Ad-Sol Nissin Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.51B
• Operating Income: ¥1.10B
• Net Income: ¥751M
• EPS: ¥42.98

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

Verdict: A solid Q2 with double-digit top-line growth and stronger operating leverage, tempered by weak operating cash conversion. Revenue rose 11.2% YoY to 85.06, while operating income climbed 25.4% YoY to 11.03, evidencing healthy demand and disciplined cost control. Gross profit reached 25.36 with a gross margin of 29.8%, supporting profitability improvements. Operating margin improved to about 13.0% this quarter from an estimated 11.5% a year ago, implying roughly 150 bps of expansion as operating income outpaced revenue growth. Ordinary income was 11.36, aided modestly by non-operating income (0.34), of which dividend income contributed 0.31, indicating incremental returns from a sizable investment securities portfolio (19.26 on the balance sheet). Net income increased 25.8% to 7.50, with an effective tax rate of 33.9%, broadly in line with a Japan domestic tax burden. ROE calculated at 9.8% was supported by a net margin of 8.8%, asset turnover of 0.814, and low financial leverage of 1.36x. Liquidity is robust with a current ratio of 331% and cash and deposits of 29.69, mitigating near-term financial risk. The balance sheet remains conservative (total liabilities 27.77 vs total equity 76.74), with no explicit interest-bearing debt disclosed. However, operating cash flow of 3.94 covered only 53% of net income, pointing to a cash conversion shortfall likely linked to receivables growth (AR 40.26) typical for a systems integrator amid expansion. Financing cash outflows totaled -3.06, including share repurchases of -1.79, which were largely covered by OCF, though dividend cash flows are unreported. Total comprehensive income of 8.61 exceeded net income, suggesting positive valuation effects (e.g., on investment securities) in other comprehensive income. EBITDA reached 11.77 with a margin of 13.8%, consistent with the operating margin improvement. Working capital remains the primary use of cash; payables (7.06) are modest relative to receivables, implying continued dependence on internal liquidity. Reported payout metrics are incomplete; a calculated payout ratio of 143% should be treated cautiously due to unreported DPS. Forward-looking, the company enters the second half with momentum in margins and a strong balance sheet, but must improve cash conversion to support shareholder returns and any incremental investment without drawing down cash.

Profitability Analysis

ROE decomposition (DuPont): ROE 9.8% = Net Profit Margin 8.8% × Asset Turnover 0.814 × Financial Leverage 1.36x. The largest positive change versus last year is inferred in Net Profit Margin, as operating income grew 25.4% vs revenue 11.2%, lifting operating margin from an estimated 11.5% to 13.0% (+150 bps). Business drivers: favorable mix and/or utilization improved gross-to-operating drop-through, with SG&A growing slower than revenue (exact YoY SG&A not disclosed) and minimal drag from non-operating items (net +0.33). Asset turnover at 0.814 is steady for a mid-year snapshot in SI businesses that carry large receivables; no evidence of meaningful deterioration in capital efficiency from reported data. Financial leverage is low at 1.36x, limiting ROE uplift but enhancing resilience. Sustainability: operating margin gains appear structurally supported by scale and discipline, but may moderate if wage inflation or subcontracting costs accelerate; dividend income is modest and non-core. Watchpoints: if SG&A growth outpaces revenue in H2 (data not disclosed this quarter), operating leverage could reverse; the current OCF-to-NI shortfall suggests working capital intensity may weigh on asset turnover and cash yields if growth remains front-loaded.

Growth Assessment

Top-line growth of 11.2% YoY to 85.06 indicates healthy demand, likely from ongoing digital transformation and public/enterprise IT spending. Operating income growth of 25.4% reflects solid operating leverage and execution, with gross margin at 29.8% providing headroom. Non-operating income was modest (0.34), implying results are chiefly driven by core operations rather than one-off gains. The effective tax rate of 33.9% is in a normalized range, supporting earnings quality from a tax perspective. Revenue sustainability hinges on backlog and client spend cadence; receivables buildup suggests active project delivery, but collection timing will be key. Profit quality is good at the P/L level, but cash quality is mixed (OCF/NI 0.53x) due to working capital. Outlook: with a strong balance sheet and improved margins, H2 can sustain growth if delivery and hiring stay on track; risks include wage cost inflation, project acceptance timing, and any slowdown in client capex. Non-operating contributions from investment securities are small and not a primary growth driver.

