CROSS CAT (2307) FY2027 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue and profit, with operating leverage driving profit growth that outpaced revenue growth. Revenue was ¥46.5B (¥39.6B in the previous-year period, YoY +17.4%), Operating Income was ¥4.8B (¥3.4B, YoY +41.6%), Ordinary Income was ¥5.2B (¥3.7B, YoY +40.7%), and quarterly Net Income attributable to owners of the parent was ¥3.3B (¥3.0B, YoY +7.5%). The relatively slower growth in Net Income was attributable to the reversal of the ¥0.8B gain on sales of investment securities recorded in the previous-year period and an increase in the effective tax rate. Pre-tax income increased +15.4% year on year, indicating solid underlying performance.

Factors Affecting Results

【Revenue】The Company operates as a single segment, the Information Services Business, and Revenue increased 17.4%. This substantially exceeded the full-year Company plan for Revenue growth of 3.4%, driven by expanding demand for projects.

【Profit and Loss】Cost of sales increased 12.4%, while the gross margin was 24.5%, slightly improving from 24.3% in the previous-year period. SG&A expenses increased only 5.8%, 11.6pt below the Revenue growth rate. Consequently, the SG&A ratio declined to 14.1% (15.6% in the previous year), and the Operating Income margin expanded to 10.4% (8.6% in the previous year). Ordinary Income increased 40.7%, also boosted by ¥0.4B in dividend income. Meanwhile, Net Income increased only 7.5% due to the higher effective tax rate (37.4%, compared with 32.9% in the previous year) and the reversal of the ¥0.8B one-time gain on sales of investment securities recorded in the previous-year period. In conclusion, the Company achieved higher revenue and profit, with operating leverage and SG&A discipline serving as the primary drivers of profit growth.

Segment Analysis

The Company operates as a single segment comprising the Information Services Business and related ancillary operations; segment-specific disclosure has been omitted.

Key Financial Indicators

【Profitability】The Operating Income margin of 10.4% improved by 178bp from 8.6% in the previous-year period, while the Net Income margin declined by 65bp from 7.6% to 7.0%. The gross margin was 24.5%, improving 24bp year on year.【Cash Quality】Accounts receivable were ¥3.58B, a 25.9% decline year on year; however, annualized DSO was 70 days, exceeding the benchmark of 60 days, indicating that collection efficiency requires monitoring.【Investment Efficiency】Annualized ROE of 20.1% decomposes into total asset turnover of 1.96x, a Net Income margin of 7.0%, and financial leverage of 1.46x. Business profitability and asset turnover were the primary contributors, while reliance on leverage was low.【Financial Soundness】The Equity Ratio rose to 68.3% (61.4% in the previous year), while the current ratio was approximately 319.8% and the D/E ratio was 0.46x, indicating a conservative financial structure.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥3.08B, down from ¥3.30B in the previous-year period, while their ratio to total assets remained at 32.6%. Accounts receivable were ¥3.58B, a ¥1.25B decrease year on year, contributing to the easing of funds tied up in working capital; however, annualized DSO remained high at 70 days. With current assets of ¥6.89B against current liabilities of ¥2.15B, working capital was ¥4.73B, providing ample liquidity and substantial short-term funding capacity. Accounts payable were ¥0.77B and remained broadly flat, indicating stable funding requirements related to purchases and subcontracting.

Quality of Earnings

The increases in Operating Income and Ordinary Income reflect recurring growth driven by improved core business profitability and greater SG&A efficiency, indicating good earnings quality. Non-operating income relative to Ordinary Income was small at ¥0.4B, primarily consisting of ¥0.35B in dividend income, and had limited one-time characteristics, representing sustainable earnings. Meanwhile, the previous-year period included a ¥0.8B gain on sales of investment securities as extraordinary income, whereas the current period included no extraordinary gains or losses. Accordingly, year-on-year Net Income growth appears restrained relative to core business growth. The effective tax rate rose to 37.4% from 32.9% in the previous-year period, and fluctuations in the tax burden were a factor suppressing the Net Income growth rate. The ¥0.35B provision for loss on order contracts indicates the presence of estimates related to unprofitable projects and represents an accrual-related consideration when assessing the quality of gross profit margins.

Earnings Forecast and Guidance

The full-year forecast remains unchanged at Revenue of ¥179.0B (YoY +3.4%), Operating Income of ¥21.5B (+6.8%), and Ordinary Income of ¥21.9B (+7.2%). Q1 progress rates were 25.9% for Revenue, 22.5% for Operating Income, 23.7% for Ordinary Income, and 21.1% for Net Income. Although progress below Operating Income was slightly below the standard 25% milestone, the variance was limited. While Revenue progress was ahead, slightly slower profit progress suggests that the full-year plan may assume greater profit contributions from Q2 onward. Neither the earnings forecast nor the dividend forecast was revised this time.

Shareholder Returns

The full-year dividend forecast is ¥39.0 per share, and the estimated annual total dividend based on the average number of shares outstanding during the period of 13,995 thousand shares is approximately ¥0.55B. The Payout Ratio against the full-year Net Income forecast of ¥1.54B is approximately 35.4%. There was no revision to the dividend forecast, and the financial base—an Equity Ratio of 68.3%, a current ratio of approximately 320%, and cash and deposits of ¥3.08B—supports the Company’s dividend-paying capacity. Treasury shares account for 17.7% of issued shares; however, because no treasury share repurchases during the period have been disclosed, the Payout Ratio is assessed here based solely on dividends.

Risk Factors

1. Accounts Receivable Collection Risk: Accounts receivable were ¥3.58B, a 25.9% decline year on year, but annualized DSO was 70 days, exceeding the benchmark of 60 days. Accounts receivable represent 37.8% of total assets, and longer acceptance and billing cycles could tie up working capital.

2. Project Profitability Risk: A ¥0.35B provision for loss on order contracts was recorded, suggesting the existence of unprofitable projects. Variances in staffing estimates and increases in subcontracting and labor costs could lead to lower gross margins or additional provisions.

3. Risk of Reduced Operating Leverage Due to Rising Personnel Costs: The SG&A ratio declined by 154bp to 14.1%, contributing to margin improvement; however, intensifying competition for IT talent and wage increases could reverse this improvement trend.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability exceeds the industry median and is positioned in the upper range of the IQR.

Growth and Capital Efficiency

The Revenue growth rate is close to the upper bound of the industry IQR, indicating strong growth relative to peers.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Revenue increased 17.4%, while Operating Income increased 41.6%. Operating leverage, primarily driven by a 154bp decline in the SG&A ratio, led the improvement in profit margins. The key focus going forward is whether this improvement can be sustained during a period of rising personnel-related expenses.

2. The fact that Net Income growth (+7.5%) was below the growth rates of Operating Income and Ordinary Income was attributable to the reversal of the ¥0.8B gain on sales of investment securities recorded in the previous-year period and the increase in the effective tax rate. Excluding these temporary factors, the underlying profit growth capacity of the core business can be interpreted as stronger.

3. Annualized DSO was 70 days, exceeding the benchmark of 60 days. Collection efficiency for accounts receivable during the revenue expansion phase remains an ongoing monitoring point when assessing the conversion of profit growth into cash.

Theoretical Share Price (Reference Value)

Sensitivity: ¥665–¥704 at Cost of Equity ±1%; ¥678–¥693 at ω±0.1.

Notes:

• Net assets as of the quarter-end have been used (there is a timing difference relative to the full-year forecast).
• As 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 solely from publicly disclosed data; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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