CTI Engineering Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥73.27B
• Operating Income: ¥6.49B
• Net Income: ¥5.29B
• EPS: ¥155.20

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

CTI Engineering (9621) reported FY2025 Q3 consolidated results under JGAAP showing resilient top-line growth but weaker profitability. Revenue rose 1.5% year over year to 73,270 million yen, indicating steady demand in core consulting and engineering services. Gross profit was 21,425 million yen, translating to a gross margin of 29.2%, a solid level for a consulting-centric business model. Operating income declined 12.5% YoY to 6,489 million yen, implying negative operating leverage in the quarter as costs outpaced modest revenue growth. Ordinary income of 6,602 million yen slightly exceeded operating income, reflecting minimal non-operating headwinds and low interest burden. Net income fell 18.1% YoY to 4,311 million yen, pulling net margin to 5.88% per the provided DuPont metrics. The company’s ROE is calculated at 6.78%, driven by a net margin of 5.88%, asset turnover of 0.829x, and modest financial leverage of 1.39x. The balance sheet remains conservative, with total assets of 88,332 million yen and total equity of 63,593 million yen, implying a liabilities-to-equity ratio of about 0.41x and an equity ratio around 72% based on the disclosed balances. Liquidity is strong, with current assets of 56,967 million yen against current liabilities of 22,333 million yen, yielding a current ratio of 255%. Interest expense is negligible at 49 million yen, and interest coverage is robust at 132.4x, underscoring minimal financial risk from debt service. Tax expense of 2,105 million yen suggests an effective tax rate in the low 30% range when compared to implied pre-tax income, despite a reported 0.0% metric which appears to reflect undisclosed items. Cash flow statement items (operating, investing, and financing) and depreciation are not disclosed in the dataset, so cash flow quality and EBITDA cannot be assessed from this release. Dividend per share and payout ratios are also undisclosed here; EPS was 155.20 yen, but shares outstanding and BVPS are not provided, limiting per-share and capital policy analysis. Overall, the quarter reflects solid demand but some margin compression likely from wage inflation, utilization mix, and/or project timing. The strong balance sheet and liquidity provide ample cushion to navigate cost pressures and working capital swings. Outlook hinges on order intake, utilization, and pricing discipline in the seasonally important year-end period, while maintaining cost control to restore operating leverage.

Profitability Analysis

ROE of 6.78% is explained by net profit margin of 5.88%, asset turnover of 0.829x, and financial leverage of 1.39x, pointing to a returns profile driven primarily by operations rather than leverage. Operating margin approximates 8.9% (operating income 6,489 million yen / revenue 73,270 million yen), trending weaker YoY given the 12.5% decline in operating income against 1.5% revenue growth. Gross margin is a healthy 29.2%, but the gap to operating margin indicates higher SG&A or labor cost intensity versus last year. The negative operating leverage (revenue +1.5% vs operating income -12.5%) suggests cost creep, utilization softness, project mix shift to lower-margin work, or timing of project milestones. Ordinary income slightly above operating income indicates limited non-operating drag; interest expense is very small (49 million yen), consistent with the 132.4x interest coverage. Effective tax outflow appears normal (~33% implied), and thus the decline in net income versus operating income primarily reflects operating dynamics rather than tax or financing. With limited leverage (assets/equity 1.39x), ROE improvement depends on restoring margin and/or improving asset turnover. Asset turnover of 0.829x is typical for consulting/engineering firms with significant receivables and unbilled balances; improving billing and collection cycles could help. Absent D&A disclosure, EBITDA-based views are not available; however, the structure suggests a people-intensive cost base where wage inflation and subcontracting rates drive margin variability. Management focus on pricing, mix, and utilization should be key to re-expanding operating margin.

Growth Assessment

Top-line growth of 1.5% YoY to 73,270 million yen indicates steady demand but below a high-growth trajectory. The decline in operating income (-12.5%) and net income (-18.1%) shows that incremental revenue did not offset higher operating costs, pointing to weaker operating leverage in the period. Given the ordinary income of 6,602 million yen, non-operating items are not the driver of the earnings decline. Sustainability of revenue growth likely rests on public-sector budget execution, private demand for infrastructure consulting, and the timing of large project awards. Profit quality appears pressured by cost inflation (labor/subcontracting), potential utilization rate variability, and project mix, all common in the sector. Without cash flow disclosures, we cannot corroborate profit conversion to cash; Q4 seasonality and milestone billing often lift full-year conversion in this industry. Outlook hinges on order backlog, book-to-bill, and the pace of project starts in the fiscal year-end period; disciplined cost control is needed to restore operating leverage. If wage costs continue to rise, pricing discipline and higher value-added services will be critical to defend margins. The conservative balance sheet provides capacity to invest in talent and digital solutions to support sustainable growth. Absent guidance in this dataset, we assume mid-single-digit revenue growth potential with near-term margin recovery contingent on utilization and mix. Monitoring order intake and backlog visibility will be essential to gauge durability beyond FY2025.

