PCI Holdings,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.61B
• Operating Income: ¥766M
• Net Income: ¥529M
• EPS: ¥53.40

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

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

PCI Holdings (3918) reported FY2026 Q2 consolidated results under JGAAP showing stability in profits but softness in cash generation. Revenue was ¥13,611 million, flat YoY, indicating a lack of top-line growth momentum in the half. Gross profit was ¥3,217.9 million, yielding a gross margin of 23.6%, broadly consistent with a systems/engineering services mix. Operating income was ¥766 million (operating margin 5.6%), also flat YoY, suggesting neutral operating leverage amid stable SG&A intensity. Ordinary income of ¥791 million implies limited non-operating impacts; interest expense was only ¥1.8 million, underscoring a very light financial burden. Net income came in at ¥528 million, translating to a net margin of 3.9%. The DuPont bridge shows net margin of 3.88%, asset turnover of 0.854x, and financial leverage of 1.64x, producing an ROE of 5.42%, which is moderate for the sector. Despite steady profitability metrics, operating cash flow was negative at -¥232.2 million, leading to an OCF/Net Income ratio of -0.44 and pointing to working capital outflows in the period. Liquidity remains robust, with a current ratio of 222.9% and a quick ratio of 201.5%, supported by ¥1,164 million of inventories and high receivable-driven current assets. Solvency appears comfortable: total equity is ¥9,738 million against total assets of ¥15,931 million (financial leverage 1.64x), and interest coverage is exceptionally high at ~424x EBIT/interest. The effective tax burden, inferred from reported income tax of ¥270.4 million against pre-tax income of roughly ¥798 million, implies an effective tax rate of about 33–34%, rather than the 0.0% shown in summary metrics. Working capital was sizable at ¥6,684.7 million, indicating a balance sheet geared to ongoing project delivery but also exposing cash conversion to collection timing. Financing cash flow was an outflow of ¥392.5 million, likely reflecting shareholder returns and/or debt movements, though dividends per share and share data were not disclosed in this dataset. Free cash flow cannot be reliably assessed because investing cash flow was not reported (zeros indicate non-disclosure rather than actual zero). With flat revenue and operating income, near-term growth momentum appears subdued; however, margin discipline and minimal interest burden support earnings resilience. Key data gaps (equity ratio, C&E, DPS, share count, investing CF) limit precision on per-share and capital allocation analysis. Overall, the half-year profile is one of steady profitability, strong liquidity, very light financial risk, but weaker cash conversion that warrants monitoring.

Profitability Analysis

ROE of 5.42% is driven by: net margin 3.88% × asset turnover 0.854× × financial leverage 1.64×. Net margin of 3.88% suggests modest pricing power typical of project/service-heavy models. Gross margin at 23.6% is stable, implying cost discipline and limited input cost shocks. Operating margin at 5.6% points to SG&A intensity of roughly 18.0% of sales (¥2,451.9 million), consistent with a labor-centric cost base. Ordinary margin of 5.8% is slightly above operating margin, aided by low non-operating drag. Interest expense is negligible at ¥1.8 million with EBIT/interest coverage ~424x, so financial costs do not constrain profitability. EBITDA was ¥839.2 million (6.2% margin), indicating modest operating leverage headroom but not a capital-intensive profile. Year-on-year, both revenue and operating income were flat, signaling neutral operating leverage in the half (no scale-driven margin expansion). Tax expense of ¥270.4 million implies an effective tax rate ~33.8% (approximate), leaving net margin in line with typical domestic statutory burden.

Growth Assessment

Top-line growth was 0.0% YoY at ¥13.6 billion, indicating stagnation in the half and suggesting either slower order intake, project delays, or a cautious demand backdrop. Operating income was also flat YoY, demonstrating stable cost control but limited scope for efficiency-driven uplift absent revenue growth. Ordinary income slightly exceeded operating income, implying no material deterioration in non-operating items. Earnings quality is mixed: accounting profits are steady, but cash conversion is weak in the period (negative OCF), likely due to working capital build typical of project timing. Without reported investing CF, capex intensity and organic reinvestment trends cannot be evaluated. Near-term outlook hinges on order backlog conversion, billing/collection cadence, and utilization rates; maintaining the current gross margin is key to protecting operating margin. If revenue growth resumes, operating leverage could drive incremental margin expansion given low interest burden and contained SG&A. Conversely, continued flat sales risk margin compression from wage inflation and competitive pricing.

