Japan Process Development Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.83B
• Operating Income: ¥739M
• Net Income: ¥558M
• EPS: ¥57.64

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

Verdict: Solid topline and operating leverage delivered a strong FY2026 Q2, but cash conversion deteriorated materially, elevating earnings quality risk and dividend sustainability concerns. Revenue rose 17.6% YoY to 58.35, with operating income up 37.4% to 7.39, outpacing sales and evidencing cost discipline and utilization gains. Gross profit reached 13.09 for a gross margin of 22.4%, while SG&A was held to 5.70 (SG&A ratio 9.8%). Operating margin expanded to 12.7%, up approximately 182 bps from 10.8% in the prior period. Net income increased 20.0% YoY to 5.58, lifting the net margin to 9.6% (+22 bps YoY). Ordinary income rose 15.1% YoY to 7.53, aided by net non-operating income (interest income 0.14 > non-op expenses 0.03). The DuPont profile shows ROE of 4.9% driven primarily by healthy margins (NPM 9.6%) and low leverage (1.20x), with modest asset turnover (0.429) consistent with a cash-rich, asset-light model. Liquidity is very strong (current ratio 528%, cash 50.03 vs current liabilities 22.45), and leverage is conservative (D/E 0.20x). However, operating cash flow was -8.11, yielding an OCF/NI of -1.45x, and free cash flow was -8.20, signaling weak cash realization despite higher earnings. Accruals ratio at 10.1% sits just above the concern threshold, reinforcing the quality-of-earnings caution. The announced interim DPS of ¥26 and year-end DPS of ¥36 imply a payout ratio of 118.3% on H1 earnings, and FCF coverage at -1.24x is inadequate without a stronger H2 cash inflow. Forward-looking, the margin improvement is encouraging and potentially sustainable if utilization and pricing hold, but the sharp working capital outflow must reverse in H2 to support dividends and avoid balance sheet drawdown. Key watch items are receivables collection, billing milestones, and H2 project deliveries typical for SI seasonality. Overall, near-term performance momentum is positive, but cash conversion and elevated payout create a mixed risk-reward setup.

Profitability Analysis

ROE Decomposition (3-factor): ROE 4.9% = Net Profit Margin 9.6% × Asset Turnover 0.429 × Financial Leverage 1.20x. 5-factor detail: Tax burden 0.743 (normal), Interest burden 1.016 (net interest income), EBIT margin 12.7%. Biggest change: Operating margin expanded ~182 bps YoY (from ~10.8% to 12.7%), contributing most to ROE improvement, while leverage stayed low and asset turnover modest. Business drivers: Higher revenue scale and improved utilization likely reduced the fixed-cost ratio; SG&A grew slower than sales (SG&A ratio 9.8%), and cost of sales discipline supported gross margin. Sustainability: Margins can be sustained if project mix and delivery execution hold; however, wage inflation for engineers and potential pricing pressure in SI contracts could cap further expansion. Watch for SG&A growth trending above revenue or subcontractor cost creep; at present, there is no evidence of SG&A outpacing revenue. One-time effects: No meaningful one-off non-operating gains; interest income uplift is small and recurring given large cash balances. Concerning trends: Cash conversion is weak this quarter, which does not affect accounting margins but raises the risk that future profitability could be pressured if working capital remains elevated.

Growth Assessment

Revenue rose 17.6% YoY to 58.35, indicating healthy demand, likely from stronger project deliveries in H1. Operating profit growth (+37.4%) exceeded revenue growth, evidencing operating leverage and improved execution. Net income increased 20.0%, with a stable effective tax rate (25.6%) and minor non-operating tailwinds (interest income). Growth sustainability hinges on: H2 backlog conversion (not disclosed), timely milestone billings, and maintaining utilization in an environment of tight IT labor markets. Given industry seasonality, H2 is typically stronger for SI deliveries; if realized, full-year growth can outpace H1. However, the negative OCF suggests a build in receivables/unbilled items that must normalize; otherwise, growth could be cash-intensive. No explicit signals of major one-time gains; growth appears primarily operational.

