CROSS CAT CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.22B
• Operating Income: ¥881M
• Net Income: ¥665M
• EPS: ¥47.47

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 modest top-line growth and stronger bottom-line expansion, underpinned by excellent cash conversion and robust ROE/ROIC. Revenue rose 2.3% YoY to 82.23, while operating income increased 1.8% YoY to 8.81. Net income grew 14.1% YoY to 6.65, materially outpacing sales growth. Gross profit was 19.61, implying a 23.8% gross margin. Operating margin stands at 10.7% and ordinary margin at 11.1%, with net margin at 8.1%. Operating margin saw a slight compression of roughly 5 bps YoY (calculated), while net margin expanded by about 83 bps YoY due to stronger non-operating/tax effects. Ordinary margin compressed by about 7 bps YoY. Cash flow quality is a standout: operating cash flow reached 19.54 versus net income of 6.65, yielding OCF/NI of 2.94x. Liquidity is very strong with a current ratio of 307% and 29.06 in cash against 3.00 in short-term loans. Leverage remains conservative with D/E at 0.54x and interest coverage at 258x. ROE is 11.1% (DuPont: 8.1% NPM × 0.888x asset turnover × 1.54x leverage), and ROIC is a robust 17.4%, well above the 8% excellence benchmark. SG&A is 10.80 (13.1% of sales), but lack of YoY detail limits cost trend analysis. Financing cash outflows of -17.99 reflect active shareholder returns, including 1.38 of buybacks; dividends are unreported but the calculated payout ratio is high at 84.4%. The quarter indicates resilient execution and likely benefits from mix/pricing discipline and non-operating income (0.37), with a normalized effective tax rate of 32.9%. Forward-looking, sustained demand for DX/system integration, utilization rates, and hiring discipline will be key to defending double-digit operating margins. Elevated payout may cap balance sheet flexibility if growth investments or M&A accelerate, but current cash generation provides cushion. Overall, earnings quality and financial health are strong, albeit with a slightly compressed operating margin and limited visibility on capex and dividend cash out.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 8.1% × Asset Turnover 0.888 × Financial Leverage 1.54x = ROE 11.1%. The largest driver of YoY change in bottom line was margin-level improvement at the net level (net margin +83 bps YoY), not leverage (stable) or asset turnover (near steady). Business reason: modest operating profit growth (+1.8% YoY) lagged sales growth (+2.3%), implying slight operating margin pressure (-5 bps), but higher non-operating income (0.37, including 0.26 dividends) and a normalized tax rate together lifted net margin. Sustainability: non-operating income from dividends is recurring but modest; therefore, sustaining net margin gains depends on operating discipline (pricing, utilization) rather than one-off items. SG&A at 13.1% of sales looks controlled, but without YoY detail we cannot confirm whether SG&A growth exceeded revenue growth.

Growth Assessment

Revenue grew 2.3% YoY to 82.23, indicating steady though moderate demand. Operating income rose 1.8% YoY to 8.81, trailing revenue growth and signaling mild operating leverage headwinds this quarter. Net income surged 14.1% YoY to 6.65, supported by better below-the-line items and stable taxation. Operating margin is 10.7% versus an estimated 10.8% in the prior-year period (minor compression), while net margin improved to 8.1% from ~7.3%. EBITDA reached 9.47 with an 11.5% margin, consistent with healthy service delivery economics for a SIer. With ROIC at 17.4%, returns exceed cost of capital by a wide margin, supporting growth investments. Outlook: near-term growth likely remains mid-single-digit absent large project wins, with profitability hinging on utilization, mix (fixed-price vs T&M), and wage inflation management. Industry tailwinds from DX/cloud modernization and financial/public sector IT spending remain supportive. Key swing factors include order backlog visibility, hiring pace, and any M&A deployment.

Financial Health

Liquidity is strong: current ratio 306.8% and quick ratio 306.8% (no inventories reported), with 29.06 cash and 37.21 receivables against 22.31 current liabilities. No warning triggers: Current Ratio >> 1.0 and D/E 0.54x (<2.0). Interest coverage is exceptionally strong at 258x. Maturity mismatch risk is low: short-term loans of 3.00 are covered more than 9x by cash alone, and working capital of 46.13 provides a cushion. Total liabilities are 32.47 vs equity 60.11, indicating a conservatively capitalized balance sheet. Off-balance sheet obligations are not disclosed in the provided data; none identified.

Cash Flow Quality

OCF/Net Income is 2.94x, indicating excellent earnings quality and strong cash conversion. With CapEx at only -0.19, underlying FCF is likely robust; however, full investing CF is unreported, so we cannot compute definitive FCF. No evident signs of working capital manipulation can be concluded due to lack of period-over-period AR/AP detail, though AR of 37.21 against annualized sales implies ~82–83 AR days, reasonable for SI. Financing CF of -17.99 includes -1.38 of share buybacks and likely dividends/debt movements, comfortably funded by OCF. Overall, cash generation appears more than adequate to support operations and shareholder returns.

Dividend Sustainability

The calculated payout ratio is 84.4%, above the <60% comfort benchmark, implying a tighter coverage of dividends by earnings. Given strong OCF relative to NI (2.94x) and low CapEx (0.19), cash coverage is likely sufficient near term, but exact FCF coverage cannot be determined due to unreported investing CF and dividend cash paid. Buybacks of 1.38 also absorb cash; combined shareholder returns should be monitored to avoid constraining strategic investments. Policy outlook: if growth opportunities (hiring, M&A, productization) increase, management may need to balance between high payout and reinvestment; current balance sheet strength offers flexibility.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price SI contracts affecting margins
• Wage inflation and hiring costs pressuring SG&A and utilization
• Client concentration and timing risk of large projects
• Delivery capacity constraints impacting revenue recognition
• Demand cyclicality in financial/public sector IT budgets

Financial Risks:

• High payout ratio (~84%) potentially limiting reinvestment flexibility
• Receivables concentration and collection timing (AR ~82–83 days)
• Potential currency exposure on investment securities dividends (0.26) if foreign holdings
• Interest rate shifts affecting financing costs, albeit small given low debt

Key Concerns:

• Slight operating margin compression (~5 bps YoY) despite revenue growth
• Limited disclosure on investing CF and dividend cash paid obscures FCF certainty
• Dependence on non-operating income (dividends) for part of YoY net profit uplift

Investment Implications

Key Takeaways:

• Earnings quality is strong with OCF nearly 3x net income
• ROE 11.1% and ROIC 17.4% indicate efficient capital deployment
• Operating margin slightly compressed; net margin expanded on below-the-line support
• Balance sheet is conservative with ample liquidity
• Shareholder returns (buybacks, high payout) are active and affordable for now

Metrics to Watch:

• Order backlog and book-to-bill for next half
• Operating margin trajectory and SG&A/revenue ratio
• Utilization rate and headcount growth vs revenue growth
• AR days and OCF/NI retention above 1.0x
• CapEx and M&A outlays vs payout to gauge capital allocation
• ROIC sustainability above low-teens

Relative Positioning: Within Japanese mid-cap SI peers, Cross Cat exhibits above-average cash conversion, conservative leverage, and strong ROIC, with margins in the competitive range but showing slight pressure; sustainability hinges on utilization discipline and controlled SG&A amid steady DX demand.

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