CDS Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.62B
• Operating Income: ¥572M
• Net Income: ¥716M
• EPS: ¥56.48

Income Statement

Balance Sheet

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

CDS Co., Ltd. (2169) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥6.62bn, down 15.1% year over year, indicating a challenging demand environment and/or project timing effects. Despite a solid gross margin of 36.7%, operating income declined 46.6% YoY to ¥572m, implying meaningful operating deleverage as fixed costs weighed on profitability amid lower sales. Ordinary income of ¥583m slightly exceeded operating income, suggesting modest non-operating gains offsetting small interest costs. Net income fell 46.2% YoY to ¥385m, with an implied net margin of 5.82%, reflecting pressure across the P&L. DuPont analysis shows an ROE of 4.38%, driven by a 5.82% net margin, asset turnover of 0.614x, and low financial leverage of 1.23x; the low leverage and moderate turnover constrain ROE despite acceptable margins. The balance sheet remains conservative with total assets of ¥10.78bn and total liabilities of ¥2.49bn; based on available figures, the implied equity ratio is approximately 81.5%, although the disclosed equity ratio is not provided. Liquidity appears very strong with a current ratio of 335.8% and a quick ratio of 332.5%, underpinned by large current assets and minimal inventories (¥79m). Interest expense was only ¥2.1m and interest coverage is a very comfortable 272x, consistent with a low-risk capital structure. Working capital is sizable at ¥5.83bn, providing ample operating flexibility. Operating CF, investing CF, financing CF, cash and equivalents, DPS, and share data are reported as zero (unreported), limiting cash flow and capital return assessment; these zeros should be treated as undisclosed rather than actual zero values. The contraction in operating profit relative to revenue suggests elevated operating leverage or a mix shift that diluted margin, potentially due to lower utilization, pricing pressure, or increased SG&A. Ordinary income tracking close to operating income implies limited financial income/costs and a predominantly operational earnings profile this quarter. EPS stands at ¥56.48; however, outstanding shares and BVPS are not disclosed, constraining per-share context beyond EPS. Overall, CDS remains financially sound with strong liquidity and low leverage, but profitability momentum has weakened significantly on softer top-line and fixed-cost absorption. Outlook depends on demand recovery and execution on cost control and utilization, while the balance sheet provides a buffer to navigate near-term softness. Data limitations around cash flows and dividends prevent a full assessment of earnings quality and capital allocation this period.

Profitability Analysis

ROE of 4.38% is decomposed into a 5.82% net margin, 0.614x asset turnover, and 1.23x financial leverage. The key drag is low turnover and limited leverage; net margin is reasonable but not enough to drive double-digit ROE. Gross margin is healthy at 36.7%, indicating decent value-add in services/documentation; however, the operating margin of roughly 8.6% (¥572m/¥6,620m) compressed sharply due to revenue decline and fixed-cost absorption. The 15.1% revenue drop versus a 46.6% operating income decline points to high operating leverage and likely lower utilization rates and/or adverse mix. Ordinary income margin (~8.8%) is close to operating margin, suggesting non-operating items were neutral-to-slightly positive with minimal interest burden. The net margin of 5.82% reflects additional below-OP headwinds (taxes and other items), though tax disclosures are limited. Overall margin quality appears pressured by volume and utilization rather than gross cost inflation, given stable gross profitability and sharper OP compression. Sustained cost discipline and workload visibility are required to stabilize operating margin as revenue normalizes.

Growth Assessment

Revenue contracted 15.1% YoY to ¥6.62bn, indicating demand softness and/or project timing delays. Operating profit fell 46.6% YoY to ¥572m, materially exceeding the revenue decline, highlighting elevated operating leverage. Net income declined 46.2% YoY to ¥385m; the net margin of 5.82% remains positive but below prior-year levels. Sustainability of revenue will hinge on order intake, backlog conversion, and utilization improvements, particularly if core clients in manufacturing/industrial sectors are delaying documentation and related services. Profit quality this quarter is primarily operational; ordinary income closely tracks operating income, and interest expense is negligible. With OCF and capex data unreported, it is not possible to validate earnings-to-cash conversion or growth investment levels this period. Near-term outlook appears cautious until evidence of backlog rebuild, improved utilization, and pricing discipline; however, the strong balance sheet supports execution on pipeline opportunities and selective investment.

