ITFOR Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.22B
• Operating Income: ¥1.16B
• Net Income: ¥988M
• EPS: ¥37.37

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

Verdict: Soft quarter with margin compression and declining profits, but cash generation remained strong and balance sheet is very solid. Revenue declined 4.1% YoY to 92.22, with operating income down 23.6% to 11.56 and ordinary income down 20.6% to 12.54. Net income fell 6.7% to 9.88, cushioned by positive non-operating income of 1.05 (notably 0.38 dividends and 0.24 interest). Gross profit was 34.03, implying a gross margin of 36.9%. Operating margin compressed to 12.5%, and ordinary income margin to 13.6%. On a YoY basis, operating margin compressed by approximately 322 bps (from ~15.8% to ~12.5%). Ordinary income margin compressed by roughly 282 bps, while net margin softened only about 31 bps to 10.7%. ROE was 5.1% from DuPont (NPM 10.7% × asset turnover 0.387 × leverage 1.22x), tracking the reported figure. ROIC is 6.2%, below the 7–8% target range commonly aimed for by leading Japanese corporates, signaling room for efficiency improvement. Cash quality was strong with OCF/NI at 1.66x and operating CF of 16.42, despite profit declines. The balance sheet is conservative: current ratio 446% and D/E 0.22x, with cash and deposits of 59.83 covering current liabilities by 1.5x. A reported payout ratio of 141.3% suggests an aggressive shareholder return stance or a potential one-off; sustainability warrants scrutiny given profit headwinds. Non-operating income contributed 10.6% of profit on a ratio basis, but overall reliance remains modest versus operating earnings. Forward-looking: need recovery in order intake and project delivery to re-expand margins, improve ROIC above 7–8%, and normalize payout to align with FCF. Watch H2 seasonality and public/financial-sector IT investment timing, which can swing revenue recognition and margins.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 10.7% × 0.387 × 1.22 = 5.1%. The largest change driver YoY appears to be margin compression rather than leverage or turnover. Operating margin declined about 322 bps (from ~15.8% to ~12.5%), while asset turnover is inherently subdued (0.387) on a cash-rich balance sheet and likely changed little. Business drivers: revenue fell 4.1% while operating profit dropped 23.6%, implying either lower gross margin on mix/project execution or higher SG&A ratio (e.g., wage inflation, hiring to support growth, or timing of expenses). Non-operating income (dividends/interest) partly offset operating softness, muting the decline in net margin (only ~31 bps). Sustainability: the margin pressure may prove partly temporary if tied to project timing and mix; however, continued wage cost pressure and tight delivery capacities could persist. Concerning trends: operating deleverage is evident (OP down more than sales). Lack of disclosed SG&A detail limits precision, but the scale of OP decline versus revenue is a flag.

Growth Assessment

Top-line contracted 4.1% YoY to 92.22, indicative of softer demand or order timing slippage in the half. Operating income declined 23.6% to 11.56, outpacing the sales decline and confirming negative operating leverage. Net income was more resilient (-6.7% to 9.88) thanks to non-operating gains (dividends 0.38, interest 0.24). Revenue sustainability will hinge on backlog conversion in H2 and new bookings across core verticals (financial institutions, public sector, and collections/credit management systems). Profit quality is acceptable given positive OCF/NI of 1.66x and EBITDA margin of 14.3%, but the step-down in OP margin suggests execution or mix headwinds. Outlook: with a robust cash position, the company can continue investing in delivery capability and product enhancements; near-term growth likely depends on timing of large project recognitions and macro IT budgets. ROIC at 6.2% needs improvement via margin recovery and better asset turns.

Financial Health

Liquidity is very strong: current ratio 446.5% and quick ratio 432.2%; no warning thresholds breached. Solvency is conservative with total liabilities 43.51 vs equity 194.63 (D/E 0.22x). Interest-bearing debt is unreported, but cash and deposits (59.83) exceed current liabilities (39.78), indicating ample coverage and low refinancing risk. Maturity mismatch risk appears low: current assets 177.63 comfortably cover current liabilities 39.78. No off-balance sheet obligations are disclosed in the provided data. Equity ratio (assets/equity) implies financial leverage of 1.22x, consistent with low leverage. No explicit red flags (Current Ratio < 1.0 or D/E > 2.0) are present.

Cash Flow Quality

OCF/Net Income is 1.66x, indicating high earnings quality and strong cash conversion in the half. Operating CF of 16.42 comfortably covered reported capex of 2.51; inferred FCF approximates 13.9 (OCF minus capex), though total investing cash flows are unreported. Financing CF was -5.98, likely reflecting dividend payments (amount not disclosed) and a negligible buyback (-0.00). With robust cash on hand (59.83), dividend and capex commitments appear serviceable near term. Working capital: accounts receivable of 37.01 and inventories of 5.71 look manageable versus revenue scale; positive OCF suggests no aggressive working-capital pull-forward. No manipulation signs are evident from the limited data.

Dividend Sustainability

The calculated payout ratio is 141.3%, which is high relative to standard sustainability benchmarks (<60%). Given strong OCF this half, dividends may still be covered by cash flows near term, but persistently paying >100% of earnings would be unsustainable without excess cash drawdown or earnings recovery. FCF coverage is not directly calculable from disclosed figures; using inferred FCF (~13.9) vs NI (9.88) suggests room, but actual dividends paid are unreported. Policy outlook: unless H2 profits rebound, management may need to normalize payout to align with earnings/FCF or rely on the sizable cash buffer; monitor for special dividends vs base dividend trajectory.

Risk Assessment

Business Risks:

• Project timing and acceptance risk causing revenue recognition volatility (H1 softness)
• Margin pressure from wage inflation and delivery resource constraints
• Customer IT budget cyclicality, particularly in financial/public sectors
• Product mix shifts toward lower-margin integration projects

Financial Risks:

• Elevated payout ratio (141.3%) potentially exceeding sustainable earnings capacity
• ROIC at 6.2% below 7–8% target range, indicating efficiency headroom
• Dependence on non-operating income (dividends, interest) to cushion profits in soft quarters

Key Concerns:

• Operating margin compression of ~322 bps YoY
• Ordinary income down 20.6% despite modest revenue decline
• Limited disclosure of SG&A breakdown restricts root-cause diagnosis of margin pressure

Investment Implications

Key Takeaways:

• Top line -4.1% YoY with outsized OP decline (-23.6%) signals negative operating leverage
• Cash conversion strong (OCF/NI 1.66x) and balance sheet robust (net cash position implied)
• ROE 5.1% and ROIC 6.2% point to efficiency improvement needs
• Payout ratio (141.3%) appears aggressive absent earnings recovery
• Non-operating income provided a modest buffer but not a core profit driver

Metrics to Watch:

• Order intake/backlog and H2 revenue conversion
• Operating margin trajectory and gross margin mix
• SG&A growth vs revenue (when disclosed) to assess cost discipline
• ROIC progression toward >7–8%
• OCF/NI and working-capital turns (AR days, inventory turns)
• Dividend policy communications and actual dividends paid

Relative Positioning: Within Japanese IT solutions/SI peers, the company retains a stronger-than-average balance sheet and solid cash generation, but trails best-in-class names on ROIC and suffered greater margin compression this half; execution on backlog and cost control will be key to re-closing 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
• 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