Nippon RAD Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.99B
• Operating Income: ¥50M
• Net Income: ¥70M
• EPS: ¥13.20

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Nihon RAD Co., Ltd. reported FY2026 Q2 consolidated results under JGAAP characterized by flat top-line and operating profit, solid cash generation, and a very strong balance sheet. Revenue was ¥1,993 million, essentially flat YoY, indicating a pause in growth momentum at mid-year. Gross profit was ¥423 million, yielding a gross margin of 21.2%, which is acceptable for a small-cap SI/IT services mix but leaves limited room for operating leverage. Operating income was ¥50 million (operating margin 2.5%), also flat YoY, reflecting higher cost pressure or mix effects offsetting any efficiency gains. Ordinary income of ¥113 million exceeded operating income by ¥63 million, implying sizeable non-operating gains (e.g., interest/dividend income, subsidies, or securities-related gains), not leverage-related given minimal interest expense. Net income was ¥69 million, translating to a net margin of 3.46% and EPS of ¥13.20 for the half-year. DuPont analysis indicates ROE of 2.02% (Net margin 3.46% × Asset turnover 0.411 × Financial leverage 1.42), underscoring modest profitability and moderate asset utilization. The balance sheet is strong: total assets ¥4,845 million and total equity ¥3,415 million imply an inferred equity ratio around 70.5%, despite the reported equity ratio field showing 0.0% (likely undisclosed). Liquidity is ample with a current ratio of 454% and quick ratio of 453%, supported by low inventories of just ¥6 million, consistent with a services-heavy model. Operating cash flow was robust at ¥201 million, 2.91x net income, pointing to strong cash conversion and/or a favorable working capital swing in the period. Financing cash outflows of ¥54 million likely reflect dividend payments, share repurchases, or debt repayments; the detailed mix is not disclosed. Investing cash flow was shown as zero, but this likely represents undisclosed or minimal capex/investments rather than true zero. Cash and equivalents were also shown as zero in the feed, which should be interpreted as not disclosed. With thin operating margins, the quality of earnings leans on non-operating items this quarter; sustaining profits will depend on gross margin defense and SG&A discipline. Given the flat revenue and operating income, the near-term outlook hinges on order intake and project delivery timing in 2H. Data limitations exist (several zeros indicate non-disclosure), but the available figures collectively signal a financially conservative profile with ample liquidity and low leverage.

From Earnings Presentation: The Q2 FY2026 (March 2026) earnings presentation material for Japan RAD Ltd. (4736) clarifies the background and strategy behind the figures shown in the XBRL analysis. While revenue of 1,993 million yen (+2.6%) showed slight growth, operating profit of 80 million yen (▲29.9%) declined due to: (1) completion of large-scale projects in the Enterprise business and structural transformation, (2) increased outsourcing and personnel costs driven by inflation and wage increases, and (3) upfront investments in new video business initiatives. On the other hand, the IoT business grew steadily, centered on DX for manufacturing, with expansion in new and continuing projects. Progress on the medium-term management plan (FY2027 target: revenue 4,210 million yen, operating profit 295 million yen → consolidated revenue 5,000 million yen) is generally on track, having already achieved the target once in FY2025. The material presents multiple strategic initiatives including ecosystem development centered on the latest Dereva platform, expansion into Nagoya through the acquisition of subsidiary One's House, strengthening video solutions, and deployment of next-generation authentication Proven Auth. The investment stance toward structural reform and new business development, which could not be fully captured in the XBRL analysis, is clearly articulated. Dividends are expected to continue at 10 yen (dividend payout ratio 32.0%), confirming the company's commitment to capital returns.

Financial Analysis

Profitability

ROE is 2.02%, decomposed as Net margin 3.46% × Asset turnover 0.411 × Financial leverage 1.42. The operating margin is 2.5% (¥50m/¥1,993m), indicating thin operating profitability relative to the 21.2% gross margin; implied SG&A is about ¥373m, or roughly 18.7% of sales. EBITDA is ¥91.997m, for an EBITDA margin of 4.6%, suggesting limited buffer against cost shocks. Ordinary income of ¥113m vs operating income of ¥50m indicates approximately ¥63m in non-operating gains, which supported bottom-line results; interest expense is negligible (¥21k) so the uplift is not from leverage. Effective tax rate calculated from disclosed income tax suggests about 39% (¥44.063m tax / ~¥113m pre-tax), despite a displayed 0.0% ETR in the auto-calculated metrics. Operating leverage appears muted this quarter: flat revenue coincides with flat operating income, implying cost growth broadly tracked revenue or mix normalized margins. Asset turnover of 0.411x for the half-year period (based on period-end assets) is modest and typical of small-cap IT service firms; improving turnover would support ROE in the absence of higher leverage. Overall margin quality is mixed: gross margin is reasonable, but the reliance on non-operating income to bridge from operating to ordinary profit reduces the quality of recurring profitability.

