Cross E Holdings Co., Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥4.58B
• Operating Income: ¥563M
• Net Income: ¥289M
• EPS: ¥155.45

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: Strong quarter with double-digit profit growth and solid cash conversion, underpinned by operating margin expansion and a cash-rich balance sheet. Revenue rose 6.2% YoY to 45.82, while operating income grew 15.2% to 5.63 and net income increased 18.5% to 3.85, signaling positive operating leverage. Operating margin improved to roughly 12.3% (5.63/45.82), from an estimated ~11.3% a year ago, implying about 96 bps expansion. Net margin improved to ~8.4% (3.85/45.82) from an estimated ~7.5% a year ago, implying about 88 bps expansion. Ordinary margin likely expanded by ~89 bps to ~12.4% (5.66/45.82), consistent with the operating margin trend. Gross margin stands at 23.6%, indicating healthy value-add given the cost base, though YoY comparison is unavailable. Earnings quality is good: OCF was 4.06, slightly above net income (OCF/NI = 1.05x), and FCF was robust at 3.78 after modest capex of 0.27. The balance sheet is conservative with current assets of 33.32 versus current liabilities of 8.83, driving a current ratio of 377% and substantial working capital of 24.49. Leverage is modest (D/E 0.35x), and equity increased to 29.09, supporting a solid ROE of 13.2% driven largely by margin strength rather than leverage. Reported ROIC of 118.1% appears mechanically inflated due to a very light invested capital base and abundant cash; interpret with caution. SG&A was 5.18 (notably including directors’ compensation of 1.01 and bonuses of 0.24), implying tight cost control alongside growth. Effective tax rate was ~32%, broadly in line with domestic statutory norms. Dividend capacity appears comfortable with a calculated payout ratio of 32.4% and FCF coverage of ~3.0x, though DPS data were not disclosed. Forward-looking, the margin trajectory and cash generation base support reinvestment and shareholder returns, but the company’s small scale and limited disclosure on working capital components warrant monitoring. Overall, performance momentum is favorable with balanced growth, profitability, and liquidity.

Profitability Analysis

ROE decomposition (DuPont): ROE 13.2% = Net Profit Margin (8.4%) × Asset Turnover (1.167x) × Financial Leverage (1.35x). The most material driver in the period is margin strength: profits rose faster than revenue (+15.2% OI vs +6.2% sales), indicating operating margin expansion (~96 bps YoY by back-calculation). Asset turnover is healthy at 1.17x given assets of 39.25 and revenue of 45.82; leverage is modest at 1.35x, suggesting ROE is not leverage-driven. Business reason: SG&A discipline (5.18 against gross profit of 10.81) and modest D&A (0.16) supported an elevated operating margin (~12.3%). Ordinary/OP delta is small, with limited non-operating noise (non-op income 0.08, expenses 0.05), implying core operations drove gains. Sustainability: margin gains appear largely operational; absent one-off gains, they are reasonably sustainable if mix and pricing hold. Watch for wage inflation and director/bonus lines (1.25 combined) that could pressure SG&A. No signs of negative operating leverage; revenue growth outpaced SG&A growth (exact YoY SG&A growth not disclosed, but margin expansion implies SG&A intensity improved). Flag: monitor if SG&A growth accelerates faster than revenue in coming periods, which would erode the current margin advantage.

Growth Assessment

Top-line growth of 6.2% is solid for a small-cap services-oriented business and appears organic given limited non-operating contributions. Profit growth outpaced sales (+15.2% OI, +18.5% NI), highlighting positive operating leverage and/or mix improvement. EBITDA of 5.79 implies a 12.6% margin, consistent with the operating margin uplift and low D&A drag. Revenue sustainability hinges on client demand resilience and pricing power; no segment details or backlog provided to validate run-rate. The effective tax rate (32%) is stable, so after-tax growth largely reflects pre-tax operating improvement. With cash of 25.85 and minimal reported financial costs, the company can fund growth initiatives without balance sheet strain. Outlook: barring demand shocks, the margin structure suggests a higher earnings base into FY2026; however, limited disclosure on order pipeline and customer concentration introduces forecast risk.

