ZUKEN INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.45B
• Operating Income: ¥2.37B
• Net Income: ¥2.10B
• EPS: ¥97.37

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

Verdict: A solid but margin-stable quarter, with ordinary and net income leveraging non-operating gains to outgrow modest top-line expansion. Revenue grew 2.0% YoY to 194.54, while operating income increased 2.1% YoY to 23.71, indicating essentially flat operating leverage. Ordinary income rose 19.1% YoY to 29.58, aided by non-operating income of 6.01 (notably interest income of 0.47 and dividend income of 0.27), which amplified profit growth beyond operating trends. Net income increased 28.7% YoY to 20.95, with an effective tax rate of 29.2% (8.62/29.58). Gross margin printed at a high 69.8% (135.82/194.54), and operating margin settled around 12.2% (23.71/194.54), implying operating margin was essentially flat to slightly higher YoY (low single-digit bps expansion given operating profit (+2.1%) was marginally above revenue (+2.0%)). EBITDA was 27.94 with a 14.4% margin, reinforcing healthy underlying profitability. ROE calculated by DuPont stands at 5.3% (Net margin 10.8% × Asset turnover 0.307 × Leverage 1.60x), a modest return profile versus the reported ROIC of 13.9% (suggesting a strong return on operating capital but a drag from low asset turnover). Cash generation was sound: operating cash flow of 22.15 exceeded net income (OCF/NI 1.06x), indicating acceptable earnings quality this quarter. Liquidity remains very strong with a current ratio of 245% and quick ratio of 240.8%, backed by cash and deposits of 276.83. Leverage is conservative with total liabilities/equity of 0.60x and minimal interest burden (interest expense 0.01; coverage 1,711.9x). Capital allocation was active, with share repurchases of 16.14 and capex of 2.52 funded comfortably from OCF and existing cash. The reported payout ratio of 106.2% appears elevated; however, dividend details are unreported and buybacks likely explain most of the cash return. Non-operating income accounted for a notable share of ordinary income (non-operating income ratio 28.7%), which turbo-charged YoY profit growth but may be less repeatable. Overall, fundamentals are resilient with high margins and strong liquidity, but ROE remains subdued due to low asset turnover, and earnings growth relied partially on non-operating items. Forward-looking, sustaining profit growth will likely depend on operating margin discipline and revenue acceleration, with careful monitoring of non-operating gains’ repeatability.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.3% = Net Profit Margin (10.8%) × Asset Turnover (0.307) × Financial Leverage (1.60x). The constraining factor is low asset turnover at 0.307, which materially drags overall ROE despite high gross margins. Net margin is healthy at 10.8%, underpinned by a 69.8% gross margin and a roughly 12.2% operating margin; however, ordinary and net profit growth outpaced operating profit primarily due to higher non-operating income (6.01). Financial leverage is conservative at 1.60x (Assets/Equity), contributing modestly to ROE. The component that changed most versus revenue growth is the non-operating layer, which lifted ordinary income +19.1% YoY versus operating income +2.1%—indicating a mix shift in profit composition. Business reason: increased financial income (interest 0.47, dividends 0.27) and likely other non-operating gains (unspecified) supported ordinary income. Sustainability: core operating margins appear stable, while the non-operating uplift is more volatile and may normalize. SG&A intensity is high at 57.6% of sales (112.11/194.54); without YoY SG&A disclosure, we cannot confirm whether SG&A grew faster than revenue, but operating leverage appears minimal given operating income rose only in line with sales.

Growth Assessment

Top line grew modestly (+2.0% YoY to 194.54), consistent with stable demand but lacking a strong acceleration signal. Operating profit grew +2.1% to 23.71, suggesting largely flat operating margin dynamics and limited incremental operating leverage. Ordinary income surged +19.1% to 29.58, reflecting a larger contribution from non-operating income (6.01); this is positive for the quarter but not a reliable growth driver structurally. Net income rose +28.7% to 20.95 with a 29.2% effective tax rate, benefiting from the ordinary income uplift. EBITDA of 27.94 (14.4% margin) indicates robust unit economics. With asset turnover at 0.307, scaling revenue is a key lever to lift ROE. Near-term growth sustainability hinges on maintaining the high gross margin and improving sales execution, while investment in product and go-to-market (R&D/SG&A details unreported) should be balanced to protect margins. Non-operating gains may fade; hence core operating growth will be the critical driver into 2H.