Growth

Revenue was flat YoY at ¥1,993m in H1, signaling a pause in growth momentum that may reflect project timing, cautious customer demand, or a high prior-year base. Operating income remained flat at ¥50m, indicating no visible operational efficiency gains YoY. Ordinary income increased versus operating income due to non-operating components, which may not be repeatable, making underlying growth less robust than the ordinary profit suggests. With inventories of only ¥6m and a services-heavy model, growth is primarily a function of headcount capacity, pricing, and backlog conversion rather than inventory. Sustainability of revenue depends on order intake and the mix of fixed-price versus time-and-material projects, which influence gross margin variability. Profit quality is adequate at the cash level (OCF/NI of 2.91x), but the earnings mix leans on non-operating items; sustaining profit growth will require expanding operating margin via gross margin improvement or SG&A leverage. Outlook into 2H will hinge on seasonality and backlog; if non-operating items normalize, operating income needs to inflect to maintain YoY net profit. Data gaps (e.g., no disclosed capex, cash balance, or order metrics) limit visibility into medium-term growth investments. In sum, near-term growth appears subdued with stable but thin core profitability; cash generation provides flexibility to invest or stabilize earnings.

Financial Health

Total assets are ¥4,845m and total liabilities ¥1,430m, yielding low leverage (Debt-to-equity 0.42x using total liabilities/equity). Equity is ¥3,415m; inferred equity ratio is ~70.5% (vs the undisclosed 0.0% field), reflecting a conservative capital structure. Liquidity is very strong: current assets ¥3,065m vs current liabilities ¥675m produce a current ratio of 453.8% and quick ratio of 452.9%. Working capital is sizeable at ¥2,390m, providing a cushion against project timing volatility. Interest expense is immaterial (¥21k) and interest coverage is extremely high at 2,381x, indicating negligible financial risk from debt service. Ordinary income exceeds operating income by ¥63m, not from leverage but from non-operating items; solvency is not dependent on borrowing. Absence of disclosed cash and cash equivalents likely reflects missing data rather than low cash; nonetheless, current asset strength implies adequate liquidity. Overall, financial health appears strong with low solvency risk and ample short-term liquidity.

Cash Flow

Operating cash flow was ¥200.9m, 2.91x net income of ¥69m, indicating strong cash conversion and likely favorable working capital movements (e.g., collections on receivables, milestone billings). Depreciation and amortization were ¥42.0m, implying EBITDA to OCF conversion is solid after working capital. Investing cash flow is shown as zero, but this is likely non-disclosure; hence, true capex/investment outflows are unknown and Free Cash Flow cannot be reliably derived despite a displayed FCF of zero in the feed. Financing cash flow of -¥53.9m suggests distributions or repayments; the breakdown (dividends, buybacks, or debt) is not disclosed. With minimal inventories (¥6.3m), working capital dynamics are dominated by receivables and payables; the positive OCF hints at efficient collections in H1. Earnings quality is reasonable given OCF materially exceeds net profit, but sustainability depends on maintaining working capital discipline and reducing reliance on non-operating gains for earnings.

Dividend Sustainability

Dividend data are not disclosed (DPS and payout ratio are shown as 0.00, which per instructions indicates non-disclosure, not actual zero). Financing cash outflows of ¥53.9m could include dividends, but this cannot be confirmed without detail. On capacity, net income of ¥69m and OCF of ¥201m in H1 suggest room to fund ordinary dividends if the company elects to, given the strong liquidity position (current ratio ~454%). FCF coverage cannot be assessed because capex/investment cash flows are undisclosed; thus, any payout sustainability analysis must be considered tentative. Policy outlook is unclear in the absence of guidance or historical payout metrics. If the company maintains a conservative balance sheet and low leverage, it has flexibility, but sustainability ultimately depends on core operating profit growth rather than non-operating contributions.

