Ad-Sol Nissin Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.51B
• Operating Income: ¥1.10B
• Net Income: ¥597M
• 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

Adsol Nissin (3837) delivered solid H1 FY2026 (Q2 cumulative) results under JGAAP on a consolidated basis, with revenue of ¥8,506m (+11.2% YoY) and operating income of ¥1,103m (+25.4% YoY), indicating healthy operating leverage. Gross profit was ¥2,201m, implying a gross margin of 25.9%, while operating margin improved to roughly 13.0%, reflecting good cost control and mix. Ordinary income was ¥1,136m, broadly aligned with operating income, suggesting limited non-operating noise. Net income reached ¥750m (+25.8% YoY), with EPS of ¥42.98. DuPont analysis shows ROE of 9.77%, driven by a net margin of 8.82%, asset turnover of 0.814x, and modest leverage of 1.36x—pointing to a returns profile primarily anchored in profitability rather than leverage. Balance sheet quality appears strong: total assets ¥10,451m, equity ¥7,674m, and liabilities ¥2,810m; this implies an equity ratio of about 73.4% (despite a reported equity ratio of 0.0% which is not a true zero per disclosure). Liquidity is ample with current assets of ¥6,680m and current liabilities of ¥2,215m, yielding a current ratio of 301% and working capital of ¥4,464m. Operating cash flow was negative at -¥72m despite strong earnings, pointing to H1 working capital absorption and typical seasonality in systems integration/engineering businesses; investing cash flow was undisclosed and financing cash flow was an outflow of ¥404m, likely dividends and/or treasury share actions. EBITDA was ¥1,174m, with a margin of 13.8%, consistent with the operating margin profile given low D&A of ¥71m. Effective tax expense was ¥317m; based on net income, the implied effective tax rate is approximately 29-30%, not 0% as shown in the summary metrics. The company shows no reported interest expense, implying negligible financial debt burden and strong interest cover in practice, though the disclosed interest figure is unreported. Dividend per share and payout ratio are not disclosed in the dataset; financing cash outflows suggest capital returns are occurring, but dividend sustainability cannot be fully assessed without DPS and cash details. Overall, fundamentals indicate steady growth, margin improvement, and a conservative balance sheet, tempered by negative OCF in the half from working capital and data limitations around cash balances, investing flows, and dividends.

Profitability Analysis

ROE of 9.77% decomposes into: net profit margin 8.82% × asset turnover 0.814 × financial leverage 1.36. This implies returns are driven primarily by margin strength rather than balance sheet leverage. Operating margin is approximately 12.96% (¥1,103m / ¥8,506m), up faster than revenue, evidencing positive operating leverage from fixed-cost absorption and/or favorable mix (e.g., higher-value-added solutions). Gross margin at 25.9% indicates healthy value-add for a systems/software engineering business; stability or improvement here suggests disciplined pricing and project execution. EBITDA margin of 13.8% and low D&A (¥71m) highlight a relatively asset-light profile. Ordinary income closely tracks operating income (¥1,136m vs. ¥1,103m), suggesting minimal reliance on non-operating gains. Effective tax rate implied at roughly 29.7% (¥317m tax on ~¥1,067m pre-tax inferred), consistent with a standard domestic tax burden. Interest expense is undisclosed (shown as 0), but given low leverage (liabilities/equity ≈ 0.37x), interest cover is likely very strong. Overall profitability quality looks solid, with improving operating leverage and resilient gross margin.

Growth Assessment

Revenue grew 11.2% YoY to ¥8,506m, indicating robust demand across core offerings. Operating income grew 25.4% YoY to ¥1,103m, implying margin expansion and favorable mix. Net income rose 25.8% to ¥750m, mirroring operating momentum and normalizing tax. The acceleration of profits relative to sales suggests underlying productivity gains and fixed-cost leverage. Given the asset-light nature (low D&A) and ordinary income alignment with operating income, the growth appears organically driven rather than financial or extraordinary. Sustainability hinges on maintaining backlog, repeat orders in social/industrial systems, and continued demand in critical infrastructure and security/embedded domains; current momentum supports a constructive near-term outlook. However, negative OCF in H1 implies working capital investment (likely receivables build from seasonality and growth), which may normalize in H2 if collection improves. Without disclosed segment/geographic breakdowns, visibility into specific growth drivers is limited. Overall, H1 trends suggest a favorable FY trajectory with improved profitability, subject to execution and collection timing in H2.

