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

Focus Systems Co., Ltd. (TSE:4662) delivered a strong FY2026 Q2 single-entity performance under JGAAP, with revenue of ¥17.30bn (+8.4% YoY) and a sharp rebound in profitability. Operating income surged to ¥1.72bn (+110.4% YoY), highlighting significant operating leverage and disciplined cost control. Net income rose to ¥1.24bn (+118.4% YoY), yielding a net margin of 7.19%, up meaningfully from the prior year. Gross profit was ¥1.85bn, implying a gross margin of 10.7%, while the operating margin expanded to roughly 9.95%, reflecting better SG&A efficiency and/or improved project mix. Ordinary income of ¥1.74bn was slightly above operating income, indicating neutral-to-small positive non-operating items. DuPont analysis shows ROE of 7.77% driven by a net margin of 7.19%, asset turnover of 0.719x, and financial leverage of 1.50x, pointing to conservative balance sheet leverage. Liquidity appears strong with a current ratio of 230% and quick ratio of 228.5%, supported by working capital of approximately ¥7.68bn. Solvency indicators are robust: debt-to-equity is 0.43x (based on liabilities/equity), and the implied equity ratio from balance sheet figures is approximately 66.5% (equity ¥15.99bn / assets ¥24.05bn), despite the displayed metric being 0.0% (likely undisclosed in the template). Interest coverage is very high at about 221x on operating income, indicating negligible financial strain. Operating cash flow of ¥1.29bn is slightly above net income (OCF/NI 1.04x), suggesting decent earnings-to-cash conversion this period. Investing cash flow is undisclosed (shown as 0), so free cash flow cannot be conclusively determined beyond operating cash generation. Dividend data are not disclosed (DPS and payout shown as 0.00), and share data (shares outstanding, treasury shares, BPS) are also not provided, limiting per-share and capital return analysis. Overall, the company demonstrates improving profitability, solid liquidity, and conservative leverage, with cash generation broadly aligned with earnings. The key swing factor is the sustainability of elevated margins given revenue growth of 8.4% and a much larger increase in operating income, potentially reflecting one-off cost phasing or mix. Data limitations in cash and equity ratio disclosures necessitate caution when interpreting certain secondary metrics. On balance, fundamentals point to improved efficiency and healthy financial footing into the second half, with monitoring needed on order intake, backlog, and workforce utilization to assess durability.

Profitability Analysis

ROE of 7.77% (DuPont) is decomposed into a net profit margin of 7.19%, asset turnover of 0.719x, and financial leverage of 1.50x. Operating margin stands at approximately 9.95% (¥1,721m / ¥17,299m), a substantial expansion versus revenue growth, indicating strong operating leverage and tighter SG&A control. Gross margin is 10.7%, implying a relatively lean gross spread typical of project-centric SI work; the gap between gross and operating margins is small, suggesting limited SG&A drag this period. Ordinary margin is about 10.0% (¥1,735m / ¥17,299m), with non-operating items slightly positive. EBITDA is ¥1,805.9m, producing an EBITDA margin of 10.4%; D&A of ¥84.9m is modest, consistent with a relatively asset-light services model. Interest expense is minimal at ¥7.8m, yielding interest coverage of roughly 221x on operating income, which underpins profitability resilience. The implied effective tax rate based on reported figures is approximately 15% (¥265.2m tax / ~¥1.735bn pre-tax), even though the template shows 0.0%, suggesting the period is taxed at a moderate rate. The margin uplift appears to stem from mix and cost discipline rather than financial items. Sustainability will hinge on maintaining utilization, project pricing, and controlling subcontracting costs amid wage inflation.

Growth Assessment

Revenue grew 8.4% YoY to ¥17.30bn, a healthy pace for a single-entity SI/security services business. Profit growth outpaced sales materially: operating income rose 110.4% YoY and net income 118.4% YoY, indicating meaningful operating leverage and/or mix improvements. The small spread between ordinary and operating income suggests that profit growth is largely operational rather than driven by non-operating gains. With D&A low, the earnings uplift is not dependent on large capitalized assets, supporting near-term repeatability. However, visibility into recurring revenue versus project-based work is not provided; sustainability will depend on backlog and public/private sector demand. The company’s conservative leverage and ample liquidity provide capacity to invest in headcount and solutions to sustain growth. Outlook considerations include timing of large projects, government-related order cycles, and staffing constraints in a tight IT labor market. Absent disclosure of order backlog and pipeline, we assume mid- to high-single-digit topline growth can be supported near-term, with margins moderating toward normalized levels if cost tailwinds abate. Monitoring seasonality is important as first-half strength may reflect project completions that could normalize in H2.

