Thinca Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.07B
• Operating Income: ¥58M
• Net Income: ¥46M
• EPS: ¥14.63

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: A modestly positive Q3 with solid top-line growth and a return to decent ROE, but margin pressure at the operating level and limited disclosure on cash flows temper confidence. Revenue rose 19.3% YoY to 10.69, demonstrating healthy demand and/or successful expansion of services. Gross profit reached 7.38, implying a strong gross margin of 69.1%, which supports the scalability of the business model. Operating income increased 8.2% YoY to 0.58, but lagged revenue growth, indicating cost pressure. Ordinary income printed at 0.59 (+136.2% YoY), suggesting improvements below the operating line versus last year despite non-operating expenses (0.30) exceeding non-operating income (0.02). Net income surged 239.7% YoY to 0.46, lifting EPS to 14.63 JPY and boosting net margin to 4.3%. DuPont ROE is 4.4%, underpinned by a net margin of 4.3%, asset turnover of 0.853x, and modest leverage of 1.20x. Operating margin is approximately 5.4% this quarter; based on implied prior-year levels, this represents about 56 bps compression, evidencing negative operating leverage in SG&A (6.84; 64.0% of sales). The company maintains a very strong liquidity position with cash of 9.72 and a current ratio of 440.7%, and low balance-sheet risk with D/E of 0.24x. Retained earnings remain negative (-1.04), a lingering legacy that could constrain dividend policy flexibility under Japanese corporate law despite substantial capital surplus (6.98). Interest coverage is robust at 119.34x, and short-term loans (0.90) are well-covered by cash. Earnings quality cannot be verified due to unreported cash flow statements, which is a key limitation for assessing sustainability. There are classification discrepancies (ordinary income vs non-operating items) that suggest mapping differences; conclusions rely on the reported subtotals. Looking ahead, maintaining revenue growth while containing SG&A is essential to avoid further operating margin erosion. The strong cash position provides a buffer for investment or shareholder returns, but policy clarity and the status of retained earnings will drive the pace. Overall, the quarter indicates improving bottom-line efficiency but highlights the need for cost discipline and better disclosure for investors to underwrite earnings durability.

Profitability Analysis

ROE decomposition: ROE (4.4%) = Net Profit Margin (4.3%) × Asset Turnover (0.853x) × Financial Leverage (1.20x). Among the components, net profit margin improved most YoY given NI growth (+239.7%) far outpacing revenue growth (+19.3%), while leverage remained low and asset turnover was steady-to-slightly improved. Business drivers: revenue expansion supported scale, but SG&A rose to 64.0% of sales, compressing operating margin (~5.4%) by roughly 56 bps YoY; the improvement at the net level likely reflects reduced below-the-line drag or tax effects rather than core margin expansion. Sustainability: gross margin is high and likely structural, but the current net margin uplift appears partly one-time/technical given the divergence between operating and net income growth; without SG&A control, sustaining ROE improvement is uncertain. Watchpoints: SG&A growth outpacing revenue growth is a concern; focus on headcount, marketing, and rent trajectories where disclosed. Also monitor any volatility in non-operating items that can swing ordinary income.

Growth Assessment

Revenue growth of 19.3% YoY to 10.69 indicates healthy demand and/or successful client acquisition. Operating income growth of 8.2% lagged sales growth, suggesting negative operating leverage as fixed/semifixed SG&A absorbed part of the gross profit expansion. Net income growth of 239.7% YoY materially outpaced operating income, implying favorable non-operating/tax effects versus the prior year. Gross margin remains strong at 69.1%, supporting the thesis of a high-value-added service mix. However, operating margin at ~5.4% is modest and trend risk exists if SG&A/sales stays near 64%. Outlook hinges on converting top-line momentum into operating leverage via cost discipline; absent that, incremental growth may not translate into proportional earnings. Limited disclosure on segment mix and no equity-method income suggests earnings are predominantly from core operations. Overall growth quality is mixed: topline solid, cost absorption elevated, bottom-line boosted by below-the-line items.

