Focus Systems Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.30B
• Operating Income: ¥1.72B
• Net Income: ¥1.24B
• EPS: ¥82.23

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: Strong Q2 with robust profit growth and clear margin expansion, underpinned by solid operating cash generation and a conservative balance sheet. Revenue grew 8.4% YoY to 172.99, while operating income surged 110.4% YoY to 17.21, implying significant operating leverage. Ordinary income rose 107.9% YoY to 17.35, and net income increased 118.4% YoY to 12.43, lifting the calculated net margin to 7.2%. Using the reported figures, operating margin stands at roughly 9.9% (17.21/172.99), and ordinary margin at about 10.0% (17.35/172.99). Based on the YoY growth rates, we estimate prior-year operating margin at about 5.1%, implying c. +480 bps margin expansion. Gross margin printed at 10.7% and the SG&A ratio at 5.9%, indicating improved cost discipline and/or mix benefits. Cash flow quality is sound with OCF of 12.87 versus net income of 12.43, yielding an OCF/NI ratio of 1.04x. Liquidity remains ample with a current ratio of 230% and cash/deposits of 65.08 against short-term loans of 4.86. Leverage is conservative (D/E 0.43x as provided; interest coverage 220.95x), reducing financial risk amid an uncertain macro. ROE is 7.8% on a DuPont basis (NPM 7.2%, asset turnover 0.719x, leverage 1.50x), in a reasonable zone for a mid-tier IT services firm but with room to improve via margin and turnover. We note an internal inconsistency between reported profit before tax (8.35) and net income (12.43) versus income tax (2.65), which suggests classification/timing differences or reporting granularity at the half-year; conclusions are therefore anchored on the higher-level growth and cash metrics. Non-operating items are small (non-operating income ratio 2.3%), indicating earnings are predominantly operating-driven this quarter. Capex was modest at 0.32, supporting cash conversion, and the reported payout ratio of 55.1% appears within sustainable bounds given OCF. While several line-item breakdowns are unreported (SG&A details, dividend splits), the headline results indicate healthy execution. Forward-looking, the step-up in operating margin and stable cash generation set a constructive base for 2H, provided the company sustains utilization, pricing, and delivery discipline. Key watchpoints include order intake, AR trends relative to growth, headcount/cost inflation, and any normalization of unusually strong operating leverage.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.8% = Net Profit Margin 7.2% × Asset Turnover 0.719 × Financial Leverage 1.50x. The biggest delta YoY appears to be margin expansion: operating income +110.4% vs revenue +8.4% implies a substantial increase in operating margin (estimated +~480 bps to ~9.9%). Business drivers likely include improved delivery efficiency/utilization on fixed-price projects, favorable mix (higher value-added services), and tight SG&A control (SG&A ratio ~5.9%). Asset turnover at 0.719 suggests moderate efficiency for an IT services firm; any improvement would be gradual and tied to working capital discipline and revenue growth. Financial leverage is modest at 1.50x, limiting ROE uplift from balance sheet gearing—appropriate given risk profile. Sustainability: margin gains are partly sustainable if driven by mix/pricing and utilization, but may partially normalize if one-offs (large projects or low bench) contributed; non-operating effects are small so core operations are the main driver. Watch for cost inflation (wages/partner costs) outpacing pricing; if SG&A growth re-accelerates above revenue, operating leverage could reverse. No evidence this quarter of SG&A growth exceeding revenue; rather, operating leverage was positive.

Growth Assessment

Revenue growth of 8.4% YoY indicates steady demand, likely from ongoing IT services/projects. Profit growth vastly outpaced revenue (OI +110.4%, NI +118.4%), suggesting strong operating leverage and mix/pricing improvements. With non-operating items minor, the growth is largely recurring-operating in nature, not dependent on investment gains. Sustainability depends on maintaining backlog conversion, utilization, and wage cost control; the magnitude of margin expansion may normalize, but a portion should be defendable if driven by structural mix. Outlook: modest top-line growth with focus on sustaining a high-9% operating margin would support further ROE improvement. Monitor order intake/backlog and public/private sector demand cycles, as well as AR collections to keep cash conversion aligned with earnings.

Financial Health

Liquidity is strong: current ratio 230% and quick ratio 228.5% with cash/deposits 65.08 versus short-term loans 4.86. No warning triggers (Current Ratio well >1.0; D/E 0.43x below 2.0). Maturity mismatch risk appears low: current assets (135.85) comfortably cover current liabilities (59.07) and near-term debt. Total liabilities 68.46 against total equity 159.90 reflect a conservative capital structure. Interest coverage is very robust at 220.95x, indicating minimal interest burden risk. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

OCF/Net Income is 1.04x, above the 0.8 threshold, indicating good earnings quality and cash conversion. Operating CF of 12.87 together with modest capex of 0.32 implies healthy pre-dividend cash generation capacity this quarter. Working capital appears manageable: AR 67.10 vs revenue 172.99 does not suggest aggressive revenue recognition, though continued growth requires vigilance on collections. No signs of working capital manipulation are evident from the limited data. Sustainability: with modest investment needs and conservative leverage, operating cash flow should be sufficient to fund maintenance capex and ordinary dividends under current conditions.

Dividend Sustainability

The reported payout ratio is 55.1%, within the <60% benchmark for sustainability. While total dividends paid are unreported, OCF of 12.87 and low capex suggest adequate coverage for ordinary dividends assuming a stable dividend policy. Balance sheet cash (65.08) provides an additional buffer. Without DPS detail by quarter and FCF disclosure, we infer sustainability but note data limitations. Policy outlook: with ROE at 7.8% and conservative leverage, the company has room to balance shareholder returns with growth investments; a stable-to-gradual dividend trajectory appears supported by cash generation, subject to earnings stability.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price systems integration potentially pressuring margins if costs overrun.
• Wage and subcontractor cost inflation eroding operating leverage if not passed through to pricing.
• Demand cyclicality in key end-markets (e.g., public sector and enterprise IT spending timing).
• Talent acquisition/retention constraints limiting capacity and utilization.

Financial Risks:

• Receivables concentration and collection timing affecting quarterly OCF variability.
• Interest rate normalization marginally increasing financing costs (though current leverage is low).
• Potential need for higher working capital to support growth, temporarily compressing cash conversion.

Key Concerns:

• Inconsistency between reported profit before tax (8.35), tax (2.65), and net income (12.43) suggests classification/timing gaps in interim reporting.
• Limited disclosure granularity (SG&A breakdown, dividend detail, investing CF) reduces visibility into cost drivers and capital allocation.
• Dependence on select large projects could create quarter-to-quarter volatility.

Investment Implications

Key Takeaways:

• Strong margin-driven earnings beat with operating margin near 10% and significant YoY expansion (+480 bps est.).
• Quality of earnings is solid with OCF tracking NI (1.04x) and low capex needs.
• Balance sheet conservative with ample liquidity and minimal interest burden.
• ROE at 7.8% is respectable; further upside hinges on sustaining margin gains and improving turnover.
• Non-operating items are small, underscoring the operating-led nature of the quarter.

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue sustainability.
• Operating margin trajectory and SG&A ratio versus revenue growth.
• Headcount, subcontractor ratio, and utilization rates (proxy for delivery efficiency).
• Accounts receivable days and OCF/NI ratio to monitor cash conversion.
• Pricing power/pass-through of wage inflation in new contracts.

Relative Positioning: Within domestic mid-tier IT services/system integrators, the company presents a solid profitability and cash conversion profile with conservative leverage; execution on sustaining high single-digit operating margins could move ROE toward the upper end of peers, though disclosure granularity is thinner than some listed comparables.

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