TOHO SYSTEM SCIENCE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.59B
• Operating Income: ¥884M
• Net Income: ¥600M
• EPS: ¥34.65

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

For FY2026 Q2 (single-entity, JGAAP), Toho System Science delivered resilient profitability despite a modest revenue contraction. Revenue declined 2.2% YoY to ¥8,592 million, but operating income rose 17.9% YoY to ¥884 million, indicating meaningful margin expansion. Gross profit reached ¥1,532 million with a gross margin of 17.8%, while the operating margin improved to 10.3%, up roughly 1.8 percentage points from an estimated 8.5% a year ago. Ordinary income was ¥889 million and net income ¥600 million, yielding a net margin of 6.98%. DuPont metrics show ROE of 6.61%, driven by a 6.98% net margin, 0.65x asset turnover, and 1.45x financial leverage. Balance sheet strength is notable: total assets of ¥13,211 million and total equity of ¥9,082 million imply an equity ratio of about 68.7% (calculated), despite the reported equity ratio field being unreported. Liquidity is very strong, with a current ratio of 565% and working capital of ¥9,399 million, consistent with a system integrator’s receivables-heavy current assets. Operating cash flow was ¥603 million, broadly matching net income (OCF/NI ≈ 1.00), suggesting solid earnings quality for the half year. Depreciation is minimal at ¥20 million, underscoring an asset-light model and explaining the close alignment of EBIT and EBITDA. Financing cash outflow of ¥367 million suggests shareholder returns or other financing uses, though dividends per share were not disclosed. Interest expense is unreported and appears negligible, consistent with a conservative capital structure and limited financial risk. The effective tax rate field is unreported; based on income tax expense and net income, an implied tax rate near 29% is reasonable for the period. While investing cash flow and cash balance were not disclosed, the strong current asset base and positive OCF mitigate near-term liquidity concerns. Data limitations (notably DPS, shares, cash, and investing CF unreported) constrain per-share and FCF-based assessments, but available figures point to improved operating efficiency and prudent balance sheet management.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 6.98% (NI ¥600m / Revenue ¥8,592m)
• asset_turnover: 0.65x (Revenue ¥8,592m / Assets ¥13,211m)
• financial_leverage: 1.45x (Assets ¥13,211m / Equity ¥9,082m)
• calculated_ROE: 6.61% (matches provided DuPont result) margin_quality:
• gross_margin: 17.8% (¥1,532m / ¥8,592m)
• operating_margin: 10.3% (¥884m / ¥8,592m)
• ordinary_margin: 10.3% (¥889m / ¥8,592m)
• net_margin: 6.98% (¥600m / ¥8,592m)
• commentary: YoY revenue declined 2.2%, yet operating income rose 17.9%, indicating cost discipline and/or favorable mix. Estimated prior-year operating margin ≈8.5% vs. 10.3% currently (+~1.8pp). Minimal D&A (¥20m) implies EBITDA margin (10.5%) is close to operating margin, reflecting an asset-light, people-intensive business. operating_leverage: Positive operating leverage evidenced by OI growth (+17.9% YoY) despite lower revenue (-2.2% YoY), suggesting SG&A efficiency and improved project profitability. With low D&A, incremental margins likely stem from labor utilization, pricing, and subcontractor cost control rather than fixed-cost absorption.

Growth Assessment

revenue_sustainability: Top-line softness (-2.2% YoY) may reflect project timing or cautious client spending; sustainability hinges on backlog conversion and demand in core verticals (not disclosed). profit_quality: Profit gains are margin-led rather than volume-led, supported by tighter cost control and mix. Ordinary income tracks operating income closely, suggesting limited non-operating distortion. outlook: If the company sustains current margin discipline and utilization, full-year profitability could remain robust even with modest revenue pressure. Key determinants will be order intake, headcount capacity, and subcontractor cost trends. Data limitations (no backlog/order data) temper visibility.

