SYNCLAYER INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥7.33B
• Operating Income: ¥201M
• Net Income: ¥112M
• EPS: ¥29.72

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: Mixed quarter with top-line decline and operating margin compression, but net income growth driven by below-operating-line factors. Revenue fell 9.7% YoY to 73.32, reflecting softer demand and/or project timing effects. Gross profit was 16.64, implying a gross margin of 22.7% in the period. SG&A was 13.47, leaving operating income at 2.01 (-36.3% YoY) and an operating margin of 2.74%. Ordinary income printed at 2.18 (+33.6% YoY), outpacing operating income despite lower sales, indicating positive non-operating contributions and/or reclassification of sizable losses as extraordinary. Net income rose 22.9% YoY to 1.38, lifting the net margin to 1.88% from an estimated 1.38% a year ago. On margins, the operating margin compressed by roughly 116 bps YoY (from ~3.90% to 2.74%), while the net margin expanded by about 50 bps (from ~1.38% to 1.88%). Ordinary margin also expanded by roughly 96 bps (from ~2.01% to 2.97%). The divergence between operating deterioration and net income growth suggests that non-core items played an outsized role this quarter. We also note an apparent classification inconsistency in the provided “non-operating expenses” (1.78) versus the higher ordinary income than operating income; treating the 1.78 as extraordinary losses reconciles ordinary income and profit before tax. Liquidity is strong with a current ratio of 205.5% and quick ratio of 137.8%. Leverage remains moderate (D/E 0.63x) and interest coverage is robust at 25.12x. Capital efficiency is weak: ROE is 2.2% and ROIC is 2.1%, both below typical cost of capital. With OCF unreported, earnings quality can’t be validated; a payout ratio of 100.3% raises a caution flag on dividend sustainability absent stronger free cash flow. Forward-looking, visibility hinges on recovering operating margin, normalizing extraordinary items, and monetizing inventories while managing short-term loans. Overall, a defensive balance sheet offsets weak capital efficiency, but sustained improvement requires operational margin rebuild.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.2% = Net Profit Margin 1.9% × Asset Turnover 0.733 × Financial Leverage 1.63x. Among the components, the net profit margin improved YoY (net income +22.9% vs revenue -9.7%), while operating margin contracted; the largest change driver appears to be below-operating-line items (ordinary and extraordinary) rather than core operations. Business reason: ordinary income increased despite lower operating income, implying higher non-operating contributions (e.g., dividends/other) and/or absence of prior-period losses, while extraordinary losses reduced profit before tax but still left net income higher due to the magnitude shift versus last year. Sustainability: non-operating tailwinds and extraordinary swings are typically one-time or volatile; without operating margin recovery, the NPM uplift is fragile. Asset turnover at 0.733 is modest; with revenue down and assets at 100, turnover likely softened YoY, pressuring ROE. Operating leverage was negative: SG&A rigidity against lower gross profit compressed operating margin by an estimated 116 bps YoY. Watch for SG&A growth exceeding revenue; in this quarter, revenue fell faster than operating costs, indicating deleverage risk if volumes don’t recover.

Growth Assessment

Revenue declined 9.7% YoY to 73.32, suggesting softer demand and/or project timing delays. Operating income fell 36.3% to 2.01, consistent with negative operating leverage. Ordinary income rose 33.6% to 2.18, and net income rose 22.9% to 1.38, indicating that non-operating factors and lower effective burdens drove bottom-line growth. Operating margin compressed to 2.74% from an estimated ~3.90% a year ago, while net margin expanded to 1.88%. Profit quality leans non-recurring/volatile given the ordinary–extraordinary mix; recurring operating profit weakened. Outlook depends on execution to restore gross margin and control SG&A while converting elevated inventories (20.46) to sales. Near-term growth visibility is limited; a rebound in project starts or customer spending would be needed to re-accelerate revenue.

Financial Health

Liquidity is solid: current ratio 205.5% and quick ratio 137.8%, comfortably above benchmarks. Total liabilities are 38.56 against equity of 61.44, with D/E at 0.63x, a conservative level. Short-term loans are 12.00 versus cash 10.20 and receivables 6.13; when including inventories (20.46), coverage of near-term obligations is adequate, but reliance on inventory monetization is non-trivial. No explicit red flags: Current Ratio well above 1.0 and D/E below 2.0. Maturity mismatch risk is moderate: short-term borrowings form the bulk of interest-bearing debt, but current assets provide coverage. Off-balance sheet obligations were not disclosed (N/A). Interest coverage at 25.12x indicates ample ability to service interest.

Cash Flow Quality

Operating cash flow was unreported, so OCF/Net Income and FCF can’t be assessed. This limits confirmation of earnings quality and working capital discipline. Inventory at 20.46 is sizeable relative to receivables (6.13), implying potential working capital cash needs if turnover slows. With a calculated payout ratio of 100.3% and capex unreported, FCF coverage of shareholder returns cannot be validated. No clear signs of working capital manipulation can be inferred from the disclosed data alone; however, reliance on inventory conversion is a key watchpoint.

Dividend Sustainability

The calculated payout ratio stands at 100.3%, implying near-full distribution of earnings; DPS itself was not disclosed. Without OCF and FCF data, coverage is indeterminable, elevating risk if earnings weaken or cash conversion lags. Balance sheet flexibility (D/E 0.63x, strong liquidity) provides some buffer, but low ROE (2.2%) and ROIC (2.1%) argue for cautious return policy unless profitability improves. Policy outlook likely hinges on restoring operating margin and stabilizing non-operating/extraordinary items.

Risk Assessment

Business Risks:

• Demand softness or project timing delays leading to revenue decline (-9.7% YoY).
• Operating margin compression (~116 bps YoY) due to negative operating leverage.
• High inventory balance (20.46) relative to receivables (6.13) creating execution risk on sell-through.
• Dependence on non-operating items to support ordinary and net income in the quarter.

Financial Risks:

• Short-term loans (12.00) require ongoing refinancing or working capital conversion.
• Dividend payout ratio at ~100% could strain cash if OCF is weak (data unreported).
• Low capital efficiency (ROIC 2.1%, ROE 2.2%) below cost of capital.
• Extraordinary losses (implied 1.78) introduce earnings volatility.

Key Concerns:

• Earnings quality uncertainty due to lack of cash flow disclosure (OCF N/A).
• Classification inconsistency in non-operating vs extraordinary items complicates comparability.
• Sustained negative operating leverage if volumes do not recover.

Investment Implications

Key Takeaways:

• Core operations weakened: operating income -36.3% on -9.7% revenue, OPM ~2.74%.
• Net income +22.9% benefited from below-operating-line factors; sustainability uncertain.
• Liquidity is strong and leverage moderate (CR 205.5%, QR 137.8%, D/E 0.63x, ICR 25.12x).
• Capital efficiency is weak (ROIC 2.1%, ROE 2.2%) and must improve to create value.
• Inventory conversion and project restart cadence are pivotal for near-term recovery.

Metrics to Watch:

• Operating margin trajectory (vs ~2.74% this quarter).
• OCF/Net income ratio (>1.0 target) and FCF once disclosed.
• Inventory turnover and days on hand; receivables collection.
• Extraordinary/non-operating items mix and recurrence.
• Short-term debt rollovers vs cash and working capital.

Relative Positioning: Compared with domestic small-cap engineering/solutions peers, the company shows stronger liquidity and conservative leverage but lags on capital efficiency and underlying operating margin resilience; near-term performance depends more on execution and working capital management than on balance-sheet strength.

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