Keyware Solutions Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.72B
• Operating Income: ¥300M
• Net Income: ¥195M
• EPS: ¥26.88

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

Keyware Solutions (TSE:3799) delivered solid top-line growth and a sharp rebound in profitability in FY2026 Q2 on a consolidated JGAAP basis, with revenue rising 8.2% year over year to ¥10.72bn. Gross profit of ¥1.61bn implies a gross margin of 15.0%, indicating disciplined project execution but still a relatively thin profile typical of SI/system development. Operating income surged to ¥0.30bn (+534.8% YoY), lifting the operating margin to roughly 2.8%, suggesting meaningful operating leverage from modest revenue growth. Ordinary income of ¥0.35bn exceeded operating income, pointing to supportive non-operating items (e.g., subsidies, equity-method gains, or financial income) that augmented earnings. Net income increased 15.2% YoY to ¥0.224bn, a smaller increase than operating income, implying normalizing taxes and/or non-operating variances. DuPont analysis shows a net margin of 2.09%, asset turnover of 1.014x, and financial leverage of 1.40x, producing an ROE of 2.97%, consistent with the reported figure. While ROE is still modest, the directional improvement in operating income suggests potential for further gains if margin expansion is sustained. Liquidity is strong, with current assets of ¥8.56bn against current liabilities of ¥2.85bn, resulting in a current ratio of about 300% and working capital of ¥5.70bn. The balance sheet appears conservatively structured: total equity of ¥7.55bn against total assets of ¥10.57bn implies an equity ratio of roughly 71% (despite the reported equity ratio metric showing 0.0%, which is likely undisclosed). Operating cash flow was negative at -¥0.281bn, lagging net income (OCF/NI ≈ -1.25x), pointing to a working capital outflow or billing timing effects in the quarter. Investing cash flow was not disclosed (0 shown), limiting visibility into capex or software investments; similarly, cash and equivalents were undisclosed, though liquidity looks ample from other current asset data. Interest expense was not disclosed and appears minimal, consistent with low financial risk from debt. Dividend data was not disclosed (DPS and payout shown as 0.00), so dividend policy and coverage cannot be reliably assessed from this period alone. Overall, the quarter evidences revenue resilience, notable operating leverage, ample liquidity, and conservative leverage, offset by weak operating cash conversion in the period and low but improving profitability metrics.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 2.09%
• asset_turnover: 1.014x
• financial_leverage: 1.40x
• calculated_ROE: 2.97% margin_quality: Gross margin is 15.0% (¥1,605.7m gross profit on ¥10,721.0m revenue), consistent with SI-oriented revenue mix and competitive pricing. Operating margin is approximately 2.8% (¥300.0m operating income), a sharp improvement YoY given the +534.8% increase in operating income from a low base. Ordinary income margin is about 3.3% (¥350.0m), indicating a positive non-operating contribution. The effective tax rate implied by income tax of ¥63.9m on ordinary income of ¥350.0m is roughly 18% (tax metric shown as 0% is not reflective of the disclosed amounts). operating_leverage: Revenue grew 8.2% YoY while operating income rose +534.8% YoY, indicating strong operating leverage from SG&A efficiency and/or improved project margin mix. EBITDA of ¥398.7m implies an EBITDA margin of 3.7%, improving but still modest; further scale and mix shift toward higher-value services would be needed to sustain margin expansion.

Growth Assessment

revenue_sustainability: Revenue of ¥10.72bn (+8.2% YoY) suggests steady demand in core SI and solution services. Without backlog or order intake disclosures, durability beyond the quarter cannot be fully assessed, but the growth rate is consistent with stable customer spending. profit_quality: Operating income improved markedly to ¥300m, supported by a stable gross margin and likely SG&A discipline. Ordinary income exceeding operating income indicates non-operating tailwinds; sustainability of these items should be monitored. Net income growth (+15.2% YoY) was more muted than operating income growth, reflecting taxes and ordinary income normalization. outlook: If revenue maintains mid-to-high single-digit growth and the company preserves recent cost discipline, operating margin could inch higher. However, the negative OCF this quarter suggests working capital timing risk; sustaining profit growth will require better cash conversion and continued improvement in project profitability.

