VALTES HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.64B
• Operating Income: ¥269M
• Net Income: ¥213M
• 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

Valtes Holdings (TSE: 44420) delivered FY2026 Q2 consolidated results marked by solid top-line growth but weaker profit conversion. Revenue rose 11.0% YoY to ¥5.64bn, while operating income fell 12.6% YoY to ¥269m, indicating negative operating leverage in the period. Gross profit reached ¥1.39bn, implying a gross margin of 24.7%, but operating margin compressed to 4.8%. Ordinary income was ¥263m and net income declined 33.7% YoY to ¥141m, bringing the net margin to 2.5%. DuPont decomposition indicates ROE of 4.42% driven by a 2.50% net margin, 0.869x asset turnover, and 2.03x financial leverage. The decline in operating profit despite revenue growth suggests SG&A inflation (e.g., hiring, wage, and go-to-market costs) outpaced gross profit expansion. EBITDA of ¥319m translates to a 5.7% margin, only modestly above operating margin, highlighting a cost base that is predominantly cash in nature and limiting buffer from non-cash D&A. Interest expense remained low at ¥4.5m with interest cover of 60x, evidencing minimal financing burden. The effective tax rate derived from disclosed figures appears around the mid-30% range (¥93m tax on roughly ¥263m pretax), though the provided “effective tax rate” metric shows 0.0%, which is non-informative. Liquidity is sound with a current ratio of 156% and working capital of ¥1.43bn. Balance sheet leverage is moderate with total liabilities/equity of 1.02x, and implied equity ratio is roughly 49% based on total equity over total assets, despite a reported metric of 0.0% (not disclosed). Operating cash flow was positive at ¥185m and exceeded net income (OCF/NI 1.31x), indicating decent earnings cash conversion in the half. Investing cash flow and cash balance were not disclosed, limiting full free cash flow assessment in this report. Dividend information is not substantively disclosed (DPS and payout figures appear as zero placeholders), so no conclusions can be drawn about policy changes this quarter. Overall, the quarter reflects healthy demand but pressure on cost discipline, with solid liquidity and conservative financing profile cushioning near-term risks. Key monitoring points include SG&A trajectory, utilization, pricing, and hiring costs to restore operating leverage into the second half.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 2.50%
• asset_turnover: 0.869x
• financial_leverage: 2.03x
• calculated_ROE: 4.42%
• commentary: ROE is modest, constrained by a thin net margin. Asset turnover is reasonable for a human-capital-intensive IT services/testing model, and leverage is moderate at ~2.0x assets/equity. margin_quality:
• gross_margin: 24.7% (GP ¥1,393m on revenue ¥5,641m)
• operating_margin: 4.8% (OP ¥269m)
• ordinary_margin: 4.7% (OI ¥263m)
• net_margin: 2.5% (NI ¥141m)
• EBITDA_margin: 5.7% (EBITDA ¥319m)
• commentary: Compression from gross to operating margin suggests elevated SG&A (personnel acquisition, wage inflation, and selling costs). Limited gap between EBITDA and operating margin (D&A only ~¥50m) indicates a largely cash cost base. operating_leverage:
• revenue_YoY: +11.0%
• operating_income_YoY: -12.6%
• assessment: Negative operating leverage in the period; costs outpaced revenue growth. Restoration of operating leverage hinges on utilization and pricing discipline, and pacing of headcount additions.

Growth Assessment

revenue_sustainability: Top-line expanded 11% YoY, consistent with ongoing demand for software testing/QA and related digital services. Sustainability will depend on hiring capacity, utilization, and client IT spending resilience. profit_quality: Gap between revenue growth and OP decline points to mix or cost pressure. Net margin at 2.5% is thin; ordinary margin closely tracks operating margin, implying non-operating items are limited. outlook: If SG&A normalization and utilization improvements materialize in H2, margins can recover. Conversely, persistent wage inflation or slower billing-rate improvements would cap margin rebound despite continued revenue growth.

