FUJI Japan Co., Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥785M
• Operating Income: ¥-39M
• Net Income: ¥127M
• EPS: ¥59.89

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

Verdict: FY2025 Q3 was operationally weak (operating loss) but reported positive bottom-line profit due to below-the-line factors, resulting in a mathematically strong ROE that is unlikely to reflect core earnings power. Revenue was 7.85 (億円), down 5.7% YoY, indicating softer demand or project timing impacts. Gross profit was 2.88 (億円), yielding a gross margin of 36.6%, but SG&A of 3.24 (億円) exceeded gross profit and drove operating income to -0.39 (億円). Ordinary income was -0.41 (億円) after small net non-operating income of 0.02 (億円). Despite a pre-tax loss of -0.36 (億円) and income tax expense of 0.01 (億円), net income printed at 1.27 (億円), implying material below-the-line gains (e.g., extraordinary gains or valuation reversals) not captured in the provided lines. The resulting net profit margin was 16.2%, which contrasts sharply with the operating margin of approximately -5.0%. DuPont shows ROE at 32.7% (NPM 16.2% × Asset Turnover 1.052 × Leverage 1.92x), but this is driven by non-recurring items rather than core operations. Interest coverage was weak at -17.24x, highlighting operating earnings insufficiency to cover interest costs. Liquidity is modestly adequate with a current ratio of 1.27x and quick ratio of 1.27x; leverage is moderate with D/E of 1.22x. ROIC of -7.2% signals destruction of value at present, far below a basic 5% warning threshold. Cash flow data were not disclosed; thus, we cannot validate earnings quality via OCF/NI. Margin expansion or compression in basis points cannot be quantified due to lack of prior-period margin disclosures; however, the operating loss indicates negative operating leverage this quarter. The positive EPS (59.89 JPY) versus operating loss raises sustainability questions for earnings in subsequent quarters. Forward-looking, management must restore operating profitability (gross margin discipline and SG&A control) and improve ROIC toward at least mid-single digits to underpin any sustainable dividend capacity. In the near term, monitoring the nature and recurrence of below-the-line gains is crucial, as reliance on them to deliver net profit is risky. Given the single-entity (non-consolidated) JGAAP basis, affiliate or extraordinary items may materially swing net profit; transparency on their drivers will be key. Overall, the quarter’s reported net profit masks weak core operations, and execution on cost and project quality will determine recovery.

Profitability Analysis

ROE decomposition (DuPont): ROE 32.7% = Net Profit Margin 16.2% × Asset Turnover 1.052 × Financial Leverage 1.92x. The largest driver of the change this quarter is the Net Profit Margin, which is substantially positive at the bottom line despite an operating loss, implying one-time or below-the-line gains. Business reason: non-operating/extraordinary factors (not fully disclosed in the provided lines) offset operating weakness; operating loss was driven by SG&A (3.24) exceeding gross profit (2.88). Sustainability: low—without a turnaround in operating income, high ROE is unlikely to persist when one-offs normalize. Concerning trends: SG&A exceeds gross profit, indicating negative operating leverage; revenue declined 5.7% YoY; interest coverage is negative, suggesting core earnings cannot service interest. Operating margin approximates -5.0%; ordinary margin also negative; net margin elevated due to non-recurring items.

Growth Assessment

Revenue declined 5.7% YoY to 7.85 (億円), suggesting weaker order intake, delayed project recognition, or mix deterioration. Gross margin at 36.6% is reasonable but insufficient given fixed cost base; SG&A outpaced gross profit, indicating operating de-leverage. Operating income at -0.39 (億円) signals core earnings contraction. Net income at 1.27 (億円) is not supported by operating trends and likely reflects non-recurring items; sustainability is questionable. With limited disclosure on segment mix, backlog, or one-time gains, underlying run-rate earnings appear weaker than headline NI. Outlook hinges on restoring operating profitability via tighter SG&A control and project selection, and on stabilizing revenue. In absence of cash flow data, we cannot assert improvement in cash conversion; thus, near-term growth quality is low. Management’s ability to lift ROIC from -7.2% toward >5% will be a key indicator of genuine recovery.