Business Outlook

Full-year performance forecast remains unchanged at revenue 4,050 million yen, operating profit 163 million yen, ordinary profit 224 million yen, and net profit 165 million yen. Enterprise business expects stable progress through new application development and SES-type staffing while undergoing structural transformation. IoT business assumes continued strong growth in manufacturing DX in H2, with medical sector expecting customer revenue that was delayed from H1. Overall initial forecast progress rate is approximately 50%, with ordinary and net profit exceeding expectations. Increased personnel costs remain a structural challenge, requiring ongoing structural reforms (price revisions, increasing high-value-added project ratio, project selection). Medium-term management plan targets standalone revenue of 4,210 million yen and operating profit of 295 million yen for FY2027, aiming for consolidated revenue expansion to 5,000 million yen. Policy is to prioritize upfront investments in business structural reform and new business development while striving toward final-year target achievement. Simultaneously developing multiple growth drivers including manufacturing DX, video solutions, authentication products, and Nagoya base.

Management Guidance

Management has clearly stated that while medium-term management plan targets were achieved once in FY2025, FY2026 prioritizes upfront investments in business structural reform while striving toward final-year target achievement. Recognizing increased outsourcing and personnel costs due to inflation and wage increases as premises, they position structural reforms (price revisions, project selection, increasing high-value-added project ratio) as ongoing critical issues. While operating profit margin deteriorated from the previous period, they recognize that a stable profitability foundation has been established. Dividends are planned to continue at 10 yen from last year's record profit level, with a payout ratio of 32.0%. The medium-term management plan maintains the current dividend payout ratio while expressing commitment to improving it as an important indicator of shareholder returns. Management aims to achieve targets including the transition from standalone to consolidated group operations through simultaneous advancement of multiple initiatives including subsidiary acquisition, new business launches, and product deployment.

Strategic Initiatives

• Building RAD ecosystem centered on Dereva platform: Promoting ecosystem integration with existing products including konekti, kintone, and SCADA around Dereva, the latest Industrial IoT & Data Ops Platform. Differentiating through core system integration and deployment speed convenience
• Nagoya regional base expansion through One's House acquisition: Aiming to expand contracted business for fire departments, agricultural cooperatives, and manufacturing. Consolidated as subsidiary in July 2025, consolidated results from Q3 onward. Pursuing integrated development
• Full-scale video solutions business deployment: Established 'Intelligent Media Solutions Promotion Office'. Providing comprehensive solutions covering imaging (PTZ cameras), encoding/decoding, video processors, and large displays. Significantly strengthening proposals and sales to government agencies, defense industry, broadcast professionals, etc.
• Domestic deployment of next-generation authentication solution Proven Auth: Commenced offering as domestic authorized distributor of Indicio's decentralized authentication platform. Balances security, usability, and privacy without passwords, supporting zero trust
• Strengthening sales expansion of kintone integration product Kinterp: Won Area Award (Tokyo Metropolitan Area) at CYBOZU AWARD 2025. Promoting kintone app integration, Excel management elimination, other system integration, and development cost reduction, enhancing presence as Cybozu official partner
• Structural transformation of Enterprise business: Using completion of large-scale projects from previous period as opportunity to promote personnel shift to DX/AI products and operations normalization. BI business stable, CS business executing AI shift
• Deepening manufacturing DX business: Expanding orders from both existing and new customers. Promoting rapid core system integration through combination of Dereva platform, konekti, and kintone integration. While large medical institution system orders were delayed, security for automotive installation and maritime solutions royalty income growing stably
• Responding to personnel and outsourcing cost increases: Addressing wage increases driven by inflation and talent acquisition cost increases through price revisions, project selection, and improving high-value-added project ratio to enhance gross margin. Continuing upfront investments in video business to secure medium- to long-term revenue sources

Risk Assessment

Business Risks:

• Project timing and acceptance risk causing revenue recognition volatility
• Pricing pressure and wage inflation compressing gross margins
• Fixed-price project execution risk leading to cost overruns
• Customer concentration typical of small-cap SI/IT vendors
• Dependence on non-operating income to bridge earnings in certain periods
• Talent retention and hiring constraints in a tight IT labor market
• Exposure to public-sector or specific industry budgets if concentrated

