CONSEC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.74B
• Operating Income: ¥-109M
• Net Income: ¥54M
• EPS: ¥26.01

Income Statement

Balance Sheet

Cash Flow Statement

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: Soft quarter with operating loss offset by non-operating and extraordinary gains, yielding a slim net profit. Revenue decreased 7.3% YoY to 47.40, with gross profit of 10.98 and gross margin of 23.2%. SG&A was 12.07, exceeding gross profit and driving operating income to -1.09 (operating margin about -2.3%). Ordinary income was -0.26, down 62.9% YoY, indicating deterioration in core earnings. Non-operating income totaled 0.90 (notably dividend income of 0.35), and non-operating expenses were 0.07, partially cushioning operating weakness. Profit before tax was 0.87, implying approximately 1.13 in net extraordinary gains (not itemized in disclosures). Net income came in at 0.46 (EPS 26.01 JPY), with an effective tax rate of 38.0%. ROE was 0.6%, driven by a very thin 1.0% net margin, low asset turnover (0.387), and modest leverage (1.51x). Cash generation was better than earnings on a ratio basis: operating cash flow (OCF) was 0.63, or 1.38x net income, but absolute cash generation remains small versus fixed costs. Liquidity is solid (current ratio 196.5%, quick ratio 156.9%) and leverage is conservative (reported D/E 0.51x; gross interest-bearing debt approximately 17.51 against equity 81.38). Interest coverage is weak at -16.47x, reflecting the operating loss, and ROIC of -0.8% is below the 5% warning threshold. Margin direction is negative vs last year (ordinary income -62.9% YoY), but precise basis-point changes for margins are not computable due to missing prior-period margin data. The quarter’s earnings quality relies on non-operating and likely one-off extraordinary gains to stay profitable, highlighting fragility in core operations. Forward-looking, earnings recovery hinges on restoring gross margin and bringing SG&A below gross profit, while maintaining cash discipline. Dividend sustainability is a concern given a calculated payout ratio of 109.4% against slim earnings and near-flat proxy FCF. Monitoring order trends, pricing, and cost actions will be critical for the second half and FY close.

Profitability Analysis

ROE decomposition (DuPont): ROE (0.6%) = Net Profit Margin (1.0%) × Asset Turnover (0.387) × Financial Leverage (1.51x). The dominant drag is the net margin at 1.0%, as core operations posted an operating loss (-1.09) and ordinary income was negative (-0.26). Asset turnover at 0.387 is also low, suggesting underutilization of the asset base or subdued sales relative to assets of 122.55. Leverage is modest at 1.51x and does not materially amplify returns. The biggest movement YoY appears to be margin compression (ordinary income -62.9% YoY), although exact basis-point changes for margins cannot be quantified with the provided data. Business reason: SG&A (12.07) exceeded gross profit (10.98), flipping operating income negative despite a 23.2% gross margin; the revenue decline (-7.3% YoY) likely reduced scale benefits and operating leverage. Non-operating income (0.90, including dividend income 0.35) and unreported extraordinary gains (~1.13 implied) kept bottom-line positive, but these are not substitutes for recurring operating profit. Sustainability: dividend income is partially recurring, but extraordinary gains are likely one-time; without cost realignment or revenue recovery, the current net margin is not sustainable. Concerning trends: SG&A growth versus revenue is unknown this quarter, but the level of SG&A exceeding gross profit is a red flag; interest coverage is negative, indicating earnings sensitivity to financing costs even at low debt levels.

Growth Assessment

Top line contracted 7.3% YoY to 47.40, indicating demand softness or project timing slippage. Gross margin at 23.2% is reasonable, but insufficient to cover SG&A of 12.07 at the current sales scale, pressuring operating leverage. Ordinary income fell 62.9% YoY, signaling deterioration in core profitability; operating income turned negative (-1.09). Bottom-line growth is supported by non-operating income (0.90) and implied extraordinary gains (~1.13), rather than core operations. EBITDA of -0.40 and operating margin of about -2.3% highlight near-term growth headwinds. With ROIC at -0.8%, incremental investments are currently value-dilutive unless margins and turnover improve. Outlook hinges on: stabilizing revenue in H2, pricing to lift gross margin, and SG&A control to restore operating profitability. Absent visible cost actions or backlog recovery (not disclosed), earnings momentum looks subdued near term. Any rebound may come more from cost discipline than top-line reacceleration, given the current scale inefficiency.

