SUZUYO SHINWART CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.38B
• Operating Income: ¥413M
• Net Income: ¥302M
• EPS: ¥100.80

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

Suzuyo Shinwart Co., Ltd. (Consolidated, JGAAP) delivered steady top-line growth in FY2026 Q2, with revenue of ¥9.378 billion, up 6.5% year over year, indicating resilient demand in its core IT services and solutions businesses. Gross profit reached ¥1.98 billion, implying a gross margin of 21.1%, which is reasonable for a mid-sized SI/IT services mix but suggests limited pricing power or a mix shift toward lower-margin services. Operating income was ¥413 million (+2.6% YoY), lagging revenue growth and pointing to pressure from SG&A and/or cost inflation, consistent with ongoing wage and subcontractor cost pressures in the Japanese IT services sector. Ordinary income of ¥450 million exceeded operating income by ¥37 million, indicating positive net non-operating contributions (likely financial income or equity-method income offsetting ¥14 million in interest expense). Net income declined 5.2% YoY to ¥286 million, implying some compression at the bottom line despite revenue growth, potentially due to higher SG&A, an adverse sales mix, or an increase in effective tax burden. Depreciation and amortization were ¥310 million, supporting an EBITDA of ¥723 million and a 7.7% EBITDA margin, modest for the sector and pointing to limited operating leverage in the period. The DuPont framework indicates ROE of 6.3%, with a net profit margin of 3.05%, asset turnover of 0.788x, and financial leverage of 2.62x, reflecting moderate efficiency and leverage but relatively thin margins. Liquidity appears sound with current assets of ¥5.908 billion vs. current liabilities of ¥3.987 billion, yielding a current ratio of 148% and working capital of ¥1.921 billion. The balance sheet shows total assets of ¥11.903 billion and equity of ¥4.542 billion, implying an equity ratio of about 38% (calculated), and a debt-to-equity ratio near 1.68x, which is manageable given interest coverage of 29.5x. Operating cash flow was strong at ¥554 million, equating to 1.94x net income, which supports the quality of earnings through robust cash conversion. Financing cash flow was an outflow of ¥443 million, likely reflecting debt repayment and/or shareholder returns, though the dividend data fields are unreported in this dataset. While several items are shown as zero (e.g., cash and equivalents, investing cash flow, equity ratio, dividends), these should be treated as unreported rather than actual zeros; conclusions are based on the non-zero data provided. The spread between revenue growth (+6.5%) and operating income growth (+2.6%) suggests near-term operating leverage is muted, warranting attention to SG&A discipline and delivery efficiency. The implied effective tax rate, based on income tax of ¥134 million and pre-tax income approximated by ordinary income, is roughly 30%, consistent with Japanese statutory levels and at odds with the 0.0% metric that appears unreported. Implied shares outstanding from EPS (¥100.80) and net income suggest approximately 2.84 million shares, providing a cross-check on per-share metrics. Overall, the company demonstrates solid liquidity, adequate solvency, and high cash conversion, but margin pressure and a softer bottom line versus revenue growth temper the near-term profitability picture. A sustained improvement in utilization, pricing, and mix will be necessary to translate top-line growth into higher ROE beyond the current 6.3%.

Profitability Analysis

ROE of 6.30% is driven by a 3.05% net profit margin, 0.788x asset turnover, and 2.62x financial leverage, pointing to moderate efficiency but thin margins as the key gating factor. Operating margin is approximately 4.4% (operating income ¥413m on revenue ¥9,378m), which trails gross margin (21.1%), indicating a sizeable SG&A burden typical of SI/IT services with substantial personnel costs. EBITDA margin is 7.7%, reflecting limited operating leverage in the half-year; revenue growth of 6.5% translated to only 2.6% growth in operating income, suggesting cost growth outpaced or closely tracked revenue gains. Ordinary income exceeded operating income by ¥37m, implying modest non-operating tailwinds; net interest burden is light with interest expense of ¥14m and interest coverage of 29.5x. Net margin compression (-5.2% YoY net income despite revenue growth) implies either unfavorable mix (e.g., more low-margin resale/outsourcing) or elevated wage/subcontractor inflation, and possibly a normalized tax rate. Gross margin at 21.1% is consistent with a services-heavy model but leaves limited room to absorb SG&A creep; improvements likely hinge on utilization, pricing, and project selection. Overall profitability is adequate but not robust; margin enhancement will be the main lever for higher ROE given already decent asset turnover and moderate leverage.

Growth Assessment

Top-line growth of 6.5% YoY in H1 signals healthy underlying demand, likely from enterprise IT, cloud-related services, and ongoing digitalization among clients. The conversion of revenue growth to operating income growth (2.6% YoY) is weak, suggesting cost pressures or less favorable project mix; scalability appears constrained in the period. Ordinary income of ¥450m and net income of ¥286m indicate bottom-line sensitivity to mix and tax, with net income declining 5.2% YoY despite solid revenue growth. EBITDA of ¥723m supports capacity for continued reinvestment, but absent disclosed investing cash flows, the level of capex or software capitalization is unclear. Outlook hinges on backlog quality, utilization rates, and pricing discipline; if wage inflation moderates and utilization normalizes, operating leverage could improve in H2. Revenue sustainability appears reasonable given diversified IT demand, but client concentration (including group-related business) and competitive pricing in SI could cap growth quality. Near-term priority should be stabilizing gross margin and controlling SG&A to re-accelerate operating profit growth relative to revenue.

