DM Solutions Co.,Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.04B
• Operating Income: ¥256M
• Net Income: ¥203M
• EPS: ¥64.35

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

DM Solutions Co., Ltd. (Consolidated, JGAAP) delivered FY2026 Q2 revenue of ¥11.04bn, up 10.3% YoY, but profits contracted as operating income fell 16.8% to ¥256m. The topline expansion did not translate into margin improvement: operating margin stands at 2.3% and net margin at 1.6%, indicating cost pressure and/or increased operating expenses. Gross profit of ¥1.65bn implies a gross margin of about 15.0%, consistent with the provided metric, but the lower operating margin suggests SG&A inflation or mix shifts. Ordinary income of ¥269m exceeded operating income, implying modest non-operating gains offsetting interest expense of ¥8.76m. Net income was ¥177m (down 12.6% YoY), with EPS of ¥64.35 and an effective tax rate reported at 0.0%, likely reflecting timing items or tax attributes under JGAAP. DuPont analysis shows ROE of 5.16% driven by a 1.60% net margin, 1.402x asset turnover, and 2.29x financial leverage—highlighting that asset efficiency is the key positive, while thin margins cap returns. Liquidity appears adequate: current ratio 148% and quick ratio 135% supported by ¥1.40bn in working capital. The balance sheet indicates total assets of ¥7.88bn and total equity of ¥3.43bn, implying an equity ratio of roughly 43.6% by calculation, though the reported equity ratio field is unfilled. Leverage is moderate with total liabilities/equity of 1.41x and interest coverage strong at 29.2x on an EBIT basis. Operating cash flow was ¥183.8m, slightly above net income (OCF/NI ~1.04x), suggesting reasonable earnings-to-cash conversion; however, the absence of reported investing cash flows prevents a clean free cash flow assessment. EBITDA was approximately ¥346m (3.1% margin), and EBITDA-to-OCF conversion in the period (~53%) hints at some working capital absorption. No dividend is reported for the period (DPS 0), and payout ratio is shown as 0%; this may reflect policy or simply timing, while financing cash outflows of ¥120.4m suggest debt repayment or other financing uses. Overall, the quarter features healthy revenue momentum but margin compression, solid liquidity and coverage, and moderate leverage; the key debate is whether margin headwinds are transient (input costs, project mix) or structural. Data limitations (unreported cash balance, investing cash flows, and share count) constrain depth of cash and per-share analyses; conclusions focus on available non-zero data points.

Profitability Analysis

ROE_decomposition: ROE 5.16% = Net margin 1.60% x Asset turnover 1.402x x Financial leverage 2.29x. Returns are primarily constrained by low net margin; asset utilization is decent, and leverage is moderate. margin_quality: Gross margin 15.0% versus operating margin 2.3% and net margin 1.6% highlight significant SG&A and/or other operating costs. Ordinary margin is about 2.4% (¥269m/¥11,039m), indicating small non-operating uplift. Effective tax rate is 0.0% in the period, likely timing-related. operating_leverage: Revenue grew 10.3% YoY while operating income declined 16.8%, signaling negative operating leverage in the half—cost inflation, mix toward lower-margin services, or higher labor/logistics costs likely outweighed scale benefits. EBITDA margin at 3.1% remains thin, reinforcing sensitivity to cost swings.

Growth Assessment

revenue_sustainability: Topline growth of 10.3% appears robust for the sector; sustainability will depend on order intake in fulfillment/direct mail and digital marketing demand. Asset turnover of 1.402x indicates efficient use of assets to drive sales. profit_quality: Net margin at 1.6% and EBIT margin at 2.3% show limited pricing power and/or elevated cost base. Ordinary income exceeding operating income suggests some reliance on non-operating items, though the delta is small (¥13m). outlook: To translate growth into earnings, management will need to mitigate COGS pressure and rein in SG&A. Key watchpoints are paper/logistics costs, labor utilization in fulfillment operations, and client mix. If input costs normalize and utilization improves, margins can revert; otherwise, ROE may remain mid-single digits.

