KYCOM HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.48B
• Operating Income: ¥230M
• Net Income: ¥203M
• EPS: ¥39.87

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 growth with modest profit improvement and strong cash conversion, but capital efficiency remains weak and operating margin compressed. Revenue grew 8.1% YoY to 34.85, supported by gross profit of 7.18 and operating income of 2.30 (+1.0% YoY). Ordinary income rose to 2.53 (+2.4% YoY), while net income increased 9.1% YoY to 2.02. Operating margin stands at 6.6% (2.30/34.85), ordinary margin at 7.3% (2.53/34.85), and net margin at 5.8% (2.02/34.85). Using YoY growth rates, we estimate operating margin compressed by about 47 bps YoY (from ~7.1% to 6.6%) and ordinary margin compressed by ~40 bps, while net margin expanded by ~6 bps. Gross margin is 20.6%, indicating pricing or mix pressures given the gap to operating margin. Cash generation was strong: operating cash flow of 4.01 implies OCF/NI of 1.99x, comfortably above the 1.0x quality threshold. Implied free cash flow of about 3.20 (OCF 4.01 minus capex 0.81) covers a calculated payout of roughly 25.3% with room to spare. Liquidity is healthy with a current ratio of 210% and quick ratio of 210%, and leverage is moderate with D/E at 0.70x and interest coverage at 20.66x. However, ROE of 4.2% and ROIC of 3.5% are below typical cost of equity and management benchmarks, flagging capital efficiency as a key concern. Non-operating income (0.35) contributed meaningfully (non-operating income ratio 17.3%), indicating some reliance on below-the-line items for earnings support. Financing cash flow of -2.06 suggests debt repayment and/or dividends, consistent with balance sheet conservatism. Equity rose to 48.07 with retained earnings at 26.93, supporting book value per share of ~946 JPY. Tax expense of 1.02 implies an effective tax rate of 33.5%, broadly in line with Japan’s statutory range. Overall, the quarter balances growth and cash discipline but faces operating margin pressure and subpar returns, implying management may need to improve mix, utilization, and pricing to lift ROIC. Forward-looking, maintaining revenue momentum while protecting gross margin and SG&A discipline will be critical to reverse ROE/ROIC underperformance.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.2% = Net Profit Margin 5.8% × Asset Turnover 0.427 × Financial Leverage 1.70x. The most notable drag is low asset turnover (0.427), which suppresses ROE despite healthy leverage and mid-single-digit net margin. Operating margin compressed to 6.6% despite revenue +8.1% YoY, indicating negative operating leverage (cost growth outpaced revenue). Ordinary margin also compressed (40 bps by our estimate), while net margin edged up (+6 bps) aided by non-operating income and a stable tax rate. Business drivers likely include higher cost of sales (mix or input costs) and SG&A absorption challenges; SG&A details are unreported, but the spread between gross (20.6%) and operating margins (6.6%) widened YoY based on OI growth lagging revenue. Sustainability: the net margin improvement appears modest and partly supported by non-operating gains (0.35), making it less durable than pure operating improvements. Gross-to-operating conversion remains a focus area; absent SG&A breakdown, we infer wage inflation and project delivery costs as likely headwinds. Warning flags: capital efficiency remains weak (ROIC 3.5% vs 7–8% target), and non-operating income accounts for a meaningful share of ordinary profit (17.3%), elevating earnings volatility risk if such items normalize.

Growth Assessment

Revenue growth of 8.1% YoY to 34.85 demonstrates resilient demand. Operating income grew only 1.0% YoY to 2.30, indicating margin pressure; net income growth of 9.1% to 2.02 benefited from below-the-line support. Gross profit of 7.18 (GPM 20.6%) shows that pricing/mix or delivery costs constrained expansion. With ordinary income at 2.53 (+2.4%), core profitability grew, but slower than revenue. Revenue sustainability appears reasonable near term, though the quality of growth hinges on improving gross margin and controlling SG&A. EBITDA of 3.05 implies an EBITDA margin of 8.8%, consistent with moderate operating efficiency for a small-cap IT/services profile. Order visibility, backlog, and customer mix are not disclosed; thus, medium-term sustainability cannot be fully assessed. Non-operating income (0.35) helped bridge to ordinary income; absent this support, profit growth would be weaker. Outlook: focus on mix shift toward higher-margin services and utilization improvements to stabilize OPM; if achieved, earnings growth can better track or exceed revenue growth. Without margin recovery, incremental growth may dilute returns given low asset turnover and ROIC.

