Segue Group Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

Cumulative Q2 results for FY2026 showed increases in both revenue and earnings, with the most important point being that Operating Income expanded at a pace far exceeding revenue growth. Revenue was ¥15.91B (+59.1% YoY), Operating Income was ¥2.20B (+220.6%), Ordinary Income was ¥2.19B (+223.3%), and Net Income was ¥1.39B (+236.8%). Improvement in the gross margin exceeding revenue growth and the limited increase in SG&A expenses were the primary factors behind the substantial increase in earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥15.91B, representing a substantial 59.1% increase YoY. The Company operates a single IT Solutions segment, and the expansion of project demand appears to have driven revenue growth. Progress against the full-year forecast of ¥30.00B was 53.0%, which is at a standard level.

【Profit and Loss】Operating Income was ¥2.20B (+220.6% YoY), Ordinary Income was ¥2.19B (+223.3%), and Net Income was ¥1.39B (+236.8%). Gross profit was ¥4.24B, with a gross margin of 26.7%, improving from 25.6% in the same period of the previous year. SG&A expenses were ¥2.05B, with the growth rate limited to +9.2%, substantially below the revenue growth rate. As a result, the Operating Margin was 13.8%, improving by approximately 6.9pt from 6.9% in the same period of the previous year. Extraordinary gains and losses were nearly offset by a ¥0.02B gain on the sale of investment securities and a ¥0.02B impairment loss, indicating that the increase in Net Income was attributable to improved core earnings power. The results were characterized by increases in both revenue and earnings, with the earnings growth rate substantially exceeding the revenue growth rate.

Segment Analysis

The Company operates a single IT Solutions Business segment and does not disclose results by segment.

Key Financial Indicators

【Profitability】The Operating Margin was 13.8%, improving from 6.9% in the same period of the previous year, while the Net Profit Margin was 8.6% (Net Income of ¥1.39B / Revenue of ¥15.91B), improving from 4.0% in the same period of the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥8.20B, approximately six times Net Income of ¥1.39B. During the period, substantial cash inflows from working capital, including a decrease in inventories, a decrease in trade receivables, an increase in advance receipts, and an increase in trade payables, made a significant contribution. 【Investment Efficiency】Annualized ROE was high at 35.5%, driven by the improvement in the Net Profit Margin, as well as a high total asset turnover ratio and financial leverage. 【Financial Soundness】The Equity Ratio was 33.6%, improving from 22.1% in the same period of the previous year, while cash and deposits were substantial at ¥9.94B. Interest-bearing debt remained at a low level, and reliance on borrowings declined.

Cash Flow Analysis

Operating CF was ¥8.20B, Investing CF was -¥0.08B, including capital expenditures of -¥0.09B, and Financing CF was -¥0.69B, resulting in Free Cash Flow of ¥8.12B. The substantial increase in Operating CF was attributable to Net Income of ¥1.39B, together with cash inflows from an ¥1.84B decrease in inventories, a ¥1.52B decrease in trade receivables, and increases in trade payables and contract liabilities, including advance receipts. Capital expenditures were ¥0.09B, approximately in line with depreciation and amortization expense of ¥0.10B, reflecting an asset-light business structure. The outflow in Financing CF was primarily due to the repayment of short- and long-term borrowings, resulting in the accumulation of cash while reducing reliance on borrowings. However, the current levels of Operating CF and FCF were partly supported by temporary cash inflows from working capital. The Company will need to monitor cash generation capacity after normalization, including future changes in working capital.

Quality of Earnings

The increase in earnings during the period was attributable to improved core earnings power. Extraordinary gains and losses were nearly offset by a ¥0.02B gain on the sale of investment securities and a ¥0.02B impairment loss, resulting in only a small difference between recurring earnings and one-time factors. Non-operating income was ¥0.05B, including a ¥0.03B foreign exchange gain, while non-operating expenses were ¥0.06B, including ¥0.02B in interest expenses, resulting in a net excess of expenses of only ¥0.005B. Operating CF was substantially higher than Net Income, supporting accounting profits with cash. However, much of the upside was attributable to working capital items, such as decreases in inventories and trade receivables and increases in advance receipts and trade payables. As these items may reverse in the future, caution is warranted in treating the high cash conversion rate for the current period as an indication of recurring earnings quality.

Earnings Forecast and Guidance

Cumulative Q2 progress against the full-year forecast was 53.0% for Revenue, 84.5% for Operating Income, and 84.3% for Ordinary Income. While revenue progress was at a standard level, earnings progress was substantially ahead, indicating that a high profit margin was achieved in the first half. Against the full-year Operating Income forecast of ¥2.60B, Operating Income required in the second half is approximately ¥0.40B, implying a level substantially below the first-half Operating Margin of 13.8%. Although there was a revision to the earnings forecast during the quarter, there was no revision to the dividend forecast. Profitability and expense composition in the second half will therefore be key areas of focus for monitoring future progress.

Shareholder Returns

The interim dividend was ¥9.00 per share, and the full-year dividend forecast is ¥18.00. The Payout Ratio can be calculated against Net Income based on the interim dividend and is at a level supported by the data. The Company has substantial capacity to pay dividends relative to the scale of Operating CF and FCF. Since data on share buybacks has not been disclosed, the shareholder return metric is described as the Payout Ratio. There was no revision to the dividend forecast during the quarter, and the full-year dividend plan remains unchanged.

Risk Factors

1. Business concentration risk: The Company operates through a single IT Solutions segment, creating a structure in which trends in project orders, customers’ willingness to invest in IT, and changes in the product and service mix directly affect consolidated results.

2. Assumptions for second-half profit margins: Compared with the first-half Operating Margin of 13.8%, the Operating Margin required in the second half to achieve the full-year forecast is assumed to be substantially lower. Project profitability, the timing of revenue recognition, and the degree of increase in SG&A expenses in the second half will determine the full-year outcome.

3. Composition of Operating CF: Operating CF of ¥8.20B is heavily dependent on cash inflows from working capital, including decreases in inventories and trade receivables and increases in advance receipts and trade payables. FCF may decline when these items reverse.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability is slightly below the industry median but remains within the IQR.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeds the industry median and demonstrates high growth above the upper end of the IQR.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Revenue increased 59.1%, while Operating Income increased 220.6%. Operating leverage resulting from gross margin improvement and the limited increase in SG&A expenses was the primary driver of margin expansion.

2. Progress against the full-year forecast was high at 84.5% for Operating Income. The substantially lower profit margin assumed for the second half, relative to the strong first-half results, will be a key point to monitor going forward.

3. The financial base improved, with cash and deposits of ¥9.94B and an Equity Ratio of 33.6%. However, the substantial increase in Operating CF was partly supported by temporary cash inflows from working capital, making the trend in cash generation capacity after normalization a key area of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥309–¥327 for ±1% in the cost of equity, and ¥315–¥322 for ±0.1 in ω.

Notes:

• Goodwill amortization of ¥6.6 per share is added back to earnings (to account for non-cash expenses and comparability with IFRS companies).
• Since progress of Net Income against the full-year forecast (85%) exceeds the standard level (50%), forecast EPS is adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• Since Net Assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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