CGS HOLDINGS INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.49B
• Operating Income: ¥309M
• Net Income: ¥81M
• EPS: ¥25.48

Income Statement

Balance Sheet

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

CGS Holdings (66330) delivered a strong FY2025 Q3 (cumulative) performance with clear signs of operating leverage and margin expansion. Revenue grew 24.4% YoY to ¥3,486 million, while operating income surged 184.5% YoY to ¥309 million, implying substantial fixed-cost absorption and improved efficiency. Gross profit of ¥1,876.6 million translates to a robust gross margin of 53.8%, providing a solid buffer for SG&A and supporting profit growth. Operating margin reached approximately 8.9%, a marked improvement versus the prior year trend implied by the operating income growth versus revenue growth. Ordinary income came in at ¥355 million, and net income was ¥242 million, implying a net margin of 6.94%. DuPont analysis indicates ROE of 7.21%, driven by a 6.94% net margin, asset turnover of 0.574x, and financial leverage of 1.81x. The balance sheet appears healthy with total assets of ¥6,071 million and total equity of ¥3,355 million, implying an equity ratio of roughly 55.3%, despite the reported equity ratio field showing 0.0% (undisclosed in the provided template). Liquidity looks strong with a current ratio of 2.77x and a quick ratio of 2.72x, aided by low inventories (¥63.2 million). Leverage is conservative with total liabilities of ¥2,816 million and a debt-to-equity ratio of 0.84x, while interest expense remains minimal at ¥0.183 million, yielding very high interest coverage (~1,690x based on operating income). The effective tax rate, inferred from ordinary income and income tax, is about 21% (¥75.4 million tax on ¥355 million ordinary income), consistent with domestic norms. Cash flow statement items were not disclosed in the dataset, so operating cash flow and free cash flow cannot be assessed; this limits earnings quality conclusions. Dividend per share is shown as ¥0 and payout ratio 0%; without cash flow data and policy disclosures, dividend sustainability and outlook remain uncertain. The company’s improving profitability and robust liquidity suggest enhanced financial flexibility into FY2025 Q4 and beyond. Asset turnover of 0.574x indicates moderate capital efficiency for a small-cap with a service/solution-heavy mix implied by high gross margins. With an EPS of ¥25.48 for the cumulative period, internal capital generation appears adequate to support ongoing operations and prudently fund growth. Overall, fundamentals show improving profitability and sound financial health, though the absence of cash flow and share count disclosures constrains a full assessment.

Profitability Analysis

ROE_decomposition: Reported ROE is 7.21%, consistent with DuPont: Net profit margin 6.94% × Asset turnover 0.574 × Financial leverage 1.81 ≈ 7.21%. This indicates margin-driven ROE with moderate asset efficiency and modest leverage. margin_quality: Gross margin at 53.8% is strong, suggesting value-added offerings and favorable pricing/mix. Operating margin of ~8.9% reflects improved SG&A efficiency; implied SG&A is ~¥1,567.6 million (~45% of revenue). Net margin at 6.94% benefits from low interest burden and a normalized tax rate (~21%). operating_leverage: Revenue +24.4% YoY vs operating income +184.5% YoY indicates high operating leverage in the period, likely from fixed-cost absorption and scale benefits. This effect may moderate if growth normalizes, but current trajectory evidences improved cost structure.

Growth Assessment

revenue_sustainability: Top-line growth of 24.4% YoY is robust for a small-cap; sustainability will depend on order intake, backlog visibility, and customer demand in core end-markets. High gross margin suggests a solutions or software/service-heavy mix, which can be more resilient if supported by recurring elements. profit_quality: Margin gains are driven by operating leverage and cost discipline. With interest burden minimal (¥0.183 million) and a reasonable tax rate (~21%), the conversion from operating to net income appears clean. However, absence of cash flow data prevents validation of cash conversion. outlook: If demand conditions persist, operating margins could remain elevated versus prior years. Key sensitivities include mix shifts that could affect gross margins, and potential normalization of SG&A as the company invests for growth.

