| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥468.2B | ¥392.3B | +19.4% |
| Operating Income / Operating Profit | ¥111.3B | ¥86.8B | +28.2% |
| Ordinary Income | ¥114.4B | ¥88.7B | +29.0% |
| Net Income / Net Profit | ¥79.6B | ¥63.1B | +26.1% |
| ROE | 7.4% | 5.8% | - |
FY2026 Q2 results recorded Revenue ¥468.2B (YoY +¥76.0B +19.4%), Operating Income ¥111.3B (YoY +¥24.5B +28.2%), Ordinary Income ¥114.4B (YoY +¥25.7B +29.0%), Net Income ¥79.6B (YoY +¥16.5B +26.1%), achieving double-digit increases across profit measures. The Local Government Business surged (Revenue +54.6%, Operating Income +237.6%), driving companywide performance. Operating margin improved to 23.8% (YoY +1.7pt) and net margin to 17.0% (YoY +0.9pt). Operating Cash Flow was ¥125.7B (YoY +282.4%), Free Cash Flow was ¥89.7B, and total shareholder return combining dividends ¥30.9B and share buybacks ¥59.5B reached about 113%, reflecting an active shareholder return policy. Progress against full-year plan stood ahead of schedule at 54.8% of Revenue, 67.0% of Operating Income, and 65.5% of Net Income.
Revenue ¥468.2B (YoY +19.4%) breakdown: Local Government Business ¥187.9B (+54.6%), Accounting Firm Business ¥265.4B (+3.9%), Printing Business ¥24.5B (+5.3%). Recognition of large projects in the Local Government Business drove companywide growth, increasing its share to 40.1% (prior year 31.0%). The Accounting Firm Business maintained steady growth but its revenue share fell to 56.7% (prior year 65.1%), indicating structural change in the segment portfolio. Gross profit was ¥331.2B (gross margin 70.7%), up ¥40.5B YoY with gross margin improving by +1.4pt from 69.3%, supported by improved project mix and economies of scale.
SG&A was ¥219.9B (SG&A ratio 47.0%), up ¥34.9B YoY but below revenue growth, producing operating leverage. Operating Income ¥111.3B (operating margin 23.8%) rose +28.2% YoY, outpacing revenue growth. Non-operating income was ¥3.2B (including ¥2.1B in dividend income), limited at 0.7% of revenue; non-operating expenses were ¥0.1B and negligible. Ordinary Income ¥114.4B (YoY +29.0%) increased roughly in line with Operating Income. Extraordinary items were minor: extraordinary gains ¥0.0B, extraordinary losses ¥0.3B (including ¥0.2B impairment of fixed assets). Income before income taxes ¥114.1B incurred income taxes of ¥34.5B (effective tax rate 30.2%), resulting in Net Income ¥79.6B (YoY +26.1%). Comprehensive income was ¥86.1B; the ¥6.5B difference from Net Income comprised ¥5.6B in valuation differences on available-for-sale securities and ¥0.8B in adjustments related to retirement benefits. Conclusion: revenue and profit growth.
The Local Government Business posted Revenue ¥187.9B (YoY +54.6%), Operating Income ¥56.7B (YoY +237.6%), achieving a high-growth, high-margin profile with an operating margin of 30.2%, becoming the largest profit-contributing segment on a quarterly basis. The Accounting Firm Business maintained stable Revenue ¥265.4B (YoY +3.9%) but Operating Income declined to ¥54.4B (YoY -22.2%), with operating margin deteriorating to 20.5% (down -6.9pt from 27.4%), indicating significant margin deterioration—likely due to SG&A and support cost growth outpacing revenue. The Printing Business recorded Revenue ¥24.5B (YoY +5.3%), Operating Income ¥0.0B (YoY +133.3%), with a 0.1% operating margin delivering marginal profit. There is a growing bifurcation in profitability between the high-margin Local Government Business and the lower-margin Accounting Firm Business.
Profitability: Operating margin 23.8% (YoY +1.7pt), Net margin 17.0% (YoY +0.9pt) improved. ROE 7.4% is consistent with Net margin 17.0% × Total Asset Turnover 0.36 × Financial Leverage 1.22x. Improvement in total asset turnover was the main driver, as large Local Government projects produced revenue growth exceeding asset growth. Gross margin 70.7% (YoY +1.4pt) reflects better project mix and economies of scale.
Cash Quality: Operating Cash Flow / Net Income is 1.58x, Operating Cash Flow / EBITDA (Operating Income + Depreciation) is 0.94x, indicating solid cash backing of profits. The accrual ratio is -3.5% (difference between Operating CF and Net Income as a share of Revenue), showing high cash-based profit quality. DSO (Days Sales Outstanding) is 91 days, lengthening YoY and indicating delays in collections.
Investment Efficiency: CapEx / Depreciation is 0.43x, indicating restrained investment—supportive to near-term profit and cash flows but posing a medium-term risk to product competitiveness and growth sustainability.
Financial Soundness: Equity Ratio 82.1% (prior year 83.6%), Current Ratio 264%, Quick Ratio 260.6%—extremely healthy. Debt-to-equity ratio 0.22x, Interest Coverage is effectively incalculable using Operating Income / Interest Expense (interest-bearing debt is virtually zero), implying minimal financial risk.
