CLUSTER TECHNOLOGY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥664M
• Operating Income: ¥113M
• Net Income: ¥104M
• EPS: ¥18.39

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: A strong FY2026 Q2 with sharp profit inflection and robust balance sheet strength, tempered by weaker cash conversion. Revenue rose 51.3% YoY to 6.64 and operating income surged 465.2% YoY to 1.13, driving ordinary income to 1.15 and net income to 1.04 (+553.4% YoY). Operating margin stands around 17.0% (1.13/6.64), and net margin is 15.7%, indicating substantial operating leverage. Gross margin is reported at 27.4%, implying COGS of roughly 4.82; this does not reconcile with the stated cost of sales of 2.57, suggesting a likely data labeling or extraction mismatch for COGS. With profit outpacing revenue growth, margins clearly expanded YoY, but precise basis-point changes cannot be computed due to absent prior-period margin data. Earnings quality lags headline profits: OCF of 0.63 is only 0.61x net income, flagging potential working capital drag or timing effects. The balance sheet is exceptionally liquid: cash and deposits are 9.89 versus current liabilities of 1.73, driving a current ratio of 765% and quick ratio of 752%. Leverage is minimal (D/E 0.11x; financial leverage 1.14x), and interest burden is negligible, reflected in an extremely high interest coverage ratio. ROE is a modest 6.0% from DuPont, constrained primarily by low asset turnover (0.337x) given a cash-heavy balance sheet. ROIC is a healthy 11.2%, indicating efficient deployment in the operating base despite low overall turnover. Capex is light at 0.06, supporting cash-light growth, but the weak OCF/NI ratio suggests the need to monitor receivables and inventory movements. Dividend capacity appears conservative with a calculated payout ratio of 21.9%, although DPS detail is unreported and FCF disclosure is limited. Forward-looking, sustaining revenue momentum while improving cash conversion and asset turnover could lift ROE. The company’s solid liquidity and low leverage provide ample flexibility to invest for growth or return cash, but maintaining margin gains and closing the OCF gap will be key. Data limitations include unresolved P/L reconciliation for COGS and PBT; analysis emphasizes the more coherent operating, ordinary, and net profit lines.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 15.7% × 0.337 × 1.14 ≈ 6.0%. The most constraining component is asset turnover (0.337x), reflecting a cash-rich, low-leverage balance sheet and small scale relative to assets. Net margin is strong at 15.7%, supported by a roughly 17.0% operating margin and minimal non-operating noise (non-operating income ratio ~2%). Financial leverage is modest at 1.14x, limiting ROE amplification but supporting risk profile. Business drivers: sharp operating leverage (OPEX discipline) and mix likely boosted operating margin, while low interest burden preserved ordinary income. Sustainability: operating margin improvements could be partly cyclical or scale-driven; persistence depends on maintaining gross margin and SG&A efficiency as growth continues. Watch for SG&A growth vs revenue—current SG&A ratio is about 24.4% (1.62/6.64), so further scale should help, but any normalization in gross margin could pressure operating margin. With asset turnover low, redeploying excess cash or accelerating growth is the clearest path to higher ROE.

Growth Assessment

Top-line growth of +51.3% YoY indicates strong demand or new wins, with profit growth far outpacing sales (+465.2% operating income, +553.4% net income), evidencing powerful operating leverage. Profit quality is strong at the P/L level (limited non-operating effects), but cash realization lagged (OCF/NI 0.61x), suggesting timing issues in working capital. EBITDA of 1.40 (21.0% margin) confirms improved operating efficiency and manageable D&A burden (0.27). With ROIC at 11.2% (above an 8% excellence threshold), invested capital is earning well; sustaining this will require stable gross margin and continued SG&A leverage. Outlook hinges on converting the revenue surge into durable repeat business and tightening cash conversion (faster collections, controlled inventories). Given the balance sheet optionality, the company can fund organic initiatives or selective capex without leverage, but careful cash discipline is needed to avoid erosion of earnings quality.

