KOZO KEIKAKU ENGINEERING HOLDINGS Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥4.20B
• Operating Income: ¥-115M
• Net Income: ¥-289M
• EPS: ¥-12.54

Income Statement

Balance Sheet

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: A mixed Q1 with solid top-line growth but a continued operating loss and a large below-the-line hit that pulled the quarter into the red. Revenue rose 17.1% YoY to 41.97, demonstrating healthy demand momentum. Gross profit was 13.70 with a gross margin of 32.7%, indicating decent project/unit economics at the contribution level. SG&A of 17.29 exceeded gross profit, resulting in an operating loss of -1.15 and an operating margin of -2.7%. Despite being negative, operating income improved 10.6% YoY, suggesting early benefits from scale or cost actions. Non-operating items were modest (income 0.12, expenses 0.28), but an extraordinary charge drove profit before tax down to -3.74 (ordinary income was -1.24, implying roughly -2.5 of special/extraordinary losses). Net income was -1.32 (EPS -12.54 yen), while total comprehensive income was nearly flat at -0.01, cushioned by positive OCI. Balance sheet remains moderate: total assets 199.48, equity 97.44, liabilities 102.04, with D/E at 1.05x. Liquidity is adequate but not abundant with a current ratio of 1.23x and cash/deposits of 13.47 against short-term loans of 8.00. Interest expense is low (0.03), yet interest coverage is a warning at -34.5x due to the operating loss. DuPont ROE is -1.4%, driven by a -3.1% net margin, low asset turnover of 0.210, and leverage of 2.05x. ROIC is -0.8%, below the 5% warning threshold, highlighting under-earning on invested capital in the quarter. We cannot assess cash flow quality, as OCF was unreported; this is a key data gap given the earnings loss. Dividends (Q1 DPS 30 yen, Q3 DPS 15 yen) imply a payout not covered by earnings this quarter; coverage by FCF is unknown. Forward-looking, the path to profitability hinges on SG&A discipline, improved utilization, and avoiding further extraordinary losses; the strong revenue growth is a positive foundation if margin execution follows.

Profitability Analysis

ROE decomposition (DuPont): ROE (-1.4%) = Net Profit Margin (-3.1%) × Asset Turnover (0.210) × Financial Leverage (2.05x). The largest drag is the net margin, reflecting operating loss (-2.7% margin) and a sizable extraordinary loss that widened PBT to -3.74. Asset turnover is seasonally low at 0.210 for Q1 relative to the asset base of 199.48, typical for project/consulting businesses early in the fiscal year. Leverage at 2.05x is moderate and not the primary driver of ROE deterioration. Business drivers: SG&A (17.29) outpaced gross profit (13.70), but other operating items (+2.44) partially offset the gap, pointing to reliance on ancillary operating income; the extraordinary loss (-2.5) was the decisive factor below operating level. Sustainability: Revenue growth appears durable near term, but profitability improvement requires sustained SG&A control and better gross-to-operating conversion; extraordinary losses are likely one-off if tied to impairments or valuation losses, but we need management disclosure to confirm. Watch for concerning trends: SG&A level is high versus revenue this quarter; without acceleration in revenue recognition or cost deferrals rolling off, operating leverage could remain negative.

Growth Assessment

Revenue grew 17.1% YoY to 41.97, indicating solid demand or backlog execution. Gross profit of 13.70 suggests contribution margins remain healthy, but the gross-to-operating conversion is weak given the -1.15 operating loss. We cannot quantify YoY basis-point changes for gross or operating margins due to missing prior-period margin data, but the current operating margin is -2.7%. Ordinary income at -1.24 versus operating income -1.15 indicates limited non-operating drag; the main growth headwind was an extraordinary loss (~-2.5). Profit quality is mixed: core demand is strong, yet profitability relies on other operating income to bridge SG&A, and below-the-line volatility is elevated. Outlook hinges on utilization gains and SG&A absorption in subsequent quarters; if revenue momentum persists and extraordinary items abate, a return to positive ordinary profit is plausible. Key swing factors: project mix and pricing, hiring cost inflation, and timing of revenue recognition on multi-quarter projects.

