R&D COMPUTER CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.21B
• Operating Income: ¥676M
• Net Income: ¥452M
• EPS: ¥25.09

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: Solid profitability and cash generation despite top-line contraction; margins expanded materially in FY2026 Q2. Revenue declined 8.0% YoY to 62.15, but operating income rose 41.0% YoY to 6.76, and net income increased 23.2% YoY to 4.50. Gross profit was 14.56 with a gross margin of 23.4%, indicating improved project economics or mix versus last year’s period. Operating margin stands at 10.9%, supported by SG&A of 7.80 (12.5% of sales), implying tight cost control. Ordinary income was 6.83, with minimal non-operating drag/boost (non-operating income 0.08 vs expenses 0.01), keeping earnings quality centered in operations. Net margin reached 7.2%, with an effective tax rate of 33.8% broadly in line with statutory. Based on the reported YoY rates, we estimate operating margin expanded by about 380 bps YoY (to 10.9% from roughly 7.1%) and net margin by about 180 bps (to 7.2% from roughly 5.4%). Cash flow quality was strong: operating cash flow of 9.54 exceeded net income of 4.50 by 2.12x, suggesting robust collections and limited working capital drag. The balance sheet is conservative with total assets of 84.07, equity of 61.41, and total liabilities of 22.66; current ratio is a very strong 439%. Interest coverage is extremely high at 870x due to minimal interest expense (0.01), indicating negligible financial risk. ROE calculated via DuPont is 7.3% (net margin 7.2% × asset turnover 0.739 × leverage 1.37x), and a reported ROIC metric of 23.7% signals efficient capital deployment. Financing cash outflow of -3.23 likely reflects shareholder returns; however, DPS and total dividends are unreported, and a calculated payout ratio of 143.7% suggests caution if representative. Overall, profitability improvements appear to stem from mix/efficiency rather than revenue growth, raising the question of sustainability if demand softness persists. Forward-looking, the company enters 2H with ample liquidity, strengthened margins, and strong OCF, but must stabilize revenue and maintain utilization to preserve the margin gains. Key watch items include order backlog, pricing/mix in system integration projects, hiring/wage pressures, and confirmation of dividend policy vis-à-vis cash generation. Given limited disclosure on investing cash flows and dividend details, conclusions on FCF and payout sustainability remain provisional. The quarter’s outcome positions the company well for 2H execution, but sustaining double-digit operating margins amid lower sales will be the litmus test.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.3% = Net Profit Margin 7.2% × Asset Turnover 0.739 × Financial Leverage 1.37x. The largest change driver YoY is net profit margin expansion: operating income grew 41% despite an 8% revenue decline, implying substantial operating margin uplift (~+380 bps YoY to 10.9%). Asset turnover is modest at 0.739, consistent with a services model holding substantial cash and intangibles; leverage is low at 1.37x (Assets/Equity ≈ 84.07/61.41). Business drivers: stronger project mix (potentially higher proportion of high-margin services or improved pricing), tighter SG&A discipline (SG&A 12.5% of sales), and likely better utilization rates. Sustainability: margin gains are partly structural (cost control, utilization) but partly cyclical/mix-driven; with revenue down, sustaining 10–11% OPM requires continued discipline and steady backlog flow. Flags: revenue contraction (-8% YoY) alongside SG&A that did not delever much implies operating leverage worked positively this quarter; however, a reacceleration in SG&A (e.g., wage inflation) ahead of top-line recovery would pressure margins. Watch gross margin durability (23.4%) and whether non-operating items remain negligible to keep ordinary income tightly linked to operating performance.

Growth Assessment

Revenue contracted 8.0% YoY to 62.15, indicating softer demand or timing effects in project deliveries. Profit growth was driven by margin expansion rather than top-line growth: operating income +41% to 6.76 and net income +23% to 4.50. The implied operating margin expansion (~+380 bps YoY to 10.9%) suggests improved mix (higher value-added projects) and/or enhanced execution efficiency. Non-operating items were small (net +0.07), so profit growth quality is operational. Outlook: near-term growth depends on order intake, backlog conversion, and maintaining utilization; stabilization of client IT budgets is key. With strong cash on hand (42.54) and low leverage, the company can continue selective investments in DX/solutions to support medium-term growth. Risks to growth include labor market tightness (wage inflation, hiring), potential project timing slippage, and client budget deferrals. Without disclosed backlog or segment detail, the sustainability of the margin-led earnings growth is not yet confirmed.

