ITFOR Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.22B
• Operating Income: ¥1.16B
• Net Income: ¥1.06B
• 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

ITFOR Co., Ltd. (TSE:4743) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability despite a modest topline contraction and clear signs of operating leverage. Revenue declined 4.1% year over year to ¥9.22bn, while operating income fell a sharper 23.6% to ¥1.16bn, indicating fixed-cost pressure and/or a less favorable sales mix. Gross profit margin was solid at 38.6%, but the operating margin compressed to approximately 12.5%, reflecting cost absorption as revenue dipped. Net income was ¥0.99bn (-6.7% YoY), implying a net margin of 10.71%, still healthy for a software/IT solutions model. DuPont decomposition shows ROE at 5.08%, driven by a modest asset turnover of 0.387 and low financial leverage of 1.22, indicating a conservatively financed balance sheet. Liquidity appears very strong with a current ratio of 409% and a quick ratio of 395%, supported by large current assets versus modest current liabilities. Total liabilities are ¥4.91bn against total equity of ¥19.46bn, implying a low leverage profile and significant balance sheet capacity. Operating cash flow of ¥1.66bn significantly exceeded net income (OCF/NI 1.68x), suggesting good cash conversion and earnings quality in the period. Ordinary income (¥1.25bn) exceeded operating income, pointing to a positive net non-operating contribution. EBITDA was ¥1.32bn (14.3% margin), providing an additional view that non-cash charges are not a major driver of earnings volatility. Working capital stands high at approximately ¥13.95bn, indicating ample buffer for project execution and receivables cycles. While the reported equity ratio is shown as 0.0% (unreported), the implied equity-to-asset ratio from disclosed balances is around 81–82%, reinforcing the conservative capital structure. Dividend data are not disclosed for the period (DPS and payout shown as zero placeholders), so distribution policy cannot be assessed from this dataset alone. Several items, including investing cash flows, cash and equivalents, and share count, appear unreported, limiting precision on free cash flow and per-share metrics. Overall, the company displays sound profitability, robust liquidity, low leverage, and good cash conversion, but the drop in operating income versus revenue highlights operating leverage and mix sensitivity that merit monitoring.

Profitability Analysis

ROE of 5.08% decomposes into a net profit margin of 10.71%, asset turnover of 0.387x, and financial leverage of 1.22x. The margin component remains the primary ROE driver, with leverage intentionally low, which tempers ROE but reduces risk. Gross margin of 38.6% is healthy; however, the operating margin of roughly 12.5% indicates cost pressure given revenue declined only 4.1% while operating profit dropped 23.6%. This suggests operating leverage and potentially a less favorable mix (e.g., lower-margin implementations or higher service delivery costs). EBITDA margin of 14.3% indicates limited non-cash expense influence; depreciation and amortization (¥165m) are modest relative to revenue. Ordinary income exceeding operating income (by roughly ¥98m) indicates positive non-operating contributions (e.g., interest/dividend income), cushioning operating softness. The net margin at 10.71% remains solid despite the operating decline, implying that below-the-line items and taxes did not unduly pressure bottom-line profitability this period based on disclosed figures.

Growth Assessment

Revenue fell 4.1% YoY to ¥9.22bn, a modest contraction that nonetheless caused an outsized decline in operating income (-23.6%), underscoring sensitivity to volume and mix. The drop suggests either a normalized post-peak demand environment or project timing slippage within the half, both common in solution/IT segments. Profit quality is supported by the OCF/NI ratio of 1.68x, indicating earnings are translating into cash even as operating profit declined. Ordinary income resilience versus operating income implies diversified income streams that mitigate volatility. Near-term outlook depends on order intake, backlog conversion, and maintenance/recurring revenue stability; a further shift toward recurring maintenance/SaaS-like streams would dampen operating leverage and stabilize growth. With limited disclosed data on segment mix and backlog, revenue sustainability cannot be precisely gauged; however, robust working capital and low leverage position the company to pursue growth opportunities without balance sheet strain.