Financial Health

Liquidity is very strong: current ratio 440.7% and quick ratio 440.7%, with cash at 9.72 versus current liabilities of 2.51. No warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.24x. Maturity mismatch appears low: short-term loans of 0.90 are amply covered by cash on hand (net cash position). Total assets 12.53 vs equity 10.45 implies modest leverage (assets/equity 1.20x). Retained earnings are negative (-1.04), indicating accumulated losses despite recent profitability, which may limit distributable amounts absent transfers from capital surplus. No noncurrent liabilities were disclosed; if present under alternate labels, they were unreported. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

Cash flow statements were unreported; OCF/NI and FCF cannot be calculated. As such, earnings quality cannot be validated against cash generation (OCF/NI > 1.0 benchmark). Working capital looks conservative with accounts receivable at 0.86 and significant cash, but without OCF detail we cannot rule out timing effects or revenue cash conversion issues. Absence of capex data precludes an assessment of maintenance vs growth investment needs and FCF sufficiency. No obvious signs of working capital manipulation are inferable from the limited balance sheet snapshot.

Dividend Sustainability

Dividend data are unreported, so payout and FCF coverage cannot be assessed. The balance sheet suggests capacity for returns given net cash and low leverage; however, negative retained earnings (-1.04) could constrain dividends under Japanese Companies Act unless resolved (e.g., through transfers from capital surplus subject to approval). Without OCF and capex disclosure, sustainability of any prospective dividends cannot be evaluated. Policy outlook is unclear; monitoring board guidance and changes in retained earnings will be key.

Risk Assessment

Business Risks:

• Operating margin pressure as SG&A scales faster than revenue (SG&A at ~64% of sales).
• Execution risk in converting high gross margin (69.1%) into operating leverage.
• Potential customer concentration or project timing risk (not disclosed).
• Tax rate volatility (effective tax 46.1% this period) affecting bottom line.

Financial Risks:

• Retained earnings deficit (-1.04) constraining dividend flexibility.
• Short-term debt rollover risk mitigated by high cash, but still present (0.90 ST loans).
• Disclosure gap on cash flows limits assessment of earnings quality and FCF.
• Interest rate risk limited given net cash; nonetheless, rising rates could impact refinancing costs.

Key Concerns:

• Negative operating leverage evidenced by ~56 bps operating margin compression YoY.
• Dependence on non-operating/tax items for NI outperformance vs OI.
• Data limitations: unreported OCF/FCF, capex, and SG&A breakdown obscure cost drivers.
• Potential classification inconsistencies between ordinary income and non-operating components.

Investment Implications

Key Takeaways:

• Top-line growth strong at +19.3% YoY with high gross margin (69.1%).
• Operating margin modest (~5.4%) and compressed YoY by ~56 bps due to SG&A intensity.
• Net income growth (+239.7% YoY) boosted ROE to 4.4%, driven more by below-the-line/tax effects than core margin expansion.
• Balance sheet is cash-rich (cash 9.72) with low leverage (D/E 0.24x) and robust liquidity (current ratio 440.7%).
• Retained earnings are negative, potentially limiting near-term dividend flexibility.
• Earnings quality unverified due to absent cash flow disclosure; sustainability needs confirmation.

Metrics to Watch:

• SG&A-to-sales ratio (currently ~64%).
• Operating margin progression and operating leverage.
• OCF/Net income and FCF once disclosed.
• Resolution of retained earnings deficit and any capital surplus transfers.
• Effective tax rate normalization and non-operating income/expenses volatility.
• Accounts receivable trends and DSO to validate cash conversion.

Relative Positioning: Relative to small-cap peers, Shinka exhibits strong liquidity and a high gross margin profile but lower operating margin resilience; without cash flow disclosure and with negative retained earnings, its quality-of-earnings and capital return visibility are below better-disclosed peers.

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