Financial Risks:

• Earnings sensitivity to non-operating gains which may be non-recurring
• Potential working capital swings impacting OCF despite low inventories
• Limited disclosure of cash balance and capex complicates FCF assessment
• Small-cap equity market liquidity risk potentially affecting capital access

Key Concerns:

• Flat revenue and operating income suggesting limited operating leverage in H1
• Thin operating margin (2.5%) despite reasonable gross margin (21.2%)
• Ordinary income reliance on non-operating items (+¥63m vs OI)
• Data gaps (cash, capex, dividend details) reduce visibility into capital allocation and sustainability

Risk Factors from Presentation:

• Continuing impact of wage increases and outsourcing cost increases driven by inflation and talent acquisition cost increases (operating profit decline factor)
• Short-term profit pressure from upfront personnel investments in new video business initiatives
• Operations normalization (slight revenue decline) due to completion of large customer projects in Enterprise business
• Structural reforms unavoidable as personnel cost increases become structural premise
• Project timing variation risk such as delays in large medical institution system orders
• Limited transparency and evaluation accuracy of investment plans due to partial non-disclosure of investment CF, cash equivalents, and other financial information

Investment Implications

Key Takeaways:

• Top-line and operating profit flat YoY indicate subdued underlying momentum at mid-year
• Gross margin of 21.2% is decent, but operating margin of 2.5% is thin, implying limited buffer
• Ordinary profit benefited from non-operating income (approx. ¥63m), lowering earnings quality
• Balance sheet is conservative with inferred equity ratio ~70.5% and debt-to-equity 0.42x
• Operating cash flow strong at ¥201m (OCF/NI 2.91x), highlighting good conversion
• Liquidity robust: current ratio ~454% and quick ratio ~453%
• Disclosure gaps (cash, capex, dividend policy) constrain FCF and payout analysis

Metrics to Watch:

• Order intake and backlog/book-to-bill to gauge 2H revenue visibility
• Gross margin trajectory and SG&A ratio for operating leverage
• Share of non-operating income in ordinary profit
• Receivables days and OCF/NI ratio to confirm cash conversion
• Capex and investing CF to assess sustainable FCF
• Headcount, utilization, and wage trends impacting delivery capacity and margins
• Equity ratio and net cash position once cash data are disclosed

Relative Positioning: Versus domestic small/mid-cap system integrators, the company exhibits a stronger balance sheet and liquidity with lower financial risk, but operates with thinner operating margins and greater reliance on non-operating income this quarter; cash conversion is comparatively solid, yet growth visibility appears more muted without disclosed backlog and capex data.

Supplementary Insights (Key Highlights)

• Enterprise business is normalizing operations and undergoing structural transformation following completion of large customer projects in the previous period. Shifting personnel to DX and AI products; revenue slightly down but prioritizing medium- to long-term foundation building
• IoT business expanding in both new and continuing projects for manufacturing DX. Inquiries for proprietary Dereva platform growing steadily, differentiating through high convenience
• Operating profit margin deteriorated to approximately 4% due to wage increases driven by inflation and talent acquisition cost increases, upfront personnel investments in new video business initiatives, and rising outsourcing costs (operating profit 80 million yen, profit margin 4.0%)
• Consolidated One's House Corporation as a subsidiary in July 2025 to strengthen Nagoya base. Aiming to expand contracted business for fire departments, agricultural cooperatives, and manufacturing. Consolidated results from Q3 onward
• Established 'Intelligent Media Solutions Promotion Office' to fully launch comprehensive video solutions covering from imaging to projection. Strengthening sales to government agencies, defense industry, and broadcast professionals
• Launched full-scale deployment as the domestic authorized distributor of Indicio's next-generation authentication solution 'Proven Auth'. Balances security and usability without passwords
• Won Area Award (Tokyo Metropolitan Area) at CYBOZU AWARD 2025. Sales performance of proprietary product Kinterp (kintone integration) recognized, improving brand awareness
• Full-year FY2026 forecast: revenue 4,050 million yen, operating profit 163 million yen. Progress rate approximately 49.2% for revenue and 49.1% for operating profit, generally on plan. Ordinary and net profit trending above forecast

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
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