Financial Health

Total assets are ¥11.903bn, liabilities ¥7.651bn, and equity ¥4.542bn, implying an equity ratio of roughly 38% (calculated from non-zero items) and a debt-to-equity ratio of 1.68x. Liquidity is solid: current assets ¥5.908bn vs. current liabilities ¥3.987bn yields a current ratio of 148% and working capital of ¥1.921bn. Quick ratio is effectively the same as current ratio given inventories are unreported; in an IT services model, inventory is typically minimal. Interest expense is low at ¥14m and interest coverage is a comfortable 29.5x (EBIT/interest), supporting solvency. Financial leverage (assets/equity) of 2.62x is moderate; combined with strong coverage, balance sheet risk appears manageable. Cash and equivalents are shown as zero but should be treated as undisclosed; nonetheless, liquidity inferred from current assets vs. current liabilities is adequate.

Cash Flow Quality

Operating cash flow of ¥554m is 1.94x net income (¥286m), indicating strong cash conversion and limited accrual risk in the period. D&A of ¥310m versus EBITDA of ¥723m suggests a meaningful non-cash component within expenses, aiding cash generation. Investing cash flow is undisclosed; therefore, free cash flow cannot be reliably computed from the dataset even though a zero placeholder is shown. Working capital dynamics appear supportive given the positive OCF, but without details on receivables and payables changes, the precise drivers (DSO/DPO) are unclear. Earnings quality is bolstered by the high OCF/NI ratio and robust interest coverage, suggesting the reported profits are cash-backed. Monitoring capital expenditure and any capitalized development costs is important to validate sustainable FCF.

Dividend Sustainability

Dividend data (annual DPS and payout ratio) is unreported in this dataset; therefore, we cannot quantify actual shareholder returns or payout coverage here. Capacity-wise, interim net income of ¥286m and OCF of ¥554m indicate room for distributions, subject to capex and working capital needs. With investing cash flows undisclosed, FCF coverage of potential dividends cannot be assessed, and the reported 0.00x should be viewed as non-disclosed rather than zero. Balance sheet leverage and strong interest coverage suggest flexibility, but sustainability ultimately depends on consistent cash generation and capex discipline. Company policy cues are not provided; historically, many Japanese mid-cap IT firms target stable or gradually increasing dividends, but we do not infer policy absent disclosure. Near-term, maintaining OCF/NI >1.0x and preserving the current ratio near ~1.5x would support dividend stability if pursued.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and subcontractor cost increases in SI/IT services
• Project execution and utilization risk affecting gross margin and OPM
• Competitive pricing in domestic SI and cloud resale compressing margins
• Client concentration risk, including potential exposure to group-related customers
• Technology transition risk (cloud, cybersecurity, AI) requiring ongoing investment
• Talent acquisition and retention in a tight IT labor market

Financial Risks:

• Moderate leverage (assets/equity 2.62x; D/E ~1.68x) albeit with strong coverage
• Cash and investing cash flows undisclosed, creating visibility gaps on FCF
• Potential working capital swings impacting OCF seasonally
• Exposure to interest rate normalization on floating-rate debt (if applicable)

Key Concerns:

• Operating income growth (2.6% YoY) lagging revenue growth (6.5% YoY)
• Net income down 5.2% YoY despite higher revenue, indicating margin and cost pressure
• Undisclosed investing cash flows limit assessment of true FCF and reinvestment needs
• Thin net margin (3.05%) constraining ROE (6.3%)

Investment Implications

Key Takeaways:

• Solid top-line growth but limited operating leverage in the half-year
• ROE of 6.3% primarily constrained by thin net margins
• Strong cash conversion (OCF/NI 1.94x) supports earnings quality
• Balance sheet appears sound with current ratio ~1.48x and interest coverage 29.5x
• Visibility gaps in cash and investing data warrant monitoring before assessing FCF

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Gross margin and SG&A ratio for signs of cost control and pricing power
• Utilization rates and headcount productivity
• OCF/NI, DSO/DPO, and capitalized development costs to assess cash quality
• Capex and investing cash flows to derive true FCF
• ROE bridge (margin vs. turnover vs. leverage) and progression of operating margin

Relative Positioning: Within Japan’s mid-cap IT services/SI cohort, the company exhibits respectable growth and liquidity with moderate leverage and strong interest coverage, but profitability metrics (OPM ~4.4%, net margin 3.05%, ROE 6.3%) are on the lower side versus higher-margin peers, suggesting a need for mix and efficiency improvements to close the gap.

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