Care Service Co.,Ltd. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.97B
• Operating Income: ¥73M
• Net Income: ¥77M
• EPS: ¥20.36

Income Statement

Balance Sheet

Profitability Ratios

Share Information

Dividend Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Verdict: FY2026 Q3 performance is weak but stable — the company generated positive operating income of ¥0.73bn on revenues of ¥6.967bn, producing modest profitability. Revenue for the quarter was ¥6.967bn and gross profit was ¥0.665bn, yielding a gross margin of 9.5%. SG&A expenses were ¥0.592bn, leaving operating income of ¥0.73bn (operating margin ~1.1%). Ordinary income was ¥1.21bn after material non-operating income of ¥0.49bn and negligible non-operating expense. Profit before tax reached ¥1.306bn and net income for the quarter was ¥0.77bn, equating to basic EPS of ¥20.36. The company shows a high effective tax rate (≈40.9%), which materially reduces EBT conversion into net profit. Financial position is conservative: total assets ¥39.34bn, total liabilities ¥10.18bn and owners’ equity ¥29.16bn. Cash and deposits are sizable at ¥15.75bn and accounts receivable are ¥14.00bn; current assets make up ~79.7% of total assets. Leverage is low — debt-to-equity is 0.35x and financial leverage in the DuPont decomposition is 1.35x, which limits ROE amplification. Calculated ROE is 2.6%, driven by a low net margin (1.1%) and moderate asset turnover (1.771). The company’s ROIC is reported at 3.2%, below typical 5% warning threshold for capital efficiency. Earnings composition shows a notable contribution from non-operating and extraordinary items (non-operating income ¥0.49bn and extraordinary income ¥0.0957bn), which inflate ordinary income above operating income. Working capital is positive at ¥2.409bn and the current ratio is very high at 431%, reflecting a very strong liquidity buffer. The company maintained a year-end dividend guidance of ¥20.00 per share in the forecast, implying a full-year DPS guidance of ¥22.00 and a calculated payout on reported Q3 net income above 100% based on current quarters; this raises dividend sustainability questions relative to reported quarterly profit. Receivable collection metrics are stretched (DSO ~73 days flagged), which together with low gross margin and low operating efficiency constrains margin recovery. The income statement indicates tight operational profitability — EBIT margin 1.1% — thus future earnings improvements must come from gross margin expansion or SG&A discipline. Intangible assets increased materially year-over-year (+54.7%), while goodwill declined, changes that require monitoring for future amortization or impairment dynamics. Forecasts show full-year targets materially higher than current quarter run-rate: full-year sales ¥95.31bn and net income ¥2.38bn, implying the company expects stronger H2 performance; achieving those targets will require margin improvement and/or seasonally higher revenues. In sum, the quarter delivers positive but low-quality operating profits with heavy reliance on non-operating items and a high tax burden; balance sheet strength mitigates solvency risk but capital efficiency and dividend coverage are the primary near-term concerns. Forward-looking implications: management must improve operating margins and reduce receivable days to sustainably lift ROE and validate the dividend guidance; absent such improvement, dividend payout will pressure cash or require one-off income to sustain distributions.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage. Using reported metrics: Net Profit Margin = 1.1% (Net Income ¥0.77bn / Revenue ¥6.967bn). Asset Turnover = 1.771 (Revenue ¥6.967bn / Total Assets ¥3.934bn). Financial Leverage = 1.35x (Total Assets ¥3.934bn / Equity ¥2.916bn). Resulting calculated ROE = 1.1% × 1.771 × 1.35 ≈ 2.6%, which matches the reported ROE. The largest adverse contributor is Net Profit Margin — at 1.1% it is the weakest component and the principal driver of low ROE. Asset turnover is reasonable at 1.77x and provides support to ROE, indicating the company generates nearly ¥1.77 of sales per ¥1 of assets. Financial leverage is modest (1.35x) and provides little uplift to ROE — the company is conservatively geared. Business rationale: low net margin reflects compressed gross margin (9.5%) and limited operating profitability (EBIT margin 1.1%); part of net income is supported by non-operating and extraordinary items rather than core operations. Sustainability: the low margin appears structural given current gross-profit profile and operating cost base — improvement requires either higher revenues with scale effects, procurement/COGS improvements, or sustained SG&A reductions. Concerning trends to monitor: SG&A is comparatively large relative to gross profit (SG&A ¥0.592bn vs gross profit ¥0.665bn), leaving a narrow operating buffer; if SG&A growth outpaces revenue growth, operating leverage will be negative. No evidence in the disclosed data suggests material one-time cost reductions driving profit; rather, non-operating income and extraordinary items have provided a boost to ordinary income this quarter and may not be recurring.

Growth Assessment

Revenue sustainability: Quarterly revenue ¥6.967bn against a full-year forecast of ¥9.531bn indicates management expects stronger H2 performance; the company needs a higher run-rate or seasonal revenue concentration to meet the full-year target. Profit quality: net income of ¥0.77bn includes sizeable non-operating income of ¥0.49bn and extraordinary income ¥0.0957bn, meaning recurring operating profit contribution is limited (operating income ¥0.73bn). Outlook: to realize the full-year forecast (Net Income ¥2.38bn) the company must convert operating performance into recurring profits, improve gross margin and/or rely again on non-operating items. The low reported ROIC (3.2%) and low gross margin (9.5%) suggest organic margin expansion will be challenging without structural changes (pricing, cost reduction, or service mix shift). Intangible assets increased +54.7% YoY, which may reflect investments (licensing, software, or other intangibles) that could support growth if they generate future revenue; monitor realization of returns from those intangible investments.

