Digital Garage,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.01B
• Net Income: ¥1.73B
• EPS: ¥40.14

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

Digital Garage (4819) reported FY2026 Q2 consolidated IFRS results with revenue of 200.13 (100M JPY), up 13.8% YoY, indicating solid top-line momentum across its portfolio. Cost of sales was 62.37, implying an approximate gross profit of 137.76 if we mechanically subtract cost of sales from revenue (gross profit itself was not disclosed). SG&A totaled 102.77, suggesting an implied operating profit in the mid-30s (about 35.0) before considering unreported classification nuances. Profit before tax was 14.16, while net income was 18.41, boosted by a sizable negative tax expense (tax benefit) of -38.57 and likely offset by non-controlling interests or other below-tax items (given PBT to NI does not reconcile without such effects). Total comprehensive income was 19.12, broadly in line with net income, implying limited other comprehensive items in the period. DuPont-based calculated ROE was 2.4% (net margin 9.2%, asset turnover 0.091x, leverage 2.84x), indicating relatively low capital efficiency tied to a balance sheet structure characteristic of settlement/payment operations. Equity method investment income contributed 18.21, a large share of profits, highlighting reliance on associates/JVs for earnings. Cash flow generation was strong: operating cash flow reached 212.06, or 11.5x net income, and free cash flow of 151.26 (defined here as OCF plus investing cash flows) comfortably funded shareholder returns. Investing cash outflow of -60.80 and modest capex (-2.99) underscore an asset-light model with ongoing investment activities beyond PP&E. Financing cash flow was -114.96, reflecting active capital returns including dividends (-18.93) and share repurchases (-45.12). The balance sheet shows total assets of 2,204.02, equity of 775.07 (equity ratio 34.2%), and liabilities of 1,486.49, including a large accounts payable balance of 625.32 consistent with settlement-related payables in the payments business. Debt-to-equity of 1.92x is elevated on a headline basis but likely skewed by non–interest-bearing settlement liabilities; interest-bearing debt was not disclosed. Liquidity appears ample with cash and equivalents of 563.54, although current liabilities were not reported, limiting ratio analysis. Dividend sustainability metrics are mixed: the calculated payout ratio is high at 137.3%, but free cash flow coverage was reported at 5.98x, and cash dividends paid (18.93) were covered by OCF many times over in the period. Overall, results reflect robust revenue growth, strong cash conversion, and meaningful capital returns, offset by low ROE and heavy reliance on equity-method gains and tax benefits to support bottom-line performance. Data gaps (gross profit, operating income, current liabilities, interest expense) constrain precision, and interpretations of implied margins should be taken as indicative rather than definitive.

Profitability Analysis

ROE_decomposition: Calculated ROE is 2.4% via DuPont: net margin 9.2% × asset turnover 0.091 × equity leverage 2.84x. The low asset turnover and moderate leverage cap overall ROE despite a seemingly decent net margin. margin_quality: Implied gross profit is about 137.76 (Revenue 200.13 – Cost of sales 62.37), but gross margin is not officially disclosed. With SG&A at 102.77, implied operating profit approximates 35.0, yet PBT is only 14.16, suggesting material non-operating losses/expenses or classification effects (e.g., equity-method income recorded below operating profit under IFRS). Net income exceeded PBT due to a large tax benefit (-38.57), implying a negative effective tax rate (-272.4%). Sustainability of the net margin at 9.2% is uncertain given reliance on tax effects and associates. operating_leverage: Revenue growth of +13.8% YoY against SG&A of 102.77 indicates some scale benefits, but the gap between implied operating profit (~35.0) and PBT (14.16) points to offsets from non-operating items. Depreciation and amortization of 20.17 is modest relative to revenue, consistent with an asset-light model that can exhibit operating leverage as volumes scale. However, incomplete disclosure of operating income prevents precise leverage estimation.

Growth Assessment

revenue_sustainability: Top-line growth of +13.8% YoY is healthy and aligned with secular expansion in payments/commerce enablement and digital investments. The sizable accounts payable (625.32) is consistent with growing settlement volumes underpinning recurring revenue streams. profit_quality: Profit before tax (14.16) trails implied operating profit, and net income (18.41) is supported by a large tax benefit (-38.57) and significant equity-method income (18.21). This mix signals that underlying profit growth is partly non-core and may be volatile. Comprehensive income (19.12) closely tracks net income, indicating limited OCI volatility this quarter. outlook: If revenue momentum persists and SG&A intensity moderates, core profitability should improve. Medium-term growth hinges on transaction volume growth, take-rate stability, and performance of associates; normalization of tax items would likely reduce net margin volatility. Continued capital returns (dividends and buybacks) suggest management confidence, subject to maintaining strong cash generation.

