CSS HOLDINGS,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥19.50B
• Operating Income: ¥717M
• Net Income: ¥587M
• EPS: ¥117.37

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

Verdict: Solid quarter with double-digit top-line growth and stronger operating leverage, delivering a clear beat on profitability and healthy cash conversion. Revenue rose 10.6% YoY to 194.99, with operating income up 20.4% to 7.17 and net income up 36.8% to 5.87, indicating improving efficiency as profit growth outpaced sales. Gross profit reached 32.20, implying a gross margin of 16.5%, and operating margin improved to 3.7%. Based on growth rates, last year’s operating margin was about 3.4%, suggesting c.30 bps YoY expansion. Net margin improved to 3.0% versus roughly 2.4% a year ago, an expansion of c.60 bps, aided by modest non-operating gains and a 21.9% effective tax rate. Ordinary income increased 17.8% to 7.42, with positive net non-operating items of 0.25 (0.48 income less 0.23 expense), a small but supportive tailwind. Earnings quality is sound: operating cash flow of 7.08 exceeds net income (OCF/NI 1.21x), and free cash flow was strong at 6.50 after modest capex of 0.44. Liquidity is adequate with a current ratio of 1.38x and quick ratio of 1.24x; leverage is moderate (D/E 1.04x) and interest coverage is very strong at 64x. Asset efficiency remains a key strength: asset turnover is high at 3.09x, supporting a robust ROE of 19.0% (DuPont-consistent with 3.0% margin × 3.087× turnover × 2.04× leverage). ROIC is reported at 24.9%, well above typical 7–8% targets, signifying strong capital productivity. Working capital discipline appears healthy with an estimated cash conversion cycle around 36 days (AR ~40 days, inventory ~9 days, AP ~13 days). Dividend capacity looks comfortable: the calculated payout ratio is 27% with FCF coverage of ~4.1x, even after 0.75 in share repurchases. Balance sheet remains resilient with 11.39 in cash versus 3.00 in short-term loans and 5.70 in payables. The quarter’s results suggest durable margin improvement via operating leverage and cost control, though sustainability will depend on maintaining pricing power and managing labor costs. Forward-looking, steady demand and disciplined SG&A should support continued earnings growth, while modest non-operating contributions and low capex underpin cash generation. Near-term watch items include wage inflation, customer contract renewals, and any changes in the investment securities portfolio (6.13) that could introduce valuation volatility. Overall, the company exits FY2025 with momentum, prudent financials, and capacity to fund shareholder returns and growth investments.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (3.0%) × Asset Turnover (3.087×) × Financial Leverage (2.04×) = ROE ~19.0%. The most material driver is asset turnover at 3.09×, which amplifies a modest margin into high ROE; secondarily, slight operating margin expansion contributed YoY. Business driver: revenue growth of 10.6% outpaced fixed-cost growth, lifting operating margin from roughly 3.4% to 3.7% (c. +30 bps), while non-operating gains (net +0.25) modestly aided ordinary income. Sustainability: high asset turnover in this service-oriented model is structurally sustainable if working capital stays disciplined and contract volumes remain stable; the margin gains look incremental and potentially repeatable with continued SG&A control. Concerning trends: none acute, but vigilance is needed as SG&A of 25.02 implies a 12.8% sales ratio—if SG&A grows faster than revenue, operating leverage could reverse; monitor wage inflation and hiring costs closely.

Growth Assessment

Revenue growth of 10.6% appears broad-based and supported by underlying demand; no evidence of one-off gains in the top line. Profit growth quality is good: operating income up 20.4% indicates positive operating leverage, and net income up 36.8% benefited from both operating gains and a manageable tax rate. Non-operating income was 0.48 (dividends 0.15, interest 0.02), with non-operating expenses 0.23; contribution is supportive but not a core earnings driver. EBITDA of 7.91 implies an EBITDA margin of 4.1%, consistent with a measured but improving profitability profile. Outlook: with ROIC at 24.9% and capex light (0.44), reinvestment capacity is ample; sustaining low-teens revenue growth would support further EPS gains if SG&A discipline persists. Risks to growth include wage pass-through limits, price competition in contracted services, and macro-driven customer budget cycles. Near-term catalysts could include contract wins/renewals, productivity initiatives, and potential bolt-on M&A (goodwill currently minimal at 0.07, indicating capacity for accretive deals).

