IPS,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.85B
• Operating Income: ¥2.35B
• Net Income: ¥2.00B
• EPS: ¥123.95

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 headline earnings with modest top-line growth and flat operating momentum, but quality flags emerge from cash flow lag and a sharp drop in comprehensive income. Revenue grew 1.4% YoY to 78.54, while operating income edged up 0.5% YoY to 23.51, indicating limited operating leverage in the quarter. Ordinary income jumped 45.7% YoY to 23.14, and net income surged 67.2% YoY to 16.07, aided by a low effective tax rate of 13.9%. Gross margin remained high at 55.6%, and operating margin was 29.9% (23.51/78.54). Given revenue (+1.4%) outpaced operating income (+0.5%) only slightly, operating margin likely compressed by roughly 20–30 bps YoY. Net margin expanded to 20.5%, reflecting below-the-line tailwinds (notably taxes), despite a small net non-operating loss (income 2.94 versus expenses 3.30). EBITDA was 27.83 with a healthy 35.4% margin, and interest coverage is strong at 16.56x, underscoring solid core earnings capacity. ROE calculated at 7.8% (NPM 20.5% × ATO 0.187 × leverage 2.05x) is adequate but constrained by low asset turnover. Cash flow quality is weaker: operating cash flow of 12.45 is 0.77x net income, falling below the 0.8 threshold and flagging potential timing/working-capital pressures. Free cash flow, approximated as OCF minus capex, is 4.90, modest relative to implied dividends (payout ratio 32.4% on net income implies ~5.21), suggesting slight under-coverage in the period. Liquidity is acceptable with a current ratio of 136%, though below the 150% comfort benchmark; short-term loans of 45.5 add some refinancing sensitivity. The balance sheet is moderately leveraged (D/E 1.05x; Debt/EBITDA ~3.0x) and manageable given coverage. A notable negative is total comprehensive income of -2.82 despite positive net income, signaling sizable OCI losses (likely FX or valuation), which could pressure equity if persistent. Forward-looking, modest revenue growth and flattish operating profit imply earnings will rely less on tax/one-offs and more on execution; normalization of the tax rate could temper bottom-line growth. Monitoring OCF conversion, receivables dynamics, and the trajectory of comprehensive income will be key to assessing sustainability into 2H.

Profitability Analysis

ROE decomposition: ROE 7.8% = Net Profit Margin 20.5% × Asset Turnover 0.187 × Financial Leverage 2.05x. The most influential component for QoQ/YoY change appears to be net profit margin, given net income (+67.2% YoY) far outpaced revenue (+1.4%), while operating income growth (+0.5%) was subdued. This margin expansion at the net level likely stems from a low effective tax rate (13.9%) and improved below-the-line items versus the prior year, rather than stronger core operations (as operating margin compressed ~20–30 bps). Business reason: mix stability with high gross margin, tight SG&A, but benefits from tax and non-operating items drove the net margin. Sustainability: below-the-line benefits are less reliable; net margin may normalize if tax rate reverts and non-operating items are less favorable. Watch for SG&A creep—SG&A of 20.17 against gross profit of 43.68 is contained, but operating leverage was limited as revenue growth exceeded operating income growth, hinting at slight cost pressure or mix. Overall, ROE is capped by low asset turnover (0.187), typical of asset-heavy or high-receivables models; structural improvement would require faster sales growth or asset base efficiency.

Growth Assessment

Revenue growth was modest at +1.4% YoY to 78.54, signaling stable demand but limited expansion. Operating income grew +0.5% YoY to 23.51, indicating minimal operating leverage and slight operating margin compression. Ordinary income rose sharply (+45.7% YoY) and net income surged (+67.2% YoY), reflecting favorable tax and below-the-line dynamics rather than core profit acceleration. Gross margin stayed high at 55.6%, suggesting pricing and cost control remain intact. EBITDA margin of 35.4% supports resilient unit economics. However, the OCF/NI ratio of 0.77 indicates earnings conversion softness, likely from working-capital outflows (receivables at 127.66 are sizable relative to sales). With total comprehensive income negative (-2.82), exogenous market/FX valuation impacts dent earnings quality. Outlook: absent stronger top-line acceleration or cost leverage, earnings growth may moderate as tax effects normalize; execution on collections and capex discipline will be important to sustain FCF. ROIC at 8.2% is slightly above the 7–8% benchmark, a constructive sign if maintained.

