CAICA DIGITAL Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥5.20B
• Operating Income: ¥70M
• Net Income: ¥51M
• EPS: ¥1.22

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: Mixed quarter with top-line contraction and weaker core profitability, but headline net income surged on non-operating/tax effects and positive investment cash flows. Revenue fell 7.3% YoY to 51.95, reflecting softer demand or project timing in the core businesses. Gross profit came in at 8.88 with a gross margin of 17.1%, indicating modest value-add relative to cost of sales. Operating income declined 38.4% YoY to 0.70 as SG&A of 8.17 nearly absorbed gross profit, compressing operating margin to roughly 1.3%. Ordinary income dropped 45.2% YoY to 0.76, highlighting broad-based pressure in recurring earnings. In contrast, net income jumped to 1.66 (+444.4% YoY), buoyed by non-operating income (0.17, including interest income of 0.11) and an unusually low effective tax rate of 7.3%, potentially reflecting loss carryforwards or discrete tax items. Operating margin compressed by about 68 bps YoY (from ~2.0% to ~1.3%) as revenue declined and costs remained sticky. Net margin expanded by roughly 265 bps YoY (from ~0.5% to ~3.2%) due to non-operating support and taxes, not operational improvement. Earnings quality is a concern: OCF was 0.51 versus net income of 1.66 (OCF/NI 0.31x), suggesting accrual-driven profits or working capital drag. Free cash flow printed at 0.75, supported by a positive investing cash flow of 0.24, likely from asset sales rather than recurring capex-light growth. The balance sheet is conservative with a current ratio of 465% and D/E of 0.19x, providing ample liquidity and low solvency risk. ROE is modest at 4.6%, driven primarily by a thin 3.2% net margin and low leverage (1.19x), while ROIC at 2.1% is below cost-of-capital benchmarks. Interest coverage is strong at 62.7x given small interest expense, indicating limited financing strain. Investment securities of 11.46 (about 26.7% of assets) provide optionality but also expose results to valuation/realization timing. Forward-looking, management needs to lift core margins and convert earnings to cash; otherwise, sustaining profit growth will depend on non-operating levers that are less reliable. Overall, the quarter underscores resilient liquidity but highlights the need to improve operational efficiency and capital productivity.

Profitability Analysis

DuPont ROE decomposition: ROE 4.6% = Net Profit Margin (3.2%) × Asset Turnover (1.212x) × Financial Leverage (1.19x). The most material moving part versus last year appears to be the margin dimension: operating income fell 38.4% on a 7.3% revenue decline, compressing operating margin by about 68 bps (from ~2.0% to ~1.3%), while net margin expanded ~265 bps to ~3.2% due to a low tax rate and non-operating income. Business drivers: revenue softness and sticky SG&A reduced operating leverage, while a 0.11 interest income tailwind and a 7.3% effective tax rate boosted after-tax results. Sustainability: non-operating and tax effects are unlikely to be consistently repeatable; without improvement in gross margin mix or SG&A discipline, ROE could revert lower. Concerning trends: SG&A (8.17) is 92% of gross profit (8.88), leaving limited room for operating profit; with revenue down 7.3% and operating profit down 38.4%, cost growth/rigidity is outpacing revenue, indicating negative operating leverage.

Growth Assessment

Revenue declined 7.3% YoY to 51.95, suggesting weak demand, slower project starts, or pricing pressure in the core offerings. Operating income fell 38.4% to 0.70, indicating that top-line softness translated into outsized profit pressure. Ordinary income dropped 45.2% to 0.76, reinforcing the weakness in recurring earnings power. Net income rose to 1.66 (+444.4% YoY) due to non-operating gains and a low tax rate; this uplift is not an indicator of underlying growth quality. EBITDA was 0.74 (1.4% margin), underscoring thin cash earnings from operations. With ROIC at 2.1% (below the 5% warning threshold), returns on invested capital remain sub-par, implying limited value creation absent margin expansion or asset base optimization. Outlook hinges on improved utilization, mix shift to higher-margin services, and tighter SG&A control; otherwise, profit growth will be volatile and sensitive to non-operating items.

