BUSINESS BRAIN SHOWA・OTA INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.41B
• Operating Income: ¥1.49B
• Net Income: ¥1.24B
• EPS: ¥113.57

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 FY2026 Q2 with double-digit top-line growth and stronger operating leverage, albeit with low ROIC and elevated payout risk given limited cash flow visibility. Revenue rose 13.0% YoY to 204.1, with operating income up 26.7% YoY to 14.9, demonstrating positive operating leverage. Net income advanced 23.9% YoY to 12.29, lifting net margin to 6.0%. Operating margin improved to roughly 7.3% (14.9/204.1), up about 79 bps from an estimated 6.5% in the prior-year period. Gross profit was 44.97 (gross margin 22.0%), and SG&A was 30.56 (about 15.0% of sales), indicating disciplined overhead relative to growth. Profit before tax of 19.75 exceeds operating income by 4.85, with equity-method income contributing 2.50 (12.7% of total profit), and the remainder likely from other non-operating items. The effective tax rate stood at 37.1%, higher than Japan’s statutory range, tempering net profit conversion. ROE calculated at 4.1% (net margin 6.0% × asset turnover 0.441 × leverage 1.54x), reflecting moderate profitability and conservative leverage. ROIC of 3.1% is below the 5% warning threshold, highlighting capital efficiency constraints. Balance sheet quality is strong with an equity ratio of 63.9% and a reported D/E of 0.54x, and cash and equivalents of 108.17 provide a healthy buffer versus total liabilities of 162.37. Earnings quality cannot be fully assessed due to unreported operating cash flow; OCF/NI and FCF are not calculable this quarter. Dividend payout ratio is a high 73.7%, which could be a stretch if cash generation does not track earnings. Equity-method and other non-operating contributions (combined ~20.3% of profit) provided a material boost, which may be less recurring than core operations. Working capital and current ratio cannot be confirmed due to unreported current liabilities; however, current assets are 190.89 with sizable receivables of 46.80. Margin expansion and profit growth are encouraging, but sustaining momentum will require continued utilization improvement and discipline in SG&A amid a higher tax burden. Forward-looking, focus should be on cash conversion, the durability of equity-method income, and improvement in ROIC toward mid-to-high single digits.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 6.0% × Asset Turnover 0.441 × Financial Leverage 1.54x = ROE 4.1%. The most notable quarter-on-quarter dynamic is margin improvement: operating margin rose to ~7.3%, up approximately 79 bps YoY (derived from 14.9/204.1 vs 11.76/180.62). Business reason: revenue growth outpaced fixed-cost growth, and SG&A held at ~15.0% of sales, allowing operating leverage; non-operating items (including 2.50 of equity-method income) further lifted PBT. Sustainability: operating leverage can persist if utilization and project mix remain favorable, but the non-operating lift (20.3% of profit) is less certain. Asset turnover at 0.441 improved with higher revenue on a relatively stable asset base; this is sustainable if order intake remains strong and receivables are managed. Financial leverage remains conservative at 1.54x; changes here are unlikely to drive ROE meaningfully. Watch for SG&A growth outpacing revenue; currently, revenue growth (+13.0%) exceeds implied SG&A growth (not disclosed), but OI growth (+26.7%) suggests discipline so far.

Growth Assessment

Revenue growth of +13.0% YoY to 204.1 indicates healthy demand and/or execution on backlog. Operating income growth of +26.7% to 14.9 outpaced revenue, confirming positive operating leverage. Net income growth of +23.9% to 12.29 reflects both stronger core operations and a non-operating boost (PBT exceeds OI by 4.85, including equity-method income of 2.50). The operating margin improved to ~7.3% from ~6.5% YoY, while net margin sits at 6.0%; further upside likely hinges on project mix and SG&A efficiency. With an effective tax rate of 37.1%, net profit conversion could be capped unless tax rate normalizes. Growth quality: core margin expansion appears recurring if utilization remains high; non-operating contributions may be volatile. Outlook: sustaining double-digit growth will require continued wins in higher-margin consulting/system integration work and careful pricing to defend gross margin (22.0%). Monitoring receivables (46.80) and delivery capacity is key to avoiding working-capital drag that could erode cash conversion.

