FUKUDA CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥119.73B
• Operating Income: ¥6.43B
• Net Income: ¥4.04B
• EPS: ¥537.78

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

FY2025 Q3 was solid for Fukuda Corporation (1899), with steady top-line growth and clear margin improvement driving double-digit profit gains. Revenue rose 2.7% YoY to 1,197.3 (100M JPY), while operating income increased 12.1% YoY to 64.3 and net income grew 12.8% YoY to 44.5. Operating margin expanded to approximately 5.37%, and net margin reached 3.72%, both improving versus the prior year. Based on the reported YoY rates, we estimate operating margin widened by about 46 bps (from roughly 4.91% to 5.37%) and net margin by about 34 bps (from roughly 3.38% to 3.72%). Gross profit was 129.6 with a gross margin of 10.8%; SG&A was 72.2, implying a lean SG&A ratio of about 6.0% of sales. Ordinary income rose 10.7% YoY to 65.9, aided modestly by net non-operating income of about 2.21 (2.86 income minus 0.65 expenses), with dividend income of 1.33 a notable component. Effective tax rate was 32.6%, broadly in line with Japan’s statutory range, suggesting no unusual tax effects. Liquidity is robust: current assets of 1,091.2 versus current liabilities of 521.8 yield a current ratio of 209%, and cash of 284.3 far exceeds total interest-bearing debt (short 3.3, long 7.6). Balance sheet strength is a key positive, with total equity of 882.1 implying an equity ratio (calculated) of roughly 59.7% and a conservative D/E (total liabilities/equity) of 0.68x. Interest coverage is extremely strong at 338x, reflecting low financing costs and healthy operating profits. ROE (calculated) is 5.0% via DuPont, supported by asset turnover of 0.81x and leverage of 1.68x; while improving, ROE remains moderate for the sector. ROIC is reported at 7.1%, around typical targets, indicating acceptable capital efficiency for a general contractor. Earnings quality cannot be fully assessed due to unreported operating cash flow; this is the main data limitation this quarter. Dividend affordability appears sound with a calculated payout ratio of 40.4%, but cash coverage cannot be verified without OCF/FCF. Looking ahead, the combination of margin progress and a fortress balance sheet positions Fukuda to navigate input-cost volatility and project execution risks, though sustaining ROE improvement will likely require continued margin discipline and efficient asset turnover.

Profitability Analysis

ROE decomposition: 5.0% ROE = 3.7% Net Profit Margin × 0.810 Asset Turnover × 1.68x Financial Leverage. The most notable change YoY is the improvement in net margin (approx. +34 bps), outpacing the modest asset turnover increase implied by revenue growth. The business driver appears to be operating margin expansion (estimated +46 bps) via better cost control and/or improved project mix, with only a small contribution from non-operating gains (net +2.21). Non-operating items (notably dividend income) are supportive but not dominant, suggesting underlying operations are the primary source of profit growth. Sustainability: moderate—margin gains could persist if bid discipline and procurement management continue, but construction margins are inherently sensitive to material/labor costs and project timing. Watch for cost inflation or execution delays that could compress gross margin. SG&A discipline is evident with an SG&A ratio around 6.0%; there is no sign here of SG&A growth outpacing revenue. Operating leverage remains favorable at current volumes; further utilization gains could provide incremental margin upside, while a demand slowdown would reverse that effect.

Growth Assessment

Top-line growth of 2.7% YoY is steady, likely reflecting stable order execution rather than a surge in new starts. Profit growth outpaced sales (+12.1% OI, +12.8% NI), indicating operating leverage and/or improved project profitability. Ordinary income rose 10.7%, with non-operating tailwinds modest (dividends and interest income) and not masking core performance. The 10.8% gross margin and 5.37% operating margin are respectable for a general contractor; sustaining them hinges on input-cost management and project selection. With ROIC at 7.1%, capital deployment appears broadly in line with industry targets; incremental improvement would require either higher margins or faster asset turns. Outlook: near-term earnings trajectory should remain stable if the company converts backlog efficiently and maintains cost discipline; key swing factors are material price trends and labor availability. Absence of backlog/new orders data is a limitation to forecasting revenue durability.

Financial Health

Liquidity is strong: current ratio 209.1% and calculated working capital of 569.4. Quick ratio is reported at 209.1% (driven by large cash balances and unreported inventory/receivables details). No warning on current ratio; it is well above 1.0. Solvency is conservative: total liabilities/equity is 0.68x; calculated equity ratio is about 59.7%. Interest-bearing debt is minimal at roughly 10.9 versus cash of 284.3, implying a substantial net cash position. Interest coverage is 338x, indicating negligible refinancing risk at present. Maturity mismatch risk appears low given ample liquidity relative to short-term loans (3.3). No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not rule out guarantees common in construction (e.g., performance bonds). Overall financial resilience is high.

Cash Flow Quality

Operating cash flow is unreported, so we cannot compute OCF/Net Income or free cash flow. As a result, earnings quality cannot be validated via cash conversion; we cannot assess whether working capital movements (typical in construction: receivables and unbilled work) supported or absorbed cash. With cash vastly exceeding debt, near-term cash coverage of dividends and capex is likely comfortable, but sustainability cannot be confirmed without OCF and capex data. No signs of working capital manipulation can be inferred from the limited data; simply unobservable this quarter.

Dividend Sustainability

The calculated payout ratio is 40.4%, which is within a prudent range (<60%). Given the strong net cash position and low interest burden, balance-sheet capacity supports dividends. However, FCF coverage is not calculable due to missing OCF and capex data, so cash-based sustainability cannot be verified. Policy outlook likely remains stable if earnings and ROIC (7.1%) hold; any step-up would require confirmation of durable cash generation and a stable order environment.

Risk Assessment

Business Risks:

• Input cost inflation (materials and labor) compressing gross margins on fixed-price contracts
• Project execution risk (delays, rework, penalties) affecting profitability recognition
• Order intake/backlog visibility risk due to absent disclosure in this dataset
• Competitive bidding pressure in public/private works limiting margin expansion

Financial Risks:

• Cash flow variability from working capital swings typical in construction projects
• Potential contingent liabilities (performance guarantees) not visible in the provided data
• Interest rate risk is limited given low debt, but investment income could vary with rates

Key Concerns:

• OCF unreported, preventing verification of earnings quality (OCF/NI)
• Moderate ROE at 5.0% despite margin gains; improvement path relies on sustained profitability
• Dependence on non-operating dividend income is small but present; could fluctuate with markets

Investment Implications

Key Takeaways:

• Solid Q3 with margin-led profit growth: operating income +12.1% on revenue +2.7%
• Operating margin expanded by an estimated ~46 bps; net margin by ~34 bps
• Balance sheet is robust with net cash and an estimated equity ratio near 60%
• ROE 5.0% is improving but still moderate; ROIC 7.1% aligns with sector targets
• Earnings quality and FCF cannot be assessed due to missing cash flow data

Metrics to Watch:

• Order backlog and new orders (to gauge revenue sustainability)
• Gross margin and cost-to-complete assumptions on major projects
• OCF/Net Income and FCF (cash conversion, dividend cover)
• SG&A ratio discipline vs revenue growth
• ROIC and ROE trajectory vs peer benchmarks

Relative Positioning: Within Japan’s general contractors, Fukuda shows healthy balance-sheet strength (net cash, low leverage) and improving margins, supporting resilience; however, its ROE remains moderate and cash flow transparency this quarter is limited, placing it as a conservative, stable operator rather than an aggressive growth outlier.

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