Financial Health

Liquidity: Current ratio 1.23x (above the 1.0 warning, below the 1.5 comfort zone); quick ratio 1.23x suggests reasonable short-term coverage. Cash and deposits 13.47 plus accounts receivable 28.61 cover short-term loans of 8.00 and accounts payable of 2.97; near-term refinancing risk appears manageable. Solvency: D/E 1.05x (within conservative benchmark <1.5x); total loans outstanding 34.07 (short 8.00, long 26.07). Interest burden is low in absolute terms (interest expense 0.03), but negative EBIT yields a flagged interest coverage (-34.5x). No explicit off-balance sheet obligations were reported. Maturity profile: With 58.00 current liabilities against 71.58 current assets, maturity mismatch risk is contained, but working capital discipline remains important given project-based receivables.

Cash Flow Quality

OCF was unreported, so OCF/Net Income and FCF cannot be assessed; this is a critical limitation when NI is negative. Given the project-centric model, working capital swings (receivables timing, unbilled work) can materially distort OCF; without data, we cannot confirm earnings-to-cash conversion. No signs of working capital manipulation can be evaluated due to absent cash flow detail and limited balance sheet granularity (e.g., inventories unreported). Dividend and capex coverage by FCF cannot be measured; caution is warranted until OCF and investment outflows are disclosed.

Dividend Sustainability

Declared DPS of 30 yen in Q1 and 15 yen in Q3 implies a continued commitment to shareholder returns despite a quarterly loss (payout ratio is mechanically negative at -625% due to negative EPS). With OCF and FCF unreported, cash coverage is unknown; near-term funding would rely on existing cash (13.47) and operating inflows in subsequent quarters. Balance sheet capacity exists (D/E 1.05x), but sustained payouts amid losses would gradually pressure leverage if cash generation lags. Sustainability will depend on returning to positive ordinary income and FCF over the next quarters; a policy emphasizing stable dividends suggests management confidence in full-year cash generation, but investors should monitor quarterly OCF and extraordinary items closely.

Risk Assessment

Business Risks:

• Margin pressure from SG&A running ahead of gross profit (Q1 SG&A 17.29 vs GP 13.70).
• Project timing/seasonality risk leading to weak Q1 utilization and low asset turnover (0.210).
• Extraordinary loss volatility (~-2.5 this quarter) affecting bottom-line predictability.
• Cost inflation for technical talent potentially compressing operating margins.
• Execution risk on complex engineering/IT projects (acceptance, scope changes).

Financial Risks:

• Negative interest coverage (-34.5x) despite low interest burden.
• Moderate leverage (D/E 1.05x) with reliance on bank loans (total loans 34.07).
• Liquidity cushion is adequate but not robust (current ratio 1.23x).
• Dividend outflow potentially exceeding internal cash generation if losses persist.

Key Concerns:

• Absence of cash flow disclosure (OCF/FCF) limits assessment of earnings quality.
• Dependence on other operating items (~+2.44) to offset SG&A indicates fragile operating leverage.
• Below-the-line losses drove PBT to -3.74; recurrence would hinder FY profitability recovery.
• ROIC at -0.8% is below the 5% warning threshold, signaling under-earning on invested capital.

Investment Implications

Key Takeaways:

• Strong top-line growth (+17.1% YoY) but continued operating loss (-1.15; margin -2.7%).
• Extraordinary loss (~-2.5) was the main driver of bottom-line weakness (PBT -3.74).
• ROE -1.4% and ROIC -0.8% highlight returns below cost of capital in Q1.
• Liquidity is acceptable (current ratio 1.23x) and leverage moderate (D/E 1.05x), but interest coverage is negative.
• Dividend policy remains intact (Q1 30 yen, Q3 15 yen) but coverage by earnings is absent; FCF coverage unknown.

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio in Q2–Q4.
• Ordinary income vs extraordinary items; confirmation that Q1 special losses are one-off.
• Operating cash flow and working capital movements (receivables collection, unbilled revenues).
• Order backlog/book-to-bill and utilization rates to gauge revenue sustainability.
• ROIC trajectory toward >5% and ultimately >7–8%.
• Interest coverage improvement to >2x as operating profitability normalizes.

Relative Positioning: Versus domestic engineering/IT consulting peers, the company shows superior near-term revenue growth but weaker operating leverage and return metrics this quarter; balance sheet leverage is moderate, yet earnings volatility from extraordinary items and negative interest coverage place it in the lower tier on earnings quality until margins and OCF normalize.

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