DAIWA COMPUTER CO.,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥767M
• Operating Income: ¥36M
• Net Income: ¥88M
• EPS: ¥8.30

Income Statement

Balance Sheet

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

Daiwa Computer Co., Ltd. (3816) reported FY2026 Q1 consolidated results under JGAAP with modest top-line growth but sharp profit compression. Revenue rose 1.5% YoY to ¥767m, while operating income fell 72.4% YoY to ¥36m, indicating significant margin pressure despite stable gross profitability. Gross profit of ¥247.1m implies a gross margin of 32.2%, broadly healthy for a mid-tier SI/contract development model, but the operating margin shrank to 4.7%, pointing to elevated SG&A or lower utilization/pricing. Ordinary income of ¥58m exceeded operating income, suggesting non-operating gains (e.g., interest/dividends, subsidies) partially offset the operating shortfall. Net income was ¥32m (−63.5% YoY), with a net margin of 4.17%. Based on net income and reported equity, quarterly ROE was approximately 0.60% (consistent with the DuPont calculation), which annualizes to a low single-digit level. The balance sheet is strong: total assets ¥6.243bn, total liabilities ¥876m, and total equity ¥5.348bn, implying an equity ratio of ~85.7% and debt-to-equity of 0.16x. Liquidity is ample, with current assets of ¥4.451bn versus current liabilities of ¥492m, yielding a current ratio of ~906% and working capital of ~¥3.96bn. Interest expense was negligible at ¥0.17m, and implied interest coverage is very high. Tax expense of ¥49.95m versus net income suggests an effective tax rate around the low-60% range on implied pre-tax income, which looks elevated for a quarter and may reflect timing effects or adjustments. Cash flow statement items were not disclosed for the quarter, so free cash flow and cash conversion cannot be evaluated. Dividend per share was not reported in the quarter data set; payout metrics are therefore indeterminate. Overall, the quarter shows resilient revenue but significant operating deleverage, mitigated by a fortress-like balance sheet. Key watchpoints are SG&A normalization, utilization and pricing recovery, and tax rate trends in subsequent quarters. Data limitations (notably cash flow and share count) constrain depth of cash-based analyses, so conclusions emphasize the available P/L and balance sheet evidence.

Profitability Analysis

ROE decomposition (DuPont): Net margin 4.17% × asset turnover 0.123 × financial leverage 1.17 yields an ROE of ~0.60% for the quarter, in line with the provided calculation. Profitability dynamics: Gross margin was 32.2%, indicating stable project economics at the delivery level. Operating margin dropped to ~4.7% (¥36m / ¥767m), a sharp contraction YoY given the −72% operating income change on +1.5% revenue, pointing to significant operating deleverage—likely from higher personnel costs, lower utilization, project mix (fixed-price overrun, higher subcontracting), or upfront investments. Ordinary margin was ~7.6% (¥58m / ¥767m), implying positive non-operating items partially offset operating weakness. Net margin of 4.17% reflects additional pressure from a high quarterly effective tax burden. Operating leverage: The outsized decline in operating income relative to revenue indicates high short-term operating leverage; small top-line changes are amplifying profit volatility. Margin quality: Given stable gross margin but compressed operating margin, the issue appears to be SG&A intensity or resource inefficiency rather than deterioration in delivery-level costs. Sustained margin recovery will require tighter SG&A control, improved capacity utilization, and disciplined project selection/pricing.

Growth Assessment

Revenue growth was +1.5% YoY to ¥767m, indicating stable demand but limited expansion. Given the company’s likely SI/contract development profile, growth depends on order intake, headcount capacity, billing rates, and project mix; the modest growth suggests either constrained capacity or cautious client spending. Profit quality weakened: operating income fell 72.4% YoY, far outpacing revenue trends, indicating negative mix or cost absorption issues. Ordinary income outperformed operating income, implying reliance on non-operating contributions this quarter; such contributions are typically less durable. The high implied tax rate weighed further on bottom-line growth. Outlook: Near-term growth sustainability hinges on backlog conversion, utilization improvement, and normalization of SG&A (e.g., hiring cost spike or seasonal expenses). If the quarter’s tax and SG&A effects are timing-related, profit recovery in subsequent quarters is plausible; if structural (wage inflation, persistent subcontracting), margins may remain subdued despite stable revenue. With a strong balance sheet, the company has capacity to invest in talent and tools to support medium-term growth, but near-term earnings trajectory is uncertain pending clarity on cost normalization.

