leverage is low (D/E 0.22x; equity/asset ~82%), providing balance sheet flexibility. ROE is 8.5% per DuPont (NPM 12.2%, asset turnover 0.57x, financial leverage 1.22x), implying returns are driven primarily by margins rather than leverage. Earnings quality cannot be fully assessed due to unreported cash flow data; OCF/NI and FCF are N/A. The reported payout ratio of 396.7% is likely non-comparable (period mismatch vs annual DPS) and should not be interpreted as a true fiscal-year payout without dividend disclosure. Forward-looking, sustained revenue momentum is encouraging, but SG&A efficiency and delivery costs must be controlled to defend margins. With a strong net cash position and low leverage, the company has capacity to invest in talent and delivery capabilities, yet wage inflation and pricing discipline remain focal risks. Overall, execution remains solid on growth, but near-term profit scalability is the key watchpoint.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.5% = Net Profit Margin (12.2%) × Asset Turnover (0.570) × Financial Leverage (1.22x). The largest impact on ROE this quarter is the reduction in margin versus the prior year, inferred from revenue growth (+28.2%) far outpacing operating income growth (+5.6%). Operating margin compressed approximately 416 bps (to ~19.4%), likely reflecting higher personnel costs (wage inflation, hiring to support growth), mix shifts, and/or project delivery cost overruns; SG&A detail is unreported, limiting precision. Net margin also compressed by roughly 242 bps to 12.2%, with a 36% effective tax rate further dampening after-tax returns. Asset turnover at 0.57x is moderate for an IT services firm and, together with very low leverage (1.22x), caps ROE despite healthy gross profitability. The margin pressure appears operational rather than one-time, given the scale of differential between revenue and operating income growth; absent pricing improvements or efficiency gains, the compression could persist. Watch for any trend where SG&A growth exceeds revenue growth; while SG&A details are not disclosed, the operating leverage this quarter appears negative. Sustaining ROE improvement will likely require stabilizing operating margins through utilization, pricing discipline, and tighter cost control rather than balance-sheet leverage.

Growth Assessment

Revenue growth of +28.2% YoY is robust, signaling strong demand in the company’s service lines. However, operating income grew only +5.6% YoY, indicating that incremental revenue carried lower contribution margins due to cost increases or mix. Non-operating income (0.13) was immaterial, so core operations dictated the result. The gross margin at 40.3% is healthy for SI/IT services, but the step-down in operating margin suggests rising SG&A or delivery costs. Net income grew +7.0% YoY, aided slightly by non-operating income but constrained by a 36% effective tax rate. With no backlog, order intake, or segment detail disclosed, sustainability of the current growth rate cannot be confirmed; historically, growth at this pace may require ongoing hiring, which can pressure margins. Outlook hinges on pricing power, utilization, and project mix (fixed-price vs time-and-materials). If the company can improve operating efficiency and normalize the tax rate, incremental revenue could translate better to profit. Near-term, expect management focus on cost discipline and selective growth investment to balance scale and profitability.

Financial Health

Liquidity is strong: current ratio 488.8% and quick ratio 488.8%, with cash and deposits of 73.38 versus current liabilities of 24.83. There is no warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.22x. Total equity is 113.72 and total assets 138.56, implying an equity ratio of ~82%, underscoring a robust balance sheet. Maturity mismatch risk appears low given the sizable cash cushion against current liabilities; short-term borrowings are unreported but not evidently material. Noncurrent liabilities are unreported; however, the overall liability base is small relative to equity. Interest-bearing debt breakdown is not disclosed, limiting a precise solvency assessment, but headline leverage is low. No off-balance sheet obligations are mentioned in the data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported; therefore OCF/Net Income and FCF coverage metrics are N/A. Without OCF, earnings quality cannot be validated; key tests such as cash conversion, working capital swings (receivables, unbilled, payables), and accrual intensity are unavailable. The sizable cash balance (73.38) provides a buffer, but it is not a substitute for recurring cash generation. There are no visible signs of working capital manipulation in the provided data, yet receivables and inventories are unreported, preventing analysis of DSO/DPO trends. Assess sustainability only after cash flow disclosure (especially H1 vs full-year seasonality effects).

Dividend Sustainability

Dividend data (DPS, total dividends paid) are unreported. The calculated payout ratio of 396.7% likely reflects a period mismatch (e.g., annualized dividend vs half-year EPS) and should not be treated as an economic payout for FY2026. With FCF unreported, coverage cannot be computed. Balance sheet strength (net cash and low leverage) suggests capacity to sustain a reasonable dividend, but without cash flow and explicit policy disclosure, sustainability cannot be confirmed. Monitor full-year EPS, OCF, and announced dividend policy before evaluating payout prudence.

Risk Assessment

Business Risks:

• Margin compression due to wage inflation and hiring to support growth
• Project execution risk on fixed-price contracts causing delivery cost overruns
• Pricing pressure and utilization risk amid rapid scaling
• Client concentration risk (not disclosed but typical for mid-sized SI firms)
• Demand cyclicality tied to enterprise IT spending and macro conditions

Financial Risks:

• Limited visibility on cash generation due to unreported OCF and FCF
• Tax rate volatility (effective tax at 36% this quarter)
• Potential off-balance commitments or lease obligations not disclosed

Key Concerns:

• Operating margin down an estimated ~416 bps YoY despite strong revenue growth
• High effective tax rate constraining net margin (12.2%)
• Dividend and payout metrics unclear; reported payout ratio likely non-comparable
• Data gaps in SG&A breakdown, receivables, debt composition, and cash flows

Investment Implications

Key Takeaways:

• Top-line momentum is strong (+28.2% YoY) but profit scalability lagged (+5.6% YoY OI)
• Operating margin compressed materially to ~19.4%, indicating cost pressure
• Balance sheet is very strong (equity ratio ~82%, D/E 0.22x, ample cash)
• ROE at 8.5% is margin-driven; low leverage limits return uplift
• Non-operating items are small; results reflect core operations

Metrics to Watch:

• Operating margin and SG&A ratio trajectory
• OCF/Net Income once disclosed (target >=1.0)
• Headcount growth versus revenue growth (utilization proxy)
• Effective tax rate normalization
• Backlog/order intake and pricing on large projects

Relative Positioning: Within domestic IT services/SI peers, the company exhibits above-peer revenue growth with superior balance sheet strength, but faces near-term margin execution challenges; its low leverage provides optionality to invest in delivery capacity and productivity to restore operating leverage.

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