Financial Health

Liquidity: Current assets ¥31.37bn vs current liabilities ¥7.28bn yields a current ratio of 431%, indicating an extremely strong near-term liquidity position. Cash and deposits are ¥15.75bn, representing 40.0% of total assets. Solvency: Total liabilities ¥10.18bn vs equity ¥29.16bn gives debt-to-equity ratio 0.35x and capital adequacy ratio ~74.1%, showing conservative leverage. Maturity mismatch: current liabilities (¥7.28bn) are well covered by current assets (¥31.37bn); no short-term liquidity stress is evident. Balance sheet movements of note: Intangible assets rose from ¥0.49bn to ¥0.76bn (+54.7%), implying investment or capitalization of costs, while Goodwill declined from ¥0.01bn to ¥0.00bn (-75.1%). These are the only material YoY B/S changes exceeding the 25% threshold. Implication: the company is well capitalized and liquid, reducing near-term default risk, but the increase in intangible assets should be tracked for impairment risk or amortization impact on future profitability. No off-balance-sheet obligations were reported in the provided data.

Notable B/S Changes

Intangible Assets: +0.27bn (+54.7%) - Significant capitalization likely from new software/licensing or similar investments; monitor for future amortization expense and evidence of revenue generation to justify capitalization. Goodwill: -0.01bn (-75.1%) - Reduction to near zero likely from disposal or reclassification; impairment risk appears limited given the decline, but review prior-period adjustments and one-offs.

Cash Flow Quality

Available cash-flow data are not disclosed for the quarter; therefore cash-flow quality metrics cannot be calculated and are omitted. However, the balance sheet shows a substantial cash balance (¥15.75bn) and positive working capital (¥2.409bn), which supports liquidity. Because net income is modest and non-operating/extraordinary items materially contributed to ordinary income this quarter, cash generation from operations should be monitored when OCF is disclosed to ensure earnings quality and dividend funding capacity.

Dividend Sustainability

The company declared a year-end dividend of ¥20.00 per share and full-year guidance implies DPS ¥22.00. Based on Q3 net income (¥0.77bn) and the number of shares, the calculated payout ratio exceeds 100% for the period referenced, which flags sustainability concerns if recurring earnings are at current levels. The forecasted full-year net income is ¥2.38bn; if achieved, the full-year payout implied by DPS ¥22.00 may be more sustainable (payout ratio would be lower on the forecasted net income). Given the absence of disclosed free cash flow figures, dividend coverage relative to free cash flow cannot be assessed here. Key point: dividend appears covered only if management achieves the higher full-year profit forecast or uses cash reserves — otherwise the payout ratio is effectively unsustainable on a run-rate basis.

Risk Assessment

Business risks include Low gross margin (9.5%) limits operational resilience to input cost increases or pricing pressure., High reliance on non-operating and extraordinary items to boost reported ordinary income reduces recurring earnings predictability., Increased intangible assets (+54.7% YoY) may not generate commensurate revenue, creating execution risk on capitalized projects., Industry-specific: for service/manufacturing operations, DSO ~73 days (high receivable days) increases credit and collection risk with customers..

Financial risks include High effective tax burden (~41%) materially reduces net income conversion from pre-tax profits., Low ROIC (3.2%) and ROE (2.6%) indicate poor capital efficiency and limit shareholder return prospects absent operational improvement., Dividend payout pressure relative to current profitability risks depleting cash reserves if forecasted profit is not achieved..

Key concerns include Profitability concentrated in non-operating/extraordinary items this quarter — risk that core operations cannot sustain reported earnings., Stretched receivables (DSO > 60) threaten working capital if collection deteriorates., Intangible asset increase requires monitoring for impairment or failure to deliver expected returns..

Investment Implications

Key takeaways include Quarterly profits are positive but very low-margin; operating earnings are narrow and company relies on non-operating items to lift ordinary income., Balance sheet is conservative with large cash balances and low leverage, mitigating solvency risk despite weak operating returns., ROE and ROIC are low; performance improvement depends on margin expansion or more efficient asset use., Dividend guidance implies higher full-year payout and would be sustainable only if management achieves forecasted net income or taps cash reserves..

Metrics to watch include Operating margin / EBIT margin (target to rise well above 1.1%)., Progress on receivable days (DSO) — reduction from ~73 days is critical., Realized operating cash flow and free cash flow when disclosed., Return on invested capital (ROIC) — whether it moves above 5%., Actual H2 revenue and net income versus full-year forecast (sales ¥95.31bn, net income ¥2.38bn)., Amortization/impairment charges related to the increased intangible assets..

Regarding relative positioning, Compared with typical industry benchmarks, the company is conservatively financed but operationally weak: liquidity and capital structure are strengths, while margin and capital efficiency are weaknesses. The security is lower-risk from a solvency perspective but higher-risk from an earnings and dividend sustainability perspective.