Altech (4641) FY2026 Q2 Earnings Report

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Executive Summary

For the second quarter of the fiscal year ending December 2026, revenue increased while profit declined, as higher cost of sales and deteriorating profitability in the Global Business put pressure on earnings. Revenue was ¥270.2B (+6.6% YoY), maintaining a trend of revenue growth for the sixth consecutive period, while Operating Income was ¥24.5B (down 9.0% YoY), Ordinary Income was ¥25.4B (down 10.1% YoY), and Net Income was ¥16.8B (down 10.5% YoY), with all three declining. The primary factors were deterioration in the gross profit margin (22.2%, down from 23.7% in the same period last year) and a sharp 65.2% YoY decline in Operating Income in the Global Business by segment. The financial base remains sound, with a substantial Equity Ratio of 69.7%.

Factors Affecting Performance

【Revenue】The core OutSourcingService Business led overall performance, with revenue of ¥246.1B (+7.0% YoY; 91.0% of total revenue). The Global Business generated ¥23.7B (+2.9% YoY; 8.8% of total revenue), while other segments generated ¥0.6B (+7.5% YoY; 0.2% of total revenue), with all segments securing revenue growth. Company-wide Revenue was ¥270.2B (+6.6% YoY), with the primary driver of growth being expansion of the customer base in the core business.

【Profit and Loss】The gross profit margin was 22.2%, down from 23.7% in the same period last year, with the pace of increase in the cost of sales exceeding revenue growth and representing the primary cause of margin pressure. The SG&A ratio was 13.1%, essentially flat year over year (+0.1pt or thereabouts), indicating that cost management itself was generally maintained. The Operating Income margin was 9.1%, down approximately 1.5pt from 10.6% in the same period last year, and the decline in operating earnings flowed directly through to Ordinary Income and Net Income. Since non-operating income and expenses were approximately balanced (non-operating income of ¥1.4B and non-operating expenses of ¥0.5B), the decline in Ordinary Income was attributable primarily to deterioration in Operating Income. Net Income reflects Profit Before Tax of ¥25.4B less income taxes and other taxes of ¥8.5B (effective tax rate: 33.6%), with no significant change in the tax rate itself. In conclusion, the current period resulted in higher revenue but lower profit.

Segment Analysis

By segment, the core OutSourcingService Business generated revenue of ¥246.1B (+7.0%), Operating Income of ¥23.3B (+0.9%), and a profit margin of 9.5% (down from 10.0% in the same period last year). Although it secured revenue growth, its profit margin deteriorated somewhat. The Global Business generated revenue of ¥23.7B (+2.9%), while Operating Income plunged to ¥1.4B (down 65.2%), resulting in a profit margin of 6.1%, a significant decline from 18.0% in the same period last year. Most of the decline in the company-wide profit margin was attributable to deteriorating profitability in the Global Business, likely reflecting changes in utilization rates and the pricing mix. The Other segment (the business of housing for seniors with support services) generated revenue of ¥0.6B (+7.5%) and recorded an Operating Loss of ¥0.3B, with the loss narrowing from the previous year. OutSourcingService accounted for 91.0% of the revenue mix, indicating a high degree of business concentration.

Key Financial Metrics

【Profitability】The Operating Income margin was 9.1%, down from 10.6% in the same period last year, while the Net Income margin also declined to 6.2% from 7.4%. The gross profit margin contracted to 22.2% from 23.7% in the same period last year, with rising costs representing the primary factor behind the deterioration in profitability.【Cash Quality】Accounts receivable increased 10.0% YoY to ¥80.1B, accumulating at a faster pace than the 6.6% growth in Revenue. Accounts payable increased 62.8% YoY to ¥3.8B, but the absolute amount is small and its impact on overall funding remains limited.【Investment Efficiency】ROE was 8.0%, with the decline in the Net Income margin serving as the primary downward factor, while financial leverage remained low and stable at 1.44x. Total asset turnover was 0.89x for the current period (on a semiannual basis), approximately in line with the previous year, with no significant change in asset efficiency.【Financial Soundness】The Equity Ratio remained at the same level as the previous year at 69.7%, while the Current Ratio was 268.6%, securing substantial liquidity. Interest-bearing debt was extremely small, and the conservative financial structure was characterized by Cash and Deposits of ¥141.1B, substantially exceeding short-term liabilities.

