CROSS CAT (2307) FY2026 Q3 Earnings Report

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Executive Summary

Although both revenue and operating income continued to increase year on year, the rate of profit growth fell below revenue growth, and the operating-level profit margin showed a slight decline. Revenue was ¥125.9B (¥121.3B in the same period of the previous year, YoY +3.8%), operating income was ¥14.5B (¥14.2B, YoY +2.6%), and ordinary income was ¥15.1B (¥14.6B, YoY +3.7%). Net income was ¥10.7B (¥9.6B in the same period of the previous year, YoY +10.8%), exceeding the growth in core operating profit; however, this includes the one-time factor of a ¥0.8B gain on the sale of investment securities. The operating margin was 11.5%, down approximately 0.2pt year on year, indicating that the increase in the cost ratio placed slight pressure on the core business margin.

Factors Affecting Performance

【Revenue】Revenue was ¥125.9B, representing a 3.8% increase year on year. Progress against the full-year forecast of ¥171.0B (YoY +5.6%) was 73.6%, slightly below the standard progress level of 75%, indicating that an acceleration in growth during Q4 is required.

【Profit and Loss】Operating income was ¥14.5B, limiting profit growth to YoY +2.6%, primarily due to the increase in the cost-of-sales ratio (gross margin of 24.0%, down from 24.4% in the previous year). SG&A expenses were ¥15.7B, up 1.8% YoY, below the rate of revenue growth. Accordingly, the increase in the cost ratio, rather than higher fixed costs, was the primary cause of the decline in the operating margin (11.5%, compared with 11.7% in the previous year). Ordinary income was ¥15.1B (YoY +3.7%), partly reflecting an improvement in non-operating income and expenses. Net income of ¥10.7B (YoY +10.8%) exceeded operating income growth due to extraordinary income, including the ¥0.8B gain on the sale of investment securities. In conclusion, the results represent higher revenue and higher profit, but the core business margin faced mild pressure, and the growth in net income includes one-time factors that warrant attention.

Key Financial Metrics

【Profitability】The operating margin was 11.5% (down from 11.7% in the same period of the previous year), while the net profit margin was 8.5% (up from 7.9% in the same period of the previous year). The improvement in the net profit margin was largely attributable to extraordinary income, including the ¥0.8B gain on the sale of investment securities, and should be distinguished from an improvement in recurring profitability.【Cash Flow Quality】Accounts receivable were ¥39.8B, a 25.1% decrease year on year, easing the capital tied up in working capital; however, annualized DSO remained high at 86 days, requiring continued monitoring of the collection cycle.【Investment Efficiency】Annualized ROE was 22.1% and annualized ROA was 13.8%, both indicating high capital efficiency. The primary drivers of ROE were the net profit margin and total asset turnover (1.66x), while financial leverage (1.57x) remained conservative.【Financial Soundness】The equity ratio was 63.6% (up from 55.6% in the previous year), the current ratio was 276.8%, and interest-bearing debt consisted solely of ¥7.0B in short-term borrowings, resulting in a conservative D/E ratio of 0.57x. However, all interest-bearing debt is short term, and attention should be paid to the risk of concentrated maturities.

Cash Flow Analysis

As cash flow statement data has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥30.6B, up from ¥26.8B in the same period of the previous year, while short-term borrowings decreased 53.3% from ¥15.0B to ¥7.0B. Accounts receivable were ¥39.8B, down 25.1% year on year, indicating that the amount of funds tied up in working capital eased even amid revenue growth. Meanwhile, annualized DSO remained high at 86 days, leaving room for improvement in collection efficiency. Investment securities were ¥18.6B, up 48.2% year on year, suggesting that a portion of funds was directed toward securities investments. Since net income of ¥10.7B includes a ¥0.8B gain on the sale of investment securities, operating income and ordinary income should be used as the primary bases when evaluating actual cash-generation capacity.