Financial Health

liquidity: Current assets ¥8,558.2m vs. current liabilities ¥2,854.3m yield a current ratio of ~300% and quick ratio ~298%, indicating strong short-term liquidity. Working capital stands at ¥5,703.9m, providing ample buffer for project execution and seasonal swings. solvency: Total equity ¥7,545.0m and total assets ¥10,569.0m imply an equity ratio of ~71% (despite the reported 0.0% metric), signaling a conservative capital structure. Interest expense was undisclosed/zero, consistent with minimal debt service burden. capital_structure: Debt-to-equity ratio is listed at 0.43x (exact composition of interest-bearing debt not disclosed). With ordinary income exceeding operating income and negligible interest expense, financial risk from leverage appears low.

Cash Flow Quality

earnings_quality: OCF of -¥280.6m versus net income of ¥224.0m (OCF/NI ≈ -1.25x) indicates weak cash conversion in the quarter, likely due to receivables build or unbilled work common in SI businesses. Depreciation and amortization of ¥98.7m is modest relative to EBITDA, indicating limited non-cash uplift. FCF_analysis: Free cash flow cannot be assessed because investing cash flow (and thus capex) was not disclosed this period (0 indicates undisclosed). As such, FCF coverage of dividends and debt obligations cannot be reliably computed from the provided data. working_capital: The sizeable working capital position (¥5.70bn) supports operations, but the negative OCF suggests a period of investment in receivables or project WIP. Monitoring DSO, unbilled receivables, and contract asset movements is key for normalization.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are shown as 0.00, indicating no disclosure in this dataset rather than an actual zero payout. Based on net income of ¥224m, there is nominal earnings capacity to pay dividends, but policy details are not provided. FCF_coverage: Free cash flow was not determinable due to undisclosed investing cash flows; hence FCF coverage of dividends cannot be assessed for this period. policy_outlook: With strong liquidity and low leverage, the balance sheet can support distributions; however, management’s dividend policy, target payout, and capital allocation priorities were not disclosed here. Sustainability depends on converting earnings into cash and maintaining margin gains.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk affecting gross margins
• Client concentration risk typical for mid-size SI firms (not disclosed, but industry common)
• Talent retention and labor cost inflation impacting SG&A and delivery capacity
• Demand cyclicality tied to corporate IT spending and public sector budget timing
• Mix shift risk between lower-margin build work and higher-margin consulting/solutions

Financial Risks:

• Weak cash conversion in the quarter (OCF/NI ≈ -1.25x) suggesting working capital timing risk
• Limited visibility on capex and intangible investments due to undisclosed investing cash flows
• Potential receivables concentration and collection timing risk
• Dependence on non-operating gains to lift ordinary income above operating income

Key Concerns:

• Sustainability of recent operating margin improvement given thin gross margins
• Normalization of operating cash flow and working capital
• Lack of disclosure on dividends, cash balances, and capex limiting assessment of capital allocation

Investment Implications

Key Takeaways:

• Top-line growth of 8.2% YoY with significant operating profit rebound (+534.8% YoY) indicates strong operating leverage from a low base.
• ROE at 2.97% remains modest; further improvements hinge on sustained margin expansion.
• Liquidity is ample (current ratio ~300%, working capital ¥5.7bn) and leverage conservative (implied equity ratio ~71%).
• OCF negative (-¥281m) versus net income highlights near-term working capital drag; cash conversion is a key watch item.
• Ordinary income exceeding operating income signals non-operating support that may not be structural.

Metrics to Watch:

• Operating cash flow and OCF/NI ratio trajectory
• DSO, unbilled receivables, and contract assets (if disclosed)
• Order backlog and book-to-bill to gauge revenue visibility
• Gross and operating margin progression by business mix
• Capex/intangible investments and resulting FCF
• Composition of ordinary income (recurring vs. one-off)

Relative Positioning: Relative to domestic mid-tier SI peers, Keyware shows comparable revenue growth with conservative leverage and strong liquidity, but profitability (operating and ROE) remains on the low side; sustained execution on margin improvement and better cash conversion would be needed to close the gap.

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
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