CERESPO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.01B
• Operating Income: ¥103M
• Net Income: ¥60M
• EPS: ¥11.06

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

Verdict: Top-line growth was strong but profit quality deteriorated, with margin compression and a severe operating cash outflow overshadowing a modest net profit. Revenue rose 16.3% YoY to 60.13, evidencing demand recovery in the event/production pipeline. Gross profit was 16.46 with a gross margin of 27.4%, but SG&A reached 17.80, exceeding gross profit; operating income was nonetheless positive at 1.03, implying material other operating income offset within SG&A/other operating items. Operating income declined 12.5% YoY despite the double-digit sales growth, confirming negative operating leverage. Ordinary income fell 13.6% YoY to 1.04, with limited help from non-operating income (0.13) and minor non-operating expenses (0.02). Net income printed at 0.60 (EPS 11.06 JPY), but this sits alongside a reported profit before tax of -1.22, which is inconsistent with the stated net income and tax; we treat NI/ordinary income as more reliable and view the PBT figure as likely misclassified. Operating margin (calc) was roughly 1.7%, down versus last year given OI -12.5% vs revenue +16.3%, implying margin compression in the order of several dozen basis points. EBITDA was 1.30 and the EBITDA margin just 2.2%, highlighting thin profitability. ROE was 0.7% via DuPont (NPM 1.0%, asset turnover 0.458x, leverage 1.45x), pointing to the margin as the primary constraint on returns. Operating cash flow was sharply negative at -12.47, yielding an OCF/NI ratio of -20.79x, a clear earnings quality concern likely driven by working capital outflows tied to project timing and receivables. Liquidity remains strong with cash of 67.94, current assets of 89.07, and a current ratio of 366%, and leverage is conservative (reported D/E 0.43x). ROIC was 2.9%, below a 5% warning threshold, indicating underwhelming capital efficiency this period. Non-operating items were modest and do not change the core picture of pressured operating profitability. Forward-looking, the key swing factors are gross margin recovery, control of SG&A, and normalization of working capital to restore positive OCF. Given event industry seasonality and project milestone cash timing, a rebound in cash conversion is possible, but needs evidence in the next quarter. Overall, revenue momentum is encouraging, but near-term focus should be on margin discipline and cash conversion to sustain dividends and improve returns.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 1.0% × 0.458 × 1.45 ≈ 0.7%. The weakest and most influential component is the net profit margin at 1.0%, as asset turnover is moderate and leverage is low. The business driver behind margin compression appears to be SG&A running above gross profit (SG&A 17.80 vs GP 16.46) with reliance on other operating income to achieve positive OI, and likely cost inflation/project mix diluting gross margin leverage. Given revenue grew 16.3% while operating income fell 12.5%, negative operating leverage is evident and suggests cost growth outpaced revenue or pricing. Sustainability: without structural cost control or mix/pricing improvements, current margins look unsustainably thin; however, if other operating income is timing-related (e.g., subsidies/insurance/one-offs), recurring margin could be weaker than reported OI implies. Concerning trends: implied SG&A intensity is high; ordinary income fell faster than gross profit growth would support; and ROIC at 2.9% signals inadequate returns relative to the cost of capital.

Growth Assessment

Revenue growth of +16.3% YoY indicates healthy demand and likely increased event activity versus prior-year comps. However, operating income declined 12.5% YoY and ordinary income fell 13.6% YoY, signaling deterioration in operating efficiency and/or mix. Gross margin at 27.4% is reasonable for the segment but did not translate to operating margin due to elevated SG&A. Non-operating contributions (0.13) were small; profit growth is not being propped up by large one-offs on the non-operating line this quarter. The divergence between sales growth and profit contraction implies limited pricing power or rising input/logistics/personnel costs. Outlook hinges on: stabilization of SG&A ratio, recovery of operating margin toward 3%+, and normalization of working capital to lift OCF. With EBITDA margin at 2.2%, incremental growth must come with tighter cost control to translate into earnings. Near-term, we model cautious margin improvement contingent on project mix and cost pass-through; absent that, revenue growth may not drive EPS growth.