Financial Health

liquidity: Current ratio 147.6% and quick ratio 135.3% indicate comfortable short-term liquidity. Working capital totals ¥1,400m, with inventories at ¥361m suggesting some inventory intensity but likely manageable. solvency: Total liabilities/equity of 1.41x reflects moderate leverage. Interest expense is modest (¥8.76m) and well covered (EBIT/interest ~29.2x), limiting near-term solvency risk. capital_structure: Total assets ¥7,875m and total equity ¥3,432m imply an equity ratio near 43.6% (computed), despite the unreported equity ratio field. Financing CF was a ¥120m outflow, indicating some deleveraging or other financing uses.

Cash Flow Quality

earnings_quality: OCF of ¥183.8m versus NI of ¥177.0m yields OCF/NI of ~1.04x, indicating reasonable accrual quality. EBITDA of ¥346.3m versus OCF implies a ~53% conversion in the period, suggesting working capital needs absorbed cash. FCF_analysis: Investing cash flows are unreported (shown as 0), so free cash flow cannot be reliably calculated; reported FCF as 0 should be treated as data unavailability rather than true zero. working_capital: With current assets of ¥4,341m and current liabilities of ¥2,941m, the company maintains a liquidity cushion. The period’s OCF profile suggests some build in receivables or inventory or timing of payables; detailed drivers are not disclosed.

Dividend Sustainability

payout_ratio_assessment: DPS is shown as 0.00 and payout ratio as 0.0%, which may reflect no dividend for the period or incomplete disclosure. With NI positive and OCF approximating NI, the capacity to pay a dividend exists in principle, but policy is unclear from the data. FCF_coverage: FCF coverage cannot be assessed due to unreported investing cash flows; any ratio using FCF=0 would be misleading. Financing outflows of ¥120m may indicate priority to debt service or other uses over distributions. policy_outlook: Given modest ROE (5.16%) and low margins, reinvestment to strengthen operations may be prioritized. Absent clear guidance, assume a conservative stance on dividends until profitability improves or cash generation is evidenced with full cash flow disclosure.

Risk Assessment

Business Risks:

• Input cost volatility (paper, postage, logistics) compressing gross margins
• Labor cost inflation and utilization risk in fulfillment/operations
• Client budget cyclicality in marketing and direct mail impacting volumes
• Competitive pricing pressure in direct marketing and e-commerce support services
• Project/service mix shifts toward lower-margin offerings

Financial Risks:

• Working capital intensity leading to cash conversion variability
• Exposure to interest rate changes (though current interest burden is small)
• Potential customer concentration risk affecting receivables and revenue stability
• Limited margin buffer; small shocks can disproportionately impact earnings

Key Concerns:

• Negative operating leverage despite double-digit revenue growth
• Thin EBITDA and operating margins limiting shock absorption
• Unreported cash and investing cash flows reduce visibility on true FCF and liquidity headroom

Investment Implications

Key Takeaways:

• Solid revenue growth (+10.3% YoY) but weaker profitability (OP -16.8% YoY)
• ROE at 5.16% constrained by low net margin despite decent asset turnover
• Liquidity sound (current ratio 148%, quick 135%); leverage moderate (D/E 1.41x)
• Interest coverage strong (29.2x), limiting near-term financial stress
• Cash conversion reasonable (OCF/NI ~1.04x) but working capital absorbed cash
• Free cash flow unassessable due to unreported investing CF
• Dividend not indicated in the period; capital allocation skewed to financing outflows

Metrics to Watch:

• Operating margin and EBITDA margin trajectory
• Gross margin vs. paper/logistics cost trends
• OCF and working capital movements (DSO/DPO/DIO if disclosed)
• Capex and investing cash flows to gauge FCF
• Order backlog and client mix to assess revenue sustainability
• Leverage (liabilities/equity) and interest coverage
• Tax rate normalization from the current 0.0% effective rate

Relative Positioning: Within Japanese marketing services/fulfillment peers, the company shows above-trend revenue growth but operates with thinner margins and mid-single-digit ROE; balance sheet strength and coverage are reasonable, positioning it as operationally efficient on asset turnover but vulnerable to cost inflation and mix.

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