Financial Health

Liquidity is robust: current ratio 528.3% and quick ratio 528.3%, with cash and deposits of 50.03 comfortably exceeding current liabilities of 22.45. Solvency is conservative: D/E 0.20x, no reported interest-bearing debt details, and an equity-heavy balance sheet (financial leverage 1.20x). No warning thresholds breached (Current Ratio >> 1.0; D/E well below 2.0). Maturity mismatch risk is low given cash-rich position versus modest payables (AP 2.18). Off-balance sheet obligations were not disclosed; no data on guarantees or leases, so we assume none material based on available data but note limitations.

Cash Flow Quality

OCF/Net Income at -1.45x flags poor cash conversion this quarter. Free cash flow was -8.20 (OCF -8.11, CapEx -0.11), indicating that operations did not fund investments or dividends in H1. Likely drivers include working capital outflows (increase in receivables/unbilled revenue and/or reduction in payables), consistent with project delivery timing; exact components are not disclosed. With cash 50.03 and low debt, near-term liquidity covers the gap, but sustained negative OCF would pressure capital returns. No signs of deliberate working-capital manipulation can be confirmed without AR aging, unbilled balances, or retention details. CapEx is light, in line with an asset-light SI model. For quality, we need H2 OCF to exceed NI (>1.0x) to validate accruals.

Dividend Sustainability

Declared DPS totals ¥62 (interim ¥26 + year-end ¥36). On H1 net income of 5.58 (¥558m) and 10.65m shares, payout ratio is 118.3%, above the <60% sustainability benchmark. FCF coverage is -1.24x, indicating dividends are not covered by internally generated cash in H1. Given strong cash on hand and low leverage, near-term dividend capacity exists; however, sustainability depends on H2 earnings and cash inflows. If H2 seasonality drives strong OCF, coverage can normalize; otherwise, payout at this level risks consuming cash reserves. Policy outlook: Absent guidance, we assume a stable-to-progressive dividend intent, but continuation at >100% payout would be aggressive without improved cash conversion.

Risk Assessment

Business Risks:

• Project execution risk in fixed-price SI contracts leading to margin erosion.
• Receivables and unbilled revenue buildup causing cash flow volatility.
• Wage inflation and talent retention for engineers compressing margins.
• Customer budget timing and seasonality impacting H2 deliveries and collections.

Financial Risks:

• Earnings quality risk: OCF/NI at -1.45x and accruals ratio 10.1% indicate cash shortfall versus earnings.
• Dividend commitment exceeding earnings and FCF could strain cash if H2 does not normalize.
• Concentration in a few large projects or clients could amplify working capital swings (not disclosed).

Key Concerns:

• Sustained negative operating cash flow would challenge dividend coverage and investment capacity.
• Potential margin headwinds from subcontractor cost escalation and wage inflation.
• Limited disclosures (EBITDA, depreciation, backlog) hamper full assessment of operating resilience.

Investment Implications

Key Takeaways:

• Strong H1 operating performance with ~182 bps operating margin expansion to 12.7%.
• Net margin improved to 9.6% with modest non-operating tailwinds (interest income).
• Liquidity and leverage profile are very conservative, providing buffer.
• Cash conversion deteriorated: OCF -8.11 and FCF -8.20 despite higher earnings.
• Dividend payout ratio at 118% and FCF coverage negative raise sustainability concerns barring H2 catch-up.
• ROE at 4.9% is below typical equity cost; improvement hinges on margin and turnover gains.

Metrics to Watch:

• H2 operating cash flow and OCF/NI ratio (target >1.0).
• Accounts receivable days and unbilled receivables trends.
• Backlog and order intake (if disclosed) to gauge H2 revenue visibility.
• SG&A growth versus revenue and engineer utilization rates.
• Pricing/mix and subcontractor cost ratio impacts on gross margin.
• Dividend policy commentary relative to cash generation.

Relative Positioning: Within Japan IT services/SI peers, profitability is good (operating margin ~13%), balance sheet is stronger than average (high cash, low debt), but cash flow conversion this quarter is weaker than quality peers; ROE remains subpar due to low leverage and moderate asset turnover.

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