Financial Health

Liquidity is strong with a current ratio of 222.9% and a quick ratio of 201.5%, supported by current assets of ¥12,123 million versus current liabilities of ¥5,439 million. Inventories are ¥1,164 million (9.6% of revenue for the half), manageable for the business profile. Working capital stands at ¥6,684.7 million, indicating ample short-term buffer but tying up cash and contributing to negative OCF. Total assets are ¥15,931 million against total equity of ¥9,738 million, yielding financial leverage of 1.64x. Debt-to-equity is reported at 0.66x, but the exact mix of interest-bearing versus operating liabilities is not disclosed; however, the tiny interest expense suggests modest interest-bearing debt. Interest coverage is extremely high at ~424x EBIT/interest, signaling minimal solvency risk. The reported equity ratio is 0.0% in the dataset but should be treated as undisclosed; based on assets and equity, an implied equity ratio would be roughly 61% if calculated, indicating a solid capital base.

Cash Flow Quality

Operating cash flow was -¥232.2 million versus net income of ¥528.0 million, giving an OCF/NI ratio of -0.44, which indicates poor cash conversion in the period, likely due to an increase in receivables or other working capital components. Depreciation and amortization totaled ¥73.2 million, modest relative to operating income, consistent with a low capital intensity profile. With investing cash flow not disclosed (reported as zero), free cash flow cannot be reliably computed; the reported FCF of 0 should be read as not available rather than zero. The divergence between earnings and OCF appears timing-related rather than structural, given the strong liquidity and small interest burden, but persistence into subsequent quarters would be a concern. Working capital management (DSO, billing milestones, project advances) is the primary driver to monitor for cash flow normalization.

Dividend Sustainability

Annual DPS and payout ratio are shown as zero in the dataset, indicating non-disclosure rather than actual zero. Financing cash outflow of -¥392.5 million suggests some combination of dividends, share repurchases, or debt repayment in the period; however, the split is not provided. With net income at ¥528.0 million and strong balance sheet metrics, capacity for shareholder returns exists, but negative OCF in the half reduces near-term cash coverage. FCF coverage cannot be assessed due to missing investing CF; hence, payout sustainability analysis is constrained. Policy outlook cannot be inferred without historical DPS or management guidance. Near-term sustainability hinges on OCF normalization and maintenance of current leverage/coverage metrics.

Risk Assessment

Business Risks:

• Revenue stagnation (0.0% YoY) indicating potential demand softness or project delays
• Execution risk on fixed-price or milestone-based projects affecting margins and billing
• Wage inflation and talent retention pressures compressing gross margin
• Customer budget cycles and potential concentration risk (not disclosed)
• Timing risk in backlog conversion and collections impacting cash conversion

Financial Risks:

• Negative operating cash flow (-¥232.2 million) driven by working capital outflows
• High working capital intensity tying up cash and increasing reliance on collections
• Limited visibility on capital allocation due to non-disclosed investing cash flows
• Potential dividend or buyback outflows (financing CF -¥392.5 million) without clear coverage metrics
• Sensitivity to any rise in interest rates, albeit current interest burden is very low

Key Concerns:

• Weak cash conversion in the half (OCF/NI -0.44)
• Flat revenue and operating profit limiting operating leverage
• Data gaps (DPS, equity ratio, investing CF, share count) constrain per-share and FCF analysis

Investment Implications

Key Takeaways:

• Profitability is stable with operating margin at 5.6% and ROE at 5.4%
• Balance sheet is conservative with implied equity ratio around low-60% and very high interest coverage
• Cash conversion is the main weak spot this half, with OCF negative despite positive earnings
• Revenue momentum is subdued; margin preservation relies on cost control and utilization
• Capital allocation unclear due to missing DPS and investing cash flow disclosure

Metrics to Watch:

• Order intake and backlog conversion to re-accelerate revenue growth
• OCF/NI ratio and working capital movements (DSO, unbilled receivables)
• Gross margin stability amid wage and pricing dynamics
• SG&A as a percentage of sales and utilization rates
• Any disclosure on dividends, buybacks, and capex/investments
• Leverage and interest coverage to remain favorable

Relative Positioning: Within domestic IT/services peers, PCI Holdings exhibits moderate ROE, solid liquidity, and very low financial risk, but trails on cash conversion and near-term growth momentum based on the reported half-year data.

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