Financial Health

Liquidity is exceptionally strong: current ratio 764.9% and quick ratio 751.6% far exceed healthy benchmarks, with cash and deposits (9.89) covering 5.7x current liabilities (1.73). No warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.11x. Solvency is robust with total equity of 17.33 against total liabilities of 1.84; financial leverage is low at 1.14x. Maturity mismatch risk is minimal—current assets (13.20) exceed current liabilities by 11.47 of working capital. Interest-bearing debt items are unreported, but interest expense is effectively zero, and interest coverage is extremely high, implying negligible debt service burden. No off-balance-sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 0.61x (<0.8), flagging a quality issue—earnings are not fully converting to cash this quarter, likely due to working capital timing (AR 1.66 and inventories 0.23 vs AP 0.51, without prior-period comparatives). Free cash flow disclosure is N/A; however, a simple proxy (OCF − Capex) is approximately 0.57, indicating positive pre-financing cash generation despite weaker conversion. Financing CF is a small outflow (-0.01), consistent with negligible debt usage. No explicit signs of working capital manipulation are evident from a single period, but the divergence requires monitoring over subsequent quarters (collections, inventory turns). With high cash on hand, near-term liquidity risk is low, but sustaining dividends and growth investments depends on improving OCF consistency.

Dividend Sustainability

The calculated payout ratio is 21.9%, comfortably below the <60% benchmark, implying headroom for maintenance or gradual growth in dividends if maintained. DPS specifics are unreported, and total dividends paid are N/A, limiting precision. Proxy FCF of about 0.57 (OCF 0.63 minus capex 0.06) suggests dividends are likely covered by internally generated cash in this period, though the OCF/NI shortfall warrants caution. The cash-rich balance sheet provides an additional buffer for stable payouts even if quarterly OCF is volatile. Policy outlook is not disclosed; given low leverage and modest capex needs, the company has capacity for shareholder returns, but management’s prioritization between growth investments and distributions will drive actual payout decisions.

Risk Assessment

Business Risks:

• Earnings quality risk from weak cash conversion (OCF/NI 0.61x) indicating working capital timing sensitivity.
• Margin sustainability risk if gross margin normalizes or SG&A scales faster than revenue.
• Small scale risk: low asset turnover (0.337x) may limit operating flexibility and ROE.
• Data inconsistency in reported COGS and PBT could mask true cost structure and tax dynamics.

Financial Risks:

• Potential concentration of cash assets yields low return on assets and depresses ROE if not redeployed.
• Limited disclosure on debt profile (interest-bearing debt unreported) although interest expense appears negligible.
• Sensitivity of cash flows to receivable collection cycles given rising sales.

Key Concerns:

• OCF/NI below 0.8 threshold raises near-term earnings quality concern.
• Inconsistency between revenue, cost of sales, and gross profit figures; and between PBT and net income.
• Sustaining double-digit operating margins as scale increases amidst possible input cost volatility.

Investment Implications

Key Takeaways:

• Strong top-line growth (+51.3% YoY) translated into outsized profit growth (OP +465%).
• Margin picture is strong (OM ~17%, NPM 15.7%), but precise YoY bps changes are unavailable.
• ROE is moderate at 6.0%, constrained by low asset turnover; ROIC is strong at 11.2%.
• Balance sheet is extremely liquid with minimal leverage, providing optionality.
• Earnings quality is the main watch-point (OCF/NI 0.61x).

Metrics to Watch:

• OCF/Net Income and working capital movements (AR days, inventory turns, AP terms).
• Gross margin and SG&A-to-sales ratio for operating leverage sustainability.
• Asset turnover improvement (sales growth vs asset base) and cash deployment plans.
• Order backlog/visibility (if disclosed) to gauge durability of revenue growth.
• Capex pipeline and ROIC by project (if disclosed).

Relative Positioning: Within small-cap JGAAP industrial/tech peers, the company stands out for liquidity strength and recent margin expansion, while trailing on ROE due to low asset turnover and a cash-heavy balance sheet; improving cash conversion and redeploying cash are key to closing the ROE 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