ALPHA SYSTEMS INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.57B
• Operating Income: ¥2.38B
• Net Income: ¥1.69B
• EPS: ¥120.10

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: A solid quarter with double-digit profit growth and modest margin expansion, tempered by weaker operating cash conversion. Revenue grew 7.9% year on year to 195.7, supported by operating income up 12.5% to 23.75 and net income up 14.3% to 16.86. Operating margin improved to 12.1%, rising about 50 bps versus the prior-year half, as operating profit outpaced top-line growth. Net margin increased to 8.6%, up roughly 48 bps year on year, aided by stronger operating leverage. Gross profit margin stood at 22.3%, and the SG&A ratio was 11.5%, indicating disciplined expense control. Notably, operating income exceeded gross profit minus SG&A by approximately 2.64, implying positive other operating items under JGAAP classification. Ordinary income was 24.54, with a small net non-operating gain, while profit before tax of 21.72 suggests extraordinary losses of about 2.8 this period. The effective tax rate was 32.1%. Balance sheet strength remains a clear positive: cash and deposits of 241.96 and a current ratio of 449.7% underscore ample liquidity. Financial leverage is low at 1.17x assets/equity, with total liabilities of 85.44 against equity of 441.23. However, operating cash flow of 8.82 covered only 52% of net income, flagging softer cash realization in the half. A proxy free cash flow of approximately 8.5 (OCF minus capex of 0.28) appears positive, but investing cash flows beyond capex were unreported. The reported payout ratio of 104.2% indicates dividends that exceed earnings for the period, likely due to timing/seasonality, which warrants monitoring against cash flow. Return metrics are steady: ROE is 3.8% (DuPont-consistent), with ROIC reported at 8.1%, in line with industry targets. Forward-looking, the combination of improving margins and a robust balance sheet supports continued earnings resilience, but cash conversion, extraordinary items, and dividend coverage should be watched closely in the second half.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (8.6%) × Asset Turnover (0.378) × Financial Leverage (1.17x) = ROE 3.8%. The largest driver of improvement versus last year appears to be margin expansion, as operating income grew faster than revenue, lifting the operating margin by ~50 bps to 12.1%; net margin also improved by ~48 bps to 8.6%. Business drivers likely include mix/pricing gains and disciplined SG&A, plus roughly 2.6 of positive other operating items offset by small net non-operating gains and an extraordinary loss before tax. Asset turnover at 0.378 remains modest, typical for a cash-rich, low-leverage IT services company with significant cash balances; leverage at 1.17x is very conservative and not a material ROE driver. The change in profitability looks supported by core operations (operating leverage), rather than one-time gains; however, the extraordinary loss that reduced PBT by ~2.8 appears one-off and bears monitoring. Cost discipline is evident with an 11.5% SG&A ratio; while SG&A growth is unreported, operating profit growth outpacing revenue implies positive operating leverage rather than SG&A pressure. Sustainability: Margin gains are likely sustainable if utilization and pricing hold and if wage inflation is managed; asset turnover and leverage are unlikely to shift materially near term.

Growth Assessment

Top line expanded 7.9% YoY to 195.7, a healthy pace for domestic IT/services. Operating income rose 12.5% to 23.75, outpacing sales and signaling improving operating leverage. Ordinary income increased 13.0% to 24.54, with non-operating flows a small net positive. Net income grew 14.3% to 16.86, aided by higher operating margin and modest non-operating support, partly offset by extraordinary losses and a 32.1% effective tax rate. Operating margin rose ~50 bps YoY to 12.1% and net margin ~48 bps to 8.6%. Revenue quality appears recurring/project-based; however, unreported backlog and segment detail limit visibility on sustainability. With ROIC at 8.1%, returns are around target levels for Japanese IT services, indicating disciplined investment. Near-term outlook hinges on execution in the seasonally stronger second half, continued demand from enterprise/public sectors, and management of wage inflation and hiring. Extraordinary losses this half should be treated as non-recurring unless guidance suggests otherwise.

