NSW Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.85B
• Operating Income: ¥2.36B
• Net Income: ¥1.91B
• EPS: ¥111.83

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

NSW Co., Ltd. (97390) delivered modest top-line growth in FY2026 Q2, with revenue up 2.7% year over year to ¥24.85bn, but experienced margin compression and lower operating profitability. Gross profit was ¥4.86bn, implying a 19.6% gross margin, while operating income declined 14.4% YoY to ¥2.36bn, taking operating margin to roughly 9.5%. Ordinary income of ¥2.43bn indicates small positive non-operating contributions versus operating profit. Net income came in at ¥1.67bn (-12.6% YoY), translating to a 6.7% net margin and EPS of ¥111.83 for the period. DuPont metrics suggest ROE of 4.58%, driven mainly by a modest net margin, mid-level asset turnover (0.525x), and low financial leverage (1.30x). Liquidity appears very strong: current assets of ¥36.86bn versus current liabilities of ¥8.83bn imply a current ratio of about 418% and working capital of ¥28.03bn. Solvency looks conservative with total liabilities of ¥11.74bn against equity of ¥36.40bn (implied equity ratio ~77% based on non-zero line items despite the reported 0.0% placeholder). Operating cash flow was ¥0.89bn, trailing net income (OCF/NI 0.54), pointing to working capital headwinds or timing effects typical for SIers mid-year. EBITDA was ¥2.58bn (10.4% margin), supported by relatively light D&A (¥0.22bn), indicating a people- and subcontractor-intensive model rather than capital-intensive. The effective tax rate, inferred from disclosed tax expense and net income, is approximately 34%, consistent with a typical domestic burden. Financing cash outflow of ¥0.82bn suggests shareholder returns or debt service, though dividends are not disclosed in the XBRL (zeros denote unreported). Balance sheet strength provides a cushion to absorb cash flow volatility, yet the H1 OCF softness merits monitoring for conversion in H2. The revenue increase alongside a decline in operating profit suggests rising labor/subcontracting costs, price pressure, or a less favorable project mix. Overall, NSW remains profitable with a strong financial base, but near-term operating leverage is unfavorable and cash conversion lagged earnings in the half. Visibility on investing cash flows and cash balance is limited due to non-disclosure in these line items, constraining a full free cash flow assessment. Key watchpoints include order intake, backlog, utilization, and unit pricing to gauge the durability of growth and path to margin recovery.

Profitability Analysis

ROE_decomposition: ROE 4.58% = Net margin 6.70% × Asset turnover 0.525 × Financial leverage 1.30. The primary driver is a modest net margin, with moderate efficiency and low leverage. margin_quality: Gross margin 19.6% and operating margin ~9.5% indicate healthy but pressured economics; operating income declined 14.4% YoY despite 2.7% revenue growth, implying cost inflation or mix effects. Net margin of 6.7% remains solid for a domestic SIer but trended down YoY alongside OP. operating_leverage: Negative in the period: revenue rose modestly, but OP fell meaningfully, indicating elevated labor/subcontractor costs, lower utilization, or fixed-price project slippage. EBITDA margin of 10.4% vs OP margin ~9.5% shows limited D&A tailwind; earnings are sensitive to personnel and subcontracting costs rather than depreciation.

Growth Assessment

revenue_sustainability: Top-line grew 2.7% YoY to ¥24.85bn, consistent with stable demand but below high-growth SI peers. Sustainability hinges on backlog, DX/cloud migration, and embedded/industry vertical demand; absent order data, growth appears modest and likely volume- rather than price-led. profit_quality: Ordinary income (¥2.43bn) slightly above OP (¥2.36bn) suggests small non-operating gains; core profitability is the main driver. The decline in OP vs revenue growth flags margin pressure that could prove transitory if pricing and utilization improve, but bears monitoring. outlook: Assuming typical H2 weighting in Japanese SI cycles, revenue and cash conversion could improve in H2. Margin recovery depends on passing through wage inflation, optimizing subcontractor mix, and executing higher-value projects; otherwise ROE may remain range-bound near mid-single digits.