Financial Health

liquidity: Current assets ¥3,933.6 million vs current liabilities ¥1,421.0 million implies a current ratio of ~2.77x and quick ratio of ~2.72x, both strong. Working capital stands at ~¥2,512.6 million, providing ample operating flexibility. solvency: Total liabilities are ¥2,816.0 million against equity of ¥3,355.0 million, implying a debt-to-equity of ~0.84x and an equity ratio of ~55.3% (computed). Interest coverage is extremely high (~1,690x), indicating minimal refinancing risk. capital_structure: Leverage is conservative with financial leverage (assets/equity) at 1.81x. The balance sheet appears well-capitalized to support operations and potential selective investments.

Cash Flow Quality

earnings_quality: Operating cash flow was not disclosed; OCF/Net income appears as 0.00 only because OCF is unavailable. Therefore, we cannot conclude on cash conversion or accrual intensity. Earnings quality assessment is limited to income-statement strength and low financial expense. FCF_analysis: Free cash flow cannot be calculated due to absence of OCF and investing cash flows (both undisclosed). With low inventory levels and strong working capital, FCF could be favorable, but this is unverified. working_capital: Inventories are low at ¥63.2 million, suggesting limited inventory risk and a likely receivables- or cash-heavy current asset base. Monitoring receivables collection and days sales outstanding is important to validate cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0, implying either no interim distributions or lack of disclosure. With EPS at ¥25.48, capacity exists for dividends subject to cash flow and policy, but no conclusion can be drawn without OCF/FCF and policy guidance. FCF_coverage: FCF coverage cannot be assessed given undisclosed OCF and capex. The reported 0.00x coverage reflects missing data rather than true coverage. policy_outlook: No explicit policy provided. Given improving profitability and a strong balance sheet, the company has optionality, but clarity depends on disclosed capital allocation priorities (dividends vs. reinvestment).

Risk Assessment

Business Risks:

• Demand volatility and order timing in core end-markets, which could impact revenue and utilization.
• Potential mix shifts that could compress gross margins from the current elevated level.
• Customer concentration risk typical of smaller-cap industrial/technology firms.
• Supply chain and procurement cost fluctuations that may affect cost of sales and delivery schedules.
• Execution risk in scaling operations while maintaining SG&A discipline post-leverage gains.

Financial Risks:

• Cash flow visibility risk due to lack of disclosed OCF and capex; uncertainty on cash conversion.
• Working capital collection risk, particularly receivables, given low inventory and implied receivables weighting.
• Refinancing and interest rate risks appear low currently, but changes in funding conditions could affect future costs.
• Currency exposure if there is any overseas sales or procurement (not disclosed).

Key Concerns:

• Absence of cash flow disclosure limits assessment of earnings quality and dividend capacity.
• Sustainability of operating leverage-driven margin expansion if revenue growth moderates.
• Limited visibility on capital allocation policy and shareholder return framework.

Investment Implications

Key Takeaways:

• Strong YoY operating performance with revenue +24.4% and operating income +184.5%, evidencing operating leverage.
• High gross margin of 53.8% supports resilient profitability; operating margin approximates 8.9%.
• ROE of 7.21% is margin-led with moderate asset efficiency and conservative leverage.
• Robust liquidity (current ratio ~2.77x, quick ratio ~2.72x) and manageable leverage (D/E ~0.84x).
• Interest burden is minimal (¥0.183 million), yielding interest coverage ~1,690x.
• Cash flow data not disclosed; conclusions on FCF and dividend capacity remain tentative.

Metrics to Watch:

• Order intake/backlog and revenue visibility into FY2025 Q4 and FY2026.
• Gross margin trajectory and SG&A ratio to assess durability of margin gains.
• Operating cash flow, OCF/Net income, and free cash flow to verify earnings quality.
• Receivables collection metrics (DSO) and inventory turns.
• Capital expenditure requirements and any M&A outlays.
• Dividend policy announcements and payout guidance.

Relative Positioning: Within Japan small-cap industrial/tech peers, the company shows above-average gross margins and improving operating margins with a conservative balance sheet; key differentiator will be sustaining growth while demonstrating solid cash conversion once disclosed.

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