COMPUTER ENGINEERING & CONSULTING LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥47.27B
• Operating Income: ¥5.22B
• Net Income: ¥3.28B
• EPS: ¥114.20

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

CEC (9692) reported robust FY2026 Q3 consolidated results under JGAAP with revenue of 472.73 (100M JPY), up 14.7% YoY, indicating solid demand momentum across its solutions and services. Gross profit reached 110.90, translating to a gross margin of 23.5%, which is healthy for a systems integration/services model. Operating income was 52.24 (+9.0% YoY), implying an operating margin of roughly 11.1%, though the growth lagged revenue, suggesting some near-term operating deleverage or cost pressure. Ordinary income rose to 53.02 (+10.0% YoY), supported by a small net non-operating gain. Net income was 35.92 (+9.6% YoY), with EPS at 114.20 JPY and an effective tax rate of 32.0%. The DuPont framework yields a calculated ROE of 8.8% (Net margin 7.6% x Asset turnover 0.874 x Financial leverage 1.33x), aligning with the reported ROE of 8.8%. Balance sheet quality is strong: total assets are 540.67 and equity is 406.09, implying an equity ratio of about 75% by our calculation, with net cash of roughly 251 (cash 254.72 minus loans 3.63). Liquidity is ample, with a current ratio of 376.5% and working capital of 287.25, highlighting a conservative funding posture. Interest expense is negligible (0.02) and interest coverage is extremely high at ~2,612x, underscoring minimal financial risk. Retained earnings are substantial at 305.39, indicating internal capacity to fund growth and shareholder returns. The reported payout ratio is 55.2%, which appears manageable given the balance sheet, though cash flow data are unreported and preclude FCF-based corroboration. Operating income exceeds the implied (Gross profit – SG&A) by about 4.3, suggesting the presence of other operating income (or classification effects) not broken out in the provided detail. While margins remain solid, the slower operating income growth versus sales points to wage inflation and subcontracting costs or mix effects as potential headwinds in the quarter. With significant cash reserves and minimal debt, the company has flexibility to navigate cost pressures while investing in growth. Data limitations are notable in cash flow and working capital composition (receivables/inventories unreported), so earnings quality conclusions rely primarily on income statement strength and balance sheet conservatism.

Profitability Analysis

ROE_decomposition: ROE 8.8% = Net profit margin 7.6% x Asset turnover 0.874 x Financial leverage 1.33x. Our leverage estimate is Assets/Equity = 540.67 / 406.09 ≈ 1.33x. margin_quality: Gross margin 23.5% and operating margin ~11.1% indicate solid value capture. Net margin at 7.6% is healthy after a 32.0% effective tax rate. Operating income growth (+9.0% YoY) lagged sales (+14.7% YoY), implying modest margin compression vs prior year. Ordinary income benefited from small net non-operating gains (0.35 income vs 0.09 expenses). The gap between (Gross profit – SG&A) and reported operating income (~4.3) suggests other operating income or classification effects under JGAAP not itemized here. operating_leverage: Negative operating leverage this quarter as revenue outpaced operating profit (+14.7% vs +9.0%). This likely reflects higher personnel/subcontracting costs or mix shift toward lower-margin work. Nonetheless, double-digit operating margin demonstrates resilient baseline profitability.

Growth Assessment

revenue_sustainability: Top-line growth of 14.7% YoY is strong for a mature SI/services player, implying solid order intake and execution through FY2026 Q3. Absence of segment/order backlog data limits visibility, but momentum appears broad-based. profit_quality: Profit growth (+9.6% NI YoY) trails revenue, which may signal cost inflation or pricing pressure. Ordinary income outpaced operating income due to small non-operating gains, but core profitability remains the primary driver. outlook: Assuming stable demand in enterprise IT and continued project deliveries, revenue growth should normalize to mid-to-high single digits as comps toughen. Margin trajectory will hinge on utilization, pricing, and wage/subcontracting cost discipline. The strong balance sheet provides capacity to invest in higher value-added offerings that can support margins.