Operating Cash Flow was ¥125.7B (YoY +282.4%), primarily driven by increased income before taxes (+¥25.4B), build-up of bonus reserves (+¥8.1B), and non-cash depreciation ¥22.8B. Increases in trade receivables -¥5.0B and decreases in trade payables -¥9.2B pressured working capital, but even after income tax payments -¥24.4B, a high level of OCF was generated. Investing Cash Flow was -¥36.1B, with CapEx -¥9.9B and intangible asset acquisitions -¥12.0B (estimated), indicating restrained investment. Time deposit flows (net -¥14.0B from +¥16.0B/-¥30.0B) are also included in investing CF. Free Cash Flow was ¥89.7B (Operating CF + Investing CF), and Financing Cash Flow was -¥91.0B (share buybacks -¥59.5B, dividends -¥30.9B, long-term borrowings repayment -¥0.4B, etc.). Cash and deposits remained high at ¥391.4B (prior year ¥368.8B). Contract liabilities decreased to ¥7.9B (from ¥13.9B, -43.0%), indicating a shrinkage of the advance payment buffer.
Non-operating income ¥3.2B (0.7% of revenue) comprised ¥2.1B dividend income, ¥0.2B insurance dividends, etc., so non-operating revenue was limited. Extraordinary items were minor (gains ¥0.0B, losses ¥0.3B), so transitory factors had little effect. The ¥34.8B gap between Ordinary Income ¥114.4B and Net Income ¥79.6B is mainly income taxes (effective tax rate 30.2%), within normal range. Operating CF exceeded Net Income by 1.58x, and OCF/EBITDA was 0.94x, indicating high accrual quality and limited signs of aggressive working capital manipulation. However, the increase in trade receivables and DSO lengthening to 91 days suggests some delay in cash conversion after revenue recognition; collection trends should be monitored. The ¥6.5B difference between Comprehensive Income ¥86.1B and Net Income ¥79.6B comprised ¥5.6B valuation differences on available-for-sale securities and ¥0.8B retirement benefit adjustments—other comprehensive income movements driven by market price changes of investment securities. Overall, the bulk of profits are from core operations and the quality of earnings is good.
Full-year plan: Revenue ¥855.0B (YoY +2.4%), Operating Income ¥166.0B (YoY +2.8%), Ordinary Income ¥171.0B (YoY +3.1%), Net Income ¥121.5B. Progress at Q2: Revenue 54.8% (vs. standard 50% +4.8pt), Operating Income 67.0% (+17.0pt), Net Income 65.5% (+15.5pt), moving ahead of schedule. The excess progress is attributable to large Local Government projects and margin improvements in H1. The second half is assumed to be conservatively planned with front-loaded investments and smoothing of project allocations, but the 67% operating income progress suggests upside potential. Dividend forecast remains at ¥55 per share; dividend payout ratio at Q2 is 34.7%, a sustainable level. Full-year EPS forecast is ¥235.37; Q2 realized ¥156.16 (66.3% of full-year). No revisions to earnings or dividend forecasts at this quarter.
Dividends recorded at Q2-end totaled annualized ¥50 (ordinary dividend ¥50), with a payout ratio of 34.7% (cumulative to Q2). Full-year dividend forecast is ¥55 (ordinary ¥50 + special ¥5, unchanged), implying a payout ratio of 23.4% against full-year EPS forecast ¥235.37, which is healthy. Free Cash Flow ¥89.7B covers dividend payments ¥30.9B by 2.9x, supported by cash balances ¥391.4B. Share buybacks of ¥59.5B were completed per the cash flow statement; combined with dividends, total returns were ¥90.4B, approximately 113% of Net Income ¥79.6B (Total Return Ratio). Treasury stock at book value decreased from -¥30.6B to -¥13.6B (55.7% reduction), and cancellation progress after repurchases contributes to improved capital efficiency and per-share metrics. High total returns are supported by strong FCF generation and cash balances, but continuity depends on sustained Operating CF and balance with investment levels.
Segment profitability polarization: The Accounting Firm Business accounts for 56.7% of revenue but suffered a large -22.2% decline in Operating Income; continued deterioration could spread to companywide margins. The Local Government Business is high-growth but sensitive to timing shifts of public projects and bidding environments, leading to high portfolio concentration risk.
Prolonged collection cycles and working capital pressure: DSO 91 days and delayed receivables collections are evident, causing delayed cash conversion after revenue recognition. Contract liabilities shrank from ¥13.9B to ¥7.9B, reducing the advance payment buffer, which may widen timing differences in cash generation and revenue realization in H2.
Suppressed investment levels and medium-term competitiveness: CapEx / Depreciation of 0.43x indicates restrained development/infrastructure investment—helpful for near-term profits but posing risk to medium-term product competitiveness and cloud-readiness. Intensified competition from SaaS-first firms could erode relative positioning.
Profitability & Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 23.8% | 14.0% (3.8%–18.5%) | +9.8pt |
| Net Margin | 17.0% | 9.2% (1.1%–14.0%) | +7.8pt |
Operating margin 23.8% exceeds the industry median 14.0% by 9.8pt, placing the company among the higher-profitability firms within the IT services industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 19.4% | 21.0% (15.5%–26.8%) | -1.6pt |
Revenue growth 19.4% is 1.6pt below the industry median 21.0%, with a large gap to the 3rd quartile (26.8%), reflecting growth structure dependent on specific segments.
※ Source: Company compilation
High-growth, high-margin Local Government Business is driving company performance and advancing full-year profit progress to 67% ahead of schedule. While upside exists, full-year outcomes hinge on second-half project allocation and bidding conditions, and timing risks are present.
The Accounting Firm Business shows severe margin deterioration with Operating Income down 22.2%, exacerbating profitability polarization across the segment portfolio. Success in improving ARPU and cost optimization will determine medium-term company margin stability.
Operating CF is 1.58x Net Income and Free Cash Flow ¥89.7B supports a Total Return Ratio of ~113%, enabling continued active shareholder returns. Financial soundness is extremely high, but DSO 91 days and restrained investment (CapEx/Depreciation 0.43x) could become bottlenecks to medium-term growth sustainability and cash generation.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your responsibility; please consult a professional as necessary before making investment decisions.