Financial Health

Liquidity: Current ratio 137.7% and quick ratio 124.0%—above the minimum 1.0× threshold but modestly below the >1.5× best-practice benchmark; no explicit warning. Solvency: D/E 1.04× indicates moderate leverage; interest coverage at 64.01× is very strong. Maturity profile: current liabilities (28.43) are well covered by current assets (39.14), reducing near-term refinancing risk; short-term loans are 3.00 against cash of 11.39. Off-balance sheet: none reported in the provided data. Equity base is solid at 30.89 with retained earnings of 23.84, supporting financial flexibility.

Cash Flow Quality

OCF/Net Income at 1.21× indicates good earnings quality with cash backing profit. Free cash flow of 6.50 after capex of 0.44 is strong relative to net income (FCF/NI ~1.11×), suggesting cash conversion is robust. Working capital appears well managed: estimated DSO ~40 days, DIH ~9 days, DPO ~13 days, yielding a ~36-day cash conversion cycle consistent with timely collections and lean inventory. No signs of working capital manipulation from the snapshot (AR and inventory levels appear proportionate to sales and COGS). Financing CF at -4.18 reflects shareholder returns (share repurchases -0.75) and possible debt service; overall cash generation comfortably funded these outflows.

Dividend Sustainability

Calculated payout ratio is 27.0%, within a conservative range and consistent with sustainable policy. With FCF of 6.50 and FCF coverage of dividends at ~4.1× (based on calculated payout), the dividend appears well covered even after share repurchases. OCF comfortably exceeds NI (1.21×), further supporting distribution capacity. While total dividends paid were unreported, the balance sheet and cash flows indicate room to maintain or moderately increase dividends without stressing capex or leverage. Policy outlook likely stable-to-improving, contingent on maintaining current profitability and cash conversion.

Risk Assessment

Business Risks:

• Wage inflation and labor availability potentially pressuring SG&A and gross margins in labor-intensive service contracts
• Contract renewal and pricing power risk with key customers, potentially compressing margins
• Execution risk on productivity initiatives needed to sustain operating leverage
• Market value volatility in investment securities (6.13) impacting comprehensive income

Financial Risks:

• Moderate leverage (D/E 1.04x) though mitigated by strong interest coverage (64x)
• Short-term debt reliance (3.00) requires continued access to bank lines, albeit supported by 11.39 cash
• Potential working capital swings given ~40-day DSO could affect intra-year liquidity

Key Concerns:

• Sustainability of recent margin gains given competitive intensity
• Sensitivity of earnings to small changes in non-operating items (net +0.25 this period), though currently modest
• Data limitations: dividends paid, long-term loans, and some SG&A line items unreported, which may obscure underlying trends

Investment Implications

Key Takeaways:

• Profits outpaced sales growth with operating margin expansion of roughly 30 bps YoY
• High asset turnover (3.09x) and moderate leverage (2.04x) drive a strong 19% ROE
• Cash generation is solid: OCF/NI 1.21x and FCF 6.50 after light capex
• Balance sheet resilience with cash 11.39 vs short-term loans 3.00 and current ratio 1.38x
• Dividend capacity ample with ~27% payout and ~4.1x FCF coverage

Metrics to Watch:

• SG&A-to-sales ratio and wage inflation trends
• Operating margin trajectory and contract pricing/pass-through
• OCF/NI ratio and working capital days (DSO/DPO/DIH)
• ROIC relative to reinvestment opportunities and M&A discipline
• Non-operating income volatility and investment securities valuation

Relative Positioning: Within small-cap services peers, CSS Holdings exhibits above-average ROE/ROIC driven by strong asset turnover and disciplined costs, with moderate leverage and robust cash conversion supporting a balanced growth and shareholder return profile.

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
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