Financial Health

Liquidity is strong: current ratio 210.3% and quick ratio 210.3% (no inventory reported), comfortably above thresholds and no warning triggers. Solvency is sound with D/E at 0.70x and interest coverage at 20.66x; no leverage warning (D/E < 2.0). Maturity profile appears manageable: short-term loans of 2.90 are covered by cash and deposits of 22.88 and current assets of 33.02; limited maturity mismatch risk. Long-term loans are 15.20 against total equity of 48.07, indicating moderate leverage. Working capital is positive at 17.32, and accounts payable are small (0.66), suggesting limited supplier financing risk. No off-balance sheet obligations are disclosed in the provided data. Equity base is healthy with retained earnings of 26.93, supporting financial flexibility.

Cash Flow Quality

Earnings quality is high with OCF/Net Income at 1.99x (>1.0x threshold), indicating robust cash conversion. Operating CF of 4.01 versus net income of 2.02 suggests earnings are backed by cash, not accruals. Capex of 0.81 implies an estimated free cash flow of about 3.20 (OCF 4.01 minus capex 0.81), which is ample for dividends and potential debt reduction. Financing CF of -2.06 likely reflects net repayments and/or dividends; exact dividend cash outflow is unreported. No clear signs of working capital manipulation can be inferred from available data (accounts receivable/inventories unreported), but strong OCF supports quality. The company appears capable of funding maintenance capex and a moderate dividend while preserving balance sheet strength.

Dividend Sustainability

The calculated payout ratio is 25.3%, which is conservative and well below the 60% caution threshold. With estimated FCF of ~3.20, dividend coverage looks comfortable even if capex modestly rises. DPS is unreported, and total dividend cash payments are not disclosed; however, the payout ratio implies dividends of roughly 0.51 against net income of 2.02. Balance sheet capacity (cash 22.88, low near-term debt needs) further supports sustainability. Policy outlook is unclear due to lack of disclosure, but current cash generation and conservative leverage provide room to maintain or gradually raise dividends, contingent on sustained OCF.

Risk Assessment

Business Risks:

• Operating margin pressure from wage inflation and project delivery costs eroding gross-to-operating conversion
• Dependence on non-operating income (17.3% of ordinary profit) to support earnings
• Potential project execution and fixed-price contract risks typical for IT/services
• Customer concentration risk and timing of orders/backlog (not disclosed)
• Competitive pricing pressure in domestic SI/IT services market

Financial Risks:

• Low ROIC at 3.5% (<5% warning) indicating subpar capital efficiency
• Interest rate risk on existing debt if floating rate exposure exists
• Earnings sensitivity if non-operating income normalizes lower
• Limited visibility on accounts receivable/inventory levels and credit risk due to non-disclosure

Key Concerns:

• Operating margin compression (~47 bps YoY by estimate) despite 8.1% revenue growth
• ROE at 4.2% and ROIC at 3.5% below cost of equity/management benchmarks
• Ordinary margin compression (~40 bps) and reliance on non-operating income
• Data limitations: SG&A breakdown, DPS, and working capital components unreported

Investment Implications

Key Takeaways:

• Topline growth solid at +8.1% YoY; operating income growth lagged at +1.0% with margin compression
• Net income +9.1% aided by non-operating items; underlying operating momentum softer
• Cash conversion strong (OCF/NI 1.99x) with estimated FCF ~3.20, supporting dividends and deleveraging
• Balance sheet conservative: current ratio 210%, D/E 0.70x, interest coverage 20.7x
• Capital efficiency weak: ROE 4.2%, ROIC 3.5% below targets, a key structural overhang

Metrics to Watch:

• Gross margin and operating margin trajectory (bps changes QoQ/YoY)
• SG&A ratio and headcount cost trends
• Order backlog and book-to-bill (if disclosed)
• Non-operating income components and sustainability
• OCF/NI and working capital movements (receivables, payables DSO/DPO)
• Capex intensity vs growth and ROIC improvement

Relative Positioning: Within domestic small-cap IT/services peers, KYCOM shows respectable growth and strong cash/liquidity, but lags on capital efficiency and exhibits some margin pressure; overall positioned as financially conservative but return-dilutive without margin or asset turnover improvements.

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