Koatsu Kogyo Co., Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥13.94B
• Operating Income: ¥1.04B
• Net Income: ¥425M
• EPS: ¥179.56

Income Statement

Balance Sheet

Cash Flow Statement

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 operating recovery masked by below-the-line charges, resulting in weaker headline net profit despite strong top-line and core margin gains. Revenue rose 15.6% YoY to 139.4, with operating income up 96.2% YoY to 10.41, showing significant operating leverage. Gross profit was 21.37, implying a 15.3% gross margin. Operating margin is approximately 7.5% (10.41/139.4), up materially on an estimated basis from last year. Ordinary income increased 96.4% YoY to 10.84, but profit before tax fell to 7.51, indicating sizable special losses (roughly 3.3) below ordinary income. Net income declined 31.1% YoY to 4.08, as the effective tax rate spiked to 45.6% and one-off losses dragged PBT. Based on the growth rates provided, we estimate operating margin expanded by roughly 300–320 bps YoY, while net margin compressed by about 200 bps to 2.9% due to non-recurring items and a high tax burden. Cash generation was strong: operating cash flow was 12.00 (2.94x net income), and free cash flow reached 10.58. Liquidity remains sound with a current ratio of 148% and quick ratio of 146%, and leverage is conservative with D/E at 0.71x and equity ratio (calculated) around 58.5%. Interest coverage is extremely robust at 878x, reflecting minimal financial risk. ROE was 4.3% with financial leverage of 1.71x, while ROIC printed at 7.4%, near typical management targets. Dividend capacity appears ample with a calculated payout ratio of 19.6% and FCF coverage of 13.26x, though DPS disclosure is not available in this filing. Earnings quality looks high given OCF significantly exceeds NI; however, the gap between ordinary income and PBT signals one-time charges that warrant monitoring. Forward-looking, sustained execution at the operating line suggests healthier underlying profitability than net profit implies, with scope for earnings normalization if special losses do not recur and the tax rate reverts closer to historical levels. Key watch points include the recurrence of special losses, tax rate normalization, order momentum, and maintenance of the improved operating margin.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.3% = Net Profit Margin (2.9%) × Asset Turnover (0.866) × Financial Leverage (1.71x). The largest driver of change YoY appears to be net profit margin, which compressed despite strong operating gains, due to special losses below ordinary income and a high effective tax rate (45.6%). Operating performance improved markedly: revenue +15.6% and operating income +96.2% imply material operating margin expansion (estimated +~310 bps YoY from ~4.4% to ~7.5%), driven by better project mix/pricing and SG&A discipline versus gross profit. The business reason for the margin divergence is that extraordinary or one-off charges reduced PBT (7.51) versus ordinary income (10.84), and tax burden increased, dragging net income. Sustainability: the operating margin expansion looks more sustainable than the depressed net margin; if one-off items fade and the tax rate normalizes, ROE could improve. Concerning trend flags: net profit down 31.1% YoY despite strong OI indicates sensitivity to non-recurring items; SG&A breakdown is undisclosed, limiting granularity, but the absolute OI surge suggests SG&A did not outpace revenue.

Growth Assessment

Top-line growth of 15.6% is robust for the sector, suggesting sound order intake and execution. Core profit growth (OI +96.2%) indicates improved operating leverage and/or mix benefits. However, the decline in net income (-31.1% YoY) shows that below-the-line factors (special losses and high taxes) outweighed operating gains at the headline level. Non-operating income was modest at 0.54 (dividends 0.16; interest income 0.02), with limited reliance on financial income. The gap between ordinary income (10.84) and PBT (7.51) implies one-time losses; if non-recurring, headline earnings could rebound. EBITDA was 14.59 with a 10.5% margin, reinforcing the strength in core operations. Outlook: sustained revenue momentum and stable gross margins would support continued OI strength; normalization of special items and tax rate is the key swing factor for EPS. Near-term, we expect earnings to track operating trends more closely if extraordinary losses abate.