Financial Health

liquidity:

• current_ratio: 155.8%
• quick_ratio: 155.8% (inventories undisclosed)
• working_capital: ¥1,427,956,000
• assessment: Solid liquidity buffer for operations and hiring needs. solvency_capital_structure:
• total_assets: ¥6,489,000,000
• total_liabilities: ¥3,246,238,000
• total_equity: ¥3,192,000,000
• debt_to_equity: 1.02x (using total liabilities as proxy for obligations)
• implied_equity_ratio: Approximately 49% (equity/assets), noting the reported 0.0% equity ratio is non-disclosed.
• interest_coverage: 60.2x (EBIT/interest)
• assessment: Moderate leverage and strong interest coverage indicate low financial risk.

Cash Flow Quality

earnings_quality: OCF/NI at 1.31x indicates reasonable cash conversion for the half, suggesting accruals and working capital movements are not materially dilutive. FCF_analysis: Investing cash flow was not disclosed, preventing a reliable free cash flow calculation. EBITDA to OCF conversion appears acceptable, but capex intensity cannot be assessed from the provided data. working_capital: Current assets of ¥3.99bn versus current liabilities of ¥2.56bn support ongoing operations; detailed components (e.g., receivables, payables, accrued expenses) were not disclosed, limiting DSO/DPO analysis.

Dividend Sustainability

payout_ratio_assessment: Payout ratio appears as 0.0% in the dataset, but zeros indicate non-disclosure; the company’s effective payout level this period cannot be concluded from the provided figures. FCF_coverage: Free cash flow cannot be computed due to undisclosed investing cash flows, so coverage of dividends (if any) is indeterminable. policy_outlook: With modest profitability, positive OCF, and moderate leverage, capacity for distributions exists in principle, but without dividend disclosures and FCF detail, policy stance and sustainability cannot be assessed.

Risk Assessment

Business Risks:

• Wage inflation and hiring competition for engineers/QA specialists pressuring margins.
• Utilization volatility due to onboarding timing and project seasonality.
• Pricing pressure from clients and subcontractor rate increases.
• Concentration risk if revenue is skewed to key accounts or specific industries.
• Execution risk in scaling headcount while maintaining quality (rework risk).
• Macroeconomic slowdowns impacting discretionary IT/QA budgets.

Financial Risks:

• Margin compression reducing interest coverage if costs continue to rise.
• Working capital swings (receivables collection timing) affecting OCF.
• Potential need for incremental financing to support growth if OCF lags hiring.
• Tax rate volatility; effective tax rate appears mid-30% based on disclosed figures.

Key Concerns:

• Negative operating leverage despite double-digit revenue growth.
• Thin net margin (2.5%) limiting ROE to 4.4%.
• Limited visibility on investing cash flow and cash balance due to non-disclosure.

Investment Implications

Key Takeaways:

• Top-line growth is healthy, but cost discipline needs to improve to restore operating leverage.
• Liquidity is solid and leverage moderate, reducing balance sheet risk.
• Cash conversion is acceptable (OCF/NI 1.31x), but lack of investing CF disclosure obscures FCF.
• ROE is constrained by thin margins rather than asset efficiency or leverage.

Metrics to Watch:

• SG&A ratio to revenue and hiring pace versus revenue growth.
• Utilization rate and average billing rate trends.
• Gross margin trajectory (subcontractor mix, wage inflation pass-through).
• OCF/NI ratio and working capital metrics (DSO/DPO) as they are disclosed.
• Capex/investing cash flows to assess sustainable FCF.
• Implied equity ratio (equity/assets) and any changes in interest-bearing debt.

Relative Positioning: Within Japan’s IT services/QA cohort, Valtes shows competitive growth but faces margin headwinds this period; balance sheet strength is a relative positive while profitability metrics currently lag peers with higher operating leverage.

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