IX Knowledge Incorporated FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.35B
• Operating Income: ¥1.08B
• Net Income: ¥824M
• EPS: ¥86.09

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: Solid Q2 with double-digit top-line growth and stronger profitability, tempered by softer cash conversion. Revenue grew 11.2% YoY to 123.54 and operating income rose 15.9% YoY to 10.84, indicating healthy operating leverage. Net income increased 23.3% YoY to 8.23, aided by modest non-operating gains (dividend income 0.50 and interest income 0.03). Operating margin improved to 8.8% (10.84/123.54), implying an estimated expansion of about 36 bps YoY based on reported growth rates. Net margin rose to 6.7% (8.23/123.54), an estimated expansion of about 66 bps YoY. Gross margin stands at 20.2%, supporting the operating margin improvement despite SG&A of 14.10. Ordinary income reached 11.45 (+16.7% YoY), reflecting stable core earnings with limited non-operating noise (non-operating income 0.65 vs expenses 0.04). The effective tax rate was 31.5%, broadly in line with domestic norms, suggesting no unusual tax effects. Balance sheet quality remains a strength: equity 107.25 (approx. 69.1% equity ratio), cash and deposits 67.19, and low financial debt (long-term loans 1.90). Liquidity is ample with a current ratio of 314.8% and working capital of 75.53. However, operating cash flow of 6.54 trails net income (8.23), yielding an OCF/NI of 0.79x, a mild earnings quality flag. Receivables are 41.79 (about 34% of 1H revenue), pointing to typical SI/IT services seasonality but worth monitoring for collection timing. Dividend affordability appears reasonable with a calculated payout ratio of 52.5%, though FCF and total dividends paid were not disclosed. Forward-looking, continued DX demand and favorable mix can sustain margins, but wage inflation and project execution discipline will be key to preserving operating leverage. The company’s conservative balance sheet provides flexibility for investment and shareholder returns. We will watch order intake, AR days, and any updates on capex/investments to validate sustainability into 2H.

Profitability Analysis

ROE (7.7%) decomposition: Net Profit Margin (≈6.7%) × Asset Turnover (≈0.796) × Financial Leverage (≈1.45x) = ≈7.7%. The largest positive change this quarter appears to be margin-driven: operating income grew 15.9% vs revenue +11.2%, implying operating margin expansion of roughly 36 bps to 8.8%. Net margin expansion of about 66 bps to 6.7% further supported ROE. Asset turnover looks stable at ~0.80 (typical for an SI business with modest asset base), and leverage remains low to moderate at ~1.45x, so neither likely drove material ROE change. Business drivers: improved gross-to-operating conversion (gross margin 20.2%) and tight SG&A control (14.10 vs revenue growth) underpinned operating leverage; small, recurring non-operating income (dividends 0.50) also helped ordinary income. Sustainability: mix and utilization-driven margin gains can be sustainable if pricing and delivery efficiency hold; non-operating income is modest and recurring, so not a one-time boost. Watchpoints: if SG&A (especially personnel costs) accelerates faster than revenue due to wage inflation or hiring, margin gains could compress. No evidence of SG&A growth outpacing revenue this quarter based on margin expansion signals.

Growth Assessment

Top-line growth of 11.2% YoY to 123.54 is robust for a mid-sized SI, suggesting resilient demand in core verticals and DX-related engagements. Operating income growth outpaced revenue (+15.9% YoY), evidencing operating leverage from utilization and project mix. Net income +23.3% YoY benefitted from margin expansion and steady non-operating contributions, not one-off gains. Revenue sustainability hinges on order backlog and client IT budgets; without disclosed backlog, we infer momentum from 1H growth and margin behavior. Profit quality is good at the P&L level (ordinary income +16.7%), but slightly weaker cash conversion (OCF/NI 0.79x) tempers the view. Outlook: with a strong balance sheet and low leverage, the company can continue investing in talent/tools to support growth; key constraints will be labor availability and pricing discipline amid industry wage pressures.

