CRESTEC Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥4.61B
• Operating Income: ¥516M
• Net Income: ¥157M
• EPS: ¥146.17

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

Verdict: Solid margin-led earnings beat despite slight top-line contraction, supported by tighter cost control and resilient core operations. Revenue declined 3.0% YoY to 46.06, but operating income rose 33.0% YoY to 5.16, lifting ordinary income 152.4% YoY to 5.60. Gross profit reached 14.31, implying a gross margin of 31.1%. Operating margin improved to 11.2% (from roughly 8.2% last year, based on back-solved prior operating income), a c.300 bps expansion. SG&A was 10.42 (22.6% of sales), indicating operating leverage as revenue slipped but profits expanded. Non-operating expenses were sizable at 2.06 (including interest expense 0.38), partially offset by non-operating income of 0.40, suggesting elevated FX/valuation costs or other non-core items. Net income posted 4.42 (+183.8% YoY), with EPS of 146.17 yen. Interest coverage was strong at 13.5x, reflecting healthy operating profit relative to financing costs. Liquidity remains robust: current ratio 194% and quick ratio 184%, with cash and deposits of 64.16 exceeding short-term loans of 25.43. Capital efficiency is a watch point: reported ROE (DuPont) is 4.6% and ROIC is 4.7%, below the 5% warning line, implying scope for better asset utilization or mix. Balance sheet leverage is moderate with D/E at 1.02x (total liabilities to equity), while interest-bearing debt to equity is considerably lower when focusing on loans (45.6 vs equity 95.6). A data inconsistency exists: profit before tax (2.24) is below operating income, and below reported net income despite a positive tax expense; we rely more on operating/ordinary income trends for performance assessment. Cash flow disclosures are absent, limiting earnings quality validation (OCF/NI not calculable). Forward-looking, sustaining the improved operating margin against soft sales will be key; close monitoring of non-operating volatility (FX/valuation) and capital efficiency initiatives is warranted.

Profitability Analysis

Step 1 (ROE decomposition): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 9.6% × 0.239 × 2.02 ≈ 4.6%. Step 2 (largest change driver): The meaningful driver this quarter is Net Profit Margin, given operating income rose 33% YoY on a 3% sales decline, implying materially higher operating margin; asset turnover likely fell slightly due to lower sales versus asset base, and leverage was broadly stable. Step 3 (business reason): Margin uplift stems from tighter SG&A discipline (SG&A at 22.6% of revenue) and improved gross margin realization (31.1%), likely driven by mix, pricing, and utilization efficiency in documentation/localization services. Step 4 (sustainability): Cost efficiencies and pricing improvements can be partially sustainable, but the elevated non-operating expenses (2.06) signal ongoing FX/valuation headwinds; sustaining the current NPM will depend on keeping non-operating volatility contained and maintaining gross margin under a softer demand environment. Step 5 (trend flags): - Positive: Operating margin expansion to 11.2% from ~8.2% YoY indicates healthy operating leverage. - Watch: SG&A trend vs. revenue—while absolute SG&A is contained this quarter, a reacceleration ahead of revenue could pressure margins. - Non-operating drag remains material (net -1.66), potentially masking underlying operating strength.

Growth Assessment

Revenue fell 3.0% YoY to 46.06, indicating a mild demand softness or timing effects in client projects. Profit growth was margin-led: operating income +33.0% YoY to 5.16 and ordinary income +152.4% YoY to 5.60, demonstrating strong operating leverage and improved cost structure. Gross margin at 31.1% supports the view of a better mix/pricing environment. The quality of profit growth is mixed near-term: core operations are robust, but non-operating items (net expense 1.66) remain a headwind and volatile. With cash flow data unreported, sustainability of growth through self-funding cannot be fully verified. Outlook hinges on order conversion in core technical documentation/services, utilization rates, and the trajectory of FX/valuation items. Near-term, maintaining double-digit operating margin despite slightly softer sales is achievable if SG&A discipline holds and gross margin remains above 30%.

Financial Health

Liquidity is strong: current ratio 194.4% and quick ratio 184.1% (both > benchmarks), with cash 64.16 comfortably exceeding short-term loans 25.43. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.02x (moderate when using total liabilities/equity). Maturity mismatch risk appears low: current assets 116.33 vs current liabilities 59.85, and cash covers short-term borrowings. Long-term loans stand at 20.16, indicating balanced term structure. Interest coverage is robust at 13.52x, reducing near-term solvency concerns. No off-balance sheet obligations are disclosed in the provided data. Equity base is healthy (total equity 95.58; retained earnings 68.93), supporting resilience.

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be assessed; by our benchmark, earnings quality assessment is constrained. Free cash flow is not disclosed, preventing verification of internal funding capacity for dividends and capex. Working capital appears conservatively positioned (cash 64.16, receivables 30.28, inventories 6.13 vs payables 9.48), but without period cash flow, we cannot rule out timing effects in receivables or payables. No clear signs of working capital manipulation can be identified from the balance sheet snapshot alone; trend data would be required.

Dividend Sustainability

The calculated payout ratio is 55.9%, within the <60% benchmark for sustainability, but DPS and FCF are unreported. Without OCF/FCF, coverage of dividends by free cash flow cannot be validated. The balance sheet and liquidity position are supportive of near-term distributions, but longer-term sustainability depends on maintaining double-digit operating margins and stabilizing non-operating items. Policy visibility is limited given missing DPS disclosure for the quarter.

Risk Assessment

Business Risks:

• Demand softness evidenced by a 3.0% YoY revenue decline could persist if client project timing slips.
• Margin sensitivity to mix and utilization in documentation/localization services; a shift to lower-margin work would compress operating margin.
• Talent and wage inflation risk pressuring SG&A if hiring or retention intensifies.

Financial Risks:

• Non-operating volatility (net expense 1.66) likely tied to FX/valuation; could swing quarterly profits.
• Leverage moderate at D/E 1.02x; refinancing risk is limited but not negligible amid rate uncertainty.
• Data gap on OCF/FCF obscures earnings-to-cash conversion and dividend coverage.

Key Concerns:

• Capital efficiency: ROIC 4.7% (<5% threshold), indicating suboptimal asset utilization.
• Inconsistency between profit before tax (2.24) and net income (4.42) with positive tax expense suggests classification/measurement items; monitoring disclosure notes is important.
• Dependence on SG&A discipline to sustain newly achieved operating margin amid slight top-line decline.

Investment Implications

Key Takeaways:

• Earnings beat is margin-driven: operating margin expanded to 11.2% despite a 3.0% sales decline.
• Ordinary income surged (+152% YoY), highlighting strong core profitability before non-operating swings.
• Non-operating expenses remain a drag (2.06), partly offset by modest non-operating income (0.40).
• Liquidity strong and interest coverage solid; near-term financial flexibility intact.
• Capital efficiency is below-par (ROIC 4.7%), requiring better asset turnover or mix improvements.

Metrics to Watch:

• Order intake and backlog conversion to stabilize revenue trajectory.
• Gross margin sustainability around/above 30% and SG&A-to-sales ratio trend.
• Non-operating items breakdown (FX gains/losses, valuation effects) and their volatility.
• OCF and FCF once disclosed to validate earnings quality and dividend coverage.
• Receivables days and inventory turns to track asset turnover improvement.

Relative Positioning: Within domestic content/documentation services peers, the company currently demonstrates superior margin traction but lags on capital efficiency (ROIC) and transparency on cash conversion due to missing CF disclosures. Balance sheet strength is a relative positive versus peers with tighter liquidity.

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