Cash Flow Analysis

Since cash flow statement data has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and Deposits were ¥141.1B, essentially flat from ¥141.2B at the end of the previous fiscal year, with no significant change in funds observed. Accounts receivable were ¥80.1B, up 10.0% YoY and accumulating at a faster pace than the 6.6% revenue growth rate, potentially indicating that a lengthening collection cycle is somewhat slowing the pace of cash generation. Meanwhile, Accounts payable increased 62.8% (an absolute increase of ¥1.5B), partially offsetting this effect from a working capital perspective. Total assets increased to ¥303.0B (¥293.1B in the previous period), while net assets increased to ¥211.1B (¥204.4B), indicating continued expansion of the financial base, primarily driven by the accumulation of retained earnings.

Quality of Earnings

Current-period earnings were centered on operating results, with extraordinary income of ¥0.0B and extraordinary losses of ¥0.0B, indicating that the impact of one-time factors was extremely limited. Non-operating income consisted of dividend income of ¥0.3B and other income of ¥0.9B, while foreign exchange losses accounted for ¥0.3B of non-operating expenses of ¥0.5B. The gap of approximately ¥8.6B between Ordinary Income of ¥25.4B and Net Income of ¥16.8B was primarily attributable to income taxes and other taxes of ¥8.5B (effective tax rate: 33.6%), with no unusual factors other than the tax burden identified. The fact that Accounts receivable are increasing faster than revenue suggests that a certain divergence is emerging between accrual-based revenue recognition and the timing of cash conversion, warranting monitoring when assessing earnings quality.

Earnings Forecast and Guidance

Progress against the full-year earnings forecast was 48.7% for Revenue (¥270.2B/¥555.0B), 42.9% for Operating Income (¥24.5B/¥57.0B), and 43.7% for Ordinary Income (¥25.4B/¥58.0B). Revenue is approximately in line with the standard first-half progress level of 50%, but profit progress is approximately 7–8pt behind, making improvement in the profit margin during the second half a prerequisite for achieving the plan. No revisions were made to the earnings forecast or dividend forecast during the current quarter. Progress of first-half actual EPS of ¥28.50 against forecast EPS of ¥66.27 was 43.0%, consistent with the delay in profit progress.

Shareholder Returns

The interim dividend for Q2 was ¥54 per share, resulting in a simple-calculation Payout Ratio of approximately 189.5% against current-period interim EPS of ¥28.50. However, a 3-for-1 stock split of common shares is scheduled to take effect on July 1, 2026, and the year-end dividend will be calculated on a post-split basis; accordingly, the total annual dividend is currently shown as “－”. Therefore, it would not be appropriate to assess the sustainability of the annual dividend policy based solely on the first-half Payout Ratio, and confirmation on an annual basis is required based on the post-split year-end dividend and full-year earnings level. From a financial perspective, the company has ample capacity to absorb the first-half dividend burden, supported by an Equity Ratio of 69.7% and Cash and Deposits of ¥141.1B.

Risk Factors

1. Deteriorating profitability in the Global Business: Operating Income in the Global Business declined 65.2% YoY to ¥1.4B, and its profit margin fell substantially to 6.1% from approximately 18.0% in the previous year. This was one of the primary causes of the decline in the company-wide Operating Income margin to 9.1% from 10.6% in the previous year, making recovery in the segment’s profitability a key focus going forward.

2. Declining gross profit margin due to higher cost of sales: The gross profit margin contracted to 22.2% from 23.7% in the previous year, with costs increasing relatively more than revenue growth of +6.6%. If this trend continues, it may become difficult to maintain the Operating Income margin through efficient management of SG&A expenses alone.

