| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥863.8B | ¥626.9B | +37.8% |
| Operating Income | ¥52.2B | ¥45.1B | +15.9% |
| Ordinary Income | ¥52.2B | ¥44.8B | +16.6% |
| Net Income | ¥43.0B | ¥30.7B | +39.9% |
| ROE | 15.0% | 11.3% | - |
2026 FY Q2 results: Revenue ¥863.8B (YoY +¥236.9B +37.8%), Operating Income ¥52.2B (YoY +¥7.2B +15.9%), Ordinary Income ¥52.2B (YoY +¥7.4B +16.6%), Net Income ¥43.0B (YoY +¥12.3B +39.9%). The Licence & Products segment expanded rapidly with Revenue +54.8%, driving the overall result. However, Operating Margin declined to 6.0% (from 7.2% a year earlier, -1.2pt) and Gross Margin declined to 12.6% (from 14.9%, -2.3pt). Cloud Integration and Cloud Service maintained double-digit growth and high margins (Operating Margin 20.3%, 18.0%), supporting profits. Operating Cash Flow (OCF) was ¥74.1B (YoY +293.3%), 1.7x Net Income, indicating very strong cash generation. Total assets increased to ¥899.8B (prior ¥744.7B), Net Assets to ¥286.3B (prior ¥272.4B), and ROE reached 15.0%.
[Revenue] Revenue ¥863.8B (+37.8%) was led by the Licence & Products segment at ¥586.9B (+54.8%), accounting for 67.9% of total. This segment is mainly license sales and product resale; wins of large deals and customer base expansion contributed. Cloud Integration was ¥160.6B (+13.4%) and Cloud Service ¥117.3B (+10.4%), each sustaining double-digit growth supported by cloud migration demand and expanded sales of security and operations services. Cost of sales rose substantially to ¥755.3B (prior ¥533.4B), reducing Gross Margin to 12.6% (from 14.9%, -2.3pt). The rise in the proportion of low‑margin Licence & Products and pricing competition impacted margins.
[Profitability] Operating Income was ¥52.2B (+15.9%), but the decline in Gross Margin could not be fully offset, compressing Operating Margin to 6.0% (from 7.2%, -1.2pt). SG&A was ¥56.2B (prior ¥48.4B, +16.2%) but SG&A ratio improved to 6.5% (from 7.7%, -1.2pt), reflecting operational leverage from scale. By segment, Cloud Integration posted Operating Income ¥32.5B (+9.1%), margin 20.3%; Cloud Service ¥21.1B (+30.0%), margin 18.0%; Licence & Products ¥17.5B (+16.9%), margin 3.0%. Non-operating items were minor: Non-operating income ¥1.7B (including ¥0.5B FX gains), Non-operating expenses ¥1.8B (including ¥1.2B interest expense), net -¥0.1B. Ordinary Income ¥52.2B (+16.6%). Special gains ¥4.5B (gain on sale of fixed assets) were recorded, bringing Profit Before Tax to ¥56.7B (+26.8%). Income taxes ¥13.8B (effective tax rate 24.3%) were deducted, yielding Net Income ¥43.0B (+39.9%), Net Margin 5.0% (from 4.9%, +0.1pt). In conclusion, the company achieved revenue and profit growth, but Operating Margin retreated due to lower Gross Margin and segment mix.
Cloud Integration: Revenue ¥160.6B (+13.4%), Operating Income ¥32.5B (+9.1%), Operating Margin 20.3%. Strong demand for cloud migration projects and operations design, with margin maintenance via workforce utilization management. Cloud Service: Revenue ¥117.3B (+10.4%), Operating Income ¥21.1B (+30.0%), Operating Margin 18.0%. Expansion of security and managed services contributed to margin improvement. Licence & Products: Revenue ¥586.9B (+54.8%), Operating Income ¥17.5B (+16.9%), Operating Margin 3.0%. Large license wins drove significant Revenue growth, but resale structure with low Gross Margin limited profitability. Licence & Products accounts for 67.9% of Revenue, diluting consolidated Gross Margin. Increasing the composition of high‑margin Cloud Integration and Cloud Service is key to medium‑term profitability improvement.
