Business Engineering Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.28B
• Operating Income: ¥3.37B
• Net Income: ¥2.49B
• EPS: ¥207.92

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

Verdict: A strong FY2026 Q2 with double-digit top-line growth and outsized profit expansion, underpinned by margin gains and solid cash conversion. Revenue rose 21.7% YoY to 122.8, while operating income increased 39.4% YoY to 33.7 and net income climbed 50.2% YoY to 24.89. Operating margin expanded to 27.4%, up approximately 348 bps from an estimated 24.0% in the prior-year quarter. Net margin improved to 20.3%, up roughly 385 bps from an estimated 16.4% a year ago. Gross margin printed at a healthy 45.8%, indicating effective project/pricing mix and cost control. Ordinary income rose 39.6% to 33.92, with non-operating items small and largely dividend income (0.31). Earnings quality is solid: operating cash flow of 28.42 exceeded net income (OCF/NI = 1.14x), reducing concerns about accrual-driven profits. The balance sheet remains conservative with cash and deposits of 112.35, current ratio of 293.7%, and minimal debt (short-term loans 1.00). Effective tax rate was 31.4%, broadly consistent with domestic norms. DuPont analysis shows ROE of 16.6% driven by high net margin (20.3%), reasonable asset turnover (0.59x), and modest leverage (1.39x). Working capital discipline appears sound given high cash and moderate receivables (49.34). Financing cash outflow of -7.99 likely reflects dividends (exact dividend cash flow unreported) with a calculated payout ratio of 48.2%, suggesting prudence. Capex was light at 0.21, supporting FCF generation, though full investing CF was unreported. Forward-looking, the widened margins and strong cash position provide capacity for continued investment in talent and products while sustaining shareholder returns. Key watch items include demand visibility for ERP-related projects, wage inflation pressure on SG&A, and the durability of high mix-driven margins.

Profitability Analysis

ROE decomposition (DuPont): ROE 16.6% = Net Profit Margin (20.3%) × Asset Turnover (0.590x) × Financial Leverage (1.39x). The most material driver this quarter is the expansion in net profit margin, which rose about 385 bps YoY (to 20.3%), outpacing changes in turnover or leverage. Business rationale: higher-value project mix, improved delivery efficiency, and operating leverage from revenue growth drove operating margin up ~348 bps to 27.4%, and low non-operating drag supported bottom line flow-through. Asset turnover at 0.59x reflects healthy utilization on a cash-rich balance sheet; leverage remains modest with equity financing the bulk of assets. Sustainability: Margin gains look partly structural (scale benefits, mix shift) but may have a cyclical component tied to project timing and milestone recognition; we treat the full magnitude as partially sustainable. No evidence of deleveraging/releveraging as a profit driver; leverage is stable and conservative. A potential concern is that wage inflation and hiring to support growth could push SG&A up; however, we lack a disclosed SG&A YoY comparison to confirm whether SG&A growth exceeded revenue growth.

Growth Assessment

Top-line growth of 21.7% YoY to 122.8 indicates robust demand in core businesses. Operating income growth of 39.4% outpaced revenue, evidencing operating leverage and improved mix. Net income rose 50.2%, further supported by a relatively stable non-operating line and tax normalization. The breadth of growth appears quality-driven given gross margin at 45.8% and limited reliance on non-operating gains (non-operating income ratio ~1.3%). Revenue sustainability hinges on continued ERP/IT transformation demand and timely project execution; backlog trends were not disclosed, so forward visibility is not fully assessable. With cash-rich balance sheet, the company can invest in capacity and solutions to sustain growth. The effective tax rate at 31.4% suggests limited one-time tax benefits inflated earnings. Outlook: If demand remains solid and execution holds, mid-teens ROE can be maintained; upside or downside will track project intake, pricing, and talent cost trends.

