Basis Corporation FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.92B
• Operating Income: ¥5M
• Net Income: ¥4M
• EPS: ¥0.89

Income Statement

Balance Sheet

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: A soft FY2026 Q1 with sharp profit compression despite modest top-line growth. Revenue grew 1.2% YoY to 19.19, while operating income fell 63.2% YoY to 0.05 and net income declined 61.9% to 0.01, indicating significant margin pressure. Gross profit was 4.26, implying a gross margin of 22.2%, but operating margin was just 0.26%, and net margin slid to approximately 0.05%. Using reported YoY rates, last year’s operating income was about 0.136 versus this year’s 0.05, implying operating margin contracted by roughly 457 bps (from about 0.72% to 0.26%). Net margin also compressed by about 9 bps (from ~0.14% to ~0.05%), reflecting higher relative tax and non-operating burdens. Ordinary income declined 45.3% YoY to 0.05, with non-operating expenses of 0.06 (including interest expense of 0.02) outweighing negligible non-operating income, further weighing on bottom line. The effective tax rate appears elevated at 53.8%, amplifying the earnings decline relative to pre-tax profit of 0.09. Earnings quality cannot be assessed due to unreported operating cash flow, which is a key gap this quarter. Liquidity remains healthy with a current ratio of 206.6% and working capital of 15.99, mitigating near-term refinancing risk. Leverage is moderate with D/E at 0.85x and interest coverage at 3.12x—adequate but below the >5x comfort benchmark. Asset turnover is 0.506, and with a net margin of ~0.1% and financial leverage of 1.85x, ROE computes to a very low ~0.1%. ROIC is flagged at 0.1%, well below the 5% warning threshold, underscoring capital efficiency challenges. Accounts receivable at 16.62 are high relative to quarterly sales (about 87% of revenue), which is not unusual for project-based work but warrants monitoring for collection risk. With no disclosure on capex, OCF, or dividends, forward visibility on cash support for growth investments or shareholder returns is limited. Near-term focus should be on restoring gross margin, controlling SG&A, managing financing costs, and normalizing the effective tax rate. Overall, the quarter signals compressed profitability and very low returns on capital, cushioned by solid liquidity and manageable leverage.

Profitability Analysis

ROE decomposition: ROE (~0.1%) = Net Profit Margin (~0.1%) × Asset Turnover (0.506) × Financial Leverage (1.85x). The dominant driver of weak ROE is the extremely thin net margin, which deteriorated YoY as operating income fell 63.2% on only +1.2% revenue growth. Operating margin dropped from ~0.72% to ~0.26% (≈457 bps contraction) based on inferred prior-period values, indicating adverse mix, pricing, or cost inflation (COGS and/or SG&A). Asset turnover at 0.506 is reasonable for a service/engineering model but insufficient to compensate for the margin squeeze. Financial leverage at 0.85x D/E (1.85x equity multiplier) provides only modest amplification and is not the issue. Business drivers likely include tighter pricing in infrastructure rollouts, project cost overruns, or utilization inefficiencies, compounded by higher non-operating expenses and an elevated effective tax rate. These appear more cyclical/operational than one-time, suggesting sustainability risks until pricing, mix, and cost controls improve. A red flag is that implied SG&A burden (4.11) consumed 96% of gross profit (4.26), indicating limited operating leverage and little buffer for shocks. Until gross margin and SG&A efficiency recover, ROE will remain depressed.

Growth Assessment

Revenue growth was modest at +1.2% YoY to 19.19, indicating stable demand but no clear acceleration. Profit growth was negative: operating income -63.2% and net income -61.9%, signaling that growth quality was weak due to margin compression. Gross margin is 22.2%; without prior-year gross profit disclosure, the change is unknown, but the severe decline in operating profit indicates either lower gross margin or higher SG&A intensity—or both. Non-operating drag (0.06 expenses vs negligible income) and a high effective tax rate further reduced earnings conversion. With AR at 16.62 (about 87% of quarterly revenue), growth appears tied to projects with back-ended cash collection, typical in the sector but a watchpoint for sustainable expansion. Outlook hinges on: (1) execution discipline to lift gross margins, (2) SG&A containment, especially personnel and subcontracting efficiency, and (3) lowering financing costs and normalizing the tax rate. Given low ROIC (0.1%), the company must prioritize returns over pure top-line growth. Without OCF and order backlog disclosure, sustainability of revenue growth cannot be confidently affirmed.