Financial Health

Liquidity is adequate but not plush: current ratio 136.2% (above 1.0 threshold, below 1.5 comfort), quick ratio effectively the same due to limited inventory disclosures. No explicit warning for CR < 1.0. Debt profile is moderate: D/E 1.05x and Debt/EBITDA ~3.03x indicate manageable leverage with strong interest coverage at 16.56x. Maturity structure: short-term loans of 45.50 versus cash 43.14 and substantial receivables 127.66 suggests manageable near-term funding but some refinancing risk if collections slow. Current assets (235.62) comfortably exceed current liabilities (173.04), yielding working capital of 62.58. Noncurrent liabilities of 42.10 include long-term loans 38.73, indicating a balanced tenor mix. No off-balance sheet obligations are reported in the provided data. Equity is 205.27 with owners' equity 147.29; comprehensive losses this period could modestly erode capital if repeated.

Cash Flow Quality

OCF of 12.45 is 0.77x net income of 16.07, below the 0.8 benchmark and flagged as a quality concern. The divergence suggests working-capital absorption or timing differences; high receivables relative to sales point to collections timing as a likely driver. Capex of -7.55 implies Free Cash Flow of approximately 4.90 (OCF minus capex). While positive, this appears slightly below implied dividends (~5.21, based on a 32.4% payout of net income), indicating FCF under-coverage in the half and reliance on cash balances or financing. Interest coverage is robust (16.56x), so cash interest is not the primary drag. No explicit signs of aggressive working-capital management are disclosed, but monitoring days sales outstanding and payables terms is prudent. Sustainability hinges on improving cash conversion in 2H and maintaining capex discipline.

Dividend Sustainability

The calculated payout ratio is 32.4%, comfortably below the 60% benchmark on an earnings basis. On a cash basis, estimated FCF of 4.90 is slightly below implied dividends of ~5.21, suggesting marginal under-coverage in this half-year. With liquidity adequate and leverage moderate, near-term dividend capacity appears supported, but sustained under-conversion of earnings to cash would tighten coverage. Policy visibility is limited as DPS and total dividends paid are unreported; absent guidance, assume a stable dividend stance contingent on OCF normalization in 2H. Key watchpoints: OCF/NI recovery to ≥1.0, capex trajectory, and any tax rate normalization that could reduce distributable profit.

Risk Assessment

Business Risks:

• Low revenue growth (+1.4% YoY) limits operating leverage and margin expansion potential.
• Dependence on high gross margin to sustain profitability; any cost inflation or pricing pressure could compress OPM.
• Receivables concentration risk given AR 127.66 versus quarterly sales scale, exposing cash conversion to customer payment timing.
• Negative total comprehensive income (-2.82) suggests FX or valuation exposure impacting equity.

Financial Risks:

• OCF/Net Income at 0.77 indicates weaker cash conversion; sustained shortfall could pressure FCF and dividends.
• Refinancing/rollover risk on short-term loans (45.50) if credit conditions tighten.
• Potential tax rate normalization from a low 13.9% could reduce net margins and free cash.
• Moderate leverage (D/E 1.05x; Debt/EBITDA ~3.0x) amplifies sensitivity to earnings volatility.

Key Concerns:

• Earnings quality: net income strength driven by low taxes while operating income is flat and OCF lags.
• Operating margin slight compression (~20–30 bps YoY) despite stable gross margin implies limited cost leverage.
• OCI losses dragging comprehensive income negative, which could persist with market/FX volatility.

Investment Implications

Key Takeaways:

• Core profitability steady with very high gross and EBITDA margins, but operating momentum is flat.
• Net income outperformance versus operating income relies on a low tax rate; sustainability is uncertain.
• Cash conversion is below par (OCF/NI 0.77), leading to thin FCF coverage of dividends this half.
• Balance sheet is sound with strong interest coverage; leverage is moderate and manageable.
• ROIC at 8.2% is slightly above benchmark, supportive if maintained.

Metrics to Watch:

• OCF/Net Income ratio and receivables days (collections behavior).
• Operating margin trajectory and SG&A growth versus revenue.
• Effective tax rate normalization path.
• Short-term debt rollover and average funding costs.
• Trends in other comprehensive income (FX/valuation effects).

Relative Positioning: Within domestic small/mid-cap communications/IT services peers, the company exhibits superior margins and healthy coverage metrics but lags on cash conversion and operating growth; valuation sensitivity may hinge on evidence of 2H OCF normalization and sustained ROIC above 8%.

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