Financial Health

Liquidity is very strong: current assets 341.02 versus current liabilities 75.84 imply a current ratio of 449.7% and substantial working capital of 265.18. Quick ratio matches current ratio given negligible inventories, and cash of 241.96 alone covers 3.2x current liabilities. No warning: Current Ratio >> 1.0. Solvency is conservative with total liabilities of 85.44 against equity of 441.23 (D/E approximately 0.19x) and financial leverage at 1.17x; no evidence of material interest-bearing debt was reported. No warning: D/E well below 2.0. Maturity mismatch risk appears low given large liquid assets versus short-term obligations. Off-balance sheet obligations were not reported; absence of disclosures limits assessment of lease/commitment exposures.

Cash Flow Quality

OCF of 8.82 covers 52% of net income (16.86), below the 0.8 threshold and flagged as a quality concern for the half. The shortfall could reflect working capital outflows typical for project timing and receivable collection; accounts receivable stand at 93.18, but without prior-period data we cannot quantify the change. Capex is modest at 0.28, yielding a proxy FCF (OCF − capex) of about 8.54; however, full investing cash flows were unreported, so true FCF may differ. Financing cash outflow of -9.12 likely reflects dividends (and possibly other distributions), roughly in line with the proxy FCF, but dividends paid were unreported. No clear signs of working capital manipulation can be confirmed from available data, though lower cash conversion warrants monitoring into H2.

Dividend Sustainability

The reported payout ratio of 104.2% suggests dividends exceeded earnings for the period, likely influenced by timing/seasonality or policy stability relative to interim earnings. With OCF at 8.82 and capex at 0.28, a proxy FCF of ~8.54 roughly matches financing outflows of -9.12, indicating near coverage in cash terms for the half, but exact dividends are unreported. Balance sheet strength (cash 241.96 and low leverage) offers ample buffer for distributions even if short-term cash conversion is soft. Sustainability into H2 will depend on improved OCF/NI (>0.8) and normalized working capital release, alongside visibility on full-year earnings. Dividend policy details (target payout/DOE) were not disclosed, limiting precision of forward assessment.

Risk Assessment

Business Risks:

• Project execution risk in fixed-price system development leading to cost overruns
• Engineer hiring and wage inflation pressure compressing margins
• Customer concentration and renewal risk typical in domestic SI/outsourcing
• Timing risk in revenue recognition and collections affecting cash conversion
• Extraordinary loss occurrence this half (~2.8 impact) signaling potential one-off operational or valuation items

Financial Risks:

• Low OCF/NI (0.52x) indicating weaker cash realization in the period
• Dividend payout above earnings (104.2%) for the half, increasing reliance on balance sheet or H2 cash flows
• Potential receivables buildup raising working capital needs
• Limited disclosure on interest-bearing debt notwithstanding conservative balance sheet

Key Concerns:

• Sustaining margin gains amid wage inflation
• Normalizing cash conversion in H2 to support dividends and reinvestment
• Clarity on the nature and recurrence of extraordinary losses
• Visibility on order backlog and pipeline to sustain ~8% revenue growth

Investment Implications

Key Takeaways:

• Profits grew double digit with ~50 bps operating margin expansion
• Balance sheet is very strong with cash of 241.96 and current ratio ~450%
• ROE at 3.8% remains modest due to low leverage and cash-heavy balance sheet
• OCF/NI at 0.52x is the key negative; watch working capital trends
• Reported payout ratio >100% for the half suggests reliance on H2 earnings/cash or cash reserves

Metrics to Watch:

• Order backlog/book-to-bill and revenue visibility for H2
• Operating cash flow and OCF/NI ratio recovery toward ≥1.0
• Receivables days and working capital movements
• Wage inflation versus pricing/utilization to protect margins
• Extraordinary items disclosure and any impairments/special losses
• Full-year dividend guidance and payout framework

Relative Positioning: Within Japanese mid-cap IT services, Alpha Systems combines healthy margin trends and a fortress balance sheet with relatively low ROE and currently weak cash conversion; execution on collections and sustaining utilization/pricing will determine whether H2 closes the gap.

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
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