TANABE CONSULTING GROUP CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.66B
• Operating Income: ¥954M
• Net Income: ¥634M
• EPS: ¥17.23

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: Solid Q2 FY2026 with double-digit top-line and operating profit growth, modest margin expansion, but cash flow conversion lagged earnings. Revenue rose 14.9% YoY to 76.56, underpinned by stronger demand across consulting offerings. Operating income increased 19.8% YoY to 9.54, outpacing revenue and indicating positive operating leverage. Ordinary income grew 10.1% YoY to 9.52, and net income increased 10.6% YoY to 5.60. Operating margin improved to 12.47% from roughly 11.95% a year ago, an expansion of about 52 bps. Gross margin stood at 49.3%, reflecting solid pricing/mix and delivery efficiency. SG&A ratio was 36.9% of revenue; absolute SG&A rose but remained controlled enough to allow margin expansion. Cash generation lagged earnings: operating cash flow was 4.19 versus net income of 5.60, yielding an OCF/NI ratio of 0.75x. Financing cash outflow was -7.32, including -2.00 from share repurchases, suggesting significant shareholder returns during the half. Balance sheet strength is high with a current ratio of 303% and low leverage (D/E 0.35x). ROE is calculated at 5.0% based on DuPont metrics; this is modest given the asset-light nature of consulting and indicates room to improve capital efficiency. ROIC is reported at 13.3%, comfortably above a typical 7–8% target, implying value-accretive operations, albeit based on period data. Non-operating result was slightly negative net (-0.03) despite a reported investment securities gain; classification differences may be at play. Goodwill/intangibles total 36.4 (about 24% of assets), highlighting some impairment sensitivity. Forward-looking, the improved operating margin and strong liquidity position support continued investment and disciplined shareholder returns, but improving cash conversion and sustaining demand momentum will be key.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (7.3%) × Asset Turnover (0.504) × Financial Leverage (1.35x) ≈ 5.0%. The biggest driver YoY appears to be Net Profit Margin, as operating income grew faster than revenue (+19.8% vs +14.9%), expanding operating margin by ~52 bps to 12.47%. Asset turnover at 0.504 reflects higher revenues on a growing asset base; without prior-period assets disclosed here, we infer limited change. Financial leverage remains conservative at ~1.35x (Assets/Equity = 151.97/112.34). Business reasons for margin improvement: better utilization, pricing/mix, and SG&A discipline (SG&A at 36.9% of sales) drove operating leverage. Sustainability: margin gains look operationally driven rather than one-off, but consulting is sensitive to project timing, delivery mix, and wage inflation; retention and utilization will determine durability. Watchpoints: while SG&A absolute cost increased, it grew slower than revenue (implied), which is positive; if wage/bonus costs accelerate in H2, SG&A growth could outpace revenue and pressure margins.

Growth Assessment

Revenue growth of +14.9% YoY to 76.56 indicates robust client demand and/or improving win rates. Operating profit growth of +19.8% to 9.54 shows positive operating leverage, with operating margin expanding ~52 bps to 12.47%. Ordinary income (+10.1%) and net income (+10.6%) grew but lagged operating profit due to slightly negative net non-operating items. Gross margin at 49.3% suggests strong project economics; maintaining this amid potential wage inflation is key. EBITDA was 10.31 (margin 13.5%), supported by low D&A (0.77). Profit quality is mixed: earnings growth is solid, but OCF/NI at 0.75 indicates weaker cash conversion this half, likely from working capital usage (e.g., receivable build). Outlook: with a strong balance sheet and demonstrated operating leverage, the company can sustain growth via hiring and service mix expansion, but H2 execution needs tighter working capital discipline and continued utilization/pricing strength.

Financial Health

Liquidity is strong: current ratio 303% and quick ratio 303%, with cash/deposits of 70.39 vs current liabilities of 29.96. No warning on current ratio (<1.0) and D/E is low at 0.35x, well below the 2.0 threshold. Maturity mismatch risk is low: long-term loans total 5.80 and no short-term loans are reported; cash materially covers current liabilities. Equity is 112.34, yielding assets/equity leverage of 1.35x and ample solvency headroom. Off-balance sheet obligations are not disclosed in the provided data; none can be assessed from this dataset. Goodwill and intangibles total 36.4 (about 24% of assets), which introduces impairment sensitivity but does not stress liquidity.

Cash Flow Quality

OCF/Net Income is 0.75 (<0.8), a caution flag indicating weaker cash conversion this half. With OCF of 4.19 and no reported investing CF, we cannot compute FCF precisely; however, financing CF was -7.32 (including -2.00 share repurchases), implying shareholder returns and/or other financing uses exceeded internally generated cash this period. Potential drivers of OCF shortfall include receivables growth (AR 14.48; no prior-period comparator provided) and project timing/advance billings. No explicit signs of working capital manipulation can be concluded from the dataset, but monitoring DSO and unbilled revenue is warranted. Given strong cash on hand, short-term coverage of dividends/buybacks is not at risk, but sustained OCF improvement is needed for long-run coverage.

Dividend Sustainability

The reported payout ratio (calculated) is 291.4%, but DPS and total dividends are unreported, making this figure unreliable for policy assessment (likely distorted by using half-year earnings or classification). With OCF at 4.19 and financing outflows of -7.32 (including -2.00 buybacks), shareholder returns exceeded OCF in the half. Balance sheet liquidity (cash 70.39; low debt) provides near-term capacity to maintain distributions. For sustainability, dividends plus buybacks should be covered by FCF over the full year; absent investing CF and capex disclosure, we cannot confirm FCF coverage. Expect management to balance returns with growth investments; watch FY guidance on DPS and cash allocation.

Risk Assessment

Business Risks:

• Project timing and backlog volatility affecting quarterly revenue recognition
• Human capital risk: talent retention/wage inflation pressuring margins
• Pricing/mix shifts impacting gross margin sustainability
• Goodwill/intangible impairment risk (36.4 total, ~24% of assets)
• Client concentration risk (common in consulting; not disclosed here)

Financial Risks:

• Cash conversion risk: OCF/NI at 0.75 this half
• Potential working capital build in receivables/unbilled
• Distribution coverage risk if shareholder returns continue to exceed OCF
• Limited disclosure on investing CF and capex creates uncertainty around FCF

Key Concerns:

• OCF below net income raises earnings quality questions
• Non-operating income/expense classification appears inconsistent with breakdown; potential volatility
• Modest ROE at 5.0% despite asset-light model signals scope for capital efficiency improvement

Investment Implications

Key Takeaways:

• Top-line growth +14.9% YoY with operating profit +19.8% shows healthy demand and leverage
• Operating margin expanded ~52 bps to 12.47%; SG&A discipline evident
• Earnings quality mixed: OCF/NI 0.75 and financing outflows > OCF
• Balance sheet exceptionally strong: current ratio 303%, D/E 0.35x, cash comfortably exceeds current liabilities
• ROE 5.0% is modest; ROIC 13.3% suggests value-accretive operations but scope to optimize equity base

Metrics to Watch:

• OCF/NI and DSO (accounts receivable turnover)
• Utilization rate and headcount productivity (implied via SG&A vs revenue)
• Operating margin trajectory (pricing vs wage inflation)
• Goodwill/intangible impairment indicators
• Cash allocation: DPS, buybacks, vs growth investments

Relative Positioning: Relative to domestic consulting peers, the company exhibits strong balance sheet health and improving margins but delivers modest ROE; near-term outperformance hinges on sustaining growth while improving cash conversion and capital efficiency.

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