Financial Health

liquidity:

• current_assets: ¥11,420.7m
• current_liabilities: ¥2,021.5m
• current_ratio: 565%
• quick_ratio: 565% (inventories unreported)
• working_capital: ¥9,399.2m
• commentary: Ample buffers typical for SI businesses; likely receivables-heavy. Lack of disclosed cash balance is noted but mitigated by strong OCF and low short-term obligations. solvency_capital_structure:
• total_assets: ¥13,211m
• total_liabilities: ¥4,154.2m
• total_equity: ¥9,082m
• equity_ratio_calculated: ≈68.7% (¥9,082m / ¥13,211m)
• debt_to_equity: 0.46x (based on total liabilities/equity)
• interest_burden: Interest expense unreported/immaterial; coverage metric not meaningful but risk is low given minimal financial leverage.
• commentary: Conservative balance sheet with substantial equity cushion and limited reliance on debt.

Cash Flow Quality

earnings_quality: OCF of ¥602.7m is roughly equal to net income of ¥600.0m (OCF/NI ≈ 1.00), indicating clean earnings translation for the half year. FCF_analysis: Free cash flow not assessable due to unreported investing CF (reported as 0 indicates non-disclosure). Given low D&A and asset-light operations, maintenance capex is likely modest, but this remains an assumption. working_capital: Strong working capital position (¥9,399m). Positive OCF suggests effective receivables collection and stable project billing, though SI seasonality can affect intra-year cash flows.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are unreported. EPS is ¥34.65 for the period, but without disclosed DPS and full-year outlook, payout cannot be evaluated. FCF_coverage: FCF coverage cannot be determined due to unreported investing cash flows; OCF alone was positive at ¥603m. policy_outlook: Financing cash outflow (¥367m) suggests some capital returns or financing uses, but the lack of DPS and share data precludes conclusions on dividend policy or sustainability.

Risk Assessment

Business Risks:

• Project timing and acceptance risk leading to revenue volatility across quarters
• Fixed-price project execution risk (scope creep, overruns) compressing margins
• Client concentration risk in core verticals (not disclosed here)
• Engineer wage inflation and talent retention pressures impacting cost structure
• Subcontractor availability and rate inflation affecting gross margin
• Demand cyclicality tied to corporate IT investment cycles
• Seasonality with potential back-half revenue/margin concentration

Financial Risks:

• Working capital intensity and receivables collection timing
• Limited disclosure on cash and investing flows reduces visibility on FCF
• Potential off-balance commitments (e.g., leases, subcontracting obligations) not detailed
• Tax rate variability (implied ~29%) versus unreported effective tax rate metric

Key Concerns:

• Top-line softness (-2.2% YoY) amid margin gains—sustainability of profitability if revenue remains weak
• Lack of disclosure on investing CF and cash balances, constraining FCF and liquidity analysis
• Dividend policy and capital return framework unreported, limiting yield visibility

Investment Implications

Key Takeaways:

• Margin expansion offset revenue decline, driving double-digit operating and net income growth
• Strong balance sheet with calculated equity ratio ~68.7% and low leverage
• Solid earnings quality with OCF ≈ net income for the half year
• Asset-light model (low D&A) supports high conversion from EBIT to EBITDA and cash generation
• Visibility constraints due to unreported cash, investing CF, DPS, and share data

Metrics to Watch:

• Order backlog and book-to-bill (not disclosed)
• Utilization rates, headcount growth, and average billing rates
• Subcontractor ratio and gross margin trajectory
• SG&A ratio and operating margin sustainability
• Receivable days (DSO) and OCF/NI consistency
• Disclosure on cash, capex/investing CF, and capital return policy
• Tax rate normalization versus implied ~29% in the period

Relative Positioning: The company appears operationally efficient with low leverage and strong liquidity relative to typical domestic SI peers, showing improved margins despite modest revenue pressure; however, incomplete disclosures on cash, investing CF, and dividends limit comparative FCF and shareholder return assessments.

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