3. Pace of increase in Accounts receivable: Accounts receivable rose 10.0% YoY to ¥80.1B, exceeding the growth rate of Revenue. If the lengthening collection cycle continues, it may affect the timing of cash generation, requiring close monitoring of working capital trends.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Compared with the median of peer companies, both the Operating Income margin and Net Income margin are at levels positioned in the lower range of the industry.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median and is an underperforming level among peers in terms of revenue growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The current period resulted in higher revenue but lower profit, with the primary causes of the decline being the decrease in the gross profit margin (22.2%, compared with 23.7% in the previous year) and deteriorating profitability in the Global Business (Operating Income down 65.2%). The core OutSourcingService Business maintained higher revenue and a slight increase in profit, while differences among businesses created the structure underlying the decline in the profit margin.

2. Progress against the full-year plan was standard for Revenue at 48.7%, while Operating Income was 42.9% and Ordinary Income was 43.7%, indicating a slight delay on the profit side. Improvement in the profit margin during the second half is therefore a prerequisite for achieving the plan.

3. Financial soundness remains high, supported by an Equity Ratio of 69.7% and ample Cash and Deposits. However, the interim dividend for the first half (¥54) exceeded EPS (¥28.50), making it useful to confirm the overall annual dividend policy, including the post-stock-split framework.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥451–¥478 at ±1% for the Cost of Equity, and ¥462–¥469 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee the future stock price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q2 performance was mixed: revenue expanded solidly, but profit growth reversed because gross-margin pressure and a sharp decline in Global business profitability outweighed sales growth. Revenue rose 6.6% YoY to ¥27.02bn. Operating income declined 9.0% to ¥2.45bn, ordinary income fell 10.1% to ¥2.54bn, and profit attributable to owners declined 10.2% to ¥1.68bn. The operating margin contracted 156bp YoY to 9.1% from 10.6%. Gross profit was nearly flat at ¥6.00bn despite higher revenue, causing the gross margin to fall 147bp to 22.2%. SG&A expense increased 7.2% YoY to ¥3.55bn, modestly faster than revenue growth, and the SG&A-to-sales ratio edged up by roughly 10bp to 13.1%. The core Outsourcing Services business maintained revenue momentum, with sales up 7.0% to ¥24.61bn and segment profit up 0.9% to ¥2.33bn. However, the Global business recorded only 2.5% revenue growth while segment profit declined 65.2%, materially reducing consolidated earnings leverage. The Global segment margin fell to 6.1% from 18.0% in the prior-year period. Net margin declined to 6.2% from approximately 7.4% a year earlier. The annualized DuPont ROE remained strong at 15.9%, supported by annualized asset turnover of 1.784x and conservative leverage of 1.44x. The balance sheet remains highly liquid, with ¥14.11bn of cash and a 268.6% current ratio. Management retained its full-year forecast, which calls for 5.4% sales growth and 5.6% operating-income growth, implying a meaningful second-half earnings recovery. Q2 operating-income progress of 42.9% is 7.1 percentage points below the normal 50% first-half run rate, making restoration of margins, especially in Global operations, central to delivering the plan. The interim dividend of ¥54 per share represents a calculated 200.4% payout ratio against first-half earnings and should be assessed in the context of full-year earnings generation and the announced three-for-one stock split.

Profitability Analysis

Annualized ROE is 15.9%, decomposed into a 6.2% net profit margin, 1.784x annualized asset turnover, and 1.44x financial leverage. The principal source of earnings deterioration was margin compression rather than weak revenue momentum. Revenue increased ¥1.68bn YoY, but gross profit increased by only ¥0.01bn because cost of sales rose 8.7%, faster than sales. Consequently, gross margin declined to 22.2% from 23.7%. SG&A rose to ¥3.55bn from ¥3.30bn, or 7.2% YoY, exceeding the 6.6% sales-growth rate and limiting operating leverage. Operating margin therefore fell to 9.1%, although it remains within the 8-15% industry benchmark range categorized as good. The Outsourcing Services segment is the core business, contributing ¥2.33bn of segment profit, or approximately 94% of total reportable-segment profit. Its segment margin declined 58bp to 9.5%, indicating that even the main business experienced some cost pressure. Global segment profitability was the largest negative change: segment profit fell ¥0.27bn to ¥0.14bn and its margin compressed by roughly 1,187bp to 6.1%. Financial leverage is restrained, so the ROE profile is primarily operational rather than debt-driven. The 5-factor DuPont tax burden was 0.661, equivalent to a 33.6% effective tax rate, while the 1.037 interest burden and 1,828.9x interest coverage demonstrate that financing costs are immaterial. There were no material extraordinary gains or losses; thus, the decline in profit largely reflects underlying operating performance rather than non-recurring accounting items.

