Data Applications Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.03B
• Operating Income: ¥70M
• Net Income: ¥61M
• EPS: ¥8.45

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Strong topline recovery with improved operating leverage, but profitability remains thin and ROIC low, highlighting the need for margin discipline despite excellent cash generation. Revenue rose 81.3% YoY to 20.32, with gross profit of 10.83 and an elevated gross margin of 53.3%. Operating income more than doubled (+162.0% YoY) to 0.70, and ordinary income climbed 132.8% to 0.97, while net income increased 70.1% to 0.53. Operating margin improved to about 3.45%, ordinary margin to 4.78%, and net margin stands at 2.61%. Based on YoY growth rates, operating margin expanded by roughly 107 bps (from ~2.38% to ~3.45%) while ordinary margin expanded by about 106 bps (from ~3.72% to ~4.78%). Net margin likely compressed modestly by around 16 bps given net income grew slower than revenue. Earnings quality is high: operating cash flow was 3.72 versus net income of 0.53 (OCF/NI ~7.0x), indicating strong cash realization supported by robust collections and limited working capital drag. Non-operating income of 0.31 (including 0.21 of dividend income) materially contributed to profit formation, underscoring some reliance on financial income alongside core operations. The balance sheet is very conservative with cash and deposits of 41.14 against current liabilities of 14.61 and total debt of 2.85, supporting liquidity and resilience. ROE remains modest at 1.1% due to low asset turnover (0.294) and limited leverage (1.38x), despite the revenue surge. ROIC is flagged at 3.8%, below the 5% warning threshold, reflecting thin operating returns versus invested capital. The effective tax rate is 37.3%, weighing on net profitability and cash retention. Reported payout ratio of 363.7% suggests potential dividend strain if accurate, though dividend data is partially unreported and should be interpreted cautiously. Financing cash outflow of -2.12 implies shareholder returns and/or debt service were active, enabled by the strong cash position. Forward-looking, the key to sustaining earnings will be converting the sales rebound into durable margin expansion while reducing reliance on non-operating income. With ample cash and low leverage, the company has runway to invest in product and go-to-market, but improvement in ROIC and operating margin is crucial to lift capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.1% = Net Profit Margin 2.6% × Asset Turnover 0.294 × Financial Leverage 1.38x. The component that improved the most YoY appears to be operating profitability, evidenced by operating income +162% vs revenue +81%, lifting operating margin by ~107 bps to ~3.45%. Asset turnover, at 0.294 on a half-year basis, remains low; even with revenue growth, a relatively large asset base (notably cash, investment securities, and intangibles) dilutes turnover. Financial leverage is conservative at 1.38x, limiting ROE uplift from gearing. Business drivers: the strong revenue growth likely reflects improved demand and/or project delivery timing; SG&A of 10.12 absorbed almost all gross profit (10.83), leaving a thin operating margin that nonetheless improved as scale benefits started to appear. Non-operating income (0.31, including 0.21 dividends) supported ordinary income, indicating part of profit uplift is financial rather than purely operational. Sustainability: revenue momentum may persist if backlog and renewals hold, but sustainability of dividend income and other financial earnings is less controllable; the margin gains should be repeatable if SG&A growth is contained relative to sales. Concerning trends: SG&A remains high relative to gross profit (SG&A/gross profit ~93%), leaving limited buffer; any slowdown in sales could quickly compress operating income. Monitor whether SG&A growth outpaces revenue in 2H, as that would erode operating leverage.

Growth Assessment

Revenue growth of +81.3% YoY is a clear outlier-strength quarter; quality appears mixed with solid core execution plus meaningful non-operating tailwinds. Operating income growth (+162%) suggests improving scale benefits, but the absolute operating margin (3.45%) is still modest for software/services, implying continued room for efficiency gains. Ordinary income growth (+132.8%) benefitted from non-operating income (31 bps of revenue), including dividend income of 0.21, raising questions about repeatability. Net income growth (+70.1%) lagged revenue, partly due to a higher effective tax rate (37.3%) and interest expense. With goodwill (5.98) and intangibles (6.25) sizable, the company has invested for growth, but current ROIC (3.8%) indicates underutilization so far. Near-term outlook depends on converting the larger revenue base into higher operating margins in 2H via SG&A discipline and pricing/mix improvements. A cash-rich balance sheet enables continued product investments and potential tuck-in M&A without stressing leverage. Overall, growth appears strong but needs better margin translation to be deemed high quality and sustainable.

