FLECT Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.81B
• Operating Income: ¥414M
• Net Income: ¥250M
• EPS: ¥40.75

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), 株式会社フレクト reported revenue of ¥3,813 million (-2.4% YoY), with operating income of ¥414 million (-3.9% YoY) and net income of ¥250 million (-2.7% YoY). Gross profit was ¥1,736 million, implying a solid 45.5% gross margin, and operating margin stood at approximately 10.9%, demonstrating resilient pricing and cost control despite softer top-line trends. Ordinary income was ¥415 million, broadly in line with operating income, reflecting minimal financial income/expense impact; interest expense was only ¥4.2 million with an interest coverage ratio of 98.6x, underscoring limited financial risk from leverage. Net margin was 6.56%, with an implied effective tax rate around 40–41% based on the disclosed income tax of ¥170 million and earnings before tax, although an “effective tax rate: 0.0%” metric appears to be a placeholder and not reflective of the actual tax burden. DuPont analysis indicates ROE of 8.38%, driven by a 6.56% net margin, asset turnover of 0.911x, and financial leverage of 1.40x. The company’s liquidity profile is strong, with current assets of ¥3,733 million against current liabilities of ¥994 million (current ratio ~376%), and working capital of ¥2,739 million, suggesting ample near-term funding capacity for operations. Total liabilities of ¥1,476 million versus equity of ¥2,985 million result in low balance-sheet risk (debt-to-equity ~0.49x on a broad liability basis). Operating cash flow was negative at ¥-209 million, translating to an OCF/Net Income ratio of -0.83, signaling timing or working-capital-related pressure in the period. Depreciation and amortization were modest at ¥58 million, indicating a low non-cash component to earnings and heightening the importance of cash conversion from operations. Investing cash flow was shown as ¥0 and cash and equivalents as ¥0, which should be treated as undisclosed rather than true zeros; therefore, free cash flow cannot be reliably computed from the provided data. Earnings per share was ¥40.75, while DPS was reported at ¥0.00, implying no dividend distribution during the period and a payout ratio of 0%. Profitability remains healthy relative to the topline decline, but negative OCF and limited disclosure on cash/investing flows warrant attention to working capital dynamics (receivables, unbilled revenue, and advances). Operating leverage appears slightly negative this quarter, given that operating income fell somewhat more than revenue, though margins stayed above 10%, suggesting decent cost flexibility. Overall, the company presents a mix of resilient profitability, conservative leverage, and strong reported liquidity, offset by softer revenue and weak cash conversion in the quarter. Data limitations exist in certain line items (e.g., cash, investing CF, equity ratio), which appear undisclosed rather than truly zero; conclusions focus on the non-zero, disclosed metrics. The near-term outlook will hinge on order intake, backlog execution, billing milestones, and normalization of working capital.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 6.56%
• asset_turnover: 0.911x
• financial_leverage: 1.40x
• calculated_ROE: 8.38%
• commentary: ROE of 8.38% reflects solid underlying profitability and moderate asset efficiency with conservative leverage (assets/equity ~1.40x). margin_quality:
• gross_margin: 45.5% (¥1,736m GP on ¥3,813m sales)
• operating_margin: 10.9% (¥414m OI)
• ordinary_margin: 10.9% (¥415m OI)
• net_margin: 6.56% (¥250m NI)
• tax_burden: Implied effective tax rate ~40–41% (¥170m income tax), despite a placeholder metric showing 0.0%.
• assessment: Margins are robust for a project/solution-driven model, with stable pricing and cost discipline. Net margin compression vs operating margin reflects a normalizing tax burden rather than financing costs. operating_leverage: Revenue declined -2.4% YoY while operating income declined -3.9% YoY, indicating slight negative operating leverage; however, double-digit operating margin suggests reasonable cost flexibility and utilization.

Growth Assessment

revenue_sustainability: Topline decreased to ¥3,813m (-2.4% YoY), pointing to softer demand or project timing. The high gross margin suggests value-added mix remains intact, but revenue visibility likely hinges on backlog and new wins. profit_quality: EBITDA of ¥472m (12.4% margin) with low D&A (¥58m) supports underlying earnings, but cash conversion was weak this quarter (OCF/NI -0.83), tempering quality of earnings. outlook: Near-term growth depends on order intake, milestone billings, and delivery timing. Absent evidence of pricing pressure, margins could remain resilient if utilization holds; normalization of working capital could restore cash conversion even with flattish revenue.