Financial Health

Total assets are 88,332 million yen and total equity is 63,593 million yen, implying an equity ratio near 72% (calculated from the balance sheet), notwithstanding an undisclosed equity ratio metric. Total liabilities are 26,019 million yen, yielding liabilities-to-equity of about 0.41x and modest overall leverage. Current assets of 56,967 million yen vs current liabilities of 22,333 million yen produce a strong current ratio of 255% and working capital of 34,634 million yen, supporting liquidity for project execution and seasonality. Quick ratio appears equivalent to current ratio given inventories are undisclosed in this dataset (reported as 0). Interest expense of 49 million yen is very low, and coverage is 132.4x, indicating ample headroom against rate or earnings volatility. The asset/equity ratio of 1.39x indicates a conservative capital structure that can absorb cyclical fluctuations and working capital swings. There is no evidence of balance sheet stress; receivables and unbilled balances (not disclosed here) typically drive current assets and should be monitored for collection risk. No cash balance is disclosed in this dataset; we treat cash and cash equivalents as undisclosed rather than zero. Overall solvency and liquidity are strong.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this dataset; OCF/Net Income and FCF figures shown as zero should be treated as undisclosed, not economic zeros. Without OCF, we cannot assess cash conversion, working capital consumption, or free cash flow coverage. In this business model, cash flow quality typically depends on billing milestones, collection of receivables, and movement in unbilled work-in-progress; these line items are not provided. The decline in operating income suggests some risk of weaker near-term cash generation absent offsetting working capital releases, but this cannot be confirmed from the data. Depreciation and amortization are also undisclosed, preventing EBITDA or non-cash add-back analysis. Positive working capital (34,634 million yen) and strong liquidity provide cushion to manage collection cycles and project advances. For a fuller assessment, we would focus on OCF trends versus net income over the trailing twelve months, changes in trade receivables and unbilled revenue, and capex requirements.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed in this dataset; the reported zeros should be treated as unavailable data. EPS is 155.20 yen for the period, but shares outstanding and free cash flow are not provided, so we cannot calculate total dividend outlays or FCF coverage. Given the company’s conservative balance sheet (equity ratio ~72% by calculation) and low interest burden, capacity for distributions depends primarily on operating cash flow generation and capital allocation priorities rather than balance sheet constraints. Sustainability will hinge on full-year earnings, cash conversion in Q4, and management’s stated dividend policy and target payout ratio (not included here). In the absence of FCF, we cannot assess coverage; monitoring the year-end OCF and any guidance on payout will be essential.

Risk Assessment

Business Risks:

• Project timing and milestone recognition affecting quarterly margins and cash flow
• Public-sector budget execution and tendering cycles in Japan impacting order intake
• Utilization rate variability and wage inflation for specialized engineers
• Fixed-price or lump-sum contract risk leading to margin erosion if costs overrun
• Subcontractor availability and cost inflation
• Client concentration in government-related entities and potential policy shifts
• Seasonality with heavier activity and collections around fiscal year-end
• Competition in design/consulting compressing pricing on commoditized scopes

Financial Risks:

• Working capital swings from receivables and unbilled revenue affecting OCF
• Potential delays in collections increasing credit risk and DSO
• Limited visibility on cash and capex due to undisclosed cash flow statement
• Interest rate increases have minimal impact currently, but could affect future borrowing costs
• Tax rate variability around the low-30% range influencing net income

Key Concerns:

• Negative operating leverage in the quarter (revenue +1.5% vs operating income -12.5%)
• Margin pressure despite a solid 29.2% gross margin, implying higher SG&A or labor costs
• Lack of cash flow disclosure, hindering assessment of earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Revenue growth of 1.5% YoY to 73.27 billion yen with margin compression
• Operating income down 12.5% YoY to 6.49 billion yen, indicating negative operating leverage
• Net income down 18.1% YoY to 4.31 billion yen; net margin about 5.9%
• ROE of 6.78% driven by modest leverage (1.39x) and asset turnover of 0.829x
• Balance sheet is conservative with liabilities/equity ~0.41x and strong liquidity (current ratio 255%)
• Interest burden is negligible (49 million yen; 132x coverage), limiting financial risk
• Cash flow, capex, and dividend data are undisclosed, constraining payout and FCF analysis

Metrics to Watch:

• Order backlog and book-to-bill ratio
• Utilization rate and average billing rates
• SG&A ratio and wage/Subcontractor inflation
• Operating margin trajectory and project mix
• Accounts receivable days and unbilled receivables
• Operating cash flow versus net income in Q4 and full year
• Dividend policy disclosure and year-end payout decision

Relative Positioning: Within Japan’s engineering and infrastructure consulting peers, CTI exhibits a conservative balance sheet and modest ROE (mid-to-high single digits) with solid gross margins but currently pressured operating margins; achieving peer-like double-digit ROE will likely require better operating leverage via utilization, pricing, and mix improvement.

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