VALTES HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.64B
• Operating Income: ¥269M
• Net Income: ¥141M
• EPS: ¥7.12

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

Verdict: Solid top-line growth but margin compression led to a weaker profit print in FY2026 Q2, with robust operating cash flow providing an offset. Revenue rose 11.0% YoY to 56.41, indicating healthy demand. Gross profit reached 16.45 with a gross margin of 29.2%. Operating income declined 12.6% YoY to 2.69, pulling operating margin down to 4.8%. Using the disclosed YoY rates, prior-year operating margin is inferred at roughly 6.1%, implying about 129 bps of operating margin compression YoY. Ordinary income fell 14.0% YoY to 2.63, and net income dropped 33.7% YoY to 1.41, with a high effective tax rate of 38.9% exacerbating the bottom-line decline. EBITDA was 3.15, implying an EBITDA margin of 5.6%, reflecting elevated SG&A relative to sales. Earnings quality looks strong: operating cash flow was 6.17, 4.38x net income, suggesting strong collections/working capital inflows. Liquidity is adequate with a current ratio of 148% and cash and deposits of 23.35 comfortably exceeding short-term loans of 10.15. Leverage is moderate with D/E of 1.03x and equity-to-asset of ~49%, and interest coverage is strong at 26.45x. ROE is a modest 4.4% per the DuPont framework (NPM 2.5%, asset turnover 0.869x, leverage 2.03x), and ROIC of 6.6% sits below a typical 7–8% target range. Intangibles (including goodwill of 12.58) are sizable relative to total assets (intangible assets 14.57 vs total assets 64.89), introducing potential impairment sensitivity if growth slows. Non-operating items were small (net expense of 0.06), so the story is predominantly operational. While the top-line trajectory is encouraging, cost controls and utilization/billing discipline will be key to restoring margins in the second half. Cash generation provides flexibility to fund capex (0.60) and selective shareholder returns (share repurchases of 1.28) without stressing the balance sheet. Forward-looking, management needs to improve operating leverage and optimize SG&A to move ROIC toward or above 8%, while maintaining strong collections. The elevated tax rate is a headwind to net margins; any normalization would be a tailwind. Overall, a mixed quarter: growth intact, profitability under pressure, cash flow strong, and balance sheet resilient.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.4% = Net Profit Margin 2.5% × Asset Turnover 0.869 × Financial Leverage 2.03x. The most material negative change appears at the Net Profit Margin level given operating income fell 12.6% YoY despite 11.0% revenue growth, implying roughly 129 bps operating margin compression (current ~4.8% vs prior ~6.1%). Business drivers likely include higher personnel-related costs (e.g., hiring/wage inflation to secure engineers/testers), increased SG&A supporting growth, and a high effective tax rate of 38.9% reducing net margin. Asset turnover at 0.869x is reasonable for an H1 period in a human-capital-intensive services model; it likely moved less than margin components. Financial leverage at 2.03x is moderate and stable; it did not drive the YoY decline. Sustainability: Margin pressure could be partly cyclical/temporary if utilization and pricing firm in H2 and recent hiring is absorbed; however, structural wage inflation and continued investment in growth could keep margins below prior-year levels absent pricing discipline and mix improvements. Watch for any SG&A growth outpacing revenue growth; due to data limits (prior SG&A not disclosed), we cannot confirm this quarter, but the lower operating margin signals negative operating leverage.

Growth Assessment

Revenue growth of 11.0% YoY to 56.41 indicates continued demand in software testing/QA and related services. Gross margin at 29.2% is consistent with a people-intensive model but leaves limited buffer for SG&A; the operating margin of 4.8% suggests negative operating leverage this quarter. Operating income declined 12.6% YoY and net income fell 33.7% YoY, pointing to cost pressure and tax headwinds. EBITDA margin at 5.6% is modest, reinforcing the need for utilization/billing rate improvements and tighter overhead control. Non-operating items were small, so core operations drove results. With OCF of 6.17 outpacing net income by 4.38x, execution on collections/working capital was strong, supporting growth without incremental leverage. Outlook hinges on absorbing headcount, stabilizing the tax rate, and lifting pricing/mix; if achieved, margin recovery in H2 is feasible. ROIC of 6.6% sits below a typical 7–8% target; scaling recurring, higher-value services could help close the gap. Overall growth quality is mixed: top-line resilient, profitability under strain but with levers to improve.

