Digital Information Technologies Corporation FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥6.25B
• Operating Income: ¥711M
• Net Income: ¥414M
• EPS: ¥31.81

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

FY2026 Q1 was a solid quarter with double-digit growth and broadly stable margins, underpinned by robust demand and tight cost control. Revenue rose 10.9% YoY to 62.45, while operating income increased 10.9% YoY to 7.11 and net income grew 13.5% YoY to 4.67. Gross profit reached 13.49, translating to a gross margin of 21.6%. Operating margin was approximately 11.4% (7.11/62.45), and net margin was 7.5% (4.67/62.45). With operating income growth matching revenue growth, the operating margin was effectively flat YoY, suggesting margin expansion/compression was likely within only a few basis points. A modest positive gap between gross profit minus SG&A (13.49 – 7.08 = 6.41) and operating income (7.11) implies roughly 70 bps of other operating gains supporting profitability. Ordinary income of 7.13 and minimal non-operating items (non-op income 0.08, expenses 0.04) indicate clean P/L with little reliance on financial gains. Interest expense was negligible (0.01) and interest coverage was extremely strong at 1,020x, reflecting a conservative capital structure. The effective tax rate was 36.0%, somewhat elevated versus the typical domestic range, which tempered bottom-line conversion. Balance sheet quality remained strong: current ratio at 340% and cash/deposits of 49.12 provide ample liquidity, with working capital of 65.81 and receivables of 37.76 adequately covering payables of 10.29. ROE (DuPont) printed at 5.8% on net margin 7.5%, asset turnover 0.562, and financial leverage 1.37x, pointing to moderate returns primarily constrained by conservative leverage and the quarter’s asset turnover. Reported ROIC of 14.3% (if on a comparable basis) signals efficient deployment of invested capital for an SI/IT services peer. Earnings quality cannot be fully assessed this quarter because operating cash flow was not disclosed; OCF/NI and free cash flow are therefore unavailable. Dividend datapoints were largely unreported, and the displayed payout ratio of 239% likely reflects a non-comparable basis (e.g., annualized dividend vs quarterly earnings), so dividend sustainability cannot be judged from this print alone. Overall, the quarter demonstrates healthy growth with stable margins, a fortress balance sheet, and limited non-operating noise, setting a constructive base for the full year, contingent on demand resilience and cost discipline. Key forward-looking watchpoints are OCF conversion, tax rate normalization, and any mix shifts that could support margin lift.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.8% = Net Profit Margin (7.5%) × Asset Turnover (0.562) × Financial Leverage (1.37x). The most influential component for the level of ROE is the moderate asset turnover and conservative leverage; margins are solid for an IT services model but not outsized. With operating income and revenue both up 10.9% YoY, operating margin was effectively unchanged; thus, margin was not the driver of change this quarter. Business context: steady SI/project delivery and utilization likely supported stable gross margin (21.6%), while SG&A ratio held around 11.3%, implying disciplined overhead scaling. The ~70 bps positive other operating contribution suggests one-off or smaller recurring items (e.g., subsidies/other op income) rather than fundamental margin expansion. Sustainability: core margin stability appears sustainable if pricing/utilization stay firm, but the ancillary operating gains may not repeat at the same magnitude. Watch for any SG&A growth outpacing revenue—no YoY SG&A growth figure was disclosed, but the current SG&A-to-sales of ~11.3% looks well-controlled.

Growth Assessment

Top-line growth of 10.9% YoY indicates healthy demand across core solutions and SI services. Operating income grew in lockstep at 10.9%, evidencing balanced operating leverage without incremental compression. Net income outpaced at +13.5% YoY, helped by minimal non-operating drag and despite a relatively high effective tax rate (36%). The P/L is not dependent on non-operating gains; non-operating income/expenses netted to a small positive. Revenue sustainability will depend on backlog/order intake and headcount capacity; these were not disclosed this quarter. Mix/inflation dynamics: pricing power and utilization appear stable given flat margins; any shift toward higher value-added services could be a margin tailwind. With ROIC reported at 14.3%, ongoing growth investments appear to be earning comfortably above the cost of capital. Outlook hinges on client IT budgets, execution on fixed-price projects, and retention amid wage inflation.