Financial Health

liquidity: Current assets 391.14 vs current liabilities 103.89 imply a current ratio of 376.5% and working capital of 287.25, with cash and deposits at 254.72 covering all current liabilities ~2.45x. Quick ratio mirrors current ratio given unreported inventories/receivables. solvency: Total liabilities 122.34 vs equity 406.09 yields a debt-to-equity of ~0.30x and an equity ratio (calculated) of ~75.1%. Interest-bearing loans are minimal (ST 3.50, LT 0.13), and interest coverage is ~2,612x, indicating very low financial risk. capital_structure: Net cash position of ~251 (100M JPY) provides strategic flexibility. Retained earnings of 305.39 support future investments and shareholder returns without incremental leverage.

Cash Flow Quality

earnings_quality: OCF is unreported, preventing OCF/NI cross-checks and accruals analysis. However, high cash on balance sheet and limited debt suggest no immediate cash strain. The 32% tax rate aligns with statutory levels, supporting the integrity of after-tax earnings. FCF_analysis: Capex and OCF are unreported; FCF cannot be derived. The inability to assess maintenance vs growth capex is a key limitation in evaluating recurring cash generation. working_capital: Receivables and inventories are unreported, so DSO/DIO cannot be analyzed. Given SI seasonality, Q3 cumulative timing can affect receivables; the large cash balance mitigates any timing-related risks.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio of 55.2% suggests a moderately high but sustainable level relative to profitability. EPS is 114.20 JPY; DPS is unreported, so the ratio likely reflects management guidance or prior policy embedded in XBRL calculations. FCF_coverage: Not assessable due to unreported OCF and capex. Cash-rich balance sheet and net cash of ~251 (100M JPY) provide a buffer even if near-term FCF were volatile. policy_outlook: With strong equity capitalization (equity ratio ~75%) and ample liquidity, maintaining or gradually increasing dividends appears feasible, contingent on stable earnings and cash conversion. Lack of explicit policy disclosure in the dataset remains a constraint.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts leading to cost overruns and margin erosion
• Wage inflation and tight labor market for IT engineers pressuring SG&A and COGS
• Mix shift toward lower-margin subcontracting or hardware-resale diluting margins
• Customer budget cyclicality in enterprise IT and delays in large projects
• Technological change requiring ongoing investment to sustain pricing power
• Seasonality and revenue concentration in certain quarters

Financial Risks:

• Cash flow volatility due to working capital swings (receivables timing) not observable in reported CF data
• Potential for higher effective tax rates impacting net margins
• Limited disclosure on investment securities and fair value fluctuations

Key Concerns:

• Operating income growth lagging revenue (+9.0% vs +14.7%) indicating near-term margin pressure
• Lack of OCF/FCF data constrains assessment of earnings-to-cash conversion
• Unreported receivables/inventories obscure working capital dynamics

Investment Implications

Key Takeaways:

• Strong topline growth (+14.7% YoY) with solid profitability (operating margin ~11%)
• ROE at 8.8% supported by healthy net margin and conservative leverage
• Exceptional liquidity and net cash (~251) reduce financial risk and support flexibility
• Operating leverage softened this quarter; cost discipline and mix will be key to margin resilience
• Dividend payout (~55%) appears manageable but FCF verification is unavailable

Metrics to Watch:

• Order backlog and quarterly order intake (for revenue visibility)
• Headcount, utilization, and average billing rates (pricing power vs wage inflation)
• SG&A ratio and subcontracting cost ratio (cost control)
• Operating margin trend and project mix (fixed-price vs T&M)
• Operating cash flow and free cash flow conversion
• Receivables and DSO once disclosed (cash conversion and credit risk)

Relative Positioning: Within domestic mid-cap IT services/SI peers, CEC exhibits above-average balance sheet strength (net cash, ~75% equity ratio) and competitive profitability (11% operating margin), positioning it defensively with capacity to invest for growth.

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