Financial Health

liquidity:

• current_assets: ¥3,733m
• current_liabilities: ¥994m
• current_ratio: 375.5%
• quick_ratio: 375.5% (inventories undisclosed)
• working_capital: ¥2,739m
• commentary: Substantial liquidity cushion for near-term obligations; however, cash balance is undisclosed in the dataset, so the liquidity mix (cash vs. receivables/unbilled) is unknown. solvency:
• total_assets: ¥4,187m
• total_liabilities: ¥1,476m
• total_equity: ¥2,985m
• debt_to_equity: 0.49x (using total liabilities as a proxy)
• interest_coverage: 98.6x (OI/interest expense)
• commentary: Low leverage and very high interest coverage indicate limited refinancing risk. Equity base comfortably supports the asset base (assets/equity ~1.40x). capital_structure: Conservative; reliance on debt appears minimal. The absence of detailed interest-bearing debt disclosure in this snapshot limits deeper analysis.

Cash Flow Quality

earnings_quality: D&A is modest (¥58m), so earnings are largely cash-based in principle; however, negative OCF (¥-209m) vs. positive NI (¥250m) indicates working-capital headwinds or timing effects. FCF_analysis: Investing CF is shown as ¥0 (undisclosed), so FCF cannot be reliably calculated; if capex were modest, implied FCF would still likely be negative given the OCF shortfall. working_capital: Given strong current assets and negative OCF, the drag likely stems from receivables growth, unbilled receivables, or reduced advances from customers. Monitoring DSO, unbilled balances, and contract liabilities will be critical.

Dividend Sustainability

payout_ratio_assessment: DPS is reported at ¥0.00 and payout ratio at 0.0%, implying no dividends. With EPS at ¥40.75, the company retains earnings for reinvestment or balance-sheet strength. FCF_coverage: Not assessable due to undisclosed investing CF; OCF was negative, which would constrain distributable capacity in the near term even if dividends were considered. policy_outlook: Given growth/reinvestment profile and cash conversion volatility, a conservative or no-dividend stance appears consistent until OCF normalizes and recurring FCF is demonstrated.

Risk Assessment

Business Risks:

• Project timing risk and milestone-based revenue recognition leading to quarterly volatility.
• Customer IT spending cycles and macro sensitivity affecting new orders and backlog conversion.
• Talent acquisition/retention and wage inflation impacting delivery capacity and margins.
• Potential client concentration in key accounts typical of solution/integration businesses.
• Execution risk on fixed-price or scope-intensive projects affecting gross margin.

Financial Risks:

• Negative operating cash flow in the period indicates working-capital sensitivity.
• Liquidity composition risk due to undisclosed cash balance and reliance on receivables/unbilled assets.
• Limited visibility on interest-bearing debt structure due to disclosure granularity.
• Tax rate variability affecting net margin and cash taxes.

Key Concerns:

• Cash conversion (OCF/NI -0.83) despite positive earnings.
• Slight revenue contraction (-2.4% YoY) and negative operating leverage.
• Incomplete disclosure for cash and investing cash flows limiting FCF assessment.

Investment Implications

Key Takeaways:

• Resilient profitability: GM 45.5%, OM ~10.9%, NI margin 6.56%.
• ROE of 8.38% supported by moderate asset efficiency and low leverage.
• Negative OCF (¥-209m) flags working-capital pressure despite positive earnings.
• Strong reported liquidity (current ratio ~376%) and conservative balance sheet (D/E ~0.49x).
• Slight negative operating leverage as operating income declined faster than revenue.
• Dividend currently absent; distributions unlikely until cash generation normalizes.

Metrics to Watch:

• Order intake/backlog and book-to-bill.
• OCF, FCF, and investing CF (capex) once disclosed.
• DSO, unbilled receivables, and contract liabilities (advances).
• Utilization rates and headcount cost per billable hour.
• Gross margin by project type and change orders.
• Tax rate normalization and any one-offs.

Relative Positioning: Within Japan IT services/solutions peers, margins are competitive to above-average for a smaller integrator (OM ~11%), leverage is conservative, but cash conversion underperforms this quarter; sustained execution on backlog and improved working-capital discipline would be needed to close the gap on cash-based performance.

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