[Profitability] Operating Margin 6.0% (from 7.2%, -1.2pt), Net Margin 5.0% (from 4.9%, +0.1pt). ROE 15.0%, decomposed as Net Margin 4.9% × Total Asset Turnover 0.96x × Financial Leverage 3.14x. Gross Margin 12.6% down from 14.9% (-2.3pt), reflecting the higher Licence & Products mix. [Cash Quality] OCF ¥74.1B is 1.7x Net Income ¥43.0B, OCF/EBITDA ratio 1.28x, accrual ratio -3.5% — indicating good quality of earnings. Days Sales Outstanding (DSO) 185 days, extended +34 days from 151 days LY, indicating longer collection terms. [Investment Efficiency] Total Asset Turnover 0.96x (from 0.84x) improved with Revenue growth. Free Cash Flow ¥74.5B as Investing CF was minimal (net ¥0.3B), with Operating CF largely converting to Free CF. [Financial Soundness] Equity Ratio 31.8% (from 36.6%, -4.8pt), D/E ratio 2.14x (from 1.73x) — leverage rose somewhat. Current Ratio 119.6%, Quick Ratio 117.3% — short-term liquidity acceptable, but Cash/short-term debt ratio 0.77x suggests attention to short-term funding coverage. Debt/EBITDA 3.26x and Interest Coverage 44.7x indicate very strong interest‑paying capacity.
Operating Cash Flow was ¥74.1B (prior ¥18.9B, +293.3%), securing 1.7x Net Income. Subtotal of OCF (before working capital changes) was ¥85.8B; working capital changes included increase in trade receivables -¥162.9B, increase in inventories -¥4.3B, increase in trade payables +¥184.4B, decrease in contract liabilities -¥8.4B, other working capital +¥4.5B, net contributing +¥13.3B. The sharp rise in trade payables (prior ¥90.3B → ¥274.7B, +204.2%) significantly boosted OCF, but the large increase in trade receivables also raises concerns with DSO at 185 days. Corporate tax paid ¥10.8B, interest & dividends received ¥0.3B, interest paid ¥1.2B — all minor. Investing CF was ¥0.3B, with proceeds from sale of fixed assets ¥11.6B exceeding acquisition spending ¥10.1B. Free Cash Flow ¥74.5B is ample, covering dividends ¥10.96B and share buybacks ¥20.2B total return ¥31.2B. Financing CF was -¥54.1B, with repayment of short-term borrowings ¥23.0B, long-term borrowings raised ¥10.5B and repaid ¥12.3B, share buybacks ¥20.2B, and dividends ¥10.96B as main items. Cash increased by ¥20.6B during the period to ¥50.0B at period end. Future OCF volatility will depend on reversal of trade payables and progress in trade receivable collections.
Most of Ordinary Income ¥52.2B derives from Operating Income ¥52.2B; non-operating net -¥0.1B is minor, indicating operating earnings predominate. Non-operating income ¥1.7B includes ¥0.5B FX gains; non-operating expenses ¥1.8B include ¥1.2B interest expense and ¥0.4B fees — all recurring items related to business activities. Special gains ¥4.5B (gain on sale of fixed assets) are one-off but modest at 8.0% of Profit Before Tax ¥56.7B, not materially distorting Net Income ¥43.0B. OCF at 1.7x Net Income, OCF/EBITDA 1.28x, and accrual ratio -3.5% corroborate high earnings quality. However, the large increase in trade payables (+¥184.4B) provided a temporary working capital tailwind, and potential reversal warrants caution. The gap between Ordinary Income ¥52.2B and Net Income ¥43.0B (-17.6%) is due to income taxes ¥13.8B (effective tax rate 24.3%) and non-controlling interests ¥0.2B, not structural factors.
Full Year forecast: Revenue ¥2,165.0B (YoY +25.4%), Operating Income ¥91.0B (YoY +19.8%), Ordinary Income ¥90.0B (YoY +22.1%), Net Income ¥70.0B (EPS forecast ¥155.4). Progress at Q2 cumulative: Revenue 39.9% (standard 50% base -10.1pt), Operating Income 57.4% (+7.4pt vs standard), Ordinary Income 58.0% (+8.0pt), Net Income 61.0% (+11.0pt). The lag in Revenue progress is attributed to timing of license deal recognition in Licence & Products and seasonality, while profit progress is ahead driven by maintained high margins in Cloud Integration/Service and cost efficiencies. Key to achieving full year targets will be timing of large license deal recognition in H2 and improving mix toward higher value-added services. Guidance and dividend forecasts were revised during the period, possibly reflecting upside in results.
