SRA Holdings,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.72B
• Operating Income: ¥3.85B
• Net Income: ¥2.06B
• EPS: ¥200.17

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

SRA Holdings (3817) delivered solid topline growth in FY2026 Q2 with revenue of ¥26.7bn, up 12.0% YoY, indicating healthy demand across its systems integration and services base. Operating income rose 6.5% YoY to ¥3.85bn, lagging revenue growth and suggesting some margin compression amid cost pressures or mix effects. Net income increased 22.6% YoY to ¥2.53bn, implying non-operating tailwinds and/or a favorable tax impact contributed to the bottom line outperformance. Gross profit reached ¥6.18bn, translating to a gross margin of 23.1%, which provides an adequate buffer for SG&A and subcontracting costs in a labor-intensive model. Operating margin stands at approximately 14.4% (¥3.85bn/¥26.72bn), down about 0.8pp versus the implied prior-year level (~15.2%), pointing to moderate operating leverage dilution in the period. Ordinary income of ¥4.01bn exceeds operating income, signaling net non-operating gains (e.g., financial income or equity-method contributions). The DuPont framework shows a net margin of 9.46%, asset turnover of 0.547x, and financial leverage of 1.51x, resulting in an ROE of 7.82%, matching the reported figure. Liquidity is robust with a current ratio of 231% and a quick ratio of 207%, underpinned by ¥38.5bn in current assets versus ¥16.6bn in current liabilities. The balance sheet is conservative, with total liabilities of ¥20.3bn against equity of ¥32.3bn (debt-to-equity 0.63x), supporting solvency. Operating cash flow of ¥0.62bn is weak relative to net income (OCF/NI 0.25x), likely reflecting working capital consumption typical of first-half seasonality in SI businesses; this bears monitoring into H2. EBITDA of ¥3.94bn implies a 14.7% margin and low capital intensity (depreciation/amortization only ¥92m), consistent with an asset-light service model. Interest expense is shown as zero (likely unreported), and the interest coverage metric is therefore not meaningful; however, low leverage mitigates financial risk. Based on income tax of ¥1.10bn and net income of ¥2.53bn, the implied effective tax rate is roughly 30%, rather than the displayed 0.0% in the summary metrics. Dividend data are not disclosed (DPS and payout shown as 0.00), so distribution policy and sustainability cannot be inferred from the provided dataset. Overall, SRA shows healthy growth, resilient profitability, and strong liquidity, but cash conversion in H1 is soft and ROE, while stable, remains below double-digit peer benchmarks; the outlook hinges on margin discipline, working capital normalization, and order pipeline strength into H2.

Profitability Analysis

ROE decomposition: Net margin 9.46% × asset turnover 0.547 × financial leverage 1.51 = ROE 7.82%. The net margin reflects solid cost control but some impact from lower operating margin YoY; ordinary income exceeding operating income suggests non-operating support (e.g., financial income), which helped the bottom line. Operating margin is about 14.4% (3,849/26,719), down from an implied ~15.2% in the prior period, indicating moderate margin compression. Gross margin is 23.1% (6,181/26,719), adequate for a systems integrator but leaves limited headroom for wage inflation and subcontractor cost increases. EBITDA margin is 14.7% (3,941/26,719), and D&A is minimal (¥92m), highlighting low capital intensity and the primacy of labor and subcontracting expenses in the cost base. Operating leverage: revenue grew 12.0% while operating income rose 6.5%, signaling less-than-proportional profit growth and negative operating leverage in the period, likely from mix (higher hardware or lower-margin projects) or elevated personnel/subcontract costs. Ordinary income margin is ~15.0% (4,008/26,719), indicating additional non-operating contributions that partly offset operating margin softness. The bottom-line outperformance (+22.6% YoY NI) versus operating income growth suggests favorable below-OP items and/or tax normalization. Overall profitability is solid but dependent on mix and cost discipline; sustaining mid-teens OP margin will require careful control of subcontractor ratio and utilization.

Growth Assessment

Revenue growth of 12.0% YoY to ¥26.7bn is robust for a mid-sized SI player and implies healthy demand across core verticals. Operating income growth of 6.5% lagged sales expansion, suggesting growth came with slightly lower margins or higher upfront delivery costs. Net income growth of 22.6% indicates incremental support from non-operating items and a normalized tax burden. Sustainability: given the asset-light model and recurring/maintenance elements typical in SI, a portion of revenue should be sticky; however, project-based volatility and seasonal billing can affect quarterly cadence. The gross margin at 23.1% suggests room for continued growth if pricing and utilization are maintained, but wage inflation and subcontractor rates are key swing factors. The implied prior-period operating margin (~15.2%) versus current 14.4% indicates mix headwinds; reverting to prior margin levels would enhance profit growth in H2 if delivery efficiencies improve. The ordinary-profit lift over operating income underscores that financial and other non-operating items currently contribute; reliance here should not be considered structural for long-term growth. Outlook considerations: monitor order intake/backlog, public/financial sector demand, and cloud/system modernization projects, which could support double-digit revenue growth if execution remains strong. Absent disclosure on segment mix and backlog, we assume growth is broad-based; confirmation via H2 orders and completion rates will be important for sustainability.

