DTS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥66.93B
• Operating Income: ¥8.08B
• Net Income: ¥4.47B
• EPS: ¥34.17

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

DTS (9682) delivered solid FY2026 Q2 results, with revenue of ¥66.9bn up 11.8% YoY and operating income of ¥8.08bn up 25.2% YoY, indicating clear operating leverage. Gross profit of ¥13.22bn implies a gross margin of 19.8%, and the operating margin rose to approximately 12.1%, reflecting good cost discipline and mix improvement. Ordinary income of ¥8.23bn slightly exceeded operating income, suggesting modest net non-operating gains. Net income reached ¥5.47bn, up 22.6% YoY, with EPS of ¥34.17 (shares outstanding not disclosed). DuPont decomposition indicates a calculated ROE of 9.15%, driven by an 8.17% net margin, 0.851x asset turnover, and 1.32x financial leverage. Leverage remains conservative, consistent with a computed equity ratio of roughly 76% (despite the equity ratio field showing 0.0%, which is unreported rather than zero). Cash generation was healthy with operating cash flow (OCF) of ¥5.05bn, equating to 0.92x of net income—acceptable for a mid-year period in a project-based business. Liquidity appears strong with a current ratio of 2.83x and quick ratio of 2.77x, supported by substantial working capital of ¥37.35bn. Interest expense was minimal at ¥3m, and interest coverage was extraordinarily high (over 2,600x), underscoring negligible financial risk from debt. The effective tax paid was ¥2.14bn; based on ordinary income, the implied effective tax rate is about 26% (the 0.0% metric shown appears to be unreported/placeholder). Investing cash flow and cash balances are not disclosed in the provided XBRL (reported as 0); likewise, dividend and share data fields show 0 and should be treated as unavailable rather than actual zero. EBITDA of ¥8.41bn (12.6% margin) confirms that depreciation/amortization is modest relative to operating income, supporting margin durability. Given the first-half cadence typical for SI/integration businesses, second-half execution and order delivery will be key to sustaining margins. The balance sheet’s low leverage provides optionality for dividends, buybacks, or M&A, though payout metrics are not available in the dataset. Overall, DTS’s first-half performance shows solid growth, margin expansion, disciplined costs, and sound cash conversion, with limited financial risk and good capacity to invest for growth. Data limitations (notably cash, investing CF, dividends, and share count) constrain per-share and FCF-based dividend analysis, but the core earnings quality appears robust.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 8.17%
• asset_turnover: 0.851
• financial_leverage: 1.32
• calculated_ROE: 9.15%
• notes: Financial leverage aligns with Assets/Equity = 78.673/59.770 ≈ 1.32. ROA ≈ 6.96% (NPM × AT). margin_quality:
• gross_margin: 19.8%
• operating_margin: 12.1%
• ordinary_margin: 12.3%
• net_margin: 8.17%
• drivers: ['Revenue +11.8% YoY with operating income +25.2% YoY implies operating margin expansion.', 'Non-operating balance slightly positive (ordinary income > operating income).', 'D&A is modest (¥327m), limiting non-cash drag and supporting EBITDA margin (12.6%).'] operating_leverage:
• evidence: Operating income growth (+25.2% YoY) outpaced revenue growth (+11.8% YoY).
• interpretation: Fixed-cost absorption and/or better pricing/mix likely improved, enhancing incremental margins.
• sustainability_watchpoints: ['Project mix (fixed-price vs. T&M) and delivery efficiency.', 'Wage inflation vs. billing rate adjustments.', 'Utilization and subcontracting ratios in H2.']

Growth Assessment

revenue_sustainability: Double-digit topline growth (+11.8% YoY) indicates healthy demand, likely from enterprise DX and public/financial sector IT spend. Seasonality may shift more revenue recognition into H2; sustaining order intake and backlog conversion will be key. profit_quality: Net income growth (+22.6% YoY) was supported by stronger operating leverage rather than one-off non-operating gains. Minimal interest expense suggests profits are operationally derived. outlook: With conservative leverage and solid H1 margins, DTS is well positioned to pursue second-half deliveries. Key to outlook: order backlog, book-to-bill, pricing power vs. wage pressure, and ability to manage project execution risks.