Financial Health

Liquidity is strong: current assets of ¥13.59bn versus current liabilities of ¥5.91bn produce a current ratio of 230% and quick ratio of 228.5%. Working capital stands at approximately ¥7.68bn, indicating ample buffer for project execution and receivables timing. Solvency is solid: total liabilities are ¥6.85bn against equity of ¥15.99bn, implying liabilities-to-equity of 0.43x and an implied equity ratio of roughly 66.5% (equity/assets), despite the template listing 0.0% (likely undisclosed). Financial leverage in DuPont terms is 1.50x (assets/equity), conservative for the sector. Interest burden is negligible (¥7.8m), with interest coverage around 221x, materially reducing refinancing risk. Asset base of ¥24.05bn relative to revenue yields turnover of 0.719x; efficiency appears reasonable for SI with substantial receivables. Overall, the balance sheet is positioned defensively with headroom for investment and working capital needs.

Cash Flow Quality

Operating cash flow of ¥1.29bn compares favorably to net income of ¥1.24bn (OCF/NI 1.04x), indicating reasonable earnings quality this period. The modest D&A (¥84.9m) suggests limited non-cash drag, consistent with a services-heavy model. Working capital dynamics are not fully disclosed, but the positive OCF implies manageable receivables and payables timing through Q2. Investing cash flow is undisclosed (shown as 0), so Free Cash Flow cannot be reliably stated beyond the operating cash generation; the displayed FCF of 0 should be treated as unreported rather than zero. Financing cash flow was an outflow of ¥228.2m, likely reflecting dividend payments or debt movements; specifics are not provided. With cash and equivalents undisclosed (shown as 0), period-end liquidity must be inferred from strong current assets and low leverage. Overall, cash conversion appears aligned with profit, though full-year sustainability will depend on second-half working capital seasonality.

Dividend Sustainability

Dividend metrics (DPS, payout ratio, FCF coverage) are not disclosed in the dataset and appear as zero, so no conclusions should be drawn from those placeholders. Given net income of ¥1.24bn and positive operating cash flow of ¥1.29bn, earnings and cash capacity exist to support dividends if the policy calls for it. However, absent investing cash flow details, free cash flow coverage cannot be assessed. The financing cash outflow of ¥228m may include dividends or debt service, but this is not itemized. Historically, companies with similar balance sheets (low leverage, strong liquidity) maintain stable-to-modest payout ratios; policy specifics for this issuer are not provided here. For sustainability, we would assess payout versus normalized FCF over a full year, considering working capital swings and any planned growth investments.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk leading to margin volatility
• Dependence on government/public-sector orders with timing and budget variability
• IT labor market tightness driving wage inflation and subcontractor cost pressure
• Potential customer concentration in large accounts
• Technology obsolescence and security incident risk affecting reputation and demand
• Seasonality of deliveries and revenue recognition around half-year and year-end

Financial Risks:

• Working capital swings impacting operating cash flow in the second half
• Limited disclosure on investing cash flows obscuring true free cash flow
• Potential increase in subcontracting ratios compressing margins
• Tax rate normalization risk versus the implied mid-teens rate
• Interest rate changes modestly affecting minimal interest expense but potentially impacting customer budgets

Key Concerns:

• Sustainability of elevated operating margin given only mid-single-digit revenue growth
• Lack of disclosure on cash and investment outlays, limiting FCF visibility
• Absence of dividend policy details and per-share data, hindering capital return assessment

Investment Implications

Key Takeaways:

• Strong H1 with 8.4% revenue growth translating into 110% operating profit growth, evidencing operating leverage
• Healthy liquidity (current ratio ~230%) and conservative leverage (liabilities/equity ~0.43x; equity ratio ~66.5% implied)
• Earnings quality solid with OCF/NI at 1.04x; cash generation broadly in line with profit
• Interest burden negligible; coverage ~221x supports resilience
• Data gaps on investing CF, cash balance, DPS, and share count constrain full valuation and payout analysis

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Utilization, billing rates, and subcontractor ratio to monitor margin durability
• DSO and working capital turns to assess cash conversion
• SG&A ratio and headcount growth versus revenue to track operating leverage
• Capex and investing cash flows to refine FCF and dividend capacity
• Tax rate trends and any one-off items affecting net margin

Relative Positioning: Versus domestic IT services/SI peers, Focus Systems exhibits solid H1 operating and net margins (~10% and ~7% respectively) and conservative leverage, though ROE at ~7.8% is below peers targeting double digits, reflecting a strong equity base and prudent risk profile.

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