An interim dividend of ¥22 per share was paid; full year dividend forecast is ¥28 (prior year ¥17, +¥11 +64.7%). The implied payout ratio on Q2 cumulative Net Income ¥43.0B with interim dividend total ¥10.96B is approximately 25.5%, indicating conservatism. Dividend coverage by Free Cash Flow (¥74.5B) is 6.8x, showing ample sustainability. The company conducted share buybacks of ¥20.2B during the period; combined with dividends ¥10.96B, total return ¥31.2B equals about 72.6% of Net Income and about 41.9% of Free Cash Flow. Free Cash Flow covers total return 2.4x, and cash increased to ¥50.0B, indicating sufficient capacity for shareholder distributions. Progress against the full year dividend forecast ¥28 shows interim ¥22 is 78.6% of forecast, suggesting stable dividends likely in H2.
Segment mix risk: Licence & Products comprises 67.9% of Revenue and has a low margin structure (Operating Margin 3.0%). This dilutes Gross Margin to 12.6%; if the high share of this segment persists, structural improvement in consolidated profitability may be delayed. Accelerating growth and raising the proportion of Cloud Integration/Service is essential, but personnel recruitment, training, and utilization management are challenges.
Working capital management risk: Trade receivables ¥436.9B (48.6% of total assets), DSO 185 days (up +34 days) indicate lengthening collections. The sharp increase in trade payables (+¥184.4B, +204.2%) temporarily boosted OCF, but if a reversal occurs, liquidity could deteriorate rapidly. Cash/short-term debt ratio 0.77x limits short-term buffer; changes in trading terms or customer payment delays could heighten liquidity risk.
Leverage and financial flexibility: D/E ratio 2.14x and Debt/EBITDA 3.26x imply moderately high leverage; in a downturn simultaneous profit declines and debt servicing could pose strain. Short-term borrowings ¥65.0B and current portion of long-term debt ¥23.2B combine for short-term debt ratio 34.4%; insufficient maturity‑mismatch management could crystallize refinancing risk. Interest Coverage 44.7x shows robust interest‑paying capacity, but for variable‑rate debt interest rate rises pose a risk.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.0% | 14.0% (3.8%–18.5%) | -7.9pt |
| Net Margin | 5.0% | 9.2% (1.1%–14.0%) | -4.3pt |
Profitability is substantially below industry median, affected by the low‑margin Licence & Products focus.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 37.8% | 21.0% (15.5%–26.8%) | +16.8pt |
Revenue growth outpaces industry median significantly, placing the company among the top in topline expansion.
※ Source: Company aggregation
Topline growth and expansion of high‑margin segments: Revenue +37.8% significantly outperformed industry average; Cloud Integration/Service maintained double-digit growth and high margins (Operating Margin 20.3%, 18.0%). Although Licence & Products at 67.9% dilutes Gross Margin structurally, increasing Cloud mix could improve Operating Margin over the medium term. Revenue progress vs full year forecast is 39.9% (some delay), but profit progress is front‑loaded (Operating 57.4%, Net 61.0%); recognition timing of large H2 license deals and continued efficiency gains make full year targets achievable.
Cash generation and shareholder return capacity: OCF ¥74.1B is 1.7x Net Income, OCF/EBITDA 1.28x, accrual ratio -3.5% — indicating high earnings quality. Free Cash Flow ¥74.5B covers dividends ¥10.96B and buybacks ¥20.2B (total return ¥31.2B) with 2.4x coverage, and cash rose to ¥50.0B. Full year dividend forecast ¥28 (from ¥17, +64.7%) is well covered, leaving room for further increases in dividends or total return. Note that the spike in trade payables (+¥184.4B) provided a temporary tailwind; potential reversal could affect OCF.
Financial soundness and efficiency challenges: D/E ratio 2.14x and Debt/EBITDA 3.26x indicate relatively high leverage but Interest Coverage 44.7x shows very strong interest capacity. DSO 185 days (from 151, +34 days) and worsening trade receivables turnover, together with Cash/short-term debt ratio 0.77x, are concerns. Improving working capital (stronger receivables collection, normalization of payables, inventory optimization) and compressing short-term debt would enhance cash generation and creditworthiness. Medium term, monitoring the uplift in Cloud Integration/Service mix to improve Gross Margin and reducing leverage to secure financial flexibility are key.
This report is an AI‑generated earnings analysis created by analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your responsibility; consult a professional advisor as necessary.