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

Core Concept Technology (43710) delivered FY2025 Q3 consolidated results under JGAAP showing resilient topline growth but some margin compression at the operating level. Revenue grew 7.8% YoY to ¥15.39bn, indicating continued demand for the company’s digital and systems integration services. Gross profit was ¥3.86bn with a 25.0% gross margin, suggesting healthy project economics but likely reflecting elevated subcontracting/personnel costs. Operating income was ¥1.59bn, down 3.1% YoY, implying negative operating leverage in the period as SG&A growth outpaced gross profit growth. Despite the softer operating line, ordinary income was ¥1.59bn and net income rose 8.2% YoY to ¥1.56bn, implying supportive non-operating items and/or tax effects. The DuPont-calculated ROE is a robust 29.2%, driven by a 10.11% net margin, strong asset turnover of 1.885x, and moderate financial leverage of 1.53x. Liquidity appears strong with a current ratio of 162.7% and working capital of ¥2.25bn; leverage looks conservative with liabilities/equity at ~0.72x. Interest burden is negligible (interest expense ¥2.44m) with coverage of ~651x, underscoring low financial risk from debt servicing. The reported equity ratio of 0.0% is clearly a non-disclosure artifact; based on available balances, equity/asset ratio is approximately 65.3% (¥5.33bn/¥8.17bn), indicating a solid capital base. Cash flow statements are undisclosed in this dataset (zeros indicate not reported), so operating and free cash flow quality cannot be assessed from this snapshot. Dividend data show DPS and payout ratio as zero (unreported/policy not indicated), and FCF coverage is not meaningful given the lack of disclosed CF figures. The company likely has low inventory exposure consistent with a services-heavy model; quick and current ratios are identical due to inventory non-disclosure. The decline in operating income versus growth in revenue suggests wage inflation, subcontracting mix, or project mix shifts pressured margins. Nonetheless, the improvement in net income indicates non-operating tailwinds or differences in tax/extraordinary items under JGAAP. Overall, the business demonstrates high returns and efficient asset utilization, with a balance sheet positioned to support growth; however, the absence of cash flow data and the Q3 operating margin pressure are key items to monitor. Data limitations (notably cash flow and certain per-share metrics) constrain the depth of earnings quality assessment, and interpretations rely on the disclosed, non-zero line items. We avoid drawing conclusions from zero entries and focus on the provided figures.

Profitability Analysis

• ROE decomposition (DuPont): ROE 29.2% = Net margin 10.11% x Asset turnover 1.885x x Financial leverage 1.53x. High ROE is primarily driven by strong asset efficiency and a double-digit net margin.
• Margin profile: Gross margin 25.0% (gross profit ¥3,855.7m on revenue ¥15,393.0m). Operating margin ~10.3% (¥1,588.0m/¥15,393.0m). Ordinary margin ~10.3% (¥1,592.0m/¥15,393.0m). Net margin 10.11%.
• Operating leverage: Revenue +7.8% YoY while operating income −3.1% YoY indicates negative operating leverage this period; SG&A likely grew faster than gross profit. Estimated SG&A expense ≈ ¥2,267.7m (gross profit − operating income), ~14.7% of revenue.
• Expense dynamics: Interest expense is minimal (¥2.44m), so the gap between operating and net outcomes is not financing-related. The YoY divergence between operating and net suggests supportive non-operating gains and/or tax effects.
• Profit quality indicators: With cash flow data undisclosed, we cannot triangulate accrual intensity. However, high asset turnover and low financing costs support the structural profitability of a services-centric model.

Growth Assessment

• Revenue growth: +7.8% YoY to ¥15.39bn suggests sustained client demand in digital transformation and SI services.
• Profit growth mix: Operating income −3.1% YoY versus net income +8.2% YoY indicates margin compression at the core business offset by non-operating/tax factors.
• Sustainability: Growth appears volume-driven; maintaining growth will depend on utilization, pricing power, and project mix (fixed-price vs T&M) amid wage inflation.
• Outlook drivers: Order backlog, hiring progress, utilization, and pricing renegotiations will shape near-term growth. A favorable mix shift toward higher value-added solutions (e.g., AI/data) could support margin recovery.
• Data caveats: Lack of quarterly cash flow and order intake metrics limits assessment of demand durability and conversion to cash.

