Core Concept Technologies Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥15.39B
• Operating Income: ¥1.59B
• Net Income: ¥1.13B
• EPS: ¥67.55

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: Solid top-line growth with slight operating margin compression, but net profit grew on non-operating/one-off tailwinds, resulting in very strong ROE. Revenue rose 7.8% YoY to 153.93, while operating income declined 3.1% YoY to 15.88. Gross profit was 38.56, implying a gross margin of 25.0%. Operating margin was 10.3% this quarter versus approximately 11.5% a year ago, indicating about 116 bps compression. Ordinary income was 15.92 (−4.2% YoY), but profit before tax printed higher at 16.61, implying gains below the ordinary line. Net income increased 8.2% YoY to 15.57, lifting net margin to 10.1% from roughly 10.1% a year ago (about +4 bps), despite weaker operating leverage. Non-operating items were modestly positive (income 0.42, expenses 0.20), but the gap between ordinary income (15.92) and PBT (16.61) suggests one-off or special gains contributed to earnings. Effective tax rate was 31.9% (tax 5.30 on PBT 16.61), within a normal range but a swing factor vs. last year given limited disclosure. Balance sheet quality is strong: current ratio 232%, net cash of roughly 24.74 (cash 26.09 minus total loans 1.35), and very low interest burden (interest expense 0.02; interest coverage 650.8x). Asset efficiency remained high: asset turnover of 1.885 and financial leverage of 1.53x supported a ROE of 29.2%. Comprehensive income (11.32) trailed net income due to negative OCI (~−4.25), which tempers equity accretion. Cash flow disclosure is absent, limiting assessment of earnings quality and cash conversion this quarter. Given an asset-light profile and reported ROIC of 37.8%, structural profitability remains attractive, but near-term margin pressure from SG&A and talent costs is evident. With goodwill and intangibles totaling 16.79 (about 31.5% of equity), impairment risk should be monitored as growth slows. Forward-looking, sustaining double-digit operating margins while converting earnings to cash will be key for dividend capacity and reinvestment. Overall, fundamentals remain robust with strong returns, but the quarter’s profit growth leaned more on items below operating profit than on core margin expansion.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 10.1% × 1.885 × 1.53 ≈ 29.2%. Component dynamics: Net margin held roughly flat YoY (+~4 bps to 10.1%) despite operating margin compression, asset turnover is strong at 1.885, and financial leverage is modest at 1.53x (Assets 81.65 / Equity 53.33). The most notable YoY change was the decline in operating margin from ~11.5% to 10.3% (≈−116 bps), signaling operating deleverage/SG&A pressure. Business driver: Revenue grew 7.8% YoY, but operating income declined 3.1% YoY, implying SG&A growth outpaced gross profit growth or mix shifted toward lower-margin work. Non-operating and below-ordinary items modestly supported PBT and net income, cushioning ROE via stable net margin despite weaker operating margin. Sustainability: High asset turnover and low leverage are structurally sustainable for an asset-light IT/services model; however, reliance on below-operating gains is not a consistent driver and may normalize. Watch for SG&A growth exceeding revenue growth, as indicated by the operating margin compression this quarter. Overall margin quality is acceptable but trending weaker, with strong ROE underpinned more by efficiency and low leverage than by expanding core margins.

Growth Assessment

Revenue growth of 7.8% YoY (to 153.93) demonstrates healthy demand, likely supported by ongoing digital transformation projects. Operating income declined 3.1% YoY, signaling rising cost intensity or unfavorable mix. Net income grew 8.2% YoY due to positive non-operating/extraordinary contributions and a manageable tax rate, rather than stronger core profitability. Non-operating items were net positive (+0.22), and the gap between ordinary income and PBT (+0.69) implies one-offs that are unlikely to recur each quarter. Gross margin at 25.0% is decent for the sector, but without prior-period gross profit data, sustainability cannot be confirmed. With asset turnover at 1.885, the company continues to scale well on its asset base, consistent with an asset-light model. Reported ROIC of 37.8% indicates strong value creation, contingent on maintaining utilization and pricing. Outlook: Continued revenue growth is plausible, but operating margin recovery will depend on talent cost control, pricing power, and project mix. The lack of cash flow data limits confidence in the durability of earnings growth. Overall growth quality is mixed: solid top-line, but profit growth boosted by non-core items.