Financial Health

Liquidity is very strong: current ratio 439% (current assets 73.32 vs current liabilities 16.70); quick ratio is likewise high given sizable cash (42.54). No warning on current ratio (<1.0) or leverage (D/E, using total liabilities/equity, is 0.37x; interest-bearing debt is unreported). Solvency is robust with equity of 61.41 (73% of assets), and interest coverage at 870x indicates minimal debt service risk. Maturity mismatch risk is low: current assets comfortably exceed current liabilities by 56.63 in working capital. No off-balance sheet obligations are disclosed in the provided data. Balance sheet intangibles (goodwill 1.66, other intangibles 5.04) total 6.70 (about 8% of assets), not excessive. Overall, financial flexibility is high.

Cash Flow Quality

OCF was 9.54 versus net income of 4.50, yielding OCF/NI of 2.12x, which signals high earnings quality and likely favorable working capital movements (e.g., collections). Investing cash flows and capex are unreported, so FCF cannot be computed; however, with strong OCF and modest D&A (0.61), maintenance capex is likely manageable for a software/services model. Financing CF was -3.23, likely shareholder returns; OCF comfortably covers these outflows this period. No clear signs of working capital manipulation in the provided data; accounts receivable and inventories are unreported, limiting deeper analysis. Sustainability hinges on maintaining receivables discipline and stable project billing milestones.

Dividend Sustainability

Dividend data (DPS, total dividends) is unreported, but a calculated payout ratio of 143.7% suggests potential over-distribution if representative of the full-year basis. Given strong OCF this quarter (9.54), cash coverage appears ample short-term; however, without investing CF and capex disclosure, FCF coverage cannot be confirmed. Financing outflow of -3.23 could include dividends and/or buybacks and was covered by OCF. Policy outlook: if management targets stable or progressive dividends, sustaining a payout above earnings would likely require continued strong cash generation or drawdown of cash reserves; a normalization toward a sub-60% payout over the cycle would be more conservative. Confirmation of full-year guidance and dividend policy is needed before firm conclusions.

Risk Assessment

Business Risks:

• Revenue contraction (-8% YoY) suggesting demand softness or project timing risk
• Utilization and staffing constraints amid engineer shortages and wage inflation
• Project execution risk, especially for fixed-price contracts affecting gross margin
• Client budget deferrals or concentrated exposure to specific end-markets
• Dependence on maintaining improved mix/pricing to sustain double-digit OPM

Financial Risks:

• Potential mismatch between dividend commitments and earnings if the ~144% payout ratio reflects policy
• Limited visibility on investing CF and capex, obscuring FCF and future cash needs
• AR concentration or lengthening DSO risk (accounts receivable not disclosed)

Key Concerns:

• Sustainability of margin expansion in the face of declining revenue
• High calculated payout ratio may not be sustainable if earnings soften
• Data gaps (DPS, investing CF, AR) limit assessment of FCF and working capital trends

Investment Implications

Key Takeaways:

• Margin-led earnings beat: OPM 10.9% with operating income +41% YoY despite sales -8%
• Strong cash generation: OCF/NI at 2.12x, financing outflows covered
• Balance sheet strength: current ratio 4.4x, low leverage (Liabilities/Equity 0.37x)
• ROE 7.3% supported by higher net margin; reported ROIC 23.7% indicates efficient capital use
• Dividend sustainability uncertain given calculated ~144% payout; policy confirmation needed

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue recovery
• Gross and operating margin trajectory, especially utilization and pricing
• OCF/NI and DSO (once AR disclosed) to monitor cash conversion
• Headcount, wage growth, and subcontractor ratio impacting cost base
• Investing CF and capex for FCF assessment; dividend announcements vs cash generation

Relative Positioning: Within Japan IT services peers, the company currently exhibits above-average margin improvement and strong cash conversion with a conservative balance sheet; however, top-line softness and unclear dividend policy/FCF disclosure temper the otherwise robust profitability profile.

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