Financial Health

liquidity: Current assets ¥36.86bn vs current liabilities ¥8.83bn yields a current ratio ~418% and working capital of ¥28.03bn, indicating very strong liquidity. Quick ratio is reported equal to current ratio due to undisclosed inventories (not assumed zero). solvency: Total liabilities ¥11.74bn vs equity ¥36.40bn implies liabilities/equity ~0.32x and an implied equity ratio near 77% (despite the 0.0% placeholder), reflecting a conservative balance sheet. capital_structure: Low leverage and strong equity base underpin resilience. Interest expense is undisclosed (reported as zero), but even with modest debt, coverage would be ample given OP ¥2.36bn.

Cash Flow Quality

earnings_quality: OCF ¥0.89bn vs NI ¥1.67bn gives OCF/NI of 0.54, indicating weaker cash conversion in H1 likely due to receivables build or milestone timing common in SI projects. FCF_analysis: Investing CF is undisclosed (reported zero), preventing a reliable FCF calculation; EBITDA of ¥2.58bn and modest D&A (¥0.22bn) suggest low capital intensity, but working capital swings can dominate near-term FCF. working_capital: Large working capital base (¥28.03bn) supports operations but can absorb cash when growth/seasonality drives receivable increases; monitor DSO and unbilled receivables for normalization in H2.

Dividend Sustainability

payout_ratio_assessment: DPS and payout are undisclosed (zeros denote unreported). Based on NI of ¥1.67bn in H1 and conservative leverage, capacity exists for distributions, but without DPS we cannot compute payout. FCF_coverage: With investing CF undisclosed and OCF lagging NI, FCF coverage cannot be reliably assessed; financing outflow of ¥0.82bn may reflect dividends or buybacks, but details are not provided. policy_outlook: Given a historically conservative balance sheet profile in the sector, stable-to-gradual dividend policies are common; sustainability depends on H2 cash conversion and maintaining mid-to-high single-digit net margins.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts leading to cost overruns and margin erosion.
• Wage inflation and subcontractor cost increases outpacing pricing power.
• Utilization fluctuations impacting gross margin and operating leverage.
• Customer IT investment cycles and potential slowdown in enterprise/public sector demand.
• Talent retention and hiring constraints in a competitive SI labor market.
• Mix risk between higher-margin DX/consulting and lower-margin build-run engagements.

Financial Risks:

• Working capital expansion and weaker cash conversion (OCF/NI 0.54) stressing near-term cash flows.
• Concentration of receivables and potential delays in milestone billings.
• Limited visibility on investing cash flows and cash balances due to undisclosed items.
• Potential increase in dividends/buybacks (financing CF outflow) reducing cash buffers if cash conversion lags.

Key Concerns:

• Margin compression with OP down 14.4% YoY despite revenue growth.
• H1 cash conversion below earnings, relying on H2 normalization.
• Dependence on labor cost management and pricing to restore operating leverage.

Investment Implications

Key Takeaways:

• Modest revenue growth (+2.7% YoY) but clear margin pressure with OP -14.4% YoY.
• ROE at 4.58% reflects low leverage and margins; improvement requires better margin mix or efficiency.
• Liquidity and solvency are strong (implied equity ratio ~77%, current ratio ~418%).
• Cash conversion lagged (OCF/NI 0.54), likely due to working capital; monitor H2 recovery.
• Non-operating items modest; core operations drive earnings trajectory.

Metrics to Watch:

• Order intake and backlog/book-to-bill for revenue visibility.
• Utilization rate, subcontractor ratio, and average billing rates for margin trajectory.
• SG&A and personnel cost growth versus revenue growth.
• DSO, unbilled receivables, and OCF/NI to assess cash conversion.
• Segment mix (DX/cloud, embedded/industry) and recurring revenue share.
• H2 operating margin and EBITDA margin progression.

Relative Positioning: Balance sheet strength and conservative leverage compare favorably to peers, but current-period operating leverage and cash conversion are weaker than best-in-class domestic SI peers; sustained margin recovery and improved OCF would be needed to close the gap.

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