Solekia Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.07B
• Operating Income: ¥956M
• Net Income: ¥385M
• EPS: ¥717.98

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

Solekia Co., Ltd. (9867) delivered robust FY2026 Q2 consolidated results under JGAAP, with revenue of ¥14.07bn, up 9.8% YoY, demonstrating healthy top-line momentum. Gross profit was ¥2.466bn, implying a gross margin of 17.5%, and operating income rose 56.1% YoY to ¥956m, lifting operating margin to approximately 6.8%. Ordinary income reached ¥965m and net income increased 61.1% YoY to ¥620m, underscoring significant operating leverage and cost discipline. Depreciation was a modest ¥27m, consistent with an asset-light model, and interest expense was ¥11m, reflecting minimal financial burden and an 83.5x interest coverage ratio. DuPont decomposition indicates ROE of 5.28%, driven by a 4.41% net margin, 0.607x asset turnover, and 1.97x financial leverage. Liquidity appears strong with current assets of ¥19.98bn versus current liabilities of ¥9.17bn, yielding a current ratio of 217.7% and ample working capital of ¥10.80bn. Total assets were ¥23.17bn and total equity ¥11.74bn; while the equity ratio is shown as 0.0% in the data, the implied equity ratio based on totals is about 50.6%, pointing to a sound capital base. Operating cash flow was mildly negative at -¥61m despite strong earnings, suggesting a temporary working capital build associated with growth and/or seasonality. Financing cash flow was -¥202m, likely reflecting debt repayment or other financing outflows; no investing cash flow was disclosed. The calculated OCF/Net Income ratio of -0.10 signals weak interim cash conversion, but interpretation is constrained by missing details on receivables, payables, and inventories (reported as 0, which denotes not disclosed). Dividend information is not provided (DPS and payout ratio shown as 0 indicate non-disclosure), leaving capital return policy unclear for the period. EPS was ¥717.98; back-solving suggests roughly 0.86–0.87 million shares outstanding, but shares outstanding are not formally disclosed in the dataset. Profit growth exceeding revenue growth indicates margin expansion, likely from a favorable mix, pricing, or cost control, though the lack of detailed segment and cost breakdown limits attribution. Overall, profitability trends are positive, the balance sheet appears resilient, but short-term cash conversion is soft and disclosures on cash, inventories, and capital allocation are limited. Outlook hinges on sustaining order momentum while normalizing working capital and maintaining expense discipline.

Profitability Analysis

ROE of 5.28% is explained by a 4.41% net margin, 0.607x asset turnover, and 1.97x financial leverage. Operating margin of roughly 6.8% (¥956m/¥14,070m) expanded materially YoY given operating income growth of 56.1% versus revenue growth of 9.8%, highlighting operating leverage. Gross margin at 17.5% implies reasonable value-add for an integration/services-heavy business; the spread between gross margin (17.5%) and operating margin (6.8%) suggests disciplined SG&A containment. EBITDA of ¥983m implies an EBITDA margin of about 7.0%, only slightly above operating margin due to very low depreciation (¥27m), consistent with an asset-light profile. Interest burden is negligible with interest expense of ¥11m against operating income of ¥956m, yielding an interest coverage of 83.5x and minimal drag on net margin. The net margin of 4.41% is healthy for mid-scale IT solutions/distribution; further upside may depend on mix shift to higher-margin services and maintenance/recurring streams. Ordinary income (¥965m) slightly above operating income suggests net non-operating gains or limited financial costs; however, net income (¥620m) implies items below ordinary income, including taxes and potential extraordinary effects under JGAAP. Margin quality appears solid but would benefit from visibility into segment mix and recurring revenue. Overall, operating leverage is evident and supports profitability expansion if revenue growth persists.

Growth Assessment

Revenue grew 9.8% YoY to ¥14.07bn, indicating resilient demand. Operating income growth of 56.1% YoY and net income growth of 61.1% YoY outpaced revenue, revealing strong incremental margins. The magnitude of profit growth suggests favorable mix, pricing, and/or cost efficiencies; limited disclosure prevents precise attribution. Low depreciation (¥27m) indicates growth is not being driven by heavy capital intensity, consistent with services and integration-led expansion. Asset turnover of 0.607 suggests efficient deployment of assets for an interim period, though turnover metrics can be dampened by half-year timing effects. Sustainability hinges on backlog/order book and service attach rates; these are not disclosed. Given negative OCF (-¥61m), growth appears to be accompanied by working capital investment (likely receivables build), which is common in H1 but should normalize as collections occur. The YoY operating leverage is a positive signal; sustaining double-digit profit growth will require continued cost control and higher-margin revenue streams. Outlook is cautiously positive, contingent on maintaining demand and converting earnings to cash in H2.