Earnings Quality

Distinguishing recurring profitability from one-time factors, operating income increased YoY +2.6% and ordinary income increased YoY +3.7%, whereas net income increased YoY +10.8%, significantly exceeding both. The primary reason for this difference was the ¥0.8B gain on the sale of investment securities recorded as extraordinary income, while extraordinary losses were minimal. The gain on the sale of investment securities represented approximately 5.1% of pre-tax income of ¥15.9B, indicating that certain one-time factors contributed to net income growth. Of non-operating income of ¥0.65B, dividends received accounted for ¥0.28B, providing a certain degree of support as a recurring source of income. Comprehensive income was ¥11.5B, roughly at the same level as net income of ¥10.7B; an increase of ¥0.8B in the valuation difference on securities also contributed, and there was no significant divergence between net income and comprehensive income. Overall, while core operating profit growth was moderate, net income growth includes extraordinary factors; therefore, operating income and ordinary income should be prioritized when assessing recurring earnings power.

Earnings Forecasts and Guidance

Progress against the full-year forecast was 73.6% for revenue (forecast: ¥171.0B), 75.2% for operating income (forecast: ¥19.3B), and 76.0% for ordinary income (forecast: ¥19.9B). Progress on the profit front exceeded the standard level of 75%, while revenue progress was slightly below it. To achieve the full-year operating income forecast, operating income of ¥4.8B in Q4 (equivalent to an operating margin of 10.6%) is required. Since this is below the cumulative operating margin of 11.5%, the hurdle for achieving the forecast is not high. Meanwhile, revenue of ¥45.1B is required in Q4, meaning that an acceleration in the growth pace will be necessary to achieve the full-year revenue growth rate of 5.6%.

Shareholder Returns

The full-year dividend forecast is ¥34.0 per share, and because the Q2 dividend is ¥0, the dividend structure is centered on the year-end dividend. The payout ratio against the full-year forecast EPS of ¥95.71 is 35.5%, comfortably below the 60% benchmark for sustainability based solely on dividends. Based on the weighted-average number of shares outstanding during the period of 14,008 thousand shares, the estimated annual total dividend is approximately ¥4.8B, resulting in a similar payout ratio relative to the full-year forecast net income of ¥13.5B. Retained earnings have accumulated to ¥64.1B, providing substantial financial capacity for dividend payments. No data on share repurchases during the current period is available, so the assessment is based solely on dividends.

Risk Factors

1. Prolongation of the accounts receivable collection cycle: Annualized DSO is 86 days, and the accounts receivable balance, equivalent to 39.4% of revenue, remains substantial. Delays in acceptance inspections and reliance on large projects could affect working capital and revenue recognition.

2. Mild decline in the core business margin: The gross margin declined by approximately 0.4pt year on year, while the operating margin declined by approximately 0.2pt. If increases in personnel and outsourcing costs or changes in the project mix continue, pressure on profitability could persist over the longer term.

3. Concentration of interest-bearing debt in the short term: All ¥7.0B of interest-bearing debt consists of short-term borrowings. Although the company has a strong repayment capacity supported by cash and deposits of ¥30.6B, its debt structure is susceptible to fluctuations in refinancing terms.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both profitability and return metrics exceed the industry median, indicating a relatively favorable position within the industry.

Growth and Capital Efficiency

The revenue growth rate was 6.7pt below the industry median, indicating a relatively weaker position within the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The operating margin of 11.5% and net profit margin of 8.5% exceed the industry medians of 8.3% and 6.1%, respectively. However, net income growth (YoY +10.8%) includes the one-time factor of a ¥0.8B gain on the sale of investment securities, and core business profit growth should be viewed as operating income growth of YoY +2.6%.

2. While full-year progress exceeded the standard level, with operating income at 75.2% and ordinary income at 76.0%, revenue progress was slightly behind at 73.6%. Accelerating revenue growth in Q4 will be the key focus for achieving the plan.

3. Financial soundness is improving, as reflected by the increase in the equity ratio to 63.6% and the 53.3% reduction in short-term borrowings. However, the fact that all interest-bearing debt is short term and that accounts receivable DSO remains high at 86 days should be treated as items requiring continuous monitoring.

Theoretical Share Price (For Reference)

Sensitivity: ¥613–¥649 at a ±1% change in the cost of equity, and ¥626–¥637 at a ±0.1 change in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat high.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly available data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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