SHOWA SYSTEM ENGINEERING CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.18B
• Operating Income: ¥606M
• Net Income: ¥429M
• EPS: ¥100.35

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

Showa System Engineering Co., Ltd. (single-entity, JGAAP) delivered a solid FY2026 Q2 performance with modest top-line growth and stronger operating leverage. Revenue reached ¥4,178m, up 3.6% YoY, while operating income rose 10.8% to ¥606m, indicating disciplined cost control and/or favorable project mix. Net income increased 12.4% YoY to ¥429m, translating to a net margin of 10.27%. Gross margin stood at 18.9%, and operating margin at approximately 14.5%, highlighting good conversion from gross profit to operating profit for a system engineering/services model. DuPont metrics show a calculated ROE of 7.67%, decomposed into 10.27% net margin, 0.486x asset turnover, and 1.54x financial leverage, implying ROA around 5.0% and a conservative balance sheet. EBITDA was ¥618m with a 14.8% margin, underscoring low capital intensity (depreciation only ¥11.6m). The interest burden is de minimis (¥28k), yielding an extremely high interest coverage ratio (over 21,000x), consistent with low financial risk. Liquidity is strong with a current ratio of 534% and working capital of ¥5,496m, typical for SI/SES models with large receivables and low inventory needs. Operating cash flow was ¥103m (OCF/NI of 0.24), trailing earnings—likely reflecting working capital timing and seasonality rather than structural issues, but this warrants monitoring. Total assets were ¥8,599m and total liabilities ¥3,334m, placing debt-to-equity at 0.60x; however, the mix of interest-bearing debt is unclear. Equity totaled ¥5,590m, consistent with modest leverage and the reported financial leverage factor in DuPont. Ordinary income came in at ¥617m, slightly above operating income, suggesting non-operating income tailwinds. The reported effective tax rate metric of 0.0% appears inconsistent with disclosed income tax expense of ¥173m versus ordinary income of ¥617m (implying a ~28% effective rate), so the calculated metric likely reflects a data placeholder rather than economics. Dividends and free cash flow details are not disclosed in the dataset (zeros indicate unreported, not actual zero), so payout policy and FCF coverage cannot be assessed quantitatively here. Overall, earnings quality from the P/L looks healthy with improving margins and prudent leverage, but cash conversion in the period is soft and should normalize if receivables collections progress in H2. Data gaps around cash balances, capex, and dividend policy limit the completeness of the assessment, and readers should interpret zero placeholders as undisclosed rather than absent.

Profitability Analysis

ROE decomposition: Net profit margin 10.27% × Asset turnover 0.486 × Financial leverage 1.54 = ROE 7.67%. Margins: gross margin 18.9%, operating margin ~14.5% (¥606m/¥4,178m), ordinary margin ~14.8%, net margin 10.27%—a healthy drop-through from gross to operating to net, boosted by low interest expense. Operating leverage: operating income growth (+10.8% YoY) outpaced revenue growth (+3.6% YoY), indicating favorable operating leverage from cost control and/or mix (higher value-added projects). Margin quality: D&A is only ¥11.6m, so EBITDA and operating profit are close; this suggests low capital intensity and that EBIT margins reflect underlying economics rather than depreciation effects. Non-operating items: ordinary income (¥617m) slightly exceeded operating income (¥606m), implying minor non-operating gains. Taxation: income tax expense of ¥173m suggests an effective rate around the high-20%s; the reported 0.0% effective tax rate metric should be treated as non-informative in this dataset.

Growth Assessment

Revenue grew 3.6% YoY to ¥4,178m, consistent with steady demand in system engineering and services. Profit growth was stronger: operating income +10.8% and net income +12.4% YoY, reflecting improved cost efficiency and possibly better project pricing or utilization. Net margin at 10.27% is solid for a single-entity SI/SES company, indicating disciplined SG&A. Sustainability: topline growth appears organic and modest; continuation depends on backlog, headcount capacity, and client IT spending, which are not disclosed. Profit quality: ordinary income exceeds operating income slightly, but the bulk of earnings are operational; low interest expense reduces volatility. Outlook considerations: wage inflation and hiring costs could pressure margins; utilization management and project mix will be key to sustaining operating leverage. With asset turnover at 0.486, incremental growth without significant asset additions is plausible. Near-term growth trajectory should track Japan corporate IT budgets and digital transformation projects; however, absence of order/backlog data limits forward visibility.

