Nippon Aqua Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥24.29B
• Operating Income: ¥1.74B
• Net Income: ¥1.19B
• EPS: ¥37.19

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

Verdict: Solid topline-led quarter with slight margin compression but sustained double‑digit ROE. Revenue rose 16.7% YoY to 242.88, supported by insulation demand, lifting operating income 14.4% YoY to 17.40 and net income 13.7% YoY to 11.86. Gross profit reached 46.72, implying a gross margin of 19.2%. Operating margin stood at 7.2% (17.40/242.88), and ordinary income margin at 7.2%. Net margin was 4.9%, reflecting a typical JGAAP effective tax rate of 32.6%. Non-operating items were modestly positive, with non-operating income of 0.41 (including 0.25 interest income) and expenses of 0.14, netting +0.27. Using the provided YoY growth, we estimate operating margin compressed ~15 bps YoY (from ~7.31% to 7.16%). Net margin also compressed ~12 bps YoY (from ~5.01% to 4.89%). DuPont shows ROE at 11.1%, composed of a 4.9% net margin, 1.053x asset turnover, and 2.17x leverage—healthy for a materials/installation business. Interest coverage is exceptionally strong at 129x, limiting financial stress despite short-term borrowings of 45. Liquidity is adequate: current ratio 1.40x and quick ratio 1.24x, though below the >1.5x comfort benchmark. Working capital is positive at 54.04; receivables (81.17) and payables (75.57) dominate the operating cycle. ROIC is reported at 9.1%, above an 8% excellence threshold, indicating value-accretive growth. Earnings quality cannot be fully assessed due to unreported cash flows; OCF/NI is not available. The unusually high calculated payout ratio of 99.6% raises sustainability questions absent FCF data. Forward-looking, strong demand and ROIC suggest momentum, but mild margin pressure, reliance on short-term loans, and potential material cost volatility warrant monitoring.

Profitability Analysis

ROE (11.1%) = Net Profit Margin (4.9%) × Asset Turnover (1.053x) × Financial Leverage (2.17x). The largest driver QoQ/YoY appears to be topline expansion feeding asset turnover, while margin modestly compressed. Business reason: revenue growth outpaced operating profit growth (+16.7% vs +14.4%), suggesting slight gross margin pressure (materials/labor mix) and/or higher fixed cost absorption in SG&A. Sustainability: topline momentum looks durable near term; however, the small margin compression could persist if material input costs (e.g., chemical feedstocks) or labor tightness continue. Operating margin at ~7.2% is respectable but thin; incremental cost inflation or pricing competition could further compress margins. No red flag in non-operating reliance: ordinary income is close to operating income and non‑operating contribution is only ~0.27. Watch for SG&A growth vs revenue; we lack SG&A YoY, but operating leverage was slightly negative this period (OI growth < revenue growth), implying modest deleveraging.

Growth Assessment

Revenue growth of +16.7% YoY (to 242.88) indicates healthy end-market demand and likely share gains in insulation solutions. Operating income grew +14.4% to 17.40, trailing revenue growth, implying mild negative operating leverage. Net income rose +13.7% to 11.86, also trailing revenue growth due to margin normalization and a standard tax rate. Gross margin printed at 19.2%; combined with a 12.97% SG&A ratio, operating margin was 7.16%. Estimated YoY operating margin compression is ~15 bps, and net margin ~12 bps, still within a stable band. With ROIC at 9.1%, incremental investments appear value-accretive. Non-operating items were small (non‑op income ratio 3.5%), suggesting core operations are the primary growth engine. Outlook: demand tailwinds from energy-efficiency regulations and housing retrofit trends support revenue, but mix/material costs and labor availability remain key determinants of margin trajectory.