Financial Health

liquidity: Cash and equivalents were 563.54, and operating CF was strong at 212.06. Current assets are 1,444.46, but current liabilities were not disclosed, limiting current/quick ratio assessment. Working capital was listed as 1,444.46, effectively equating to current assets, so actual liquidity buffer versus current liabilities cannot be determined from available data. solvency: Total liabilities were 1,486.49 against equity of 775.07 (equity ratio 34.2%). Debt-to-equity is 1.92x, but without an interest-bearing debt breakdown, leverage quality cannot be fully assessed. Large accounts payable (625.32) likely reflect settlement flows rather than financial debt, suggesting lower structural solvency risk than headline leverage implies. capital_structure: Equity totals 775.07, with retained earnings of 662.96 and capital surplus of 52.29, indicating an equity base built from cumulative profits. Treasury share activity is notable (1.81 million shares held), and share repurchases of -45.12 in the period reduced float. Interest-bearing debt was unreported; thus, net cash/debt status cannot be determined.

Cash Flow Quality

earnings_quality: OCF of 212.06 versus net income of 18.41 (OCF/NI 11.52x) indicates strong cash conversion and likely favorable working capital movements typical of settlement businesses. The negative effective tax rate contributed to accounting earnings; cash taxes are not disclosed. FCF_analysis: Free cash flow of 151.26 aligns with OCF 212.06 plus investing CF -60.80, indicating meaningful discretionary cash after investments. Capex was modest at -2.99, consistent with an asset-light model; the bulk of investing CF likely reflects strategic investments and securities activity. working_capital: Accounts receivable were 305.38 and accounts payable 625.32, consistent with scale in payment processing flows. Inventory is de minimis at 3.76, fitting the business model. The magnitude and timing of settlement-related receivables/payables can drive quarter-to-quarter cash flow volatility.

Dividend Sustainability

payout_ratio_assessment: The calculated payout ratio is 137.3%, above 100%, which, together with NI of 18.41, suggests dividends (and possibly buybacks) exceeded period earnings on a reported EPS basis. Cash dividends paid were -18.93, roughly 103% of net income, but period-to-period payout can be skewed by tax credits and non-controlling interests. FCF_coverage: FCF coverage was reported at 5.98x, indicating dividends were well covered by free cash flow in the period. Using disclosed cash dividends (-18.93) versus FCF (151.26) also implies comfortable coverage. policy_outlook: With strong OCF and modest capex, the company appears capable of maintaining dividends and opportunistic buybacks, contingent on sustaining cash generation and absent a sharp downturn in associates’ contributions. However, if tax effects normalize and equity-method income moderates, payout ratios could rise unless core earnings accelerate.

Risk Assessment

Business Risks:

• Reliance on associates/JVs (equity-method income of 18.21 materially supports earnings)
• Payments/settlement exposure to take-rate pressure and competitive dynamics
• Regulatory and compliance risks in payment processing and data security
• Technology and cyber risks impacting platform reliability
• Customer concentration and merchant churn risk in PSP/marketing services
• Execution risk in new investments and incubation activities

Financial Risks:

• Earnings volatility from tax credits/deferred tax adjustments (effective tax rate -272.4%)
• Balance sheet leverage appears high on headline (D/E 1.92x) though composition likely non-interest-bearing
• Fair value and impairment risk on investment securities and associates (IFRS measurement volatility)
• Working capital swings tied to settlement receivables/payables can drive cash flow variability
• Potential mismatch between accounting earnings and cash returns if equity-method income softens

Key Concerns:

• Sustainability of net margin given reliance on tax benefits in the period
• Gap between implied operating profit and PBT indicating non-operating drags
• Dependence on equity-method income to support bottom line
• Limited disclosure of current liabilities and interest-bearing debt hindering leverage and liquidity analysis

Investment Implications

Key Takeaways:

• Top-line growth is solid at +13.8% YoY with signs of operating scale but incomplete disclosure of operating income.
• Calculated ROE is modest at 2.4% due to low asset turnover and moderate leverage.
• Net income was supported by a large tax benefit and equity-method gains, raising questions on repeatability.
• Cash generation is strong (OCF 212.06; FCF 151.26) with ample coverage for dividends and buybacks.
• Balance sheet headline leverage (D/E 1.92x) likely reflects settlement liabilities rather than interest-bearing debt.
• Capital returns were active (dividends -18.93; buybacks -45.12) within strong FCF capacity.

Metrics to Watch:

• Disclosed operating income and operating margin (when available) versus implied levels
• Transaction volume growth and take rate in the payments segment
• Equity-method income trend and concentration by associate
• Effective tax rate normalization and cash tax outflow
• Settlement-related receivables/payables and their impact on OCF
• Capital allocation mix between investments, dividends, and buybacks

Relative Positioning: Positioned as a hybrid of payments/commerce enablement and strategic investments, Digital Garage benefits from secular growth in digital transactions and an asset-light model, but shows lower ROE and greater earnings mix complexity versus pure-play PSPs given reliance on equity-method income and tax effects.

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