ZUKEN INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.45B
• Operating Income: ¥2.37B
• Net Income: ¥1.65B
• 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

Zuken (6947) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth with stronger bottom-line expansion, supported by high gross margins and solid cash generation. Revenue rose 2.0% YoY to ¥19.45bn, while operating income increased 2.1% to ¥2.37bn, indicating stable operating leverage. Net income jumped 28.7% to ¥2.10bn, outpacing operating profit due to favorable non-operating items, as ordinary income (¥2.96bn) exceeded operating income by approximately ¥0.59bn. Gross margin remained very high at 68.6%, consistent with a software/license-heavy mix and disciplined cost of sales. Operating margin was approximately 12.2%, marking stable profitability in a slow-growth environment. The DuPont profile shows a net margin of 10.77%, asset turnover of 0.307x, and financial leverage of 1.60x, yielding a calculated ROE of 5.27%, in line with the reported figure. Liquidity is strong with a current ratio of 250% and working capital of ¥29.12bn, providing ample buffer for operations and investment needs. The reported equity ratio metric is shown as 0.0% but appears misreported; based on the balance sheet, equity is ¥39.76bn against total assets of ¥63.41bn, implying an equity ratio of roughly 62.7%. Cash generation is healthy, with operating cash flow of ¥2.73bn exceeding net income (OCF/NI ~1.31x), indicating good earnings quality and limited accrual build-up. Financing cash outflows of ¥1.96bn suggest capital returns and/or debt repayments; however, dividends are shown as zero and not disclosed, so the composition of outflows cannot be confirmed. Interest coverage is exceptionally high (over 1,300x), reflecting minimal interest burden and conservative leverage. Asset turnover is relatively low, typical for enterprise software/EDA businesses with substantial cash and short-term assets, constraining ROE despite robust margins. Tax expense of ¥0.84bn is consistent with an implied effective rate in the high-20% range, despite a reported metric of 0.0% (likely a data limitation). Several key metrics (equity ratio, DPS, cash and equivalents, investing cash flow, share counts) are either missing or reported as zero; these are treated as undisclosed rather than actual zeros. Overall, Zuken demonstrates resilient profitability, strong liquidity, and solid cash conversion, but slower revenue growth and low asset turnover keep ROE moderate. The outlook hinges on sustaining license/maintenance growth, converting pipeline into orders, and balancing investment in product development with operating margin stability.

Profitability Analysis

ROE decomposition indicates margin-driven returns rather than leverage: Net Profit Margin 10.77% × Asset Turnover 0.307 × Financial Leverage 1.60 = ROE 5.27%. Operating margin is about 12.2% (¥2.371bn/¥19.454bn), and ordinary margin is approximately 15.2% (¥2.958bn/¥19.454bn), showing a meaningful non-operating contribution. Gross margin of 68.6% underscores a high-value software/services mix and disciplined delivery costs. EBITDA was ¥2.796bn, with an EBITDA margin of 14.4%; D&A of ¥0.425bn implies modest capital intensity relative to sales. Operating leverage in the quarter appears neutral to slightly positive: operating income growth (+2.1% YoY) roughly matched revenue growth (+2.0% YoY), suggesting cost base moved proportionally with sales. The spread between ordinary and operating income (~¥0.59bn) likely reflects financial income or equity-method gains, which are accretive but may be less repeatable. Interest expense is minimal at ¥1.76m, supporting an interest coverage of over 1,300x and highlighting negligible financial drag. Overall margin quality is sound, but the reliance on non-operating gains in the period elevated net profit growth versus operating profit growth, which should be monitored for sustainability.

Growth Assessment

Revenue growth of 2.0% YoY indicates steady but modest expansion, likely driven by maintenance/recurring revenue and incremental license/services activity. Operating income growth of 2.1% is consistent with stable operating leverage, suggesting limited incremental margin expansion at current scale. Net income growth of 28.7% was amplified by non-operating gains, as evidenced by ordinary income comfortably exceeding operating income; this component may be volatile. With gross margins at 68.6%, the business retains capacity to reinvest in R&D and go-to-market while preserving profitability. Asset turnover at 0.307x (on reported figures) is low and likely reflects cash-rich, working-capital-light characteristics typical of software/EDA firms; this structurally caps ROE without higher growth or buybacks. Outlook depends on sustaining backlog conversion, new license wins, and recurring revenue retention; macro sensitivity to manufacturing and electronics design cycles remains a factor. Without disclosed order backlog or ARR/maintenance mix, the durability of revenue growth cannot be fully assessed. The quarter’s growth quality is acceptable, with operating profit tracking sales and cash flow exceeding earnings, but the outsized contribution from non-operating items tempers visibility on earnings trajectory.

