CRESCO LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.95B
• Operating Income: ¥2.72B
• Net Income: ¥1.88B
• EPS: ¥50.18

Income Statement

Balance Sheet

Cash Flow Statement

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

Cresco (4674) reported solid FY2026 Q2 consolidated results under JGAAP, with revenue of ¥30.95bn (+8.6% YoY) and operating income of ¥2.72bn (+4.3% YoY). Net income rose 9.3% YoY to ¥2.05bn, implying a modest improvement at the bottom line despite slightly slower operating profit growth. Gross profit reached ¥5.54bn, translating to a gross margin of 17.9%, consistent with a systems integrator profile where subcontracting costs and personnel expenses dominate cost of sales. The operating margin stood at roughly 8.8%, reflecting stable execution but limited operating leverage in the half. Ordinary income of ¥2.87bn exceeded operating income by about ¥0.15bn, indicating positive non-operating contributions, while interest expense was minimal at ¥5.9m. Although the “effective tax rate” field shows 0.0% (unreported in calculated metrics), the disclosed income tax of ¥874m and net income imply a realistic effective tax rate near 29.8%. DuPont analysis yields an ROE of 6.47%, driven by a 6.64% net margin, asset turnover of 0.693x, and financial leverage of 1.41x. The balance sheet is conservative: total assets are ¥44.65bn, total liabilities ¥12.52bn, and equity ¥31.77bn, implying an equity ratio around 71% (the reported 0% equity ratio is undisclosed data, not a true zero). Liquidity is very strong with a current ratio of 317% and working capital of ¥19.48bn, and inventories are negligible (¥48m), consistent with a service-centric model. Operating cash flow was ¥2.04bn, essentially in line with net income (OCF/NI ~0.99), suggesting sound earnings quality; however, investing cash flow and cash balance were not disclosed this period, limiting free cash flow visibility. EBITDA of ¥2.87bn implies a 9.3% margin, and interest coverage is exceptionally high at ~459x, underscoring low financial risk. EPS was ¥50.18; share count and book value per share were not disclosed, constraining per-share balance sheet analysis. Dividend data (DPS and payout) were also not disclosed in the XBRL output for this period, so distribution policy cannot be assessed from this dataset alone. Overall, Cresco demonstrates steady top-line growth, stable margins, strong cash conversion, and a robust balance sheet, albeit with moderate ROE typical for a low-leverage SI model. Outlook hinges on utilization, pricing power against wage inflation, and mix shift toward higher value-added projects, with working capital discipline supporting cash generation.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 6.64%
• asset_turnover: 0.693x
• financial_leverage: 1.41x
• calculated_ROE: 6.47%
• interpretation: ROE is primarily margin-driven with modest leverage; asset turnover is typical for a systems integrator. Scope to lift ROE depends on improving operating margin and/or asset efficiency rather than increasing leverage. margin_quality:
• gross_margin: 17.9% (gross profit ¥5.54bn on revenue ¥30.95bn)
• operating_margin: ≈8.8% (operating income ¥2.72bn)
• EBITDA_margin: 9.3% (EBITDA ¥2.87bn)
• net_margin: 6.64% (net income ¥2.05bn)
• comments: Margins are stable; non-operating gains lifted ordinary income above operating income by ~¥147m. Low depreciation (¥149m) indicates an asset-light profile; SG&A and personnel cost management remain key to margin resilience. operating_leverage:
• revenue_growth_YoY: +8.6%
• operating_income_growth_YoY: +4.3%
• comment: Operating income grew slower than revenue, indicating limited operating leverage in the half (likely due to wage inflation, subcontracting mix, or ramp-up costs). Further scale efficiencies or improved pricing would be needed to expand OPM.

Growth Assessment

revenue_sustainability: Mid-to-high single digit growth (+8.6% YoY) aligns with continued IT services demand; negligible inventories support a project-based revenue model with limited physical constraints. profit_quality: Net income growth (+9.3% YoY) outpaced operating income growth, aided by favorable non-operating items and a normalized tax burden. Core profitability remains steady with OPM ~8.8%. outlook: Sustained growth depends on utilization, headcount expansion, subcontracting ratio management, and pricing power to offset wage inflation. Mix shift toward higher value-added consulting, cloud-native, and DX projects would support margin uplift; macro IT budget cycles remain a swing factor.