Financial Health

Liquidity is strong: current assets 60.76 versus current liabilities 26.21 yields a current ratio of 231.8% (well above the 1.5x benchmark) and a quick ratio of 231.8%. No warning for current ratio (<1.0) or D/E (>2.0). Solvency is robust with net cash of ~24.74 (cash 26.09 minus short/long-term loans 1.35). Reported Debt-to-Equity of 0.53x likely reflects total liabilities/equity rather than interest-bearing debt; by interest-bearing debt, leverage is roughly 0.03x. Interest coverage is extremely strong at 650.82x, reflecting minimal interest burden. Maturity mismatch risk is low: current assets 60.76 comfortably cover short-term obligations 26.21. Intangible assets (10.91) and goodwill (5.88) total 16.79, representing about 31.5% of equity (53.33), introducing potential impairment sensitivity in downturns. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

Operating cash flow and free cash flow are unreported, so OCF/Net Income and FCF coverage cannot be assessed this quarter. Accordingly, we cannot compute OCF/NI versus the 0.8 threshold for earnings quality. The divergence between operating income (−3.1% YoY) and net income (+8.2% YoY), alongside a PBT figure exceeding ordinary income, suggests non-core contributions to earnings; absent OCF, this raises some caution on quality for the quarter. Working capital dynamics (e.g., receivables, DSO, unbilled) are unreported, limiting detection of timing-based cash inflows. Given the net cash balance, liquidity headroom appears ample even if cash conversion temporarily lags. However, sustainable cash generation will need to match earnings to support dividends and reinvestment without increasing leverage.

Dividend Sustainability

Dividend data (DPS, total dividends, payout) is unreported, so quantitative payout analysis is not possible. Qualitatively, strong ROE (29.2%), net cash (~24.74), and high ROIC (37.8%) imply capacity to fund distributions while investing, provided OCF tracks earnings. Coverage of prospective dividends by FCF cannot be confirmed in the absence of cash flow and capex data. Policy outlook: absent explicit guidance, we assume a growth-oriented stance with potential for progressive dividends contingent on sustained cash conversion and margin stability.

Risk Assessment

Business Risks:

• Operating margin pressure from wage inflation and competitive hiring in IT services.
• Project mix shift toward lower-margin implementation work, reducing operating leverage.
• Execution risk on large or fixed-price projects leading to cost overruns.
• High proportion of intangibles and goodwill (≈31.5% of equity) creating impairment risk if growth slows.
• Client concentration and postponement risk for DX budgets in economic slowdowns.

Financial Risks:

• Earnings quality risk due to reliance on non-operating/extraordinary gains this quarter.
• Cash flow uncertainty: OCF/FCF unreported, limiting visibility on cash conversion.
• Potential receivables/DSO stretch risk typical in SI/IT, with AR unreported.
• OCI volatility: comprehensive income (11.32) below net income due to negative OCI (~−4.25), potentially from securities or FX valuation.

Key Concerns:

• Operating margin compressed by ~116 bps YoY to 10.3%.
• Ordinary income declined 4.2% YoY while PBT outran ordinary income, implying one-offs.
• Data gaps: no cash flow or dividend disclosure, obscuring payout capacity and cash conversion.
• Goodwill/intangibles at 16.79 could magnify downside if impairments occur.

Investment Implications

Key Takeaways:

• Top-line growth healthy at +7.8% YoY with strong asset efficiency (asset turnover 1.885).
• Operating margin compressed to 10.3% (≈−116 bps YoY), signaling cost/mix pressure.
• Net income rose 8.2% YoY aided by non-operating/one-off items; quality to be monitored.
• ROE remains very strong at 29.2% with modest leverage (1.53x) and net cash balance.
• ROIC of 37.8% underscores an attractive asset-light model if margins are maintained.

Metrics to Watch:

• Operating margin and SG&A ratio versus revenue growth.
• OCF/Net Income and FCF once disclosed; receivables and DSO trends.
• Backlog/orders and utilization rates as proxies for near-term revenue visibility.
• Tax rate normalization and any recurrence of extraordinary gains.
• Goodwill/intangible impairment indicators and OCI volatility.

Relative Positioning: Within Japan IT services/SI peers, the company exhibits above-average operating margins (~10%) and top-tier ROE/ROIC with a net cash balance. Near-term, operating margin compression places it slightly behind best-in-class margin expanders, but overall returns and balance sheet quality keep it competitively well-positioned.

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