Financial Health

Total assets: ¥10.78bn; total liabilities: ¥2.49bn; total equity: ¥8.78bn. Implied equity ratio is ~81.5% (equity/assets), though the disclosed figure is not provided in the dataset. Current assets are ¥8.30bn vs current liabilities of ¥2.47bn, yielding a robust current ratio of 335.8% and quick ratio of 332.5%, signaling strong liquidity. Working capital stands at ¥5.83bn, offering ample buffer for operations and seasonality. Debt-to-equity is reported at 0.28x (based on total liabilities), consistent with a conservative capital structure. Interest expense is only ¥2.1m and interest coverage is 272x, indicating very low financial risk. Inventories are minimal at ¥79m, appropriate for a services-centric model and reducing obsolescence risk. Overall solvency and liquidity are strong, giving the company capacity to withstand earnings volatility.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported this period (shown as zero), so we cannot directly assess cash conversion, capex intensity, or free cash flow. Consequently, OCF/Net Income and FCF metrics are not interpretable. Accrual quality cannot be evaluated without working capital flow details. The balance sheet shows substantial current assets relative to liabilities, implying potential cash and receivables strength, but exact cash balances are not disclosed. Working capital of ¥5.83bn and low inventories (¥79m) are consistent with a service model where receivables and unbilled work can drive cash flow timing. In absence of OCF and capex data, we assume neutral cash generation pending confirmation in the full-year report; verification of collections and project billing milestones will be key.

Dividend Sustainability

Dividend per share and payout ratio are unreported for the period (displayed as zero). Without OCF and FCF data, free cash flow coverage of dividends cannot be assessed. Balance sheet strength (implied high equity ratio, low leverage) suggests capacity for distributions in general, but actual policy, track record, and interim decisions are not available in this dataset. Assessment of sustainability should await disclosed annual DPS, payout target, and cash flow data; monitoring full-year guidance and year-end cash is advisable.

Risk Assessment

Business Risks:

• Demand cyclicality from key industrial/manufacturing clients affecting project volumes and utilization
• High operating leverage leading to outsized profit swings on revenue fluctuations
• Pricing pressure or unfavorable project mix compressing operating margins
• Talent retention and wage inflation impacting SG&A and delivery costs
• Project timing and backlog conversion risks common to documentation/engineering services
• Technology shifts toward digital/AI-enabled documentation altering competitive dynamics

Financial Risks:

• Potential receivables concentration and collection timing risks in a project-based model
• Limited visibility on cash and cash equivalents and operating cash flow due to unreported figures
• Tax expense variability and potential one-off items affecting net income
• Customer credit risk during macro slowdowns

Key Concerns:

• Sharp YoY decline in operating income (-46.6%) versus revenue (-15.1%) underscores elevated operating leverage
• ROE at 4.38% is below typical small-cap services cost of equity benchmarks
• Cash flow data unreported, preventing validation of earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Top-line contraction and significant operating deleverage pressured profitability in FY2025 Q3
• Balance sheet remains very strong with implied equity ratio ~81.5% and high liquidity
• ROE is low at 4.38%, constrained by modest asset turnover and limited leverage
• Ordinary income closely tracks operating income; interest burden is negligible
• Cash flow and dividend data are not disclosed, limiting capital allocation analysis

Metrics to Watch:

• Order intake, backlog, and utilization rates
• Gross and operating margin progression, particularly SG&A ratio
• Working capital movements (receivables, unbilled, payables) and OCF once disclosed
• Capex and investment in digital/documentation platforms
• Full-year DPS, payout ratio, and any stated dividend policy
• Headcount and pricing/mix in key client segments

Relative Positioning: Within Japanese small-cap professional/technical services peers, CDS exhibits stronger-than-average balance sheet resilience and liquidity but currently weaker profitability momentum and below-peer ROE; recovery depends on demand normalization and utilization improvements.

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