Financial Health

Liquidity is strong: current assets of ¥48.50bn versus current liabilities of ¥19.38bn yield a current ratio of 250.2% and quick ratio of 247.9%. Working capital stands at ¥29.12bn, providing a substantial operating cushion. Solvency is robust: total equity is ¥39.76bn against total assets of ¥63.41bn, implying an equity ratio of roughly 62.7% (reported 0.0% is a data gap). The provided debt-to-equity ratio of 0.59x appears to reflect total liabilities-to-equity (¥23.33bn/¥39.76bn) rather than interest-bearing debt; actual net debt is not disclosed due to cash and debt details not being provided. Interest expense is negligible at ¥1.76m, confirming low financial risk and substantial capacity to absorb shocks. Balance sheet quality is characterized by high current assets and low inventories (¥0.45bn), consistent with a software-centric model. Absent detailed breakdowns of interest-bearing debt and cash, net cash position cannot be confirmed, but indications point to conservative leverage.

Cash Flow Quality

Operating cash flow was ¥2.735bn, exceeding net income of ¥2.095bn (OCF/NI 1.31x), indicating solid earnings quality with positive working capital effects and appropriate non-cash add-backs (D&A ¥0.425bn). The strong OCF suggests limited accrual risk in the period and effective collections. Free cash flow cannot be determined because investing cash flow is undisclosed (reported as zero), and capex is not provided. Financing cash outflow of ¥1.955bn implies distributions to shareholders and/or debt service, but the split between dividends, buybacks, and repayments is not disclosed. Working capital appears well-managed given low inventories and strong liquidity, though receivables and deferred revenue details are not provided; changes in these components could have driven the OCF outperformance versus NI. Overall, cash conversion is healthy, but the absence of investing cash flow and cash balance data limits full FCF assessment.

Dividend Sustainability

Dividend data are not disclosed (DPS and payout ratio are shown as zero due to non-reporting). Therefore, payout ratio assessment and FCF coverage cannot be calculated from this dataset. Financing outflows of ¥1.955bn could indicate cash returns to shareholders, but without DPS or buyback disclosures the sustainability of such returns cannot be confirmed. Underlying capacity to pay appears supported by: (1) NI of ¥2.095bn, (2) OCF of ¥2.735bn, and (3) a strong balance sheet. However, absent investing cash flow (capex/M&A) and cash-on-hand figures, we cannot evaluate coverage of dividends against FCF or quantify headroom under potential investment needs. Company policy outlook on shareholder returns is not provided in this snapshot.

Risk Assessment

Business Risks:

• Exposure to electronics design cycles and capital spending by manufacturing customers, affecting licenses and services demand
• Potential volatility in non-operating income that lifted ordinary income above operating income this period
• Competitive pressures in EDA/PLM/software tooling potentially compressing pricing and margins
• Execution risk in product development and maintaining high gross margins amid increased service delivery or cloud costs
• Foreign exchange sensitivity if a material portion of revenue/costs is denominated in foreign currencies
• Customer concentration risk typical in enterprise software for manufacturing verticals
• Transition risk if shifting toward subscription/SaaS models affects revenue recognition and working capital

Financial Risks:

• Limited transparency on net cash/debt due to undisclosed cash and investing cash flows
• Potential for lower cash conversion if receivables or deferred revenue trends reverse
• Uncertainty around the size and sustainability of shareholder returns given undisclosed DPS/buybacks
• Dependence on non-operating gains for part of earnings growth in the period

Key Concerns:

• Low asset turnover constraining ROE despite high margins
• Earnings outperformance versus operating profit driven by non-operating items
• Missing disclosures (equity ratio, DPS, cash and investing CF) limiting full assessment

Investment Implications

Key Takeaways:

• Stable topline growth (+2.0% YoY) with steady operating margin (~12.2%) and very high gross margin (68.6%)
• Net income growth (+28.7% YoY) benefitted from non-operating items as ordinary income exceeded operating income by ~¥0.59bn
• Strong liquidity (current ratio ~250%) and implied equity ratio ~63% indicate low balance sheet risk
• Cash generation is solid (OCF/NI 1.31x), supporting earnings quality
• ROE at 5.27% is margin-driven but capped by low asset turnover (0.307x) and modest leverage (1.60x)
• Key disclosures on investing CF, cash balance, and dividends are absent; treat reported zeros as undisclosed

Metrics to Watch:

• Order backlog and recurring revenue (maintenance/SaaS) ratio to assess growth durability
• Ordinary vs operating income gap to gauge reliance on non-operating gains
• Effective tax rate normalization versus historical averages
• Investing cash flow and capex intensity to refine FCF
• Accounts receivable days and deferred revenue trends to monitor cash conversion
• Shareholder returns (DPS, buybacks) and changes in capital policy
• Asset turnover progression and utilization of cash to enhance ROE

Relative Positioning: Within Japanese EDA/engineering software peers, Zuken exhibits above-average gross margins, conservative leverage, and strong liquidity, but demonstrates modest revenue growth and ROE constrained by low asset turnover; sustained recurring revenue growth and disciplined capital allocation will be key to improving returns.

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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