Financial Health

Balance sheet conservatism is evident: total equity ¥7,674m vs total assets ¥10,451m implies an equity ratio of ~73.4% and leverage (assets/equity) of 1.36x. Total liabilities of ¥2,810m produce a debt-to-equity (using total liabilities as proxy) of ~0.37x, indicating low financial risk. Liquidity is strong with current assets of ¥6,680m and current liabilities of ¥2,215m: current ratio 301% and working capital ¥4,464m. Quick ratio mirrors current ratio because inventories are undisclosed, suggesting that liquid assets (cash and receivables) dominate current assets. Interest expense is undisclosed but likely minimal, further supporting solvency. The undisclosed cash and cash equivalents figure limits precise liquidity assessment, yet the magnitude of current assets vs current liabilities provides comfort. Overall, solvency and liquidity appear robust, with ample headroom to fund operations and growth.

Cash Flow Quality

Operating cash flow was -¥72m despite net income of ¥750m, resulting in an OCF/NI of -0.10. This points to a temporary working capital drag in H1, common in project-based/service businesses where collections skew to H2. D&A is modest (¥71m), so accrual intensity from non-cash charges is low; the OCF shortfall likely reflects receivables growth and/or timing of payables rather than earnings quality issues. Investing cash flow is undisclosed (shown as 0), preventing a reliable free cash flow calculation; the summarized FCF of 0 should not be treated as actual. Financing cash outflow of -¥404m likely reflects dividends and/or buybacks, indicating continuing shareholder returns even amid working capital investment. Key to earnings quality will be H2 conversion of earnings to cash via receivables collection and disciplined project billing. Given the strong balance sheet, short-term OCF volatility is manageable, but sustained negative OCF would be a concern if it persists beyond seasonal norms.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed in the data, while financing CF outflow of -¥404m suggests some capital return occurred in H1. With net income of ¥750m and a strong equity base, earnings capacity appears supportive of ongoing distributions, but the negative OCF in H1 raises the importance of H2 cash generation for coverage. Without actual DPS or cash balance disclosure, we cannot quantify payout ratios or FCF coverage reliably. Balance sheet strength (equity ratio ~73%) provides a buffer, yet sustained policy assessment requires full-year cash flow and explicit dividend guidance. Overall, visibility is limited; monitoring H2 OCF and any disclosed dividend policy updates is essential.

Risk Assessment

Business Risks:

• Project execution and delivery risk in systems integration leading to margin volatility
• Client concentration risk and potential delays in large projects affecting revenue recognition
• Seasonality and billing/collection timing impacting cash conversion in H1/H2
• Talent retention and wage inflation pressure in a tight IT labor market
• Technology displacement risk and pricing pressure in competitive bids
• Dependence on public/critical infrastructure budgets and capex cycles

Financial Risks:

• Negative operating cash flow in H1 driven by working capital build
• Limited visibility on cash and investing flows due to undisclosed items
• Potential receivables concentration and credit risk if large clients delay payments
• FX exposure if any overseas components/subcontracting costs exist (not disclosed)

Key Concerns:

• Conversion of profit to cash in H2 to offset H1 OCF shortfall
• Sustainability of expanded operating margin amid cost inflation
• Lack of disclosed DPS/FCF data hindering dividend coverage analysis

Investment Implications

Key Takeaways:

• Double-digit revenue growth (+11.2% YoY) with faster operating profit growth (+25.4%) shows positive operating leverage
• ROE of 9.77% underpinned by an 8.82% net margin and modest leverage (1.36x)
• Strong balance sheet with equity ratio ~73% and current ratio ~301%
• EBITDA margin of 13.8% and low D&A reflect an asset-light, profitable model
• H1 operating cash flow negative (-¥72m), likely timing-related; H2 cash conversion is the swing factor
• Financing outflows (-¥404m) indicate capital returns despite working capital investment
• Limited disclosure on cash, investing CF, and dividends constrains full assessment

Metrics to Watch:

• H2 operating cash flow and OCF/NI conversion ratio
• Receivables days and working capital intensity
• Order backlog/book-to-bill and pipeline visibility
• Gross and operating margins sustainability
• Any updates to dividend policy and DPS
• Non-operating items and effective tax rate stability

Relative Positioning: Versus domestic IT services/systems engineering peers, Adsol Nissin exhibits above-average balance sheet strength (low leverage, high liquidity), solid mid-teens EBITDA margin, and a mid-to-high single-digit to low double-digit ROE driven by margins rather than leverage. Near-term differentiation hinges on maintaining operating leverage while improving cash conversion in H2.

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