Forum Engineering Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.48B
• Operating Income: ¥2.43B
• Net Income: ¥1.64B
• EPS: ¥31.62

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 quarter with double-digit profit growth and margin expansion, tempered by weaker cash conversion and a high payout indication. Revenue rose 9.0% YoY to 184.8, while operating income grew faster at 19.6% YoY to 24.26, evidencing operating leverage. Ordinary income increased 19.5% to 24.68, and net income advanced 20.7% to 16.63. Operating margin improved to about 13.1%, with an estimated expansion of roughly 118 bps versus the prior year. Net margin reached 9.0%, implying an estimated expansion of about 87 bps YoY. Gross profit was 57.32 and the gross margin printed 31.0%; although we lack YoY detail, the stronger operating growth relative to sales suggests SG&A leverage. EBITDA was 26.30 (14.2% margin), and interest income of 0.45 modestly supported ordinary income, consistent with a large cash position. Liquidity is robust: current ratio is 300%, cash and deposits are 111.25 against current liabilities of 52.83, and interest coverage is exceptionally high at 809x. Balance sheet leverage is conservative with D/E of 0.41x and minimal noncurrent liabilities (0.69). Cash flow quality is the main blemish: OCF of 12.79 trails net income (16.63), with OCF/NI at 0.77x, signaling weaker cash conversion likely tied to working capital. Financing cash outflow of -16.65 suggests sizable shareholder returns (dividend/buyback), but dividend specifics are unreported; the calculated payout ratio of 170% implies distributions above earnings, potentially including a special payout. ROE stands at 12.6%, driven primarily by improved margins and healthy asset turnover of ~1.0x, with modest financial leverage of 1.41x. The reported ROIC of 79.3% appears exceptionally high (likely a management-definition nuance), but points to efficient capital use under a light-asset staffing model. Forward-looking, the company is executing well on utilization and cost control, yet sustainability hinges on maintaining demand momentum and improving cash conversion. Watch for normalization of interest income as rates evolve, given its contribution to non-operating gains. Overall, fundamentals are healthy, but capital return intensity and cash conversion warrant close monitoring.

Profitability Analysis

ROE decomposition: 12.6% ROE = 9.0% Net Profit Margin × 0.998 Asset Turnover × 1.41x Financial Leverage. The largest change driver versus last year is margin expansion: operating income grew 19.6% on 9.0% sales growth, implying operating margin rose from ~12.0% to 13.1% (+118 bps). Business drivers likely include better consultant utilization, improved pricing/mix, and SG&A discipline (SG&A up to 33.06 but growing slower than gross profit). Asset turnover remains efficient (~1.0x) given the asset-light model, with little change expected; leverage is modest at 1.41x and not the key ROE driver. Non-operating tailwinds from interest income (0.45) aided ordinary income but are not the core profit engine. Sustainability: utilization/pricing-driven margin gains can persist if demand remains solid and wage inflation is contained; interest income contribution may moderate if cash is deployed or rates fall. Flags: the pace of SG&A growth is unspecified YoY, but the outperformance of operating income versus revenue indicates positive operating leverage in this period. Maintain vigilance on potential cost pressures (engineer wages/bonuses) that could compress gross and operating margins in a softer demand environment.

Growth Assessment

Top-line growth of 9.0% YoY indicates healthy demand in the engineering staffing/placement domain. Profit growth outpaced sales: operating income +19.6%, ordinary +19.5%, and net +20.7%, implying improved operating efficiency and some non-operating lift from interest income. Operating margin expansion (~+118 bps YoY to 13.1%) reflects better utilization and fixed-cost absorption. Net margin improved to 9.0% (+87 bps YoY), despite a 33.4% effective tax rate. Recurrence: the core growth appears operational rather than one-off; no large one-time gains are disclosed in non-operating items. Interest income (0.45) contributed ~2.9% of ordinary income, modest and potentially transitory depending on cash levels and rates. Demand sustainability will hinge on client capex and hiring appetite in manufacturing/tech verticals; current data suggest positive momentum. With EBITDA margin at 14.2%, there is still room to invest in recruiting/training while preserving margins. Absent segment disclosures, we assume balanced contribution across existing lines. Outlook: if revenue growth stays mid-to-high single digits and cost discipline holds, FY margin targets look achievable; key swing factors are wage inflation and assignment churn.

