ULS Group,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.89B
• Operating Income: ¥1.53B
• Net Income: ¥931M
• 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

ULS Group (TSE: 3798) delivered strong top-line momentum in FY2026 Q2, with consolidated revenue up 28.2% year over year to ¥7,893 million. Profit growth lagged sales growth, as operating income increased 5.6% to ¥1,533 million and net income rose 7.0% to ¥965 million, indicating negative operating leverage in the period. The company’s gross margin is reported at 32.3%, while operating margin stands at a healthy 19.4%, suggesting disciplined cost control but also higher SG&A investments versus the prior year. DuPont analysis indicates an 8.49% ROE, driven by a 12.23% net margin, 0.57x asset turnover, and modest leverage (1.22x), consistent with an equity-rich balance sheet. The balance sheet is robust with total assets of ¥13,856 million and total equity of ¥11,372 million; this implies an equity ratio of roughly 82% even though the equity ratio field is shown as 0.0% (likely undisclosed in that specific tag). Liquidity is strong, with current assets of ¥12,100 million and current liabilities of ¥3,091 million, yielding a current ratio of about 3.9x. Total liabilities are modest at ¥3,091 million, translating to a low debt-to-equity ratio of 0.27x. Ordinary income of ¥1,546 million slightly exceeds operating income, indicating small net non-operating gains. The effective tax burden appears normal at roughly 33.7% (¥521 million tax on ¥1,546 million pre-tax), despite a 0.0% tag in the metrics summary. Cash flow items (operating, investing, financing) are shown as zero and should be treated as unreported; consequently, free cash flow and OCF-based quality metrics cannot be assessed from this dataset. EPS is ¥17.42 for the half-year, implying an approximate share count of ~55.4 million based on reported net income, although shares outstanding are not disclosed in the provided fields. Working capital is sizable at ¥9,009 million, supporting execution capacity and growth. Despite the margin pressure from negative operating leverage, profitability levels remain solid for an SI/IT services model, aided by a high-value mix. The notable inconsistency between the reported cost of sales (¥3,605 million) and the gross profit (¥2,551 million) versus the derived relationship from revenue suggests classification or tagging differences; the provided gross margin metric (32.3%) appears consistent with the gross profit figure. Dividend details are not disclosed (DPS 0.00 in the dataset), so payout policy assessment is constrained. Overall, the company shows strong growth, solid margins, healthy balance sheet strength, and moderate ROE, with the main caveats being limited cash flow disclosure and some internal line-item inconsistencies in the report.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 12.23%
• asset_turnover: 0.570x
• financial_leverage: 1.22x (Assets/Equity)
• calculated_ROE: 8.49%
• comments: ROE of 8.49% reflects solid margins and low leverage. Asset turnover at 0.57x is moderate for a mid-year snapshot and may not reflect full-year normalized turnover. margin_quality:
• gross_margin: 32.3% (gross profit ¥2,551m on revenue ¥7,893m)
• operating_margin: 19.4% (operating income ¥1,533m)
• ordinary_margin: 19.6% (ordinary income ¥1,546m)
• net_margin: 12.23% (net income ¥965m)
• SG&A_ratio: ≈12.9% (SG&A inferred at ~¥1,018m = gross profit – operating income)
• observations: Gross margin and operating margin are healthy for an IT services/SI model, indicating value-added services. Slight positive non-operating contribution is evident. Cost discipline remains solid but YoY deleverage suggests higher personnel and growth investments. operating_leverage:
• revenue_growth_YoY: +28.2%
• operating_income_growth_YoY: +5.6%
• interpretation: Negative operating leverage in the period; SG&A grew faster than gross profit, likely due to hiring, wage inflation, or business development to support growth.

Growth Assessment

revenue_sustainability: Top-line growth of +28.2% YoY is robust and indicative of healthy demand, likely in higher-value SI/cloud/DevOps-related services. The mix appears supportive of mid-30% gross margins. profit_quality: Profit growth trails revenue growth, reflecting investment phase dynamics. Ordinary income slightly above operating income suggests no significant financing burden; core profitability remains the primary driver. outlook: If headcount productivity and utilization improve, operating leverage could normalize in subsequent periods. Sustained demand and a rich pipeline would be key to maintaining double-digit growth while stabilizing margins.