Financial Health

liquidity:

• current_ratio: 282.7%
• quick_ratio: 277.2%
• working_capital_yen: 37353000000
• commentary: Ample short-term liquidity with low inventory intensity (inventories ¥1.13bn), typical for SI services. solvency:
• debt_to_equity_ratio: 0.35x (based on total liabilities/equity)
• interest_coverage: 2694x (EBIT/interest)
• equity_ratio_computed: ≈76.0% (Total Equity/Total Assets)
• commentary: Very low leverage and extremely high coverage imply minimal refinancing risk. capital_structure: Balance sheet is equity-heavy, providing flexibility for investment, M&A, or shareholder returns as policy permits.

Cash Flow Quality

earnings_quality:

• OCF_to_Net_Income: 0.92
• interpretation: OCF of ¥5.05bn vs. NI of ¥5.47bn suggests sound cash conversion for a mid-year period; working capital seasonality likely explains the <1.0x ratio. FCF_analysis:
• OCF_yen: 5052000000
• Capex_yen: 0
• Investing_CF_yen: 0
• Reported_FCF: 0
• notes: Investing CF and capex are not disclosed (shown as 0). True FCF cannot be determined from provided data; OCF is the best available proxy. working_capital:
• observations: ['Strong current asset base (¥57.8bn) vs. current liabilities (¥20.4bn).', 'Low inventories (¥1.13bn) indicate limited inventory risk; receivables timing will drive H2 OCF.']
• watch: ['Days sales outstanding (DSO) and collection cycle in H2.', 'Unbilled receivables/backlog conversion.']

Dividend Sustainability

payout_ratio_assessment: Payout ratio is shown as 0.0% due to undisclosed dividend (DPS 0.00 indicates unreported). Without dividend and share count data, payout analysis cannot be quantified. FCF_coverage: FCF is shown as 0 due to undisclosed investing/capex; thus FCF coverage cannot be assessed. Based on strong OCF and low leverage, capacity for shareholder returns likely exists, subject to policy. policy_outlook: Given conservative balance sheet and healthy cash generation, DTS has flexibility to maintain or enhance returns if in line with historical policy; confirmation requires actual DPS and capex disclosures.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts (schedule slippage, cost overruns).
• Wage inflation and talent retention in a tight IT labor market.
• Client IT budget cyclicality and potential delays in large transformation programs.
• Concentration risk in key verticals (e.g., financials/public sector) if applicable.
• Cybersecurity and data protection risk in systems integration and operations.
• Offshore delivery and subcontractor dependency risks.

Financial Risks:

• Working capital swings impacting OCF (receivables collection timing).
• Potential increase in subcontracting costs compressing margins.
• Limited disclosed information on cash balance and capex complicates FCF visibility.
• Exposure to interest rate changes minimal but present for deposit income and any variable contracts.

Key Concerns:

• Sustaining margin gains amid wage pressures in H2.
• Visibility on backlog and order intake to support continued double-digit growth.
• Lack of disclosed investing cash flows and cash balance obscures true FCF and liquidity buffer size.

Investment Implications

Key Takeaways:

• Strong H1: revenue +11.8% YoY and operating income +25.2% YoY with operating margin ≈12.1%.
• Healthy ROE (9.15%) primarily from solid net margin and decent asset turnover, with conservative leverage.
• Robust liquidity (current ratio 2.83x; quick 2.77x) and negligible interest burden (coverage >2,600x).
• OCF/NI at 0.92 indicates respectable cash conversion; monitor H2 working capital release.
• Data gaps (dividends, investing CF, cash balance, share count) limit FCF and per-share analytics.

Metrics to Watch:

• Order backlog and book-to-bill ratio.
• Operating margin and SG&A ratio trends in H2.
• Utilization, subcontracting ratio, and average billing rate vs. wage inflation.
• OCF/NI conversion (>1.0x over full year) and DSO.
• Capex/M&A outflows and updated capital allocation (dividends/buybacks).

Relative Positioning: Within Japan’s SI/mid-cap IT services peer set, DTS exhibits above-average balance sheet strength, solid mid-teens EBITDA-to-EBIT conversion, and improving margins; growth is competitive, with execution in H2 and backlog visibility as key differentiators.

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