D.I.System Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥7.22B
• Operating Income: ¥356M
• Net Income: ¥213M
• EPS: ¥88.12

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

DI System (4421) delivered steady topline and earnings growth in FY2025, with revenue up 5.7% year over year to ¥7,222 million. Operating income increased 3.7% to ¥356 million, indicating modest operating leverage in a cost-inflationary environment. Net income rose 6.0% to ¥256 million, outpacing operating profit growth due to minimal financial expenses and stable taxation. Gross margin was 18.5%, and operating margin was 4.9%, both consistent with a labor-intensive SI/SES business model. The DuPont decomposition yields an ROE of 15.66%, driven primarily by high asset turnover (2.324x) and moderate leverage (1.90x), with a modest net margin of 3.54%. Cash flow quality is solid: operating cash flow of ¥299 million exceeded net income (OCF/NI of 1.17x), and free cash flow was positive at ¥82 million despite active investing outflows. Liquidity appears comfortable with a current ratio of 181.8% and working capital of approximately ¥971 million. Solvency is sound with liabilities-to-equity of 0.89x and an implied equity ratio around 52.6% (based on reported assets and equity). Ordinary income (¥359 million) only slightly exceeded operating income, implying limited reliance on non-operating gains. Interest expense was minimal at ¥1.0 million, giving an elevated interest coverage of roughly 347x. The effective tax burden appears approximately 28% when benchmarked against ordinary income, despite a reported effective tax metric of 0.0% in the provided summary. Dividend payout was nil, consistent with reinvestment to support growth and human capital development. The business continues to convert earnings to cash adequately, supporting self-funded growth with limited balance sheet risk. Data gaps exist: inventory and cash balances, share count, and equity ratio were reported as zero, which under the instructions should be treated as undisclosed rather than actual zero values. Overall, the company exhibits healthy ROE, disciplined cost control, and adequate liquidity, though margins remain thin and sensitive to utilization and wage inflation.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.54%
• asset_turnover: 2.324
• financial_leverage: 1.9
• calculated_ROE: 15.66%
• commentary: ROE is largely driven by efficient asset use and moderate leverage; margin is modest but stable. margin_quality:
• gross_margin: 18.5%
• operating_margin: 4.9%
• EBITDA_margin: 5.4%
• net_margin: 3.54%
• tax_rate_observation: Income tax expense of ¥101.6m implies an effective rate of ~28% vs ordinary income of ¥359m.
• commentary: Margins are consistent with SI/SES norms; minimal non-operating distortion and limited financing drag support earnings quality. operating_leverage:
• YoY_revenue_growth: 5.7%
• YoY_operating_income_growth: 3.7%
• assessment: Operating income grew slightly slower than revenue, indicating modest operating leverage; SG&A and personnel costs likely absorbed part of the growth.
• interest_coverage: 346.6x (very strong)

Growth Assessment

revenue_sustainability: Mid-single-digit growth suggests steady demand and utilization in core SI/SES services; sustainability depends on order backlog, headcount growth, and billing rate discipline. profit_quality: Net income growth (6.0%) exceeded operating income growth, supported by negligible interest costs and stable tax burden; non-operating items do not materially drive earnings. outlook: Continued growth likely hinges on engineer recruitment/retention and improving unit pricing; margin expansion potential exists via mix shift to higher value-add services and better utilization, but wage inflation and subcontracting costs are key headwinds.

Financial Health

liquidity:

• current_ratio: 181.8%
• quick_ratio_note: Inventory was undisclosed (reported as 0); quick ratio equal to current ratio may overstate liquidity if inventories exist, though inventories are typically low for SI/SES.
• working_capital: ¥970.5m solvency:
• debt_to_equity: 0.89x (total liabilities/equity)
• interest_coverage: 346.6x
• equity_ratio_implied: 52.6% (equity/assets derived from provided balances)
• assessment: Strong equity buffer and minimal financial risk; capacity to absorb shocks without resorting to leverage. capital_structure: Balance sheet is conservatively positioned with moderate liabilities; no evidence of heavy debt financing or reliance on non-core financing.

Cash Flow Quality

earnings_quality:

• OCF: ¥299m
• net_income: ¥256m
• OCF_to_NI: 1.17
• assessment: Cash conversion above 1.0x indicates healthy earnings quality and working capital discipline. FCF_analysis:
• investing_CF: ¥-217m
• free_cash_flow: ¥82m
• commentary: Positive FCF after ongoing investment suggests self-funded growth; magnitude of investing CF points to tangible/intangible development and/or strategic investments. working_capital:
• notes: Working capital expanded to ¥970.5m; DSOs/collection efficiency not disclosed. Continued monitoring of receivables and subcontracting payables balance is important for OCF stability.

Dividend Sustainability

payout_ratio_assessment: Payout ratio reported as 0.0% with DPS at ¥0 indicates full earnings retention. FCF_coverage: With FCF of ¥82m, the company could theoretically fund a modest dividend; current policy appears to prioritize reinvestment. policy_outlook: Given growth needs in a human-capital intensive model, retention is reasonable. Future distributions would depend on sustained cash conversion and investment needs.

Risk Assessment

Business Risks:

• Utilization and billing rate pressure in SI/SES can compress margins.
• Engineer recruitment/retention challenges amid wage inflation.
• Project execution risk and potential for fixed-price overruns.
• Client concentration or cyclicality in IT spending (not disclosed).
• Competitive intensity from larger SIers and staffing firms.

Financial Risks:

• Working capital swings affecting OCF, especially receivables.
• Potential rise in subcontracting costs squeezing gross margin.
• Limited operating margin providing smaller cushion against shocks.
• Dependence on ordinary income alignment with pre-tax profit for tax assumptions.

Key Concerns:

• Thin operating margin (~4.9%) leaves limited room for error.
• Sustaining headcount growth without diluting profitability.
• Visibility on cash, inventory, and share-related metrics is limited due to undisclosed items.

Investment Implications

Key Takeaways:

• ROE of 15.66% supported by high asset turnover and moderate leverage.
• Stable margin structure with modest operating leverage in FY2025.
• Strong interest coverage and implied equity ratio ~53% indicate low financial risk.
• Positive OCF and FCF underpin self-funded growth.
• Dividend currently suspended; capital allocation skewed to reinvestment.

Metrics to Watch:

• Order backlog and book-to-bill.
• Headcount growth, utilization rate, and voluntary turnover.
• Average billing rate vs wage inflation and subcontractor rate trends.
• SG&A ratio and operating margin trajectory.
• OCF/NI ratio and DSO/working capital movements.
• Mix shift toward higher value-added projects and recurring services.

Relative Positioning: Within Japanese small/mid-cap SI/SES peers, DI System exhibits above-average ROE driven by efficient asset use, with margins in the low single digits typical for the segment and a conservative balance sheet supporting resilience.

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