Forum Engineering Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.48B
• Operating Income: ¥2.43B
• Net Income: ¥1.35B
• 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

Forum Engineering (70880) reported solid FY2026 Q2 consolidated results under JGAAP, with both top-line and profits expanding. Revenue grew 9.0% YoY to ¥18.48bn, indicating healthy client demand and sustained placement/dispatch activity in its engineer staffing franchise. Gross profit reached ¥5.16bn, implying a gross margin of 27.9%, which is robust for a human capital–intensive model and suggests controlled wage inflation relative to billed rates. Operating income increased 19.6% YoY to ¥2.43bn, lifting the operating margin to approximately 13.1%, evidencing positive operating leverage from scale and disciplined SG&A. Ordinary income of ¥2.47bn slightly exceeded operating profit, reflecting marginal net non-operating gains and negligible interest expense. Net income rose 20.7% YoY to ¥1.66bn, with net margin at 9.0%, a strong level for the sector. DuPont analysis shows ROE at 12.64%, driven by a 9.0% net margin, near-1.0x asset turnover, and modest financial leverage of 1.41x. Liquidity is ample: current assets of ¥15.96bn versus current liabilities of ¥5.53bn translate to a current ratio of 2.89x and working capital of ¥10.43bn. The balance sheet is conservative, with total liabilities of ¥5.61bn against equity of ¥13.16bn (implying an equity ratio around 71%, despite the reported 0.0% figure being an unreported placeholder). Cash generation quality appears solid; operating cash flow (OCF) of ¥1.60bn represents 0.96x of net income, signaling largely cash-based earnings with manageable working capital drag. Interest coverage is extremely high at ~1,213x, underscoring minimal financial risk from debt service. Effective tax rate implied by disclosed figures is approximately 29%, despite the 0.0% reported metric being a non-disclosure artifact. Dividend fields show zero, which should be treated as undisclosed at this stage rather than an actual suspension; no conclusion can be made on payout without updated policy guidance. Overall, the company exhibits improving profitability, healthy cash conversion, and a strong balance sheet, positioning it well against cyclical headwinds in the manufacturing and engineering demand environment. Key sensitivities include wage inflation versus bill rates, utilization, and client order trends. Data limitations exist for cash, investing cash flows, and share-related metrics, but available data provide sufficient grounds to assess core earnings quality and financial health.

Profitability Analysis

ROE of 12.64% is decomposed into: net profit margin 9.0%, asset turnover 0.998x, and financial leverage 1.41x. The step-up in operating income (+19.6% YoY) versus revenue (+9.0% YoY) highlights positive operating leverage, reflecting effective cost control and/or improved pricing/mix. Gross margin at 27.9% is healthy for an engineer staffing model, indicating the spread between client bill rates and engineer compensation remains favorable. Operating margin is approximately 13.1% (¥2.426bn/¥18.48bn), up YoY given the stronger OP growth, implying SG&A efficiency and scale benefits. EBITDA of ¥2.623bn and EBITDA margin of 14.2% reflect limited non-cash charges (D&A ¥197m), consistent with an asset-light business. Ordinary income exceeding operating income suggests marginally positive non-operating items (e.g., interest income or subsidies) with minimal interest expense (¥2m). Net margin at 9.0% is strong for the sector and signals good cost discipline and pricing power. Tax effects do not distort margin materially; implied ETR is ~29% (¥715m on pre-tax earnings approximated by ordinary income ¥2,468m). Overall margin quality appears solid, supported by stable gross margin and tight overheads.

Growth Assessment

Revenue growth of 9.0% YoY suggests steady demand from manufacturing and technology clients and potentially improved utilization and headcount deployment. Profit growth outpaced sales (operating income +19.6%, net income +20.7%), indicating margin expansion driven by scale economies and/or pricing improvements. The quality of growth is reinforced by OCF/Net Income of 0.96, showing profits are largely cash-backed with limited working capital strain. Ordinary income tracked operating profit closely, implying growth is operational rather than financial. Sustainability will hinge on maintaining the wage-to-bill rate spread and stable client order pipelines; any slowdown in capital investment by key end-markets could temper growth. Near-term outlook appears constructive given leverage to existing assignments and backlog (not disclosed), but sensitivity to macro and industrial production cycles remains. Without disclosed segment or KPI details (e.g., number of engineers on assignment, utilization, average billing rate), visibility into growth drivers is constrained. Nonetheless, current results indicate healthy momentum into the second half if client demand remains resilient.