Financial Health

Liquidity is solid: current ratio 206.6% and quick ratio 206.6% (inventories unreported), with working capital of 15.99. No warning triggers (Current Ratio <1.0 or D/E >2.0) are present; D/E is 0.85x, indicating moderate leverage. Cash and deposits are 9.88 versus short-term loans of 5.00, providing a cash buffer over near-term debt. Current assets (30.99) comfortably exceed current liabilities (15.00), suggesting low maturity mismatch risk. Long-term loans are 1.88, and total liabilities are 17.43 against equity of 20.52, maintaining balance sheet flexibility. Interest coverage at 3.12x is below the >5x strong threshold but above the <2x warning level; improving operating earnings would enhance coverage. No off-balance sheet obligations are disclosed in the provided data. Goodwill (0.78) and intangibles (3.42) are modest relative to equity, limiting impairment risk to overall solvency.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so OCF/Net income and FCF coverage cannot be evaluated. Consequently, we cannot confirm whether earnings were cash-backed, nor assess working capital absorption or release in the quarter. Receivables (16.62) are large relative to quarterly sales, which is common in project-based businesses but can indicate timing risk for cash conversion; absent OCF data, this is a monitoring point rather than a definitive concern. With capex undisclosed, we cannot judge maintenance vs growth investment intensity or implications for future FCF. Dividend cash needs are also unknown due to a lack of dividend disclosure.

Dividend Sustainability

Dividend data (DPS, total dividends, payout ratios) are unreported for the period. Given low profitability (net income 0.01) and unreported OCF/FCF, we cannot assess coverage or sustainability quantitatively. Balance sheet liquidity is adequate, which could support modest shareholder returns if a policy exists, but with ROIC at 0.1% and thin margins, prudent retention to restore earnings power may be prioritized. Policy outlook remains uncertain due to limited disclosure this quarter.

Risk Assessment

Business Risks:

• Margin pressure from project mix, pricing, and subcontracting/cost inflation evidenced by a 457 bps YoY operating margin contraction.
• Execution risk in large infrastructure projects leading to cost overruns or delays, affecting both margin and cash conversion.
• Customer concentration risk typical in telecom/infrastructure rollouts (not disclosed, but industry common).
• Revenue recognition timing and AR collection risk with receivables at ~87% of quarterly sales.

Financial Risks:

• Moderate leverage (D/E 0.85x) combined with low earnings could compress interest coverage if profits weaken further.
• Elevated effective tax rate (53.8%) depresses net profit and may be volatile.
• Potential refinancing risk if operating earnings do not recover, though mitigated by strong liquidity.
• Non-operating expense burden (0.06) outweighing non-operating income reduces ordinary profit resilience.

Key Concerns:

• Very low ROIC at 0.1%, well below the 5% warning threshold, indicating poor capital efficiency.
• Insufficient earnings buffer: SG&A (4.11) consumed 96% of gross profit (4.26).
• Lack of cash flow disclosure limits visibility into earnings quality and dividend capacity.
• Interest coverage at 3.12x is only moderate, leaving limited room for rate or profit shocks.

Investment Implications

Key Takeaways:

• Top line stable (+1.2% YoY) but profitability compressed sharply; operating margin down to ~0.26%.
• Ordinary and net profits fell 45–62%, exacerbated by non-operating expenses and a high tax rate.
• Liquidity strong (current ratio ~207%), leverage moderate (D/E 0.85x), interest coverage 3.12x.
• ROE and ROIC both around 0.1%, underscoring urgent need to restore margins and capital efficiency.
• Receivables heavy relative to quarterly revenue; cash conversion is a key watchpoint.

Metrics to Watch:

• Gross margin and SG&A ratio (operating margin recovery path).
• Operating cash flow, free cash flow, and AR days to assess cash conversion.
• Interest coverage and borrowing costs, including any rate resets.
• Effective tax rate normalization and drivers.
• Order backlog/pipeline and pricing discipline on new projects.
• Capex intensity and its impact on future ROIC.

Relative Positioning: Versus domestic small-cap engineering/telecom infrastructure peers, the company shows comparable liquidity and moderate leverage but materially weaker profitability and capital efficiency this quarter; restoring margin and improving cash conversion are required to close the gap.

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