Financial Health

Liquidity is strong: current ratio 340.3% and quick ratio 340.3% easily clear benchmarks, with cash and deposits of 49.12 and receivables of 37.76 covering current liabilities of 27.38. There is no warning on current ratio (<1.0) or leverage; D/E is a conservative 0.37x, and there is no disclosed interest-bearing debt breakdown. Maturity mismatch risk is low: current assets (93.19) substantially exceed current liabilities (27.38), and payables (10.29) are well covered by cash and receivables. Noncurrent liabilities are modest at 2.64. Goodwill/intangibles total about 12.5 (goodwill 6.06; intangibles 6.47), presenting some potential impairment risk if acquired businesses underperform but currently manageable relative to equity (81.05). No off-balance sheet obligations were reported in the data provided.

Cash Flow Quality

Operating cash flow, free cash flow, and capex were not disclosed; OCF/Net Income and FCF coverage are therefore not calculable this quarter. As such, we cannot assess cash conversion quality or working-capital-driven volatility. Receivables stand at 37.76 against quarterly sales of 62.45, which appears reasonable for an SI model with milestone billing, though DSO cannot be computed without prior period and billing terms. No signs of working capital manipulation can be inferred from the limited dataset, but absence of OCF data is a material limitation to quality assessment.

Dividend Sustainability

Dividend datapoints (annual DPS, interim DPS, total dividends paid) were unreported. The displayed calculated payout ratio of 239.0% likely reflects a mismatch in denominator/numerator timing (e.g., annual dividends versus a single-quarter net income), and should not be interpreted as an economic payout for the quarter. With FCF unreported, we cannot test dividend coverage. Balance sheet capacity is strong (cash 49.12; low leverage), which provides flexibility, but without OCF/FCF data and full-year earnings context, sustainability of any implied payout cannot be concluded.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts leading to potential margin erosion.
• Engineer hiring/retention and wage inflation pressure that could lift SG&A and COGS.
• Client IT budget cyclicality and potential delays in large-scale projects.
• Concentration risk in key clients or sectors (not disclosed but common in SI businesses).
• Goodwill impairment risk (goodwill 6.06) if acquired entities underperform.

Financial Risks:

• Limited visibility on cash generation due to unreported OCF and FCF this quarter.
• Receivables collection timing risk (AR 37.76 vs quarterly revenue 62.45), though currently manageable.
• Effective tax rate volatility (36% this quarter) impacting net profitability.
• Potential exposure to variable subcontracting costs that can compress gross margin in tight labor markets.

Key Concerns:

• Earnings quality cannot be validated without OCF; OCF/NI ratio is not calculable.
• Payout ratio shown at 239% is likely non-comparable and should not be relied upon for dividend policy inference.
• Margin stability leans on maintaining utilization and pricing; a slowdown could quickly pressure operating margin.
• Any non-recurring other operating gains (~70 bps) may not repeat.

Investment Implications

Key Takeaways:

• Solid top-line growth (+10.9% YoY) with operating income rising in tandem and net income up 13.5%.
• Margins effectively flat YoY; gross margin 21.6%, operating margin ~11.4%, net margin 7.5%.
• Very strong balance sheet and liquidity (current ratio 340%; cash 49.12).
• ROE 5.8% indicates moderate equity returns; leverage is conservative at 1.37x assets/equity.
• ROIC reported at 14.3% suggests efficient capital deployment versus cost of capital.
• Low non-operating dependency; clean ordinary income profile.
• Data gaps on cash flow and dividends limit assessment of earnings and payout quality.

Metrics to Watch:

• Operating cash flow and OCF/NI ratio (>1.0 preferred).
• Free cash flow coverage of dividends and growth capex.
• SG&A-to-sales ratio and headcount/productivity trends.
• DSO/working capital turns and receivables collection.
• Order backlog and book-to-bill for revenue visibility.
• Effective tax rate normalization trajectory.
• Mix shift toward higher value-added services supporting margin.

Relative Positioning: Within Japanese mid-cap IT services/SI peers, the company exhibits above-average balance sheet strength, healthy double-digit growth, and a solid ROIC print, with profitability metrics that are competitive but not outsized; sustained outperformance will hinge on improving cash conversion and realizing incremental operating leverage without sacrificing delivery quality.

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