Growth Assessment

Top-line growth remains constructive, with consolidated revenue up 6.6% YoY to ¥27.02bn. Outsourcing Services generated ¥24.61bn of external revenue, up 7.0%, and accounted for about 91% of consolidated sales, making its technician utilization, billing rates, and recruitment capacity the primary determinants of sustainable growth. Global revenue increased 2.5% to ¥2.36bn, while the other business increased 7.5% to ¥0.06bn. Growth quality weakened at the consolidated profit level because gross profit was effectively flat and operating income declined. The core business still expanded segment profit by 0.9%, but the limited conversion of sales growth into earnings suggests higher personnel, delivery, or operating costs. The Global segment's 65.2% profit decline is disproportionate to its 2.5% revenue growth and requires a return to more normalized profitability for group earnings growth to resume. The full-year revenue forecast is ¥55.50bn, and first-half progress is 48.7%, only 1.3 percentage points below the standard 50% run rate. Operating-income progress is 42.9% against the ¥5.70bn forecast, 7.1 percentage points below the standard first-half benchmark. Ordinary-income progress is 43.7% against the ¥5.80bn plan, while attributable-profit progress is 43.0% against the ¥3.90bn plan. The unchanged guidance therefore embeds a second-half improvement in profitability rather than merely continued revenue growth. Full-year implied operating margin is 10.3%, above the first-half 9.1%, requiring approximately 120bp of margin recovery in the second half.

Financial Health

Financial health is strong. Current assets of ¥23.60bn exceeded current liabilities of ¥8.78bn, resulting in working capital of ¥14.81bn and a current ratio of 268.6%. The quick ratio was similarly robust at 268.4%, supported principally by ¥14.11bn of cash and deposits and ¥8.01bn of trade receivables. Cash alone was 68.34x short-term borrowings of ¥0.21bn, substantially mitigating refinancing and maturity-mismatch risk. The reported short-term debt ratio is 100%, which triggers the refinancing-risk alert because all interest-bearing debt matures within one year. The root cause is the absence of long-term interest-bearing borrowings rather than a large gross-debt burden. In context, this maturity profile is not financially restrictive given minimal short-term loans, net cash of approximately ¥13.90bn, debt/capital of 1.0%, and interest coverage of 1,828.9x. Its impact on the investment case is limited under current liquidity conditions, but the company should maintain its cash buffer and avoid allowing short-term funding to rise materially during an investment or acquisition cycle. The reported debt-to-equity ratio of 0.44x and the low debt/capital ratio both indicate conservative solvency. Total equity increased to ¥21.11bn from ¥20.44bn a year earlier, while total liabilities represented only 30.3% of assets. Accounts payable increased 62.8% YoY to ¥0.38bn from ¥0.23bn. Although small relative to the balance sheet, the increase warrants monitoring alongside procurement and payment-cycle trends; it is not material enough by itself to impair liquidity. Bonus provisions totaled ¥2.24bn and are a significant component of current obligations, but are amply covered by current assets and cash. Goodwill was only ¥0.05bn, or 0.2% of equity and assets, leaving negligible balance-sheet dependence on acquired intangible value.

Notable B/S Changes

Accounts payable: +¥0.15bn (+62.8%) to ¥0.38bn - a sizeable percentage increase from a low base; monitor supplier payment timing and procurement-related working-capital movements. Provision for bonuses: +¥3.05bn (+15.8%) to ¥2.24bn - a substantial current obligation linked to personnel costs, though fully supported by strong liquidity. Trade receivables: +¥0.73bn (+10.0%) to ¥8.01bn - broadly consistent with revenue growth but remains important for cash conversion monitoring. Investment securities: +¥0.16bn (+13.4%) to ¥1.40bn - contributes to non-operating dividend income and valuation-related comprehensive income. Goodwill: -¥0.01bn (-20.0%) to ¥0.05bn - immaterial relative to assets and equity, indicating negligible goodwill impairment exposure.