Financial Health

Liquidity is strong: current ratio 409% and quick ratio 395%, reflecting ¥18.46bn of current assets vs. ¥4.51bn of current liabilities. Working capital is substantial at ¥13.95bn, suggesting capacity to absorb project cycles and seasonality. Solvency appears conservative: total liabilities of ¥4.91bn vs. total equity of ¥19.46bn, consistent with a debt-to-equity ratio around 0.25x. While the reported equity ratio is shown as 0.0% (unreported), the implied equity-to-asset ratio from disclosed balances is approximately 81.7% (¥19.46bn/¥23.81bn), indicating a strong capital base. Interest expense is unreported (shown as zero), and interest coverage cannot be meaningfully calculated from the provided zeros; however, low leverage implies minimal financing burden. Overall, the balance sheet strength provides resilience and strategic flexibility.

Cash Flow Quality

Operating cash flow of ¥1.66bn versus net income of ¥0.99bn yields an OCF/NI of 1.68x, indicating strong cash conversion and supportive working-capital dynamics in the period. EBITDA of ¥1.32bn and modest D&A (¥165m) suggest earnings are not overly reliant on non-cash items. Investing cash flow is unreported (shown as zero), preventing a direct free cash flow calculation and capex assessment. As a result, reported FCF is also shown as zero but should be treated as undisclosed rather than nil. Working capital appears ample; combined with positive OCF, this suggests the company is generating sufficient internal funds to support operations. Without investing CF detail, we cannot evaluate reinvestment intensity or sustainability of FCF beyond noting that OCF is robust this half.

Dividend Sustainability

Annual DPS and payout ratio are shown as zero, indicating non-disclosure rather than an actual zero payout for the fiscal year. With EPS at ¥37.37 for the half and strong OCF, the company appears to have capacity to fund distributions, but policy and timing are not disclosed in this dataset. FCF coverage cannot be assessed due to lack of investing CF and capex disclosure. Historically, payout policies for similar Japanese IT solution companies balance stable dividends with growth investment; however, no specific policy can be inferred here. Until dividends are disclosed, sustainability and trajectory remain indeterminate based solely on the provided figures.

Risk Assessment

Business Risks:

• Operating leverage risk: a small revenue decline (-4.1% YoY) led to a large operating income drop (-23.6%).
• Project timing and mix risk inherent in systems integration and solution delivery.
• Potential margin pressure from a higher share of lower-margin implementation or service work.
• Customer concentration or public-sector dependency risk typical in the segment (not disclosed, but sector-relevant).
• Competitive pricing pressure in financial/retail solutions and digital transformation projects.

Financial Risks:

• Limited visibility on investing cash flows and capex intensity, constraining FCF assessment.
• Interest coverage not measurable due to unreported interest expense, limiting analysis of financing flexibility under stress.
• Potential working-capital swings tied to project milestones and collection cycles.

Key Concerns:

• Margin compression and pronounced sensitivity of operating profit to revenue shifts.
• Insufficient disclosure on investing cash flows and dividends in this period.
• Unreported per-share data (shares outstanding) constrains per-share valuation and capital return analysis.

Investment Implications

Key Takeaways:

• Topline contracted modestly, but operating income fell sharply, highlighting operating leverage.
• Margins remain solid at the gross (38.6%) and net (10.71%) levels despite operating compression.
• ROE at 5.08% reflects strong margins but low leverage; balance sheet is conservatively financed.
• OCF was strong (¥1.66bn; 1.68x net income), indicating good earnings quality.
• Liquidity is very strong with a current ratio above 4x and substantial working capital.
• Non-operating gains supported ordinary income above operating income.
• Dividend and investing CF data are not disclosed; FCF cannot be determined from this dataset.

Metrics to Watch:

• Order intake and backlog conversion to gauge revenue visibility for 2H and beyond.
• Operating margin trajectory and cost structure flexibility to mitigate leverage.
• Recurring revenue mix (maintenance/SaaS) as a stabilizer of margins and cash flow.
• Working-capital movements (receivables, unbilled, advances) and OCF sustainability.
• Disclosure of capex/investing CF to assess true FCF and reinvestment needs.
• Dividend announcements/payout policy updates for capital return clarity.

Relative Positioning: Within Japanese IT solutions and system integrators, the company appears balance-sheet conservative with strong liquidity and healthy cash conversion, but shows higher sensitivity of operating profit to revenue changes, placing it as a low-leverage, solid-margin player with notable operating leverage risk relative to peers emphasizing recurring revenue.

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