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

Shinclair Co., Ltd. (TSE:17240) reported FY2025 Q3 consolidated results under JGAAP showing a mixed profitability picture with weaker topline and operating profit, but stronger bottom-line growth. Revenue was ¥7,332mn, down 9.7% YoY, indicating softer demand or project timing impacts in its systems/integration-centric business model. Gross profit reached ¥1,664mn, implying a gross margin of 22.7%, which is reasonable for project-based and equipment-heavy businesses but leaves limited room for fixed-cost absorption when volumes weaken. Operating income fell 36.3% YoY to ¥201mn, compressing the operating margin to 2.7%, highlighting operating leverage and cost pressure. Ordinary income was ¥218mn (margin 3.0%), supported by stable non-operating items; interest expense was only ¥8mn, yielding robust interest coverage of about 25x. Net income rose 22.9% YoY to ¥138mn (margin 1.88%), suggesting lower tax burden and/or non-operating tailwinds compared to the prior year despite weaker operations. The DuPont bridge shows ROE of 2.25% driven by a low net margin (1.88%), moderate asset turnover (0.733x), and modest financial leverage (1.63x). Liquidity appears healthy with a current ratio of 170% and quick ratio of 121%, supported by inventories of ¥2,187mn and working capital of ¥3,111mn. Capital structure looks conservative to moderate with total liabilities of ¥5,206mn and a debt-to-equity ratio of 0.85x, consistent with limited interest burden. Free cash flow and operating cash flow are not disclosed this quarter (zeros reflect non-disclosure), limiting the assessment of earnings-to-cash conversion. The equity ratio is shown as 0.0% (non-disclosed), and cash and equivalents are also not disclosed, constraining a full solvency and liquidity review. EPS was ¥29.72; the implied share count from reported net income is roughly 4.6–4.7mn shares, though outstanding shares were not disclosed this quarter. Overall, the quarter reflects margin compression at the operating level due to volume decline and likely fixed-cost absorption challenges, offset by benign financing costs and a manageable tax charge. Balance sheet liquidity is adequate, and leverage is moderate, but the absence of cash flow disclosure is a key limitation. The outlook will hinge on order intake, project timing into Q4, and the company’s ability to stabilize gross margins while controlling SG&A. We remain cautious on the sustainability of the bottom-line outperformance without corroborating cash flows and clearer visibility on backlog and pipeline.

Profitability Analysis

ROE_decomposition: ROE 2.25% = Net margin 1.88% × Asset turnover 0.733 × Financial leverage 1.63. The low net margin is the primary constraint on ROE; turnover is moderate and leverage is modest. margin_quality: Gross margin of 22.7% on ¥7,332mn revenue indicates normal project/equipment mix but limited buffer for fixed costs. Operating margin compressed to 2.7% (¥201mn OI), reflecting weaker volumes and/or mix. Ordinary margin was 3.0%, benefiting from light financing costs. Net margin at 1.88% improved YoY despite weaker operations, likely aided by a manageable tax burden. operating_leverage: Revenue declined 9.7% YoY while operating income fell 36.3% YoY, evidencing high operating leverage and fixed-cost under-absorption. SG&A (approx. ¥1,463mn = GP ¥1,664mn − OI ¥201mn) equates to ~20.0% of sales, indicating SG&A discipline will be critical to protect margins in a softer revenue environment.

Growth Assessment

revenue_sustainability: Topline of ¥7,332mn declined 9.7% YoY, consistent with project timing variability and potentially slower demand in network/equipment rollouts. Sustainability depends on order intake and backlog conversion into Q4. profit_quality: Operating profit contraction (-36.3% YoY) versus revenue (-9.7% YoY) suggests adverse mix and fixed-cost pressure. Net profit growth (+22.9% YoY) appears driven by non-operating items/taxes rather than core margin expansion. outlook: Recovery hinges on closing and delivering higher-margin projects, stabilizing gross margins, and maintaining SG&A control. Monitoring inventory normalization and order backlog will be key to assessing Q4 momentum.