Financial Health

Liquidity is very strong: current ratio 293.7% and quick ratio 293.7% (no inventory reported), with cash and deposits of 112.35 versus current liabilities of 57.59. No warning on current ratio (<1.0) or D/E (>2.0); the reported debt-to-equity ratio of 0.39x (based on total liabilities to equity) indicates a conservative structure, and interest-bearing debt is de minimis (short-term loans 1.00). Interest coverage is exceptionally high at 1,926.8x, reflecting minimal interest expense (0.02). Maturity mismatch risk is low given cash far exceeds short-term borrowings and accounts payable (3.64). Noncurrent liabilities are only 0.47, implying limited long-dated obligations. Off-balance sheet commitments were not disclosed; no data to assess lease or service guarantees. Equity stands at 149.97 with retained earnings of 138.28, supporting resilience.

Cash Flow Quality

OCF/Net Income at 1.14x indicates healthy earnings quality with cash conversion exceeding net profit. Operating CF of 28.42 covers modest capex (0.21) comfortably; while full investing CF is unreported, a proxy FCF of roughly 28.21 can be inferred using capex alone (caveat: excludes other investing flows). Working capital appears well-managed given strong cash and moderate receivables; however, detailed drivers (DSO/DPO) are not disclosed, limiting deeper diagnostics. No signs of aggressive working capital manipulation based on available data. With financing CF at -7.99 (likely dividends and negligible buybacks), internal cash generation seems ample to fund returns and small-scale investments.

Dividend Sustainability

The calculated payout ratio is 48.2%, within a sustainable range (<60%). Although DPS and total dividends paid are unreported, financing CF outflow of -7.99 is consistent with ongoing shareholder returns. On a proxy basis, OCF (~28.42) more than covers typical dividend needs and minimal capex (0.21), implying strong coverage. Large cash reserves (112.35) provide an additional buffer for stability through cycles. Policy details were not disclosed; absent guidance, we assume a stable-to-progressive stance is feasible given earnings and cash generation. Key watch items: visibility on full investing CF, any step-up in capex or M&A, and payout adjustments aligned with profit trajectory.

Risk Assessment

Business Risks:

• Project execution and timing risk affecting revenue recognition and margins
• Talent acquisition and wage inflation pressure increasing SG&A and delivery costs
• Customer IT budget cyclicality impacting new bookings and upgrades
• Vendor/partner ecosystem changes (e.g., ERP platform roadmaps) affecting pipeline mix

Financial Risks:

• Concentration in receivables (49.34) introduces collection timing risk despite high cash
• Potential hidden investing cash outflows (investing CF unreported) that could reduce FCF
• Tax rate volatility around 31.4% impacting net margins if incentives shift

Key Concerns:

• Sustainability of unusually high operating margin (27.4%) if mix normalizes
• Limited disclosure on SG&A components and investing cash flows constrains visibility
• Dependence on milestone-based revenue recognition leading to quarterly volatility

Investment Implications

Key Takeaways:

• Strong quarter with 21.7% revenue growth and 39.4% operating profit growth
• Material margin expansion: operating margin +348 bps YoY to 27.4%; net margin +385 bps to 20.3%
• High-quality earnings: OCF/NI at 1.14x and minimal interest burden
• Balance sheet strength with cash 112.35 and current ratio ~294%
• ROE at 16.6% supported primarily by margin strength and modest leverage
• Dividend capacity appears robust with a calculated payout of ~48% and ample cash

Metrics to Watch:

• Backlog/bookings growth and conversion to revenue
• Gross and operating margin trajectory (mix and delivery efficiency)
• SG&A growth versus revenue growth (wage inflation impact)
• OCF/NI ratio and full investing cash flow detail
• Receivables trends (DSO) and collection quality

Relative Positioning: Within domestic IT services/ERP integrators, the company exhibits above-peer margins and cash strength, supporting a higher-quality growth profile; key differentiation will hinge on sustaining delivery efficiency and mix while managing talent costs.

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