TDC SOFT Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥23.34B
• Operating Income: ¥2.65B
• Net Income: ¥1.65B
• EPS: ¥42.04

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

TDC Software (4687) delivered solid FY2026 Q2 results under JGAAP on a consolidated basis, with top- and bottom-line growth outpacing the prior year. Revenue rose 9.3% YoY to ¥23,343m, while operating income increased 10.2% to ¥2,647m, indicating modest margin expansion and positive operating leverage. Net income grew 20.1% to ¥1,984m, helped by improved operating performance and favorable non-operating factors. Gross margin was 19.6%, and operating margin was 11.3%, reflecting disciplined cost control and decent project execution for a system integrator/IT services profile. Ordinary income exceeded operating income, implying net non-operating gains of roughly ¥109m, and interest expense remained de minimis at ¥2.6m. Using the reported figures, net margin was 8.50%, asset turnover 0.816x, and financial leverage 1.30x, producing a DuPont-calculated ROE of 9.04%. Although the provided effective tax rate shows 0.0%, this appears to be a data omission; based on ordinary income and reported income tax, the effective tax rate is approximately 28.7%. Cash generation from operations was positive at ¥1,036m, but trailed net income (OCF/NI of 0.52), likely due to working capital consumption consistent with seasonal billing/collection patterns in H1. Liquidity is strong with a current ratio of 338% and working capital of ¥16,377m, and solvency appears sound; computed equity ratio is about 76.6% (equity/assets), although the disclosed equity ratio field shows 0.0% (unreported). Depreciation of ¥76.5m underscores an asset-light model; EBITDA margin was 11.7% and interest coverage an extremely high 1,033x. Several items, including cash and equivalents, investing cash flows, dividend per share, and share counts, were not disclosed (zeros indicate unreported). Consequently, free cash flow and dividend payout cannot be reliably assessed from the provided dataset. Overall, the company exhibits healthy profitability, conservative leverage, and adequate liquidity, with the main near-term analytical watchpoint being the conversion of earnings to cash as the year progresses.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 8.50%
• asset_turnover: 0.816
• financial_leverage: 1.3
• calculated_ROE: 9.04%
• context: ROE is driven mainly by steady margins and moderate asset turnover; leverage is low-to-moderate for the sector. margin_quality:
• gross_margin: 19.6%
• operating_margin: 11.3%
• ordinary_income_margin: 11.8%
• net_margin: 8.5%
• sg&a_to_sales: 8.3%
• comments: Operating margin exceeded 11%, supported by stable gross margin and good SG&A discipline (SG&A ~¥1,932m). Ordinary income above operating income indicates positive non-operating balance. The underlying effective tax rate is ~28.7%, not 0.0% as the placeholder suggests. operating_leverage: Revenue grew 9.3% YoY while operating income rose 10.2% YoY, implying modest positive operating leverage and slight margin expansion.

Growth Assessment

revenue_sustainability: Top-line growth of +9.3% YoY suggests healthy demand and/or improved pricing/mix in system development and related services. Sustainability will depend on order backlog, utilization, and the mix of higher-value services. profit_quality: Net income growth (+20.1% YoY) outpaced revenue due to operating leverage and favorable non-operating items; core quality appears solid given operating margin >11%, but confirmation requires visibility on one-offs and seasonality. outlook: With high utilization and disciplined cost control, H2 performance could benefit from seasonal back-end project completions typical for Japanese SIers. Watch for pricing power, wage inflation pass-through, and order intake to gauge whether mid-teens profit growth can persist.

Financial Health

liquidity:

• current_ratio: 338.4%
• quick_ratio: 338.4%
• working_capital: ¥16,377m
• comment: Very strong short-term liquidity; inventories are not disclosed (likely immaterial for a software/SI model). solvency:
• debt_to_equity: 0.34x (using total liabilities/equity as proxy)
• interest_coverage: 1,033x (operating income/interest expense)
• equity_ratio_computed: 76.6% (equity/assets; disclosed field 0.0% is unreported)
• comment: Balance sheet is conservatively capitalized with minimal interest burden. capital_structure: Low leverage and high equity buffer provide ample capacity to absorb working capital swings and invest in growth.

Cash Flow Quality

earnings_quality: OCF/Net Income at 0.52 indicates earnings did not fully translate into cash in H1, likely reflecting receivables build and seasonal billing patterns rather than structural issues. fcf_analysis: Free cash flow cannot be determined because investing cash flows are not disclosed (reported as 0). However, positive OCF of ¥1,036m is a constructive starting point. working_capital: Given the asset-light model (D&A ¥76.5m), working capital movements are the primary driver of cash conversion. Monitor receivables days and unbilled work; a catch-up in H2 would be typical for the sector. ocf_margin: 4.4% (OCF/Revenue)

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed (zeros are placeholders). With EPS of ¥42.04 for H1, capacity for dividends appears supported by earnings, but cash coverage needs H2 confirmation. fcf_coverage: Not assessable due to missing investing cash flows; OCF positive but below net income in H1. policy_outlook: Absent disclosure, assume a stable-to-progressive policy typical of domestic SI peers; visibility improves with full-year guidance and actual DPS announcements.

Risk Assessment

Business Risks:

• Project execution risk and fixed-price contract overruns impacting gross margins
• Labor market tightness leading to wage inflation and utilization volatility
• Pricing pressure and competitive intensity among domestic SIers and global vendors
• Client concentration and delayed decision-making affecting order intake
• Seasonality with H2 back-end weighting and H1 cash conversion softness
• Technology transition risk (cloud/AI, cybersecurity) requiring upskilling and investment

Financial Risks:

• Working capital swings reducing OCF relative to earnings in interim periods
• Receivables concentration and collection timing risk
• Limited disclosure on cash and investing CF hampers visibility on net cash/FCF
• Potential increase in personnel-related liabilities and bonus accruals

Key Concerns:

• OCF/NI at 0.52 in H1; need evidence of H2 catch-up in cash generation
• Dependence on continued margin discipline to sustain >11% operating margin
• Sensitivity to wage inflation and subcontractor cost pass-through

Investment Implications

Key Takeaways:

• Solid H1 growth with operating leverage: revenue +9.3% YoY, OP +10.2%, NP +20.1%
• Healthy profitability: OPM 11.3%, EBITDA margin 11.7%, net margin 8.5%
• Strong balance sheet: computed equity ratio ~76.6%, interest coverage >1,000x
• Cash conversion lagged (OCF/NI 0.52), likely seasonal; monitor H2 normalization
• Low capex intensity (D&A ¥76.5m) supports medium-term FCF potential once working capital normalizes

Metrics to Watch:

• Order backlog and new bookings growth
• Utilization rate and billable hours
• Gross margin by project type and subcontracting ratio
• SG&A ratio and wage inflation pass-through
• DSO and unbilled receivables; OCF/Net income trajectory
• Ordinary income vs operating income to identify recurring vs one-off non-operating items
• Full-year guidance revisions and DPS declarations

Relative Positioning: Within Japanese SI/IT services peers, TDC Soft exhibits above-average operating margins (~11% in H1) and conservative leverage, supporting mid-tier ROE (~9%) with strong liquidity; the main differentiator to monitor is sustained cash conversion and order momentum.

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