Financial Health

• Liquidity: Current assets ¥5,828.2m vs current liabilities ¥3,582.6m; current ratio 162.7%, quick ratio 162.7% (inventory undisclosed). Working capital ¥2,245.6m indicates a solid short-term buffer.
• Solvency: Total liabilities ¥3,814.2m; total equity ¥5,333.0m; debt-to-equity ~0.72x (liabilities/equity). Implied equity ratio ~65.3% (equity/assets), despite the reported 0.0% placeholder.
• Interest burden: Interest expense ¥2.44m; interest coverage ~650.8x (operating income basis), reflecting very low financial risk.
• Capital structure: Moderate leverage with ample equity supports continued investment and cushions cyclicality.

Cash Flow Quality

• Disclosure status: Operating, investing, and financing cash flows show as zero due to non-disclosure in this dataset; thus, OCF/Net income (0.00) and FCF (0) are not analytically meaningful.
• Earnings quality: Without OCF, we cannot validate accruals, receivables behavior, or conversion of earnings to cash. Given the services model (no inventory disclosed), working capital risk likely concentrates in receivables and unbilled work.
• Working capital: Positive working capital of ¥2.25bn provides liquidity, but collection efficiency (DSO) cannot be assessed from available data.
• Capex and depreciation: Depreciation is undisclosed (0 placeholder). Capex and lease dynamics are unknown, limiting FCF assessment.

Dividend Sustainability

• Current status: Annual DPS and payout ratio appear as zero in the dataset; treat as undisclosed/no dividend declaration in this snapshot rather than true zero.
• Capacity: Net income of ¥1,557.0m and strong balance sheet (equity ¥5,333.0m; low interest burden) suggest capacity to fund distributions if aligned with policy, but cash flow data are unavailable to confirm coverage.
• FCF coverage: Not meaningful due to undisclosed cash flows (reported 0x is a placeholder). Any assessment should await OCF/Capex disclosure.
• Policy outlook: Without explicit guidance, assume a growth-oriented reinvestment stance common in high-ROE, human-capital-intensive IT service firms; monitor management commentary on payout intentions.

Risk Assessment

Business Risks:

• Project execution risk in fixed-price SI engagements leading to margin slippage
• Wage inflation and subcontracting cost pressure impacting gross margin
• Talent acquisition/retention challenges affecting utilization and delivery
• Client concentration and pricing pressure in enterprise accounts
• Demand cyclicality in DX/IT spend amid macro slowdowns
• Competitive intensity from larger SIers and specialized boutiques
• Technology shifts (AI/automation) altering delivery models and pricing
• Seasonality and quarter-end delivery patterns affecting quarterly volatility

Financial Risks:

• Receivables and unbilled exposure given services model; cash conversion risk
• Limited cash flow disclosure in this period reduces visibility on OCF and FCF
• Potential mismatch between revenue recognition and cash collection in long projects
• Tax and non-operating items volatility under JGAAP impacting net income
• Reliance on human capital with limited tangible collateral

Key Concerns:

• Operating income declined 3.1% YoY despite 7.8% revenue growth (negative operating leverage)
• Gross margin at 25.0% may be pressured by wage/subcontracting costs or mix
• Cash flow statements not disclosed; earnings-to-cash conversion unverified
• Apparent discrepancy between ordinary income, income tax, and net income requires full statement for reconciliation
• Reported equity ratio 0.0% is a non-disclosure artifact; actual solvency is strong but requires confirmation in full filings

Investment Implications

Key Takeaways:

• Topline growth remains solid (+7.8% YoY), indicating healthy demand
• Operating margin compressed (OI −3.1% YoY), signaling cost and/or mix headwinds
• ROE is high at 29.2%, supported by strong asset turnover and moderate leverage
• Balance sheet is robust (implied equity ratio ~65%, D/E ~0.72x) with minimal interest burden
• Cash flow visibility is limited this quarter due to non-disclosure; monitor OCF and DSO

Metrics to Watch:

• Order backlog and book-to-bill
• Utilization rate and average billing rate
• Fixed-price vs time-and-materials mix
• Gross margin and SG&A ratio trends
• Receivables days (DSO) and unbilled balances
• Operating cash flow and free cash flow
• Headcount growth, attrition, and wage inflation
• Non-operating gains/losses and effective tax rate normalization

Relative Positioning: Within Japanese IT services/SI peers, the company exhibits above-average ROE and asset turnover with conservative leverage and strong liquidity, but faces near-term operating margin pressure; sustained growth and margin resilience relative to peers will hinge on pricing power, delivery efficiency, and cash conversion.

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