Financial Health

Liquidity is strong: current ratio 366.1% and quick ratio 366.1%, with cash and deposits of 67.94 comfortably covering current liabilities of 24.33. There is no warning on current ratio (<1.0) or overly high leverage; D/E reported at 0.43x indicates conservative capital structure. Short-term borrowings are 5.50 against large cash, minimizing maturity mismatch risk; current assets (89.07) far exceed current liabilities. Noncurrent liabilities are 14.51; long-term loans are unreported, but overall total liabilities are modest at 38.84 vs equity of 90.61. Interest coverage is strong at ~58x, indicating low refinancing risk in the near term. No off-balance sheet obligations were disclosed in the provided data. Overall solvency is sound; the primary balance sheet concern is operational—working capital swings—rather than funding availability.

Cash Flow Quality

OCF/Net Income at -20.79x is a red flag, indicating accrual earnings did not convert to cash this half. Operating CF was -12.47 despite positive NI of 0.60, implying large working capital outflows (likely receivables buildup and/or advances to suppliers typical for milestone-based event projects). Capex was minimal (-0.03), so negative OCF directly drives negative FCF for the period. With substantial cash reserves (67.94), liquidity can absorb interim outflows, but recurring negative OCF would pressure future payout and investment capacity. We see no explicit signs of manipulation, but the scale of WC movement relative to earnings warrants close monitoring of AR days, customer advances, and project milestone billing. Sustainability: recovery of OCF depends on project cash collection and event schedule normalization; absent that, cash burn could persist.

Dividend Sustainability

Dividend disclosures were unreported; however, a calculated payout ratio of 285.2% versus EPS 11.06 JPY implies either a special factor or a placeholder and should be treated cautiously. With negative OCF and negative FCF in the period, dividend coverage from free cash flow was not achieved this half. Balance sheet cash provides interim coverage, but sustained payouts above earnings are not advisable without OCF normalization. Policy outlook: absent explicit guidance, we assume a stable-to-cautious stance contingent on cash conversion; future distributions should align with normalized FCF rather than interim accrual profits.

Risk Assessment

Business Risks:

• Margin pressure from cost inflation and project mix, evidenced by OI -12.5% YoY despite +16.3% revenue.
• Execution risk on large events leading to cost overruns and timing mismatches.
• Client concentration and demand cyclicality in the event/marketing industry.
• Pricing power limits against corporate/government clients in competitive tenders.

Financial Risks:

• Severe working capital outflow this period (OCF -12.47), risking continued cash volatility.
• Reliance on other operating income to offset high SG&A, potentially non-recurring.
• Short-term loans (5.50) amid negative OCF increase rollover dependence if cash conversion does not improve.
• Low ROIC (2.9%) signals weak capital efficiency relative to cost of capital.

Key Concerns:

• Earnings quality: OCF/NI at -20.79x indicates poor cash conversion.
• Operating leverage negative; SG&A exceeds gross profit absent other operating income.
• Data inconsistency: reported profit before tax (-1.22) conflicts with positive NI; earnings line-item classification risk.
• Thin EBITDA margin (2.2%) leaves little buffer against shocks.

Investment Implications

Key Takeaways:

• Strong top-line (+16.3% YoY) but profit contraction; operating margin around 1.7%.
• Earnings quality is weak with OCF -12.47 and OCF/NI -20.79x.
• Liquidity robust (cash 67.94; current ratio 366%), leverage conservative (D/E 0.43x).
• ROIC at 2.9% underscores insufficient returns; margin and cash conversion must improve.
• Non-operating items are small; core profitability needs to carry results.

Metrics to Watch:

• Operating margin and SG&A ratio versus revenue growth.
• OCF and FCF; AR days and advance receipts (customer deposits) as working capital indicators.
• Gross margin by project mix and pricing pass-through.
• EBITDA margin progression and utilization rates.
• Order backlog/pipeline to gauge forward revenue visibility.

Relative Positioning: Versus domestic event/production peers, the company exhibits stronger liquidity and low leverage but weaker cash conversion and subpar ROIC this quarter; sustained improvement in operating margin and working capital discipline is needed to close the profitability gap.

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