Financial Health

liquidity:

• current_assets: ¥12,100m
• current_liabilities: ¥3,091m
• current_ratio: ≈3.9x (391.5%)
• quick_ratio: ≈3.9x (inventory not disclosed)
• working_capital: ¥9,009m
• comment: Ample near-term liquidity supports ongoing project execution and growth investments. solvency_capital_structure:
• total_assets: ¥13,856m
• total_equity: ¥11,372m
• total_liabilities: ¥3,091m
• debt_to_equity: 0.27x
• equity_ratio_implied: ≈82% (equity/assets), despite a 0.0% tag in the dataset
• interest_coverage: Not assessable (interest expense undisclosed); operating earnings are sufficient to cover any modest interest burden implied by low leverage.
• comment: The balance sheet is equity-heavy with low leverage, providing resilience and strategic flexibility.

Cash Flow Quality

earnings_quality: OCF and FCF are not disclosed in this dataset; therefore, accrual intensity and cash conversion cannot be assessed. Profitability appears driven by core operations, but confirmation via cash metrics is pending. FCF_analysis: Free cash flow is shown as zero due to unreported OCF/CapEx. With strong working capital and low leverage, potential FCF generation could be solid, but this remains unverified. working_capital_dynamics: High working capital (¥9,009m) suggests sizable receivables/unbilled positions typical in SI projects. Monitoring DSO and project billing milestones will be critical to cash conversion.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio fields are shown as zero (undisclosed). With EPS of ¥17.42 for the half-year and robust equity, capacity for dividends exists, but no policy can be inferred from the provided data. FCF_coverage: Not assessable due to unreported cash flows. Historical cash generation and policy disclosure would be necessary for a firm view. policy_outlook: Given low leverage and solid profitability, the balance sheet could support distributions; however, management stance (growth reinvestment vs. shareholder returns) is unknown in this dataset.

Risk Assessment

Business Risks:

• Negative operating leverage if wage inflation and hiring outpace revenue growth.
• Project execution and utilization risk typical of SI/services models.
• Client concentration risk if top accounts represent a high share of revenue (not disclosed).
• Pricing pressure and competitive intensity in SI/cloud/DevOps markets.
• Talent acquisition and retention constraints impacting delivery capacity.

Financial Risks:

• Cash conversion risk due to high working capital/receivables typical in project-based models.
• Limited visibility on cash flows and capex given undisclosed OCF/FCF.
• Potential margin volatility from mix shifts and variable subcontracting costs.

Key Concerns:

• Margin dilution versus strong revenue growth (operating income growth +5.6% vs. revenue +28.2%).
• Inconsistent cost of sales versus gross profit figures in the dataset; reliance on provided gross margin metric.
• Lack of cash flow disclosure impedes assessment of earnings quality and dividend capacity.

Investment Implications

Key Takeaways:

• Strong revenue growth with healthy absolute margins but evidence of negative operating leverage.
• Moderate ROE (8.49%) given a conservative, equity-heavy balance sheet.
• Very solid liquidity and low leverage provide resilience and optionality.
• Cash flow and dividend visibility are limited due to undisclosed items.
• Small positive non-operating contribution; core business remains the main earnings driver.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio in subsequent quarters.
• OCF, FCF, DSO, and billing milestone collections when disclosed.
• Headcount growth vs. utilization/productivity to gauge operating leverage.
• Order backlog/book-to-bill and pricing/mix to sustain top-line growth.
• ROE bridge components (asset turnover normalization and leverage).

Relative Positioning: Within Japan’s IT services/SI peer set, ULS exhibits above-average growth and healthy margins with conservative leverage, but currently shows weaker operating leverage and limited cash flow disclosure relative to best-in-class peers.

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