SIG Group Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.32B
• Operating Income: ¥341M
• Net Income: ¥198M
• EPS: ¥36.32

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

SIG Group (4386) posted solid topline momentum in FY2026 Q2 with revenue of ¥5,319m, up 24.5% YoY, but profitability expanded at a slower pace, with operating income of ¥341m (+11.3% YoY) and net income of ¥206m (+4.5% YoY). The DuPont-calculated ROE stands at 7.89%, driven by a modest net margin of 3.87%, asset turnover of 0.909x, and financial leverage of 2.24x. Gross margin is 17.3%, indicating a relatively thin value-add profile consistent with labor-intensive SI/services models. EBITDA was ¥367m, yielding a 6.9% EBITDA margin, signaling limited operating buffer and likely wage cost pressure. Interest coverage is robust at ~88x (operating income vs. interest expense), reflecting very low financing burden and good capacity to service debt. Liquidity appears strong with a current ratio of 202% and working capital of approximately ¥1,884m, providing cushion for operations and growth. Capital structure is moderate, with total liabilities-to-equity of 1.29x and financial leverage of 2.24x, supportive of an intermediate risk profile. Operating cash flow was ¥165m, equating to an OCF/Net Income ratio of about 0.80x, which points to softer cash conversion in the period, likely due to working-capital build typical of growth. The reported effective tax rate field is 0.0% but the disclosed income tax of ¥136m against pre-tax income implies an effective tax rate of roughly 39.8%, suggesting the 0% is an unreported metric placeholder. Several data points are unreported (e.g., cash and equivalents, inventories, investing cash flows, DPS, shares outstanding), limiting precision in cash, FCF, and per-share diagnostics. Despite these limitations, the company’s fundamentals indicate healthy demand but margin compression, as operating income growth lagged revenue growth. The combination of healthy liquidity and high interest coverage offsets some profitability pressures. Sustaining ROE near 8% will require better margin capture and/or further asset turnover improvement. Free cash flow can’t be fully assessed without capex/investing detail, but current OCF is positive and consistent with continued operations. Overall, SIG Group shows strong growth, adequate solvency and liquidity, but needs to tighten cost control and working capital to translate growth into higher-quality earnings and cash.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.87%
• asset_turnover: 0.909
• financial_leverage: 2.24
• calculated_ROE: 7.89%
• commentary: ROE is driven more by leverage and asset turnover than by margin; net margin remains thin for the SI/services space. margin_quality:
• gross_margin: 17.3% (¥921.4m/¥5,319m)
• operating_margin: 6.4% (¥341m/¥5,319m)
• EBITDA_margin: 6.9% (¥366.7m/¥5,319m)
• tax_rate_estimate: ≈39.8% (¥136.2m / [¥206.0m + ¥136.2m])
• observations: Revenue grew faster than operating income, indicating margin pressure likely from higher personnel costs, subcontracting ratios, or SG&A uplift tied to growth. operating_leverage: Negative in this period: +24.5% revenue vs. +11.3% operating income suggests lower incremental margins. Tight cost control and pricing discipline are needed to restore operating leverage.

Growth Assessment

revenue_sustainability: Topline growth of +24.5% YoY is robust and likely demand-driven (DX/project momentum), but sustainability depends on backlog, headcount capacity, and pricing. profit_quality: Net income grew only +4.5% YoY vs. revenue +24.5%, pointing to mix or cost pressures. Thin gross and EBITDA margins cap operating flexibility. outlook: If utilization and unit pricing improve and SG&A growth normalizes, margins could recover; otherwise, growth may continue but with limited earnings scalability. Watch for hiring patterns and subcontracting mix.

Financial Health

liquidity:

• current_ratio: 202.2% (¥3,727.9m / ¥1,843.5m)
• quick_ratio: 202.2% (inventories unreported)
• working_capital: ¥1,884.4m
• assessment: Strong short-term liquidity position, offering resilience against project timing and receivable cycles. solvency:
• debt_to_equity: 1.29x (total liabilities/equity)
• financial_leverage: 2.24x (assets/equity)
• interest_coverage: ≈88.0x (¥341m / ¥3.88m)
• assessment: Moderate leverage and very high interest coverage. Solvency risk appears contained under current conditions. capital_structure: Balanced; reliance on liabilities is moderate. With equity at ¥2,610m and assets at ¥5,852m, the company retains capacity for prudent investment.

Cash Flow Quality

earnings_quality: OCF/Net Income ~0.80x (¥165m/¥206m) indicates weaker conversion, likely from working capital build (e.g., receivables) amid strong growth. FCF_analysis: Free cash flow cannot be reliably derived because investing cash flow/capex is unreported. OCF is positive, but FCF coverage of dividends cannot be assessed. working_capital: Current assets of ¥3,728m vs. current liabilities of ¥1,843m indicate ample coverage. The OCF shortfall vs. NI suggests cash is tied up in operations; monitor DSO and unbilled receivables.

Dividend Sustainability

payout_ratio_assessment: Payout ratio and DPS are unreported (zeros are placeholders). With EPS of ¥36.32 and positive NI, capacity exists, but policy details are unavailable. FCF_coverage: Not assessable due to missing investing cash flow/capex. OCF is positive but below NI, which could constrain coverage if capex needs are material. policy_outlook: No stated dividend information. Future policy will likely depend on cash conversion improvements and capital allocation priorities (hiring, M&A, systems).

Risk Assessment

Business Risks:

• Labor cost inflation and hiring/retention challenges impacting margins and delivery capacity.
• Fixed-price project risk (scope creep, delays) leading to margin erosion.
• Subcontractor dependence and mix shifts affecting gross margin.
• Customer concentration and budget cyclicality in key verticals; sensitivity to IT spending cycles.
• Utilization volatility due to project timing and onboarding of new hires.
• Pricing pressure in competitive SI/SES markets.

Financial Risks:

• Working capital absorption during growth leading to weaker cash conversion.
• Potential receivables concentration and collection risk (DSO not disclosed).
• Exposure to interest rate normalization, albeit current interest burden is low.
• Limited buffer from thin margins if demand softens.

Key Concerns:

• Operating leverage turned negative despite strong revenue growth.
• OCF/NI below 1.0x suggests earnings quality risk in the period.
• Effective tax rate ~40% reduces net profitability versus headline operating results.
• Lack of disclosure on cash, investing flows, and dividend policy hampers full FCF assessment.

Investment Implications

Key Takeaways:

• Strong topline growth (+24.5% YoY) with slower profit growth points to margin pressure.
• ROE at 7.9% is supported by asset turnover and moderate leverage, but constrained by thin net margins.
• Liquidity is robust (current ratio ~202%) and interest coverage is very strong (~88x).
• Cash conversion is soft (OCF/NI ~0.80x), likely due to working capital needs.
• Data gaps on cash, investing flows, and dividends limit FCF and shareholder return analysis.

Metrics to Watch:

• Gross margin and SG&A-to-sales ratio for cost discipline and pricing power.
• OCF/Net Income ratio, DSO, and unbilled receivables for cash conversion.
• Order backlog, utilization rates, and headcount/productivity for sustainability of growth.
• Unit billing rates vs. wage inflation for margin resilience.
• Leverage (liabilities/equity) and interest coverage amid potential rate changes.

Relative Positioning: Within domestic mid-sized SI/SES peers, SIG Group exhibits stronger-than-average revenue growth but operates with relatively thin margins; balance sheet strength and coverage are supportive, while cash conversion and operating leverage need improvement to close the profitability gap.

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