Financial Health

Liquidity is strong: current assets ¥15.96bn vs current liabilities ¥5.53bn yields a current ratio of 2.89x and quick ratio also 2.89x (inventories not disclosed), providing ample near-term coverage. Working capital stands at ¥10.43bn, offering a sizeable buffer against receivable cycles typical in staffing. Solvency is solid: total liabilities ¥5.61bn vs equity ¥13.16bn implies an equity ratio around 71.1% and liabilities-to-equity of 0.43x, denoting a conservative capital structure. Interest expense is negligible at ¥2m, and interest coverage is extremely high at ~1,213x, minimizing refinancing risk. No cash balance is disclosed in the dataset (0 is a placeholder), limiting precise liquidity assessment, but overall balance sheet strength and low leverage mitigate risk. There is no visibility into interest-bearing debt composition or maturities; however, total liabilities are modest relative to assets and equity.

Cash Flow Quality

OCF was ¥1.595bn versus net income of ¥1.663bn, yielding an OCF/NI ratio of 0.96, indicative of high earnings quality and manageable working capital effects. D&A of ¥197m is small relative to EBITDA (¥2.623bn), consistent with an asset-light model where cash earnings approximate accounting earnings. Investing cash flow is undisclosed (reported as 0), so capital expenditures cannot be assessed; historically, such models tend to require low capex, but this period’s capex is not provided. Free cash flow cannot be reliably calculated from the provided figures (the reported FCF of 0 is an undisclosed placeholder); if capex is modest, FCF is likely positive and close to OCF. Working capital appears well-managed given the strong current ratio and cash conversion, but details on receivables days and payables terms are not available. Non-operating cash items seem limited given minimal interest expense and ordinary income near operating income.

Dividend Sustainability

Dividend data (annual DPS and payout ratio) are undisclosed in this dataset and show as zero placeholders; thus, no definitive conclusion on current-year dividends can be drawn. With net income at ¥1.66bn and implied strong balance sheet, there is capacity for distributions in general, but actual policy and timing are not provided. FCF coverage cannot be assessed due to the absence of investing cash flow data and the placeholder FCF figure. Historically, sustainability would hinge on stable cash generation and low capex; given OCF/NI of 0.96 and low leverage, coverage potential appears sound in principle. Absent explicit guidance, assume a prudent stance pending full-year disclosures or a board resolution on DPS.

Risk Assessment

Business Risks:

• Cyclical exposure to manufacturing and technology end-markets affecting engineer demand and assignment duration
• Wage inflation compressing gross margin if bill rates lag cost increases
• Utilization rate volatility (bench time) impacting operating leverage
• Client concentration risk if top accounts reduce headcount or budgets
• Regulatory changes in labor dispatch laws and worker classification
• Talent acquisition and retention challenges in a tight engineer labor market
• Pricing pressure in competitive bids reducing spread per hour
• Macroeconomic slowdown delaying capex and R&D projects

Financial Risks:

• Working capital swings driven by receivables cycles and DSO variability
• Limited disclosure on cash balance and investing cash flows reduces visibility on short-term liquidity
• Potential non-operating items variability, though currently small
• Exposure to tax rate changes; implied ETR ~29% may fluctuate

Key Concerns:

• Sustaining the wage-to-bill rate spread to preserve gross margin
• Maintaining utilization to protect operating margin amid macro uncertainty
• Data gaps on cash, capex, and dividends, which constrain assessment of FCF and payout capacity

Investment Implications

Key Takeaways:

• Revenue up 9.0% YoY with operating income up 19.6%, signaling positive operating leverage
• Strong margin profile: gross 27.9%, operating ~13.1%, net 9.0%
• ROE of 12.64% driven by healthy margins, near-1.0x asset turnover, and modest leverage
• Robust liquidity with current ratio ~2.89x and working capital of ¥10.43bn
• High earnings quality with OCF/NI at 0.96 and minimal interest burden
• Conservative balance sheet (implied equity ratio ~71%) reduces solvency risk
• Dividend details undisclosed; payout visibility pending

Metrics to Watch:

• Utilization rate and engineer headcount on assignment
• Average billing rate versus wage inflation (spread per hour)
• Gross margin and SG&A ratio to revenue
• Days sales outstanding (DSO) and receivables trends
• OCF/Net Income and Free Cash Flow once capex is disclosed
• Order pipeline/backlog and client concentration
• Effective tax rate trajectory and non-operating income/expense

Relative Positioning: Within domestic engineer staffing peers, Forum Engineering exhibits above-average profitability and a conservative balance sheet, supporting mid-teens ROE potential with lower financial risk; visibility on cash and capex would further clarify its standing on FCF generation versus peers.

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