Financial Health

Liquidity: Current ratio 1.27x (above 1.0 but below 1.5 benchmark), quick ratio 1.27x; no immediate red flag but limited buffer. Solvency: D/E 1.22x (moderate); total liabilities 4.74 vs equity 3.88. Interest-bearing debt detail shows short-term loans 0.80 and long-term loans 1.98; leverage manageable but requires positive operating earnings to service. Maturity mismatch: Current assets 3.18 exceed current liabilities 2.51 (working capital 0.67), and cash/deposits 1.21 plus receivables 0.13 cover short-term loans 0.80, mitigating near-term refinancing risk. Explicit warnings: Current Ratio is not <1.0 (no warning), D/E is not >2.0 (no warning). Off-balance sheet obligations: none reported in the provided data. Overall, balance sheet is moderately leveraged with adequate short-term liquidity, but weak operating earnings elevate financial risk.

Cash Flow Quality

OCF/Net Income not calculable due to unreported cash flows; earnings quality cannot be validated via cash conversion. Free cash flow and capex are unreported; therefore, sustainability for dividends and debt service via internal cash generation is unknown. Qualitative assessment: Negative operating income and negative interest coverage suggest underlying cash generation risk unless working capital releases or one-offs supported cash. No explicit signs of working capital manipulation are detectable from the limited balance sheet snapshot; however, absent OCF disclosure, we cannot rule out timing effects. Until OCF is disclosed, treat NI quality as low given reliance on below-the-line items.

Dividend Sustainability

Dividend data (DPS, payout, total dividends) are unreported, preventing a direct payout analysis. With ROIC at -7.2% and operating income negative, internally funded and sustainable dividends would require positive OCF, which is not disclosed. Balance sheet liquidity (current ratio 1.27x) provides only a modest buffer; debt service needs also compete for cash. Conclusion: Dividend sustainability cannot be assessed quantitatively; prudence suggests dividend capacity is constrained unless operating turnaround and cash generation improve.

Risk Assessment

Business Risks:

• Operational loss despite acceptable gross margin indicates cost base rigidity and negative operating leverage.
• Revenue decline of 5.7% YoY suggests demand softness or project timing risk.
• Earnings dependency on below-the-line gains to achieve positive NI, implying low recurrence.
• Execution risk in project management and cost control given SG&A exceeding gross profit.

Financial Risks:

• Negative interest coverage (-17.24x) indicates inability of core operations to service interest.
• ROIC at -7.2% signals value destruction and potential covenant or refinancing pressure if persistent.
• Moderate leverage (D/E 1.22x) with reliance on maintaining liquidity absent strong OCF.
• Single-entity basis may hide risks at potential affiliates or contingent liabilities not consolidated.

Key Concerns:

• Lack of cash flow disclosure prevents validation of earnings quality and FCF coverage.
• Discrepancy between pre-tax loss (-0.36) and reported NI (1.27) implies significant extraordinary items not detailed.
• Potential customer concentration and project cancellation/postponement risks typical for small-cap construction/services companies.
• Interest rate sensitivity on floating-rate short-term loans (0.80) and refinancing conditions for long-term loans (1.98).

Investment Implications

Key Takeaways:

• Core operations weak: operating loss (-0.39) despite 36.6% gross margin due to SG&A burden.
• Headline profitability (NI 1.27, NPM 16.2%) driven by non-recurring items; low sustainability.
• Liquidity adequate but not robust (current ratio 1.27x); leverage moderate (D/E 1.22x).
• Interest coverage is negative, highlighting urgency to restore operating profit.
• ROIC at -7.2% underscores need for capital discipline and profitability recovery.

Metrics to Watch:

• Operating income and operating margin trajectory next quarter.
• OCF and FCF disclosure (OCF/NI >1.0 as a quality target).
• SG&A trend versus revenue (seek SG&A growth below revenue growth).
• Gross margin stability by project mix and pricing.
• Interest coverage improvement (>2x near-term, >5x medium-term).
• ROIC recovery toward >5% initially, aiming for mid-to-high single digits.
• Debt maturity profile and refinancing terms for short- and long-term loans.

Relative Positioning: Versus domestic small-cap construction/renovation peers, FUJI Japan currently exhibits weaker core profitability (operating loss) and negative interest coverage, with only modest liquidity. Leverage is moderate and comparable to peers, but earnings quality is inferior given reliance on non-operating/extraordinary items to achieve 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
• 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