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

Koatsu Kogyo (TSE:17430) delivered a solid topline and operating recovery in FY2025, with revenue up 15.6% YoY to ¥13.94bn and operating income up 96.2% YoY to ¥1.04bn, evidencing strong operating leverage and better project execution. Gross profit was ¥1.42bn, implying a gross margin of about 10.2%, while operating margin expanded to roughly 7.5%, a meaningful improvement versus the prior year. Ordinary income of ¥1.08bn closely tracked operating income, indicating limited non-operating drag and modest finance costs. Despite the strong operating recovery, net income declined 31.1% YoY to ¥408m, compressing the net margin to 2.93% and signaling sizable below-ordinary, likely extraordinary losses or other non-recurring items under JGAAP. The effective tax charge booked (¥0.98m) is negligible relative to pre-tax income, further supporting the likelihood that extraordinary items, minority interests, or special factors drove the gap between ordinary and net income. DuPont analysis points to a calculated ROE of 4.33% (net margin 2.93% × asset turnover 0.866 × financial leverage 1.71), where the primary constraint is the low net margin. The balance sheet appears conservatively positioned: total assets are ¥16.10bn with total equity of ¥9.42bn, implying an equity ratio of roughly 58.5% (the reported 0.0% equity ratio is an undisclosed item, not zero). Liquidity is sound with a current ratio of 138% and quick ratio of 135%, aided by low inventory intensity (inventories ¥201m). Interest expense is minimal at ¥4.5m, translating to a very strong interest coverage of ~231x. Cash flow quality is robust: operating cash flow was ¥1.20bn, nearly 3x net income, and free cash flow was a healthy ¥1.06bn after modest investing outflows of ¥142m. Financing cash flow was an outflow of ¥175m, likely reflecting debt reduction or lease payments, consistent with the conservative balance sheet. Dividends were not paid (DPS 0), resulting in a zero payout despite ample free cash flow, suggesting a cautious capital allocation stance or a focus on balance sheet strengthening and future investment. Overall, results indicate improving core profitability and solid cash generation, but headline net income softness due to non-recurring items suppresses ROE and earnings optics. Near-term priorities should include sustaining the improved operating margin, clarifying the nature of extraordinary charges, and confirming the durability of order intake to support revenue momentum. Given data gaps (e.g., cash balance, detailed extraordinary items, share count), conclusions focus on disclosed non-zero metrics and standard JGAAP interpretations. The company appears well positioned financially to navigate project variability while retaining optionality for reinvestment and potential future shareholder returns.

Profitability Analysis

ROE of 4.33% is driven by: net profit margin 2.93%, asset turnover 0.866x, and financial leverage 1.71x. The core profitability dynamic is favorable at the operating level (operating margin ~7.5%) given a 96% YoY surge in operating income on 16% revenue growth, highlighting strong operating leverage and better cost control/mix. Gross margin of ~10.2% leaves limited room for error in a project-based business, so maintaining disciplined bidding and execution is essential. Ordinary income of ¥1.08bn suggests minimal non-operating drag; interest costs are immaterial relative to EBIT (coverage ~231x). The weak net margin relative to operating margin implies significant extraordinary or below-the-line items under JGAAP (e.g., impairment, disaster losses, special provisions, or minority interests), which depressed bottom-line profitability. EBITDA of ¥1.54bn (11.0% margin) shows healthy cash earnings capacity relative to revenue. If extraordinary factors normalize, ROE could trend higher given reasonable asset turnover and moderate leverage. Margin quality appears improved due to scale effects and cost discipline; sustaining this will depend on order mix and pass-through of input costs. Operating leverage is clearly positive this year; however, with gross margin still near 10%, leverage can cut both ways in a downturn.

Growth Assessment

Revenue grew 15.6% YoY to ¥13.94bn, indicating strong demand and/or improved delivery of the order backlog. The outsized growth in operating income (+96.2% YoY) versus revenue points to mix improvement and operating efficiency gains, which may be partially cyclical or project-specific. Ordinary income broadly aligns with operating income, which strengthens the case that the core business improved substantially. The decline in net income (−31.1% YoY) is inconsistent with core trends and likely reflects extraordinary charges or one-offs rather than a deterioration in operations. Cash generation tracked the operating uplift, with OCF of ¥1.20bn and FCF of ¥1.06bn, suggesting that earnings quality is solid and growth did not require heavy working capital absorption this year. Sustainability hinges on order intake and backlog quality; while not disclosed here, maintaining book-to-bill at or above 1.0 and stable bid discipline would be key to sustaining revenue. With modest investing cash outflows (−¥142m), capex intensity appears low in the period, supporting near-term cash-generative growth. Outlook-wise, if extraordinary impacts fade, reported profit growth could realign with operating momentum; conversely, any compression of gross margin or project delays could temper growth.