Financial Health

Liquidity: Current assets are 190.89, but current liabilities are unreported, so the current ratio and quick ratio cannot be calculated; no warning can be concluded. Cash and equivalents are 108.17, providing strong liquidity relative to total liabilities of 162.37. Solvency: Equity ratio is 63.9%, and reported D/E is 0.54x, indicating a conservative capital structure. Maturity mismatch assessment is limited due to unreported short-term vs long-term borrowings; however, sizable cash mitigates near-term refinancing risk. Off-balance sheet obligations are not disclosed. No explicit red flags from leverage; watch for any increase in interest-bearing debt once detailed debt data is reported.

Cash Flow Quality

OCF/Net Income cannot be assessed due to unreported OCF; hence we cannot validate earnings quality against cash conversion this quarter. Free cash flow is unreported, so sustainability of investment and shareholder returns cannot be confirmed. Working capital observations: accounts receivable at 46.80 relative to revenue suggest typical collection exposure for a services/solutions business; changes in receivables vs revenue growth will be important to monitor to detect any pull-forward of revenue or extended DSO. No signs of working capital manipulation can be concluded from the limited data provided. Given cash of 108.17 and no detailed capex/dividend numbers, we cannot evaluate FCF coverage of dividends.

Dividend Sustainability

The payout ratio is 73.7%, above the <60% benchmark for comfort, implying limited cushion if earnings or non-operating gains soften. OCF and FCF are unreported; thus, dividend coverage by cash generation cannot be assessed this quarter. With a conservative balance sheet (equity ratio 63.9%, cash 108.17), near-term dividend payment risk is mitigated, but medium-term sustainability depends on stabilizing ROIC above 5% and improving cash conversion. Policy outlook: if management targets stable or progressive dividends, maintaining payout at current levels likely requires continued operating margin expansion and predictable equity-method contributions.

Risk Assessment

Business Risks:

• Margin pressure from project mix shifts or pricing in consulting/system integration (gross margin 22.0% leaves limited buffer).
• Execution risk on delivery capacity leading to higher SG&A or subcontracting costs, diluting operating leverage.
• Dependence on non-operating contributions (20.3% of profit) including equity-method income (2.50), which may be volatile.
• Higher-than-normal effective tax rate (37.1%) constraining net profit conversion.

Financial Risks:

• Low ROIC at 3.1% (<5% warning) indicates weak capital efficiency and potential value dilution if not improved.
• Cash flow visibility risk: OCF/FCF unreported; inability to confirm earnings-to-cash conversion.
• Potential working capital drag from receivables (46.80) if collections slow amid growth.
• Dividend sustainability risk given 73.7% payout ratio without confirmed FCF coverage.

Key Concerns:

• Sustaining operating margin gains (to ~7.3%) in the face of cost inflation and utilization variability.
• Volatility of equity-method and other non-operating income that lifted PBT by ~4.85 over OI.
• Capital efficiency improvement imperative from ROIC 3.1% toward 7–8%.
• Data limitations on current liabilities and cash flows obscure liquidity and coverage analysis.

Investment Implications

Key Takeaways:

• Core profitability improved: operating income +26.7% on revenue +13.0%, with ~79 bps operating margin expansion.
• Non-operating tailwinds meaningful: equity-method income 2.50 and other items boosted PBT to 19.75.
• Balance sheet conservative: equity ratio 63.9%, cash 108.17, D/E 0.54x.
• Capital efficiency weak: ROIC 3.1% and ROE 4.1% indicate room for better asset utilization.
• Dividend payout elevated at 73.7% without OCF/FCF disclosure, raising medium-term sustainability questions.

Metrics to Watch:

• OCF/Net Income (target ≥1.0) and FCF to validate earnings quality and dividend coverage.
• Operating margin trajectory and SG&A ratio vs revenue to confirm operating leverage.
• Receivables and DSO trends to gauge working capital discipline during growth.
• Equity-method income stability and mix of non-operating items.
• ROIC progression toward >5% near term and 7–8% medium term.
• Effective tax rate normalization from 37.1%.

Relative Positioning: Within Japan IT consulting/system integration peers, profitability momentum is improving and leverage is conservative, but ROIC and ROE trail best-in-class names; dividend attractiveness depends on cash conversion consistency.

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