Financial Health

Liquidity is strong: current ratio 231.4% (38.5bn/16.6bn) and quick ratio 206.7% indicate ample short-term coverage. Working capital is ¥21.9bn, providing a substantial buffer to absorb project timing and receivable swings. Solvency is conservative with total liabilities of ¥20.3bn versus equity of ¥32.3bn, yielding debt-to-equity of 0.63x (using total liabilities as a proxy for debt). Financial leverage of 1.51x is modest, consistent with a low-risk balance sheet for a service business. Equity ratio was displayed as 0.0% (not disclosed in this dataset); based on totals, equity/asset ratio would be approximately 66.1% (32.311/48.846), implying strong capitalization. Interest expense is shown as 0 (likely unreported), but the balance sheet suggests limited reliance on interest-bearing debt. Asset turnover of 0.547x is typical for an SI with sizable working capital and cash holdings. Overall, the company appears well-capitalized with substantial liquidity and manageable liabilities.

Cash Flow Quality

Operating cash flow was ¥621m versus net income of ¥2,528m, an OCF/NI ratio of 0.25x, indicating weak cash conversion in the half. This is likely driven by working capital outflows (e.g., increases in receivables and/or work-in-process), which are common seasonally in SI models; confirmation would require detailed cash flow notes. Investing cash flow is shown as 0 (not disclosed), and D&A is small at ¥92m, suggesting low capital intensity and potentially modest capex; however, without investing CF detail, true FCF cannot be confirmed. Using the provided figures, free cash flow is shown as 0 (not disclosed); thus, FCF coverage metrics are not meaningful in this dataset. EBITDA of ¥3.94bn against low D&A highlights earnings quality from operations, but the key question is conversion to cash in H2 as milestones are billed and collected. Working capital: inventories stand at ¥4.12bn (about 15% of gross profit and 10.7% of revenue on a half-year basis), reasonable for a business with some hardware component; receivables and payables details are not provided but are likely the main swing factors for OCF. Watch for normalization of OCF/NI toward or above 1.0x over the full year to validate earnings quality.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0.00 in the dataset (not disclosed), so we cannot assess current distribution levels. With net income of ¥2.53bn and low capital intensity, capacity for dividends typically hinges on full-year free cash generation rather than H1 OCF alone. OCF coverage of earnings is weak at 0.25x in H1, suggesting that reliable dividend funding would depend on H2 cash inflows and working capital release. Financing cash flow is negative ¥878m, which may reflect share repurchases or dividend payments, but without breakdown, we cannot attribute. Policy outlook is therefore indeterminate from this data set; historical tendencies and management guidance (not provided here) would be needed. In summary, dividend sustainability cannot be concluded from the provided numbers; monitor full-year FCF, cash balance disclosures, and any board resolutions on dividends.

Risk Assessment

Business Risks:

• Project execution risk and milestone timing leading to revenue and cash flow volatility
• Pricing pressure and mix shift toward lower-margin hardware or subcontract-heavy projects
• Wage inflation and competition for skilled engineers compressing gross and operating margins
• Customer concentration in key verticals (e.g., financial/public sectors) impacting demand cyclicality
• Technology transition risks (cloud migration, cybersecurity, AI integration) requiring ongoing investment
• Seasonality and H1/H2 skew affecting reported profitability and OCF

Financial Risks:

• Working capital outflows reducing cash conversion (OCF/NI at 0.25x in H1)
• Receivables collection timing and potential credit risk (details not disclosed)
• Reliance on non-operating income to support bottom line in periods of margin compression
• Limited visibility on interest-bearing debt and interest costs due to unreported interest expense
• Dividend and capital allocation uncertainty given undisclosed DPS/FCF

Key Concerns:

• Operating margin compressed ~0.8pp YoY despite double-digit revenue growth
• Weak H1 cash conversion; need for OCF normalization in H2
• ROE at 7.82% below double-digit thresholds common among quality SI peers
• Lack of disclosure on dividends and detailed cash flow components limits visibility

Investment Implications

Key Takeaways:

• Topline growth is strong (+12% YoY) but accompanied by modest margin compression
• Net income outpaced operating income growth, aided by non-operating items and likely a normalized tax rate
• Balance sheet strength (equity ~¥32.3bn vs liabilities ~¥20.3bn) underpins low solvency risk
• Cash conversion is weak in H1 (OCF/NI 0.25x), consistent with possible working capital build
• ROE at 7.82% reflects solid net margin but moderate asset turnover and low leverage

Metrics to Watch:

• Order intake/backlog and book-to-bill for H2 visibility
• Operating margin trajectory and subcontractor cost ratio
• OCF/Net income and working capital movements (receivables, WIP, payables)
• Gross margin by project mix (hardware vs services) and utilization rates
• Ordinary income components (non-operating gains) and tax rate normalization
• Full-year FCF and any dividend/resolution announcements

Relative Positioning: Within Japanese mid-cap systems integrators, SRA demonstrates healthy growth and solid operating margins with a conservative balance sheet, but ROE is below best-in-class peers and cash conversion in the half is weak; sustaining margins and improving OCF into H2 will be key to narrowing the gap with higher-ROE competitors.

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