Financial Health

Liquidity is strong: current ratio 331% and quick ratio 331% (no inventories reported), with cash and deposits of 29.69 and working capital of 50.19. Solvency is conservative: total liabilities 27.77 vs total equity 76.74 (implied liabilities-to-equity ≈ 0.36x). No explicit short- or long-term interest-bearing debt is disclosed; interest coverage cannot be calculated but appears comfortable given the lack of reported interest expense. No warnings: Current Ratio well above 1.0 and D/E (as proxied by liabilities/equity) below 2.0. Maturity mismatch risk appears low: current assets of 71.89 comfortably exceed current liabilities of 21.70; accounts receivable (40.26) dominate current assets, which does introduce collection-timing sensitivity. Off-balance sheet obligations are not reported; no data on leases or guarantees in this snapshot.

Cash Flow Quality

OCF/Net Income is 0.53x, below the 0.8 threshold and flagged as a quality concern; the gap likely reflects receivables growth associated with revenue expansion and project timing. Free cash flow cannot be fully determined due to unreported investing CF; however, reported capex is minimal at -0.04, implying low capital intensity. OCF of 3.94 broadly covered share repurchases of -1.79, but dividend cash flows are unreported; sustained shareholder returns will require improved collections in H2. Working capital signals: high AR relative to AP (40.26 vs 7.06) is typical for SI firms but can suppress OCF during growth phases; no inventory data reported. No signs of deliberate working capital manipulation can be concluded from available data, but monitoring DSO and billing/acceptance timing is advised.

Dividend Sustainability

Dividend per share and total dividends paid are unreported; a calculated payout ratio of 143.1% appears inconsistent with missing DPS data and should be treated cautiously. With retained earnings of 62.15 and strong liquidity, the capacity to pay dividends exists; however, weak cash conversion in H1 (OCF/NI 0.53) argues for prudence until collections normalize. Share repurchases of -1.79 were executed and covered by OCF in H1, but total shareholder return capacity (dividends plus buybacks) depends on H2 OCF recovery. Policy outlook cannot be inferred from disclosures here; historical payout practices and guidance would be needed for confirmation. FCF coverage of dividends is not calculable due to unreported investing CF; near-term sustainability hinges on improving OCF.

Risk Assessment

Business Risks:

• Project acceptance and billing timing risk leading to OCF volatility
• Wage inflation and subcontractor cost pressure compressing margins
• Client IT budget cyclicality affecting backlog and revenue visibility
• Talent acquisition/retention constraints impacting delivery capacity

Financial Risks:

• Working capital intensity (high receivables) suppressing cash conversion
• Potential valuation volatility in investment securities affecting OCI and equity
• Concentration risk in receivables (counterparty credit) if large clients dominate
• Unreported interest-bearing debt/lease obligations could exist (data limitation)

Key Concerns:

• OCF/NI at 0.53x below quality threshold
• Receivables-heavy balance sheet (AR 40.26 vs AP 7.06)
• Dependence on maintaining operating margin gains amid cost inflation

Investment Implications

Key Takeaways:

• Revenue +11.2% and operating income +25.4% demonstrate strong operating leverage
• Operating margin expanded by ~150 bps to ~13.0%
• Liquidity is robust; leverage is low and balance sheet conservative
• Cash conversion is weak in H1; working capital management is the swing factor
• Non-operating income is small but positive (dividend income 0.31)
• ROE 9.8% with low leverage suggests quality earnings but limited financial gearing

Metrics to Watch:

• OCF/Net Income and DSO trends in H2
• Operating margin sustainability versus wage/subcontractor cost trends
• Backlog/order intake and revenue visibility
• AR balance and collection timing relative to revenue growth
• Any updates to dividend policy/DPS and total shareholder return
• Investment securities valuation impact on OCI and equity

Relative Positioning: Within Japanese mid-cap systems integrators, the company shows above-peer margin momentum and strong balance sheet resilience, but sits mid-pack on cash conversion due to receivables intensity; execution on collections will determine whether improved profitability translates into durable free cash flow.

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