Financial Health

Liquidity is strong: current ratio 300.2% and quick ratio 300.2%; no warning triggers (both >>1.0). Cash and deposits of 111.25 comfortably exceed current liabilities of 52.83, indicating a net cash position and low refinancing risk. Debt metrics are conservative: D/E 0.41x and interest coverage 808.7x; no evidence of material interest-bearing debt is disclosed, and noncurrent liabilities are only 0.69. Maturity mismatch risk appears low given sizable cash and receivables (44.57) against current liabilities. Off-balance sheet obligations are not reported; absent disclosures, we assume no material contingent liabilities, but standard staffing-related commitments (e.g., lease/outsourcing) may exist. Equity is 131.61 (owners' equity 129.39), with retained earnings at 130.49 supporting capital strength.

Cash Flow Quality

OCF/Net Income is 0.77x, below the 0.8 threshold, indicating weaker cash conversion this half. Likely drivers include working capital build (e.g., higher accounts receivable consistent with 9% revenue growth) and timing effects; exact components are not disclosed. Free cash flow cannot be assessed due to unreported capex and investing CF, though the model is generally asset-light (D&A 2.04). Financing CF is -16.65, indicating significant shareholder returns (dividends/buybacks) in the period; amounts are not itemized. With OCF below NI and elevated payouts implied, cash coverage of distributions may be tight absent cash reserves; the current cash balance mitigates near-term risk. No signs of aggressive working capital management can be confirmed or ruled out without detailed breakdowns (payables, accrued expenses). Monitor OCF trajectory relative to NI and receivables turnover to validate earnings quality in H2.

Dividend Sustainability

The calculated payout ratio of 170.2% suggests distributions exceeded earnings; however, DPS and total dividend paid are unreported, so this likely reflects a special dividend or buyback-treated-as-dividend metric in the calculation. OCF (12.79) is below NI (16.63), and FCF is not disclosed, making coverage assessment incomplete. Cash on hand (111.25) provides ample capacity for near-term payouts, but sustaining a >100% payout on a recurring basis would be atypical for an asset-light staffing model. If management targets a progressive dividend policy, aligning payouts with mid-cycle FCF (<60% of NI benchmark) would improve durability. Near-term sustainability is supported by cash reserves; medium-term sustainability depends on OCF normalization and investment needs.

Risk Assessment

Business Risks:

• Cyclical demand for engineering staffing tied to manufacturing and technology capex.
• Wage inflation and talent scarcity pressuring gross margins and utilization.
• Client concentration risk (not disclosed) could amplify revenue volatility.
• Competition in staffing leading to pricing pressure and higher recruiting costs.
• Regulatory/labor law changes affecting dispatch/placement economics.

Financial Risks:

• OCF/NI at 0.77 indicates weaker cash conversion in H1.
• High indicated payout ratio (~170%) may strain cash if sustained absent special factors.
• Dependence on interest income (0.45) for part of ordinary income; could decline if cash is deployed or rates fall.
• Potential working capital swings given receivables nature of business.

Key Concerns:

• Earnings quality: OCF lagging NI below the 0.8 threshold.
• Visibility: lack of detailed SG&A and investing cash flows limits analysis of cost and capex trends.
• Sustainability of margin gains if wage costs accelerate or utilization dips.
• Payout policy clarity given unreported DPS yet high calculated payout ratio.

Investment Implications

Key Takeaways:

• Healthy top-line growth (+9%) with stronger operating profit growth (+19.6%) indicates positive operating leverage.
• Operating and net margins expanded an estimated ~118 bps and ~87 bps YoY, respectively.
• Balance sheet is very strong with net cash (cash 111.25 vs current liabilities 52.83) and D/E 0.41x.
• Cash conversion is a watch item (OCF/NI 0.77), likely reflecting working capital; needs improvement in H2.
• Shareholder returns appear elevated (FinCF -16.65), with an implied payout ratio ~170%, likely including special elements.
• ROE at 12.6% is driven by margin gains and efficient asset use; leverage contribution is modest.

Metrics to Watch:

• OCF/NI ratio and receivables days to confirm cash conversion normalization.
• Utilization rate, bill rates, and engineer headcount to gauge margin sustainability.
• SG&A growth vs revenue to test operating discipline.
• Payout policy disclosures (DPS, buybacks) and FCF coverage.
• Interest income trend as a proxy for cash level and rate sensitivity.
• Effective tax rate stability and any one-off tax items.

Relative Positioning: Within asset-light human resources/services peers, the company exhibits above-average margin improvement and a stronger liquidity profile, offset by below-benchmark cash conversion this half and unusually high indicated capital returns that warrant clarification.

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