Financial Health

liquidity:

• current_ratio: 317.1%
• quick_ratio: 316.6%
• working_capital: ¥19.48bn
• assessment: Very strong liquidity with ample short-term coverage; minimal inventories are consistent with services. Receivable collection discipline remains the primary driver of short-term cash dynamics. solvency:
• total_assets: ¥44.65bn
• total_liabilities: ¥12.52bn
• total_equity: ¥31.77bn
• implied_equity_ratio: ≈71.2% (equity/assets)
• debt_to_equity: 0.39x (based on total liabilities/equity)
• interest_coverage: ≈459x (EBIT/interest)
• assessment: Low leverage and exceptionally high interest coverage indicate minimal solvency risk. Balance sheet can absorb cyclical swings in orders or collections. capital_structure: Predominantly equity-financed with modest liabilities; limited reliance on interest-bearing debt given minimal interest expense.

Cash Flow Quality

earnings_quality: OCF of ¥2.04bn closely tracks net income of ¥2.05bn (OCF/NI ~0.99), indicating solid accrual quality and manageable working capital movements. FCF_analysis: Investing cash flow was not disclosed in this dataset, so free cash flow cannot be reliably derived. Low depreciation suggests capex intensity is modest, but actual capex timing could sway FCF in interim periods. working_capital: Large positive working capital (¥19.48bn) and low inventories imply receivables and unbilled work drive cash conversion. Monitoring DSO and unbilled receivables is key to sustaining OCF.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio were not disclosed for the period (values shown as zero indicate non-disclosure). Therefore, payout sustainability cannot be quantified from this dataset. FCF_coverage: Free cash flow coverage of dividends cannot be assessed due to missing investing cash flow and dividend data. policy_outlook: With net income of ¥2.05bn, strong liquidity, and low leverage, capacity for distributions appears supported by fundamentals; however, concrete conclusions require confirmed DPS and capital allocation guidance.

Risk Assessment

Business Risks:

• Project execution risk in fixed-price systems integration and DX projects.
• Wage inflation and talent retention pressures affecting delivery margins.
• Demand cyclicality tied to client IT budgets and macro conditions.
• High client concentration potential in enterprise accounts (common in SI).
• Subcontracting dependency and partner availability constraints.
• Technology transition risk (cloud-native, AI, cybersecurity) requiring continuous skill investment.

Financial Risks:

• Working capital concentration in receivables and unbilled revenue, exposing cash flow to collection timing.
• Potential for OCF volatility around large project milestones.
• Limited disclosure on cash and investing flows in this period constrains visibility on liquidity buffers and capex needs.

Key Concerns:

• Operating leverage was limited as OI growth (+4.3% YoY) lagged revenue growth (+8.6%).
• ROE at 6.47% is moderate for an asset-light model, indicating scope for efficiency or margin improvement.
• Incomplete disclosures (cash balance, investing CF, DPS, share count) reduce analytical precision mid-year.

Investment Implications

Key Takeaways:

• Top-line growth remained healthy at +8.6% YoY, with stable operating margin around 8.8%.
• Bottom-line growth (+9.3% YoY) benefited from non-operating gains and normalized taxes.
• Strong balance sheet (implied equity ratio ~71%) and liquidity (current ratio ~317%) limit financial risk.
• Earnings quality is solid with OCF/NI ~1.0, though FCF cannot be confirmed due to missing investing CF.
• ROE at 6.47% reflects conservative leverage; improvements hinge on margin expansion and asset efficiency.

Metrics to Watch:

• Utilization rate and billable headcount growth.
• Subcontracting ratio and wage inflation vs. pricing power.
• SG&A as a percentage of sales and operating margin trajectory.
• Days sales outstanding (DSO) and unbilled receivables to monitor cash conversion.
• Order backlog and pipeline in higher value-added DX/cloud/AI projects.
• Non-operating income components and effective tax rate normalization.

Relative Positioning: Within Japanese mid-cap IT services/SI peers, Cresco exhibits typical mid-to-high single-digit growth, stable mid-to-high single-digit operating margins, strong liquidity, and low leverage; profitability and ROE are solid but not standout, leaving upside tied to mix shift toward higher value-added services and improved operating leverage.

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