Financial Health

Total assets are ¥16.10bn and total equity is ¥9.42bn, implying an equity ratio near 58.5% (despite the undisclosed reported figure), which indicates a strong capital base. Total liabilities of ¥6.03bn and current liabilities of ¥5.79bn leave a comfortable buffer given current assets of ¥7.99bn. Liquidity is solid with current ratio 138.1% and quick ratio 134.6%, reflecting low inventory reliance (inventories ¥201m). Debt-to-equity is reported at 0.64x; alongside minimal interest expense (¥4.5m), solvency risk appears low. Working capital stands at approximately ¥2.20bn, providing cushion against project timing swings. Financing cash outflow (−¥175m) suggests deleveraging or lease repayments, further reinforcing the conservative profile. While cash and equivalents are undisclosed (reported as 0 due to non-disclosure), the liquidity ratios and OCF imply adequate cash resources.

Cash Flow Quality

OCF of ¥1.20bn versus net income of ¥408m yields an OCF/NI ratio of 2.94x, indicating strong earnings quality and positive working-capital dynamics. Free cash flow was ¥1.06bn after ¥142m of investing outflows, suggesting that capex requirements were modest relative to cash earnings (EBITDA ¥1.54bn). The gap between operating and net income further supports the view that below-the-line factors, rather than weak cash generation, drove the bottom-line decline. With inventories at ¥201m and quick ratio nearly equal to current ratio, the business appears receivables/WIP-heavy rather than inventory-heavy; careful management of receivables and contract assets remains important. Financing outflows (−¥175m) were comfortably funded by FCF, indicating internal funding capacity for both reinvestment and balance sheet management. Overall, cash conversion looks robust this period, though sustainability will track project timing and billing milestones.

Dividend Sustainability

DPS was 0 and the payout ratio was 0%, despite strong free cash flow of ¥1.06bn and solid liquidity. On a capacity basis, dividends would be well covered by both earnings (even at the depressed net income level) and FCF; however, management has retained cash, likely prioritizing balance sheet strength, future investment, or caution following extraordinary items. With interest obligations minimal and leverage moderate, future distributions would be sustainable if core operating trends persist and extraordinary charges abate. Absent a stated policy, the near-term outlook suggests continued prudence until earnings normalization is clear and order visibility remains high.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns and margin erosion
• Order backlog and book-to-bill volatility affecting revenue visibility
• Input cost inflation (materials, labor) and pass-through limitations
• Competitive bidding pressure in construction/engineering markets
• Timing of public sector budgets and infrastructure spending cycles
• Extraordinary items under JGAAP (impairments, disaster-related losses) impacting net income
• Skilled labor availability and subcontractor capacity constraints

Financial Risks:

• Working capital concentration in receivables/contract assets and collection timing
• Potential increase in interest-bearing debt with project scale-up (though current interest burden is low)
• Exposure to large single projects that could impact cash flow if delayed
• Limited disclosure on cash balance and debt structure

Key Concerns:

• Net income declined 31.1% YoY despite a strong operating recovery, implying substantial extraordinary impacts
• Low net margin (2.93%) depresses ROE to 4.33% despite healthy leverage and turnover
• Sustainability of improved operating margin given thin gross margin (~10%) and competitive pressures

Investment Implications

Key Takeaways:

• Core operations strengthened materially: operating income +96% on +16% revenue, with operating margin ~7.5%
• Net income weakness is likely non-recurring; clarification of extraordinary items is pivotal
• Balance sheet is strong (equity ratio ~58.5%) with ample liquidity and minimal interest burden
• Cash flow quality is high (OCF/NI ~2.9x), and FCF of ~¥1.06bn supports internal funding capacity
• ROE at 4.33% is constrained by low net margin; normalization of below-the-line items would lift returns

Metrics to Watch:

• Details and recurrence of extraordinary items impacting net income
• Order backlog, book-to-bill ratio, and win rates
• Gross and operating margin trajectories, including input cost pass-through
• Receivables and contract asset days, OCF conversion vs. EBIT
• Capex plan and investing cash flows vs. maintenance needs
• Interest-bearing debt levels and maturity profile
• Capital allocation policy: dividend/resumption signals and share count disclosures

Relative Positioning: Relative to domestic mid-cap construction/engineering peers, Koatsu Kogyo currently exhibits stronger operating momentum and cash conversion with conservative leverage, but reported bottom-line volatility (likely from extraordinary items) keeps ROE below peer averages; sustained margin discipline and clarity on non-recurring impacts would improve its relative standing.

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
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