Financial Health

Liquidity is adequate but not robust: current ratio 1.40x and quick ratio 1.24x (healthy >1.0; below the 1.5x comfort benchmark). No explicit warning thresholds are breached (Current Ratio ≥1.0; D/E 1.27x < 2.0). Capital structure is conservative-to-moderate: total liabilities/equity at 1.27x and leverage (assets/equity) at 2.17x. Maturity profile: short-term loans are 45.00 against cash 22.63; however, current assets (188.20) comfortably exceed current liabilities (134.16), mitigating near-term refinancing risk. Interest burden is negligible (interest expense 0.13; coverage 129x). Noncurrent liabilities are minimal (1.10), indicating low long-term debt risk. No off-balance-sheet obligations were reported; data limitations may obscure leases or guarantees if labeled differently. Overall solvency is sound with ample equity of 106.47.

Cash Flow Quality

Operating cash flow is unreported; therefore, OCF/Net Income and FCF cannot be assessed—this is a key limitation. Earnings quality proxy: ordinary income is close to operating income and non‑operating items are small (+0.27), reducing concern about one-off boosts. Working capital profile: receivables 81.17 vs nine‑month sales 242.88 implies roughly ~3 months of sales outstanding (~90 days), reasonable for construction/installation. Inventories of 22.22 vs COGS 161.46 suggest healthy turns (~7.3 over the 9‑month period, annualized ~9–10). Payables 75.57 versus COGS indicates supplier credit supports the cycle, but timing swings could affect quarterly OCF. With capex and dividends unreported, FCF coverage of shareholder returns cannot be verified. Absent OCF, we cannot confirm whether earnings are cash‑backed; monitor OCF/NI >1.0 as a quality threshold.

Dividend Sustainability

Payout ratio (calculated) is 99.6%, which is elevated relative to a <60% benchmark for sustainability; however, without cash flow data and DPS disclosure, this may reflect timing/estimation and should be interpreted cautiously. FCF coverage is not calculable due to missing OCF and capex. Balance sheet can temporarily support distributions (equity 106.47; low interest burden), but sustained near‑100% payout would constrain reinvestment and buffer capital. Policy outlook: with ROIC at 9.1% and active growth, a balanced policy (dividends plus reinvestment) would be prudent; confirmation requires management guidance and full‑year cash flow.

Risk Assessment

Business Risks:

• End-market cyclicality tied to new housing starts and renovation demand
• Raw material cost volatility (isocyanates, polyols, blowing agents) impacting gross margin
• Labor availability and subcontractor capacity constraints affecting execution and costs
• Pricing pressure from competitors and large homebuilders
• Seasonality and weather-related work disruptions

Financial Risks:

• Reliance on short-term loans (45.00) versus cash (22.63) creating rollover exposure
• Receivables concentration risk with builders; potential elongation of DSO (~90 days estimate)
• High calculated payout ratio (~100%) potentially outpacing cash generation if OCF is weak
• Input cost inflation not fully passed through could compress margins and cash conversion

Key Concerns:

• Mild margin compression (~15 bps operating; ~12 bps net) despite strong revenue growth
• OCF and capex unreported; inability to validate earnings-to-cash conversion
• Liquidity adequate but below comfort benchmark (current ratio 1.4x vs >1.5x target)
• Noncurrent liabilities very low; while positive, limited long-term funding may necessitate short-term refinancing if growth accelerates

Investment Implications

Key Takeaways:

• Topline momentum strong (+16.7% YoY) with operating income up +14.4%
• Operating margin stable-to-slightly lower at 7.2%; watch input costs and pricing
• ROE 11.1% and ROIC 9.1% indicate value-accretive growth
• Balance sheet solid with low interest burden; liquidity adequate
• Dividend sustainability uncertain given ~100% payout and missing FCF

Metrics to Watch:

• OCF/Net Income and working-capital swings (AR days, AP days)
• Gross margin progression and price-cost spread
• Operating margin and SG&A ratio vs revenue growth
• Short-term debt reliance and cash balance trajectory
• Order backlog/installation volume indicators and housing starts
• Capex plans and ROIC maintenance above 8%

Relative Positioning: Within building materials/installation peers, the company shows above-average growth and solid returns (ROE ~11%, ROIC ~9%) with very strong interest coverage, offset by slightly lower liquidity than best-in-class and minor margin compression; clarity on cash flow and dividend policy would improve its relative standing.

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