Cash Flow Quality

Dividend Sustainability

The Q2 dividend was ¥54.00 per share. Based on the stated calculation, the interim dividend corresponds to a 200.4% payout ratio relative to first-half net income, exceeding the 100% warning threshold. On an interim-earnings basis, dividend payments exceed profits generated in the period and are therefore not covered by contemporaneous earnings. Balance-sheet capacity is substantial, with ¥14.11bn of cash, only ¥0.21bn of interest-bearing debt, and ¥21.11bn of total equity. Accordingly, near-term payment capacity is strong, but a payout ratio above 100% cannot be treated as recurring earnings-funded distribution unless full-year earnings materially strengthen. The company has announced a three-for-one stock split effective July 1, 2026, and stated that the forecast year-end dividend per share reflects that split; per-share dividend comparisons should therefore be made on a split-adjusted basis. Sustainability will depend primarily on achievement of the ¥3.90bn full-year attributable-profit forecast and recovery in second-half operating margin.

Risk Assessment

Business risks include Global business profitability risk: revenue rose 2.5% YoY but segment profit fell 65.2%, reducing its segment margin to 6.1% from 18.0%., Engineering-services demand risk: the core Outsourcing Services business depends on customers sustaining product-development, IT, and capital-investment spending; slower client hiring or project deferrals could reduce utilization and billing growth., Labor-market risk: competition for qualified engineers may raise recruitment, compensation, and retention costs, particularly relevant because cost of sales grew faster than revenue., Execution risk in margin recovery: unchanged full-year guidance requires operating margin to improve from 9.1% in H1 toward the 10.3% full-year implied level..

Financial risks include Short-term debt maturity concentration: the 100% short-term debt ratio is the source of the refinancing-risk alert, although the ¥0.21bn debt balance is fully mitigated by ¥14.11bn of cash., Dividend coverage risk: the calculated interim payout ratio of 200.4% exceeds interim earnings, increasing reliance on full-year earnings recovery and existing cash reserves., Working-capital monitoring risk: trade accounts payable increased 62.8% YoY to ¥0.38bn, requiring observation of payment terms and operating-cost timing..

Key concerns include High WIP ratio alert: work in process was ¥2.20bn and represented 43.2% of inventory, above the 40% alert threshold. The root cause is a high share of partially completed work within inventory. For project-oriented engineering and manufacturing-related activities, WIP can be normal, but an elevated ratio can also signal slower project completion, cost overruns, or delayed customer acceptance. The impact is currently contained by the small inventory base relative to total assets, but WIP conversion and any future write-downs should be monitored., Gross-margin compression: the 147bp decline in gross margin to 22.2% was the principal reason revenue growth did not translate into operating-profit growth., Operating-cost discipline: SG&A increased 7.2% YoY, faster than revenue growth of 6.6%, creating modest negative operating leverage..

Investment Implications

Key takeaways include Revenue growth remained resilient at 6.6% YoY, led by the core Outsourcing Services segment's 7.0% increase., Consolidated operating income declined 9.0% because gross margin fell 147bp and Global segment profit declined 65.2%., The balance sheet provides substantial resilience, with a 268.6% current ratio, ¥14.11bn of cash, and only ¥0.21bn of interest-bearing debt., Unchanged full-year guidance requires a clear second-half profitability recovery, as H1 operating-income progress was 42.9% versus a standard 50% pace., The interim dividend is elevated relative to first-half earnings, with a calculated 200.4% payout ratio..

Metrics to watch include Outsourcing Services segment margin and technician utilization, Global segment revenue growth and recovery from its 6.1% segment margin, Consolidated gross margin versus the H1 level of 22.2%, Second-half operating-income conversion needed to achieve the ¥5.70bn full-year forecast, WIP balance and project completion or acceptance timing, Dividend coverage relative to full-year attributable profit.

Regarding relative positioning, The company combines good benchmark-level operating profitability and an excellent annualized ROE of 15.9% with an unusually conservative liquidity position. Its near-term relative challenge is not leverage or acquisition-related balance-sheet risk, but restoring profit conversion from sales growth, especially in the Global business and consolidated gross margin.