Financial Health

Liquidity is adequate: current ratio 147.7% and quick ratio 147.7% (no inventories reported). There is no warning trigger (Current Ratio < 1.0) and liquidity stands near the 1.5x healthy benchmark. Working capital totals 12.69, with cash and deposits of 23.35 exceeding short-term loans of 10.15, suggesting low near-term refinancing pressure. Solvency: total equity is 31.92 against total assets of 64.89 (equity ratio ~49%), with a D/E of 1.03x—moderate and within conservative bounds (<1.5x). Interest coverage is strong at 26.45x, implying ample buffer against rate increases. Maturity mismatch risk appears manageable given current assets of 39.28 vs current liabilities of 26.59, and cash exceeding short-term debt. Off-balance sheet obligations are not disclosed; none can be assessed from provided data. Intangible assets of 14.57 (including goodwill 12.58) are sizable, creating potential impairment sensitivity if performance weakens.

Cash Flow Quality

OCF/Net Income is 4.38x (>1.0), indicating high-quality earnings supported by cash conversion, likely aided by working capital inflows and strong receivables collection (AR at 13.76; prior period not disclosed). Free cash flow appears positive at approximately 5.57 (OCF 6.17 minus capex 0.60), sufficient to cover modest capex and allow for shareholder returns. Financing cash flow was -0.51, including share repurchases of 1.28; given positive FCF and ample cash, this appears sustainable near term. No indications of working capital manipulation are observable from the limited snapshot; however, without full investing cash flow detail and changes in payables/receivables by period, conclusions are tentative. Overall cash flow quality is strong this quarter.

Dividend Sustainability

Dividend amounts are unreported; however, the calculated payout ratio is 60.9%, near the upper bound of typical sustainability thresholds (<60%). With estimated FCF of ~5.57, dividend coverage appears adequate if the cash distribution aligns with the implied payout and if earnings stabilize. Balance sheet liquidity (cash 23.35) and low interest burden support flexibility. Risks to sustainability include margin pressure and a high effective tax rate affecting distributable profit. Policy outlook cannot be inferred due to missing DPS history; absent disclosure, assume a cautious stance with potential emphasis on maintaining cash for growth investments and M&A integration given elevated intangibles.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and hiring ahead of demand, compressing operating margin (~129 bps YoY).
• Utilization and billing rate risk in a human-capital-intensive model impacting EBITDA/OP margins.
• High effective tax rate (38.9%) depressing net margins and ROE.
• Goodwill/intangibles concentration (goodwill 12.58; intangibles 14.57) raising impairment risk if growth slows.
• Client IT budget volatility potentially affecting project volumes and pricing.

Financial Risks:

• Moderate leverage (D/E 1.03x) with reliance on short-term loans (10.15), though currently covered by cash.
• Potential interest rate increases could modestly raise interest expense (0.10 currently).
• Working capital dependency typical of services businesses; any collection delays could compress OCF.

Key Concerns:

• ROIC at 6.6% below a 7–8% target range, indicating suboptimal capital efficiency.
• Operating margin down to ~4.8% from ~6.1% YoY, signaling negative operating leverage.
• Net income down 33.7% YoY despite 11% revenue growth, highlighting cost/tax headwinds.

Investment Implications

Key Takeaways:

• Top-line growth (+11.0% YoY) remains solid but profitability deteriorated (OP -12.6% YoY).
• Operating margin compressed by ~129 bps to ~4.8%; EBITDA margin 5.6% indicates cost pressure.
• Cash generation strong (OCF 6.17; OCF/NI 4.38x), enabling positive FCF (~5.57) and buybacks (1.28).
• Balance sheet resilient: cash 23.35 > ST loans 10.15; equity ratio ~49%; interest coverage 26.45x.
• ROE 4.4% and ROIC 6.6% suggest room for improvement via margin recovery and capital efficiency.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory in H2.
• Utilization rates and average billing rates (pricing power).
• Headcount growth vs revenue growth (operating leverage).
• DSO/AR trends and OCF sustainability.
• Effective tax rate normalization.
• ROIC progress toward >8% and goodwill-to-equity monitoring.

Relative Positioning: Within Japanese IT/QA services peers, revenue growth is competitive, liquidity is sound, and leverage moderate; however, profitability (EBITDA/OP margins) and ROIC trail best-in-class, making execution on utilization, pricing, and SG&A efficiency critical to close the 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