Financial Health

Liquidity is strong: current assets 483.55 versus current liabilities 197.33 yield a current ratio of 245% and quick ratio of 240.8%, providing ample working capital (286.22). No warning on current ratio (<1.0) or leverage thresholds: the reported D/E (liabilities/equity) is 0.60x, well below the 2.0x warning level. Interest expense is de minimis (0.01) with interest coverage at 1,711.9x, indicating negligible refinancing pressure. Maturity mismatch risk appears low given the sizable cash and deposits (276.83) relative to current liabilities (197.33). Interest-bearing debt details are unreported, but the balance sheet structure suggests conservative funding. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF of 22.15 exceeded net income of 20.95 (OCF/NI 1.06x), indicating acceptable earnings quality this quarter. While full investing cash flows are unreported, capex was modest at 2.52, implying a proxy FCF (OCF - capex) of about 19.63, which comfortably supports organic reinvestment needs. Financing cash outflows totaled -27.25, including share repurchases of -16.14; dividends are unreported. Working capital specifics (receivables, inventories, payables changes) are not provided, limiting our ability to assess timing-related boosts to OCF; however, the OCF/NI ratio above 1.0 reduces concern about aggressive accruals this period. Sustainability looks reasonable given the high cash balance and modest capex intensity, but reliance on non-operating gains to lift earnings should not be extrapolated.

Dividend Sustainability

The reported payout ratio (calculated) is 106.2%, which is above the <60% benchmark and would be unsustainable if persistent; however, dividend amounts are unreported, and this figure may reflect total cash returns inclusive of buybacks. With proxy FCF around 19.63 this quarter and buybacks of 16.14 already executed, residual FCF headroom for dividends appears limited unless supported by the large cash balance (276.83). Without disclosed dividend payments, FCF coverage of dividends cannot be calculated; therefore, we flag a potential tightness in covering both buybacks and dividends purely from FCF if current run-rates persist. The company’s conservative balance sheet mitigates near-term distribution risk, but a normalized payout ratio closer to earnings/FCF capacity would enhance sustainability.

Risk Assessment

Business Risks:

• Operating income growth closely matched revenue growth (+2.1% vs +2.0%), indicating limited operating leverage if cost inflation persists.
• High SG&A intensity (57.6% of sales) could pressure margins if revenue growth slows.
• Dependence on non-operating income to lift ordinary and net income this quarter (non-operating income 6.01) may not be repeatable.
• Competitive pressures in EDA/software markets could impact pricing and win rates.
• Project timing and license/maintenance mix can cause quarterly volatility.

Financial Risks:

• Payout ratio reported at 106.2% suggests potential over-distribution if it reflects dividends alone (dividend details unreported).
• Simultaneous buybacks (16.14) and dividends (unreported) could exceed FCF (proxy 19.63) if maintained, relying on cash reserves.
• Currency fluctuation risk given likely overseas exposure impacting revenues and non-operating FX-related items.
• Limited disclosure of interest-bearing debt may obscure refinancing or covenant details, though interest expense is minimal.

Key Concerns:

• ROE remains modest at 5.3% due to low asset turnover (0.307), potentially limiting shareholder returns absent revenue acceleration.
• Non-operating income ratio at 28.7% indicates a sizable contribution to ordinary income; a reversal could compress earnings.
• Data gaps (R&D, SG&A breakdown, investing cash flows, dividends) restrict full assessment of cost structure and capital allocation durability.

Investment Implications

Key Takeaways:

• Core operations delivered stable margins with slight operating leverage: revenue +2.0%, operating income +2.1%.
• Ordinary and net income outperformance (+19.1% and +28.7%) stemmed from higher non-operating income.
• Liquidity is very strong (current ratio 245%; cash 276.83) and leverage conservative (0.60x liabilities/equity).
• Earnings quality is acceptable (OCF/NI 1.06x); proxy FCF ~19.63 supports ongoing investment and some shareholder returns.
• ROE at 5.3% is constrained by low asset turnover, despite high gross margins and reported ROIC of 13.9%.
• Cash returns were active (buybacks 16.14); sustainability of total payouts depends on ongoing FCF and cash balance.

Metrics to Watch:

• Operating margin trend (currently ~12.2%) and SG&A ratio (57.6%) for signs of operating leverage.
• Non-operating income trajectory and composition (interest/dividends/FX) given its outsized contribution this quarter (6.01).
• OCF/NI and working capital movements to validate earnings quality (>1.0x target).
• Revenue growth reacceleration to improve asset turnover (0.307) and ROE (5.3%).
• Capital allocation mix between dividends and buybacks versus proxy FCF (~19.63) and cash levels (276.83).

Relative Positioning: Within Japanese software/EDA peers, Zuken exhibits strong gross margins and conservative balance sheet strength, but delivers modest ROE due to low asset turnover. The quarter’s outperformance in ordinary and net income was aided by non-operating gains, highlighting the need for sustained operating growth to differentiate structurally.

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
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