Financial Health

Liquidity is very strong: current ratio 318% and quick ratio 318%, underpinned by cash and deposits of 41.14 versus current liabilities of 14.61. No warning on current ratio (<1.0) or leverage (D/E 0.38x) is triggered. Interest coverage is robust at 24.1x, and total debt of ~2.85 (0.50 short-term, 2.35 long-term) is easily serviceable from OCF. Maturity mismatch risk is low given cash on hand exceeds total current liabilities and dwarfs short-term loans. Equity of 49.93 provides a thick capital buffer, though large intangible assets and goodwill introduce potential impairment sensitivity. No off-balance sheet obligations are reported in the provided data; none can be assessed beyond disclosures.

Cash Flow Quality

OCF/Net Income at 7.01x signals high earnings quality, with cash generation far exceeding accounting profit. Operating CF of 3.72 more than covers estimated capital expenditures of 0.11, implying a simple FCF proxy of ~3.61 for the period; full investing CF is unreported, so comprehensive FCF cannot be confirmed. Financing CF of -2.12 suggests significant shareholder returns (dividends and/or buybacks) and/or debt service; specifics are unreported. Working capital appears well-managed given strong OCF alongside rising sales, with no evident signs of aggressive manipulation from available data. Given cash reserves and ongoing OCF, cash flow coverage for routine capex and moderate dividends looks ample, though sustainability of any elevated payout depends on earnings normalization.

Dividend Sustainability

The calculated payout ratio of 363.7% indicates dividends exceeded earnings in the period if the figure reflects actual payouts, but dividend amounts are largely unreported, so this should be treated cautiously. Using a simple FCF proxy (OCF 3.72 minus capex 0.11 ≈ 3.61), cash generation appears sufficient to cover typical dividends; however, if the payout truly exceeds earnings materially, long-term sustainability would rely on continued high OCF and cash balances rather than profits. Cash on hand (41.14) provides near-term flexibility to maintain dividends, but low ROIC (3.8%) and thin operating margins argue for prudence in payout policy until margin expansion is secured. Policy outlook: absent disclosed guidance, expect a balance between shareholder returns and reinvestment; monitoring declared interim/annual DPS is essential when disclosed.

Risk Assessment

Business Risks:

• Margin thinness: SG&A nearly equals gross profit, leaving limited operating buffer.
• Execution risk in converting rapid revenue growth into sustainable margin expansion.
• Dependence on non-operating income (dividend income 0.21) to support ordinary profit.
• Intangible asset and goodwill concentration (combined ~12.2) raises impairment sensitivity.
• Potential client/project timing volatility typical of software/EDI implementation cycles.

Financial Risks:

• Low ROIC (3.8%) relative to cost of capital, indicating weak capital efficiency.
• Net margin compression risk if tax rate remains elevated (~37.3%).
• If the reported payout ratio (363.7%) reflects actual policy, potential cash drain absent earnings uplift.

Key Concerns:

• Sustained improvement in operating margin from ~3.45% is required to lift ROE above low single digits.
• Ordinary income partly driven by non-operating items; recurring operating earnings need to carry growth.
• Asset turnover is low (0.294), dragging overall returns despite revenue expansion.

Investment Implications

Key Takeaways:

• Topline rebounded strongly (+81.3% YoY) with improved operating leverage, but profitability remains modest.
• Cash generation is excellent (OCF/NI ~7x) and liquidity is abundant, supporting resilience and optionality.
• ROIC at 3.8% and ROE at 1.1% highlight capital efficiency challenges that need operational fixes.
• Non-operating income is a notable profit contributor; quality of earnings hinges on core margin gains.
• Dividend sustainability uncertain given a reported payout ratio well above earnings, pending disclosure clarity.

Metrics to Watch:

• Operating margin progression and SG&A/revenue trend in 2H.
• OCF trajectory versus NI to confirm cash quality persistence.
• Tax rate normalization from 37% and its impact on net margin.
• Goodwill/intangible impairment indicators and ROIC improvement.
• Dividend announcements (DPS) and buyback activity impacting payout and equity base.

Relative Positioning: Versus domestic small-cap software/EDI peers, the company shows superior near-term revenue growth and cash liquidity, but sits below peers on operating margin and ROIC; capital efficiency and dependence on non-operating income remain the key differentiators to close before it can command higher quality status.

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