Financial Health

Liquidity is strong: current ratio 196.5% and quick ratio 156.9%, supported by cash and deposits of 19.18 and current assets of 54.81 against current liabilities of 27.90. No warning thresholds breached (Current Ratio well above 1.0; D/E far below 2.0). Solvency is conservative with reported D/E at 0.51x; interest-bearing debt totals roughly 17.51 (short-term loans 11.15 + long-term loans 6.36), equating to about 0.22x of total equity 81.38. Interest coverage is weak at -16.47x due to the operating loss, indicating sensitivity to further rate increases or earnings slippage. Maturity mismatch risk appears manageable: short-term loans (11.15) are covered by cash (19.18) and other current assets; working capital is positive at 26.92. Off-balance sheet obligations are not disclosed; no information on guarantees or leases beyond the aggregated SG&A line.

Cash Flow Quality

OCF of 0.63 exceeds net income of 0.46 (OCF/NI = 1.38x), indicating acceptable earnings quality this quarter. However, absolute OCF is modest relative to SG&A and debt service needs. Investing CF is unreported; using capital expenditures of -0.69 as a proxy suggests approximate FCF near -0.06, implying limited internal funding capacity for dividends or growth without drawing on cash/financing. No explicit signs of working capital manipulation are observable from the high-level data, but with inventories at 11.04 and receivables at 15.71, cash conversion should be monitored in H2. Financing CF of 2.40 suggests reliance on debt or other financing inflows this period to bolster liquidity, consistent with weak operating profit.

Dividend Sustainability

The calculated payout ratio is 109.4%, indicating distributions in excess of earnings for the period; actual DPS and total dividends are unreported. With approximate FCF near breakeven to slightly negative (OCF 0.63 less capex 0.69), dividend coverage from free cash flow appears thin. Balance sheet capacity (cash 19.18 and low net leverage) can temporarily support dividends, but sustainability depends on restoring operating profitability and positive FCF. Unless earnings improve in H2, maintaining a payout above 100% would be challenging under a conservative capital policy.

Risk Assessment

Business Risks:

• Revenue contraction (-7.3% YoY) and potential demand softness or project timing slippage
• Operating loss (-1.09) as SG&A exceeds gross profit, indicating scale inefficiency
• Dependence on non-operating and extraordinary gains to achieve net profitability
• Execution risk on cost control to realign SG&A with gross profit
• Margin pressure if pricing power is limited in a competitive environment

Financial Risks:

• Negative interest coverage (-16.47x) despite low leverage, leaving little cushion
• Potential earnings volatility from non-operating income (dividend and other) and extraordinary items
• Small absolute OCF (0.63) and near-flat proxy FCF (~-0.06), limiting self-funded growth and dividends
• Refinancing and rate risk on short-term loans (11.15) if operating recovery lags

Key Concerns:

• ROIC at -0.8% is below the 5% warning threshold, signaling value dilution unless turnaround occurs
• Ordinary income down 62.9% YoY, pointing to weakening core profitability
• Calculated payout ratio of 109.4% raises dividend sustainability questions given weak FCF
• Lack of disclosure on extraordinary items and segment drivers reduces visibility

Investment Implications

Key Takeaways:

• Core earnings under pressure: operating loss and negative ordinary income despite acceptable gross margin
• Bottom line supported by non-operating and implied extraordinary gains; not structurally reliable
• Liquidity and leverage are sound, but earnings coverage of interest is weak
• ROE (0.6%) and ROIC (-0.8%) are subpar, requiring margin and turnover improvement
• Dividend sustainability is at risk if earnings and FCF do not improve in H2

Metrics to Watch:

• Order intake and backlog visibility to gauge H2 revenue trajectory
• Gross margin progression and pricing versus input costs
• SG&A run-rate versus gross profit (target: SG&A below gross profit to restore operating profit)
• Operating cash flow and working capital turns (AR and inventory days)
• Extraordinary items and non-operating income contributions (quality of earnings)
• Interest coverage recovery as operating profit normalizes

Relative Positioning: Within small-cap industrials/services peers, the company exhibits conservative leverage and solid liquidity but lags on profitability and capital efficiency, with current results reliant on non-operating and one-time gains to sustain net profit.

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
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