Financial Health

liquidity: Current assets ¥7,544mn vs. current liabilities ¥4,433mn yields a current ratio of 170% and quick ratio of 121%, supported by inventories of ¥2,187mn. Working capital is ¥3,111mn, indicating comfortable near-term liquidity. solvency: Interest expense is low at ¥8mn with interest coverage ~25x (EBIT/interest ≈ ¥201mn/¥8mn), suggesting low financial risk from debt service. capital_structure: Total liabilities ¥5,206mn and equity ¥6,144mn imply a debt-to-equity of ~0.85x and financial leverage of 1.63x. The reported equity ratio is undisclosed (0.0% placeholder). Note: liabilities and equity totals present a discrepancy versus total assets; we rely on provided leverage metrics and DuPont leverage for interpretation.

Cash Flow Quality

earnings_quality: Operating cash flow, investing cash flow, and free cash flow are not disclosed this quarter (zeros indicate non-disclosure). As such, we cannot corroborate earnings with cash generation. FCF_analysis: Free cash flow is undisclosed. Without OCF and capex, FCF coverage of dividends or debt service cannot be assessed. working_capital: Inventories of ¥2,187mn are material within current assets (29%). With revenue declining, careful management of inventories and receivables will be important to avoid cash tie-up, but period cash conversion metrics are unavailable.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is not disclosed (0 placeholder). With EPS at ¥29.72 and positive net income of ¥138mn, the company has capacity to pay dividends, but the actual payout ratio cannot be assessed without DPS. FCF_coverage: Unable to assess due to non-disclosure of operating and investing cash flows; FCF coverage ratio shown as 0.00x should not be interpreted as actual. policy_outlook: Dividend policy visibility is limited this quarter. Sustainability would depend on normalized operating cash flow and capital needs; watch for year-end guidance or board resolutions.

Risk Assessment

Business Risks:

• Project timing and order volatility affecting quarterly revenue and margin recognition
• Margin pressure from mix shifts toward lower-margin equipment or competitive pricing
• Supply chain and lead-time risks for key components (e.g., semiconductors, networking gear)
• Customer concentration risk typical in infrastructure/system integration markets
• Execution risk on large projects impacting cost estimates and delivery schedules

Financial Risks:

• Earnings sensitivity to volume given high operating leverage
• Working capital swings tied to inventories and receivables amid softer sales
• Limited visibility on cash balances and cash generation due to non-disclosure of CF statements this quarter
• Potential covenant or refinancing risks cannot be evaluated without debt detail breakdown

Key Concerns:

• Operating margin compression (OI down 36.3% YoY) despite only a 9.7% revenue decline
• Absence of operating and free cash flow disclosure, impairing earnings quality assessment
• Inventory level at ¥2,187mn amid lower sales could weigh on cash if not managed
• Discrepancy between reported totals (assets vs. liabilities + equity) complicates precise solvency analysis

Investment Implications

Key Takeaways:

• Topline softness and high operating leverage led to significant operating profit contraction
• Net income growth likely benefited from non-operating/tax effects rather than core margin improvement
• Liquidity appears adequate (CR 170%, QR 121%), and interest burden is minimal (25x coverage)
• Leverage is moderate (D/E ~0.85x; FL 1.63x), supporting balance sheet resilience
• Lack of cash flow disclosure is a major limitation for assessing earnings quality and dividend capacity

Metrics to Watch:

• Order intake and backlog/book-to-bill heading into Q4
• Gross margin trajectory and project mix
• SG&A as a percentage of sales and cost control measures
• Inventory turnover and receivables collection (DSI/DSO) once CF and working capital details are available
• Operating cash flow and capex to gauge FCF recovery
• Tax rate normalization; this quarter’s tax expense (~¥50mn) implies ~23% on ordinary income

Relative Positioning: Within Japan’s project- and equipment-oriented systems integrators, the company exhibits moderate leverage, solid liquidity, and thin but serviceable margins. However, weaker operating performance versus revenue and limited disclosure on cash conversion currently place it at a relative disadvantage on earnings quality until backlog visibility and FCF are clarified.

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