Financial Health

Liquidity: current assets ¥6,762m vs current liabilities ¥1,266m yields a current ratio of 534% and quick ratio equivalent (inventory not disclosed), indicating ample short-term liquidity. Working capital is ¥5,496m, consistent with receivables-heavy operations. Solvency: total liabilities ¥3,334m and equity ¥5,590m imply debt-to-equity of 0.60x; interest expense of only ¥28k suggests minimal interest-bearing debt and low financial risk. Capital structure: financial leverage factor 1.54x (assets/equity) is conservative. Equity ratio is shown as 0.0% in the dataset, but this is clearly an unreported placeholder given the provided assets and equity; the implied equity ratio would be approximately 65%. No cash and equivalents figure is disclosed here; however, strong current assets suggest adequate liquidity even without the breakdown.

Cash Flow Quality

Earnings-to-cash conversion is weak this period: OCF ¥103m vs net income ¥429m (OCF/NI 0.24). Likely drivers include receivables build and billing milestones typical in H1 for SI/SES businesses; inventory is not a factor (not disclosed). Free cash flow is not disclosed (FCF reported as 0 in the dataset), and investing cash flows are also undisclosed, limiting FCF assessment. Given low D&A (¥11.6m), maintenance capex is likely modest, but actual capex is unreported. The large working capital base (¥5,496m) means timing of collections can materially sway period OCF; monitoring H2 collections is important to validate earnings quality. Interest paid is negligible, so financing cash needs are driven by working capital, not debt service.

Dividend Sustainability

Dividend data (DPS, payout ratio, FCF coverage) are not disclosed in this dataset; zeros should be treated as unreported, not actual. EPS is ¥100.35 in the period, suggesting capacity for dividends if policy allows, but without cash balance, capex, or confirmed OCF/FCF over the full year, sustainability cannot be quantified. Financing CF is -¥217m, but the components (e.g., dividends, share buybacks) are not broken out here. Historically, SI/SES firms often maintain stable dividend policies tied to earnings; however, company-specific policy is not available in this data. Assessment: insufficient disclosed information to judge payout ratio or FCF coverage; the prudent balance sheet is a supportive factor, while current-period weak OCF is a watchpoint.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk affecting gross margins
• Utilization and headcount management risk amid wage inflation
• Client budget cyclicality in Japan IT spending and potential delays in orders
• Concentration risk if large customers dominate revenue (not disclosed here)
• Competition from larger SIers and SES vendors compressing pricing

Financial Risks:

• Working capital intensity leading to volatile operating cash flow
• Receivables collection timing risk impacting liquidity despite high current ratio
• Limited disclosure of cash and capex, increasing uncertainty around FCF
• Potential tax rate variability (effective tax inferred ~high-20%s) affecting net income

Key Concerns:

• OCF/Net income at 0.24 indicates weak cash conversion this period
• Dependence on non-disclosed backlog and order intake for H2 visibility
• Data gaps (cash balance, investing CF, dividend details) constrain analysis granularity

Investment Implications

Key Takeaways:

• Solid profitability with operating income up 10.8% on 3.6% revenue growth, indicating operating leverage
• Healthy margins (operating ~14.5%, net 10.27%) and conservative leverage (assets/equity 1.54x)
• Very low interest burden; interest coverage effectively unconstrained
• Liquidity strong (current ratio 534%), but OCF lagging earnings this period (0.24x)
• Capex and FCF not disclosed; D&A low, implying structurally low capital intensity

Metrics to Watch:

• Order intake/backlog and book-to-bill for forward revenue visibility
• Accounts receivable days and OCF in H2 to confirm cash conversion
• Utilization rate and headcount growth versus wage inflation
• Project mix (fixed-price vs. T&M) and gross margin trajectory
• Any updates on dividend policy and capital allocation

Relative Positioning: Within Japanese SI/SES peers, the company exhibits above-average operating margins and conservative leverage, with typical working-capital-driven cash flow volatility; forward positioning will depend on sustained backlog, utilization discipline, and maintaining pricing power amid wage cost pressures.

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