Financial Health

Liquidity: Current assets ¥4.451bn vs current liabilities ¥0.492bn yields a current ratio of 906% and ample working capital (¥3.96bn), indicating very strong short-term liquidity. Quick ratio mirrors current ratio as inventories are not disclosed (likely limited for a services model). Solvency: Total liabilities ¥0.876bn vs equity ¥5.348bn implies equity ratio ~85.7% and debt-to-equity ~0.16x, reflecting low leverage and high solvency capacity. Interest expense is minimal (¥0.17m), and interest coverage is extremely high, suggesting negligible financial risk from debt service. Capital structure: Predominantly equity-funded, providing resilience through earnings volatility and flexibility for investment. While cash and cash equivalents were not disclosed in the quarter data, the size of current assets versus liabilities suggests a substantial net cash position.

Cash Flow Quality

Earnings quality assessment is constrained, as operating, investing, and financing cash flows were not disclosed for the quarter. Accordingly, OCF-to-net income and free cash flow cannot be evaluated, and the reported 0.00 metrics should be treated as unreported rather than true zeros. Working capital appears ample (current assets exceed current liabilities by ~¥3.96bn), which typically supports cash stability; however, without AR/AP and contract asset details, cash conversion timing cannot be assessed. Given the services model, key determinants of cash flow quality include receivable collections, unbilled receivables/contract assets, and subcontractor payment terms—all not disclosed here. Conclusion: Insufficient data to judge cash conversion; monitor subsequent quarter filings for OCF, capex, and working capital movements.

Dividend Sustainability

Dividend data (DPS) and cash flows were not disclosed for the quarter, so payout and FCF coverage cannot be determined from this set. With positive quarterly net income and a very strong equity base, balance-sheet capacity for dividends appears ample in principle, but sustainability should be anchored to full-year earnings cadence and cash generation, neither of which are available here. Policy outlook is therefore indeterminate based on this snapshot; review the company’s disclosed dividend policy and full-year guidance/track record when available.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and competition for IT talent affecting utilization and billing spread
• Fixed-price project risk (scope creep, delivery overruns) leading to gross-to-operating margin leakage
• Client spending delays or cancellations impacting short-cycle SI revenues
• Project mix shifts (increased subcontracting) diluting gross margin
• Dependence on specific industries or key clients (potential concentration risk)
• Non-operating income reliance to support ordinary income in weak quarters
• Tax rate volatility due to adjustments or discrete items affecting bottom line

Financial Risks:

• Working capital swings from receivable and unbilled balances (cash conversion risk)
• Potential increase in subcontractor costs compressing margins
• Limited visibility on capex and capitalized development without cash flow disclosures
• Quarterly profit volatility causing low ROE despite strong equity base

Key Concerns:

• Operating income fell 72.4% YoY despite revenue growth, signaling operating deleverage
• High implied effective tax rate (~61%) weighed on net income and may be volatile
• Lack of cash flow disclosure prevents assessment of earnings-to-cash conversion

Investment Implications

Key Takeaways:

• Top line stable (+1.5% YoY) but profitability under pressure; operating margin compressed to ~4.7%
• Ordinary income benefited from non-operating gains, masking weaker core operations
• Balance sheet exceptionally strong (equity ratio ~86%, D/E ~0.16x), providing resilience
• Quarterly ROE low (~0.6%), reflecting subdued profitability on a large equity base
• Cash flow and dividend data unreported; defer conclusions on cash conversion and payouts

Metrics to Watch:

• Operating margin recovery and SG&A trajectory
• Utilization rate, headcount growth, and average billing rates
• Order backlog and book-to-bill to gauge near-term revenue visibility
• Gross margin mix (in-house vs subcontracted work) and fixed-price project performance
• AR days, unbilled receivables/contract assets, and OCF when disclosed
• Effective tax rate normalization across the fiscal year
• ROE and asset turnover trends as operations stabilize

Relative Positioning: Within Japan’s small- to mid-cap SI/IT services cohort, Daiwa Computer exhibits superior balance sheet strength and liquidity but weaker near-term profitability, with margins and ROE currently below peers that maintained cost discipline and utilization; normalization of SG&A and improved mix would be required 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
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