Financial Health

Liquidity is sound: current ratio 148% and quick ratio 146% comfortably above minimum thresholds (though just below the 150% 'healthy' benchmark). Working capital stands at 30.86, and current assets (95.16) exceed current liabilities (64.30), implying low maturity mismatch risk. Solvency is conservative with D/E at 0.71x and calculated equity ratio of approximately 58.5% (94.22/161.03). Interest coverage is very strong at 877.74x, indicating minimal interest burden risk. Noncurrent liabilities are small (2.51), with the balance sheet largely equity-funded. No off-balance sheet obligations are disclosed in the provided data. No warnings triggered for Current Ratio < 1.0 or D/E > 2.0.

Cash Flow Quality

OCF/Net Income is 2.94x (>1.0), indicating high earnings quality and strong cash conversion. Free cash flow was 10.58 after capex of 1.63, comfortably covering likely dividend needs and providing internal funding for growth. The positive spread between OCF and NI likely reflects either solid collections and limited working capital drag or the impact of non-cash charges (e.g., depreciation 4.18). No signs of working capital manipulation are apparent from the limited disclosure; however, receivables/payables details are unreported, which limits deeper diagnostics. Overall, cash generation is aligned with the improved operating performance and is sustainable absent a sharp reversal in orders or collections.

Dividend Sustainability

Calculated payout ratio is 19.6%, indicating ample coverage by earnings; reported DPS is unreported in this filing. FCF coverage of dividends is very strong at 13.26x, suggesting high sustainability even with moderate dividend increases. Balance sheet strength (equity ratio ~58.5%, D/E 0.71x) and robust interest coverage further support distribution capacity. Policy outlook is not disclosed, but cash generation and low leverage provide flexibility to maintain or raise dividends, subject to capex needs and project pipeline visibility.

Risk Assessment

Business Risks:

• Project execution risk in civil engineering/construction (cost overruns, delays) affecting margins.
• Input cost inflation (materials, subcontracting) potentially compressing gross margins.
• Order intake/backlog volatility impacting revenue visibility and utilization.
• Labor availability and wage pressure in construction-related trades.
• Customer and project concentration risk (not disclosed) that could magnify earnings volatility.

Financial Risks:

• One-off/extraordinary losses (PBT below ordinary income by ~3.3) recurring into future periods.
• High effective tax rate (45.6%) suppressing net margins; potential volatility in tax adjustments.
• Working capital swings typical of the business model; receivables and payables not disclosed.
• Disclosure gaps on debt composition and SG&A breakdown limit monitoring of cost and funding risks.

Key Concerns:

• Net income declined 31.1% YoY despite strong OI due to non-recurring items and taxes.
• Sustainability of the newly achieved operating margin (~7.5%) through the next cycle.
• Lack of detail on special losses and their drivers.
• Limited segmental or backlog disclosure in this dataset to validate revenue durability.

Investment Implications

Key Takeaways:

• Core operations strengthened materially with operating income +96% and operating margin near 7.5%.
• Headline net profit contracted on special items and a high tax rate; underlying earnings are better than reported NI.
• Cash conversion is strong (OCF/NI 2.94x) with healthy FCF of 10.58.
• Balance sheet is conservative (equity ratio ~58.5%, D/E 0.71x) and funding risk is low.
• ROE at 4.3% leaves room for improvement if tax/special losses normalize; ROIC at 7.4% is near target range.

Metrics to Watch:

• Order intake/backlog and book-to-bill to validate revenue sustainability.
• Gross and operating margin trajectory versus input cost trends.
• Extraordinary items bridge (Ordinary income to PBT) and tax rate normalization.
• Working capital turns (DSO/DPO/DIO) once disclosed to monitor cash conversion durability.
• Capex pipeline and ROIC progression toward >8%.

Relative Positioning: Within small-cap construction/engineering peers, the company shows above-peer operating recovery with conservative leverage and strong cash conversion, but near-term reported earnings are handicapped by one-off losses and an elevated tax rate; normalization of below-the-line items is the key catalyst for closing the gap between operating and net profitability.

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