Financial Health

Liquidity is very strong: current ratio 377% and quick ratio 377% on current assets of 33.32 versus current liabilities of 8.83. No warning flags for current ratio (<1.0) or high leverage (D/E 0.35x, well below 2.0). Maturity mismatch risk appears low given cash and deposits of 25.85 far exceed current liabilities. Noncurrent liabilities are modest at 1.33. Interest-bearing debt details are unreported, so interest coverage cannot be computed, but low leverage and positive FCF mitigate solvency concerns. No off-balance-sheet obligations were disclosed in the provided data. Equity stands at 29.09 with retained earnings of 23.83, indicating accumulated profitability and capacity to absorb shocks.

Cash Flow Quality

OCF of 4.06 exceeds net income of 3.85, yielding OCF/NI of 1.05x—above the 0.8 threshold and indicative of acceptable earnings quality. FCF was 3.78 after modest capex of 0.27, and investing cash outflow was contained at 0.28. Financing CF was an outflow of 1.19, consistent with shareholder returns and/or debt reduction, though exact components are not disclosed. Working capital specifics (AR, AP, inventories) are unreported, limiting assessment of collection efficiency or payables timing; however, positive OCF alongside earnings suggests no aggressive working capital pull-forward. No signs of cash flow strain; cash balance increased net of financing outflows, given high starting cash levels and positive FCF.

Dividend Sustainability

The calculated payout ratio is 32.4%, comfortably below the 60% benchmark, though DPS figures and total dividends paid are unreported. FCF coverage of dividends is estimated at ~3.0x (FCF 3.78 vs implied dividends), indicating ample headroom for distributions and capex. With cash of 25.85 and low leverage, the company has capacity to maintain or modestly increase dividends while funding growth. Policy visibility is limited due to missing DPS disclosure; nonetheless, current profitability, cash generation, and balance sheet strength point to a sustainable dividend stance.

Risk Assessment

Business Risks:

• Demand cyclicality in core end-markets (likely HR/services/IT solutions), which could slow revenue growth.
• Potential wage inflation and talent retention costs pressuring SG&A and margins.
• Customer concentration risk (not disclosed), which could amplify earnings volatility.
• Limited disclosure on segment mix and backlog, reducing visibility into recurring vs project-based revenues.

Financial Risks:

• Small scale (assets 39.25) exposes the company to earnings volatility and limited shock absorption vs larger peers.
• Interest expense and debt composition unreported; though leverage appears low, lack of detail reduces transparency.
• ROIC metric appears inflated due to low invested capital and high cash, risking misinterpretation of capital efficiency.

Key Concerns:

• Data gaps in working capital (AR/AP/inventory) hinder assessment of collection and credit risk.
• Governance cost structure sensitivity (directors’ compensation 1.01 and bonuses 0.24) if revenue growth slows.
• Dependency on a strong domestic labor market; a downturn could pressure both top-line and margins.
• Limited non-operating buffer; performance is primarily operational, increasing exposure to execution risk.

Investment Implications

Key Takeaways:

• Profits outpaced sales with operating margin expansion of ~96 bps YoY to ~12.3%.
• ROE of 13.2% is driven mainly by margin strength and efficient asset use rather than leverage.
• Cash-rich, low-leverage balance sheet (current ratio 377%, D/E 0.35x) supports resilience and optionality.
• OCF/NI of 1.05x and FCF of 3.78 indicate solid earnings quality and funding capacity.
• Dividend capacity appears ample with an estimated 32% payout and ~3x FCF coverage, though DPS is undisclosed.

Metrics to Watch:

• Operating margin and SG&A ratio trajectory (cost discipline vs growth investment).
• OCF/Net income and working capital days (once AR/AP disclosed).
• Revenue mix by segment/customer and concentration exposure.
• Headcount, utilization, and unit pricing trends (if disclosed).
• Tax rate stability and any shifts in non-operating items.

Relative Positioning: Compared to small-cap Japanese services peers, the company exhibits above-average profitability and a stronger liquidity profile, with conservative leverage and solid cash conversion; disclosure depth is thinner than best-in-class, warranting ongoing monitoring.

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