Financial Health

Total assets are ¥23.17bn and total equity ¥11.74bn, implying an equity ratio of approximately 50.6% (despite the reported 0.0% placeholder), indicative of a well-capitalized balance sheet. Total liabilities of ¥11.16bn translate to a debt-to-equity ratio of 0.95x when measured as total liabilities/equity. Current assets of ¥19.97bn versus current liabilities of ¥9.17bn yield a current ratio of 217.7%, reflecting strong short-term liquidity. Working capital is ample at ¥10.80bn, providing a buffer for operations and growth. Interest expense is low at ¥11m, and the interest coverage ratio of 83.5x signifies limited solvency risk from financing costs. Cash and equivalents are shown as 0 (non-disclosed), so the cash cushion cannot be directly assessed; however, the liquidity ratios suggest adequate headroom. The balance between liabilities and equity appears prudent, supporting ongoing operations and potential investments without excessive leverage.

Cash Flow Quality

Operating cash flow of -¥61m contrasts with net income of ¥620m, for an OCF/Net Income ratio of -0.10, indicating weak interim cash conversion likely driven by working capital movements (e.g., receivables growth tied to higher sales). Depreciation is minimal at ¥27m, so earnings quality from a non-cash expense perspective is not inflated; however, the lack of disclosure on inventories (0 indicates non-disclosure) and payables complicates a granular bridge. Investing cash flow is undisclosed (0 placeholder), so true free cash flow cannot be determined; any capex or software investments are unknown. Financing cash outflow of -¥202m suggests debt repayment or other financing uses; dividends are not evidenced in the period based on the placeholders. Given these gaps, a strict FCF assessment is not possible; a proxy FCF using OCF minus capex cannot be computed without capex. Key watchpoint is whether receivable collections improve in H2 to bring OCF in line with earnings.

Dividend Sustainability

Dividend data (DPS 0.00, payout ratio 0.0%, FCF coverage 0.00x) reflect non-disclosure rather than confirmed zero payments. With net income of ¥620m and robust liquidity metrics, the capacity to fund dividends appears present, but policy and intentions are not stated. True FCF is unknown due to missing investing cash flows and capex data; hence, FCF coverage of dividends cannot be assessed. Balance sheet strength (implied equity ratio ~50.6%) supports potential distributions, but interim negative OCF underscores the need for working capital normalization before committing to higher payouts. Until the company provides dividend guidance and capex visibility, dividend sustainability and trajectory remain indeterminate.

Risk Assessment

Business Risks:

• Revenue concentration in large systems integration projects could create lumpiness in orders and collections.
• Execution risk on multi-period projects may pressure margins if costs overrun.
• Competitive pressure in IT solutions/services could compress pricing and gross margin.
• Dependence on hardware procurement cycles may expose results to supply chain variability and vendor terms.
• Talent retention and wage inflation risk in a tight IT labor market.

Financial Risks:

• Negative OCF in the interim period highlights working capital stretch risk if receivable collections lag.
• Visibility on cash balance and investing cash flows is limited, making liquidity buffers harder to assess.
• Potential exposure to interest rate changes on any short-term borrowings, albeit current interest burden is low.
• Ordinary-to-net income gap suggests potential volatility from taxes or non-recurring items under JGAAP.

Key Concerns:

• Weak cash conversion (OCF/NI -0.10) despite strong earnings growth.
• Lack of disclosure on cash, inventories, capex, and dividend policy.
• Sustainability of margin expansion without more detail on mix and recurring revenue.

Investment Implications

Key Takeaways:

• Top-line up 9.8% YoY to ¥14.07bn with substantial operating leverage (OP up 56.1% YoY).
• Healthy profitability: operating margin ~6.8%, net margin 4.41%, ROE 5.28% via favorable DuPont components.
• Strong balance sheet: implied equity ratio ~50.6%, current ratio 217.7%, interest coverage 83.5x.
• Interim cash conversion is soft (OCF -¥61m), likely tied to working capital build.
• Disclosure gaps (cash, inventories, investing CF, dividend policy) limit cash and capital allocation visibility.

Metrics to Watch:

• Receivables days and operating cash flow recovery in H2.
• Order backlog and book-to-bill for sustainability of revenue growth.
• SG&A efficiency and gross margin mix to sustain operating margin gains.
• Capex and investing cash flows to assess true FCF.
• Any updates to dividend or shareholder return policy.

Relative Positioning: Within Japanese IT solutions/integration peers, Solekia shows solid mid-teens gross margins, expanding operating margins, and conservative leverage with strong liquidity; however, its interim cash conversion trails best-in-class peers that maintain positive OCF alongside growth.

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