Financial Health

Liquidity is strong: current ratio 314.8% and quick ratio 314.8%, with current assets 110.68 vs current liabilities 35.16. No warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.45x as reported, and long-term loans are only 1.90. Calculated equity ratio is approximately 69.1% (107.25/155.28), indicating a well-capitalized balance sheet. Maturity mismatch risk appears low given ample cash (67.19) relative to current liabilities (35.16) and minimal disclosed debt; short-term loans are unreported, but liquidity coverage looks comfortable. Interest coverage is extremely strong at 524x, reflecting negligible interest burden. Off-balance sheet obligations were not disclosed; no data on lease liabilities or guarantees was provided.

Cash Flow Quality

OCF/Net Income is 0.79x, slightly below the 0.8 threshold, indicating softer cash conversion this half—likely due to working capital timing (accounts receivable 41.79 equals ~34% of 1H sales). No detailed working capital bridge was disclosed, but SI businesses often see 1H build and 2H collection; monitor AR days and unbilled receivables (not disclosed). Free cash flow was not reported due to missing investing cash flows and capex, limiting assessment. Financing cash flow was -4.29, likely reflecting dividends and minor debt service; share repurchases were negligible (-0.00). Given strong cash on hand (67.19) and low debt, near-term liquidity for operations and dividends is adequate, but sustaining higher payouts should be tied to consistent OCF recovery in 2H.

Dividend Sustainability

The calculated payout ratio is 52.5%, within a generally sustainable <60% range. However, FCF and total dividends paid were unreported, preventing precise coverage analysis. OCF of 6.54 trails net income of 8.23 this half, so short-term coverage from internally generated cash is weaker, but offset by a large cash balance (67.19) and minimal debt. With operating momentum and historically seasonal cash conversion, the current payout level appears manageable, subject to 2H OCF normalization. Policy outlook is likely stable given balance sheet strength; any upward shift would prudently depend on demonstrated FCF consistency and visibility on capex and hiring needs.

Risk Assessment

Business Risks:

• Project execution and delivery risk on fixed-price SI contracts impacting margins.
• Wage inflation and talent retention pressures potentially lifting SG&A faster than revenue.
• Client IT budget cyclicality affecting order intake and utilization.
• Competition-driven pricing pressure in system integration and DX services.

Financial Risks:

• Softer cash conversion (OCF/NI 0.79x) indicating working capital timing risk.
• Receivables concentration risk given AR of 41.79 relative to 1H revenue.
• Market value volatility of investment securities (32.57) impacting comprehensive income.
• Limited disclosure on short-term borrowings and investing cash flows creates visibility gaps.

Key Concerns:

• EARNINGS_QUALITY flag triggered (OCF/NI < 0.8).
• Dependence on 2H collections to normalize cash flow.
• Potential margin pressure if personnel costs accelerate or utilization softens.

Investment Implications

Key Takeaways:

• Healthy 1H growth with operating leverage: revenue +11.2%, OP +15.9%.
• Operating margin at 8.8% and net margin at 6.7% show YoY expansion.
• Balance sheet is robust: equity ratio ~69.1%, cash 67.19, long-term loans 1.90.
• Cash conversion below par (OCF/NI 0.79x); watch 2H normalization.
• Dividend payout (~52.5%) looks manageable given cash and low leverage.

Metrics to Watch:

• Order intake/backlog and book-to-bill.
• AR days and unbilled receivables; OCF/NI trajectory in 2H.
• Utilization rates and average billing rates.
• SG&A growth vs revenue; personnel cost per head and hiring plans.
• Any capex/investment plans and updates on investment securities portfolio.

Relative Positioning: Versus domestic mid-tier SI peers, profitability is solid with an 8.8% operating margin and very conservative leverage, though ROE at 7.7% is below the 10%+ often targeted by higher-performing peers; cash-rich balance sheet provides optionality for investment and stable shareholder returns.

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