SYS Holdings Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥3.76B
• Operating Income: ¥96M
• Net Income: ¥83M
• EPS: ¥5.49

Income Statement

Balance Sheet

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: A mixed quarter with solid top-line growth but significant margin compression, yielding weaker profitability versus the prior year. Revenue rose 10.1% YoY to 37.58, while operating income fell 44.4% YoY to 0.96 and net income declined 30.3% YoY to 0.57. Gross profit was 7.50, implying a gross margin of 19.9%. SG&A was 5.77 (15.3% of sales), resulting in operating margin of 2.6%. Ordinary income was 1.41 and profit before tax was 1.68, supporting an interest coverage ratio of 41.4x, which remains strong. Net profit margin was 1.5%, depressed by a high effective tax rate of 50.5%. Operating margin compressed by roughly 250 bps YoY (from about 5.1% to 2.6%), reflecting cost pressure and/or elevated SG&A relative to sales. Net margin compressed by about 88 bps YoY (from ~2.4% to 1.5%). Ordinary margin compressed by about 166 bps YoY (from ~5.4% to 3.8%). Earnings quality cannot be assessed fully due to unreported operating cash flow; the OCF/NI ratio is not calculable this quarter. Liquidity is comfortably strong with a current ratio of 247% and cash and deposits of 42.25 against short-term loans of 3.00. Leverage is moderate with D/E (total liabilities/equity) at 1.11x and interest-bearing debt around 15.06, implying manageable financial risk given coverage. Intangibles and goodwill total 14.47 (about 18% of assets), which introduces medium-term impairment sensitivity if growth slows. The reported payout ratio of 130% (calculation basis not fully disclosed) looks elevated relative to single-quarter earnings capacity and bears monitoring. Overall, the quarter demonstrates resilient demand but weaker operating leverage and higher tax drag, pointing to a near-term focus on cost control and mix optimization. Forward-looking, sustaining revenue momentum while normalizing margins and tax rate will be key to restoring ROE. Strong liquidity provides room to execute, but higher payout and margin pressure elevate execution risk.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (1.5%) × Asset Turnover (0.470) × Financial Leverage (2.13x) ≈ 1.5%. The most material change quarter-on-quarter versus prior year appears in the margin component: operating income declined 44.4% despite +10.1% revenue growth, compressing operating margin by roughly 250 bps (from ~5.1% to ~2.6%). Drivers likely include higher cost of sales (industry wage inflation, subcontracting costs) and/or elevated SG&A for hiring and business development, given SG&A at 15.3% of sales. The net margin was further pressured by a high effective tax rate (50.5%), limiting drop-through of ordinary income to net income. Asset turnover at 0.470 reflects a services model with meaningful cash and intangibles on the balance sheet; no clear evidence of deterioration beyond normal seasonality. Financial leverage at 2.13x (assets/equity) is stable and not the primary driver of ROE change. Sustainability: margin pressure from wage inflation and project mix can persist unless pricing and utilization improve; tax rate is likely to normalize toward a lower level over the year, making part of the net margin squeeze potentially non-recurring. Watch for signs of negative operating leverage if SG&A grows faster than revenue in coming quarters; this quarter’s pattern (revenue up, OI down) is a caution flag.

Growth Assessment

Revenue growth of 10.1% YoY to 37.58 indicates healthy demand or contribution from new projects. However, profit growth is not keeping pace: operating income fell 44.4% and net income fell 30.3%, indicating adverse mix, higher delivery costs, or front-loaded investments in personnel. Ordinary income decreased 23.6% YoY, despite higher non-operating income (0.14) providing some cushion. With net margin at 1.5% and a high tax rate, incremental revenue is not translating effectively to bottom line. Without cash flow data, we cannot confirm whether growth is cash-generative; billing and collection discipline should be monitored. Outlook hinges on improving utilization, pricing, and cost control; if wage inflation moderates and SG&A normalizes, margins could recover from Q1 lows. Conversely, sustained cost pressure would cap earnings growth despite revenue expansion.

Financial Health

Liquidity is strong: current assets 63.26 vs current liabilities 25.59 produce a current ratio of 247% and a quick ratio of 247%, well above benchmarks. Cash and deposits of 42.25 comfortably cover short-term loans of 3.00 and accounts payable of 2.93, indicating low near-term refinancing risk. Solvency: total liabilities/equity at 1.11x is moderate; interest-bearing debt is about 15.06 (0.40x of equity), with interest coverage at 41.4x, suggesting manageable debt service. No warning triggers: Current Ratio > 1.0 and D/E (total liabilities/equity) < 2.0. Maturity mismatch risk appears low given substantial cash against short-term obligations. Off-balance sheet obligations are not disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; earnings quality signals are therefore incomplete. Free cash flow and capex are also unreported, preventing assessment of maintenance vs growth investment and dividend coverage from cash. Working capital: cash is high and accounts payable are modest, but receivables and inventory are unreported; we cannot identify collection/stuffing risks from the data. Given the discrepancy between revenue growth and profit contraction, monitoring project cash conversion (billings, milestone collections) is important in upcoming quarters. No evidence of working capital manipulation is observable from the limited data.

Dividend Sustainability

The calculated payout ratio is shown at 130.0%, which is above typical sustainability thresholds; however, the basis of calculation is not disclosed and may not align with annualized earnings for FY2026. With OCF and FCF unreported this quarter, we cannot confirm cash coverage of dividends. Balance sheet liquidity (cash 42.25) provides short-term flexibility, but sustaining elevated payouts amid compressed margins could constrain reinvestment if earnings do not recover. Policy outlook: if management targets stable or gradually rising dividends, improved operating margin and normalized tax rate would be necessary to align payout with earnings and cash generation. Until OCF and full-year EPS are visible, dividend capacity assessment remains tentative.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and subcontracting costs in systems integration/services
• Project mix and utilization risk reducing operating leverage
• High effective tax rate (50.5%) depressing net margin
• Intangible asset and goodwill concentration (14.47; ~18% of assets) raising impairment sensitivity

Financial Risks:

• Earnings volatility with limited buffer at a 1.5% net margin
• Potential dividend strain if payout remains high relative to earnings (reported 130% payout ratio)
• Reliance on cost control to maintain interest coverage amid moderate leverage

Key Concerns:

• Operating margin contraction by ~250 bps YoY despite 10.1% revenue growth
• OCF, FCF, and capex unreported, limiting visibility on cash earnings quality
• Tax rate unusually high; if persistent, it would structurally depress ROE

Investment Implications

Key Takeaways:

• Top-line growth solid at +10.1% YoY, but profitability lagged with OI -44.4% YoY
• Operating margin compressed from ~5.1% to ~2.6%; net margin at 1.5%
• Liquidity robust (current ratio 247%, cash 42.25), mitigating near-term financial risk
• Leverage moderate (total liabilities/equity 1.11x; interest coverage 41.4x)
• High effective tax rate and elevated payout ratio are key drags/risks to near-term ROE

Metrics to Watch:

• OCF/Net Income once disclosed (target >1.0)
• Operating margin trajectory and SG&A-to-sales ratio
• Utilization and pricing/mix indicators in segment disclosures
• Effective tax rate normalization in subsequent quarters
• Order backlog and book-to-bill, if disclosed

Relative Positioning: Within Japanese mid-cap IT/services peers, revenue momentum appears healthy but margin resilience is weaker this quarter; balance sheet strength is above average, providing flexibility if execution on cost and mix improves.

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