Financial Health

Liquidity is strong: current assets 29.75 vs current liabilities 6.40 imply a current ratio of 465% and quick ratio of 465%. There is no warning trigger (Current Ratio is well above 1.0). Cash and deposits of 6.40 exceed short-term loans of 1.70, limiting near-term refinancing risk and mitigating maturity mismatch. Total liabilities are 6.76 against equity of 36.11, producing a conservative D/E of 0.19x (well below the 2.0 warning threshold). Interest coverage is robust at 62.7x, indicating ample capacity to service debt. Noncurrent liabilities are minimal at 0.36, further reducing solvency risk. Investment securities of 11.46 (about 26.7% of total assets) are a notable balance sheet component—offering potential liquidity but exposing the company to market valuation swings if marked or sold. No off-balance sheet obligations were reported in the data provided.

Cash Flow Quality

OCF of 0.51 versus net income of 1.66 yields OCF/NI of 0.31x, below the 0.8 threshold, flagging weak earnings-to-cash conversion. Free cash flow was 0.75, supported by positive investing CF of 0.24 and negligible capex; this suggests FCF benefitted from asset disposals or investment redemptions rather than core operating strength. Financing CF was -1.70, likely reflecting debt repayment, which is feasible given liquidity but reduces future cash buffers if OCF remains weak. Potential working capital pressure is implied, but without prior period working capital figures, we cannot isolate whether receivables, payables, or other items drove the OCF shortfall. No signs of aggressive capex deferral are evident (capex ~0), but sustainability of FCF depends on improving operating cash generation.

Dividend Sustainability

Dividend data is unreported, so payout and coverage cannot be calculated. Balance sheet capacity for distributions exists given low leverage and positive FCF this period; however, weak OCF relative to net income (0.31x) and low ROIC (2.1%) argue for caution on recurring distributions until operating cash flow strengthens. Retained earnings of 20.31 provide accumulated capacity, but policy visibility is limited given missing DPS and payout disclosures.

Risk Assessment

Business Risks:

• Revenue contraction of 7.3% YoY suggests demand softness or project timing risk.
• Operating margin compression (~68 bps YoY) and thin EBITDA margin (1.4%) indicate limited pricing power and negative operating leverage.
• Execution risk in cost control as SG&A consumes ~92% of gross profit.
• Dependence on non-operating/tax factors to support net income, which may not be repeatable.

Financial Risks:

• Low OCF/NI (0.31x) raises earnings quality concerns and potential working capital strain.
• ROIC at 2.1% (<5% warning) indicates weak capital efficiency and risk of value dilution if investments do not earn adequate returns.
• Exposure to valuation swings in investment securities (11.46, ~26.7% of assets) could affect comprehensive income and capital.

Key Concerns:

• Sustainability of net margin expansion given weaker operating fundamentals.
• Reliance on unusually low tax rate (7.3%) and interest income (0.11) to support bottom line.
• Visibility on segment mix and pipeline is limited, constraining forward assessment.

Investment Implications

Key Takeaways:

• Core profitability weakened: operating income -38.4% YoY and operating margin ~1.3%.
• Headline net income improved (+444% YoY) primarily from non-operating/tax effects; quality is low (OCF/NI 0.31x).
• Balance sheet is strong (current ratio 465%, D/E 0.19x), reducing near-term financial risk.
• ROE modest at 4.6% with low leverage; ROIC at 2.1% underscores need to enhance returns.
• FCF positive (0.75) due to investing inflows; recurring cash generation remains a priority.

Metrics to Watch:

• Operating margin trend and SG&A as a percentage of gross profit
• OCF/Net income and working capital turns (especially receivables)
• ROIC progression and utilization of investment securities
• Effective tax rate normalization and composition of non-operating income
• Revenue trajectory and backlog/order intake (if disclosed)

Relative Positioning: Within Japanese small-cap IT/digital service peers, CAICA DIGITAL exhibits conservative leverage and liquidity but lags on core margin resilience and capital efficiency; performance is more sensitive to non-operating and tax items than high-quality peers focused on recurring cash generation.

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