THE TORIGOE CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥19.52B
• Operating Income: ¥943M
• Net Income: ¥702M
• EPS: ¥34.80

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: A solid Q3 with meaningful operating margin expansion and double-digit profit growth despite flat revenue, but capital efficiency remains weak and profit quality leans on non-operating income. Revenue rose 0.6% YoY to 195.19, while operating income increased 32.4% YoY to 9.43, evidencing improved cost control and/or better pricing. Ordinary income grew 23.6% YoY to 11.96, supported by a sizable non-operating income contribution of 2.84, including 1.83 of dividend income. Net income rose 15.8% YoY to 8.10, with EPS at 34.80 yen. Gross profit was 35.42, implying an 18.1% gross margin. Operating margin improved to 4.8% (9.43/195.19) from about 3.7% last year, an expansion of roughly 116 bps. Net margin improved to about 4.15% from about 3.60% YoY, expanding roughly 55 bps. The non-operating income ratio is high at 35.0%, indicating earnings reliance on dividends and other financial income. Balance sheet strength is a standout: current ratio 578.6%, quick ratio 543.0%, and D/E 0.25x, with cash and deposits of 90.69 comfortably exceeding short-term loans of 14.27. Interest coverage is very strong at 67x, reflecting minimal financial risk. However, ROE is low at 2.2% and ROIC is just 2.1%, signaling subpar capital efficiency versus typical cost of capital benchmarks. Working capital intensity is modest with asset turnover of 0.436x, limiting return generation. The effective tax rate is 33.9%, broadly in line with statutory norms and not a swing factor. Earnings quality assessment is constrained by the lack of cash flow disclosure, leaving OCF/NI and FCF unassessed. Dividend sustainability is a key watchpoint, as the calculated payout ratio is 131.8%, above earnings capacity absent cash flow support. Forward-looking, sustaining the margin gains while reducing reliance on non-operating income and lifting ROIC will be critical to improve long-term value creation.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.2% = Net Profit Margin 4.2% × Asset Turnover 0.436 × Financial Leverage 1.25x. The most improved component this quarter versus last year appears to be the profit margin, given revenue rose only 0.6% while operating income rose 32.4% and net income 15.8%. Business drivers for margin improvement likely include gross margin gains (to 18.1%) and SG&A discipline (SG&A at 14.5% of sales), as well as a meaningful tailwind from non-operating income (notably dividend income of 1.83). The sustainability of the margin uplift is mixed: operating margin gains from cost pass-through or procurement tailwinds can persist if input costs remain benign, but non-operating income (35% of operating profit scale) is inherently volatile and less controllable. Asset turnover at 0.436x remains low for a food processor, limiting ROE even with better margins. Financial leverage is modest at 1.25x and unlikely to be a lever for ROE expansion under conservative balance sheet management. Flag: SG&A growth vs revenue is not disclosed by line, but the operating leverage (OI +32.4% vs sales +0.6%) implies SG&A grew slower than gross profit, a positive trend; sustainability depends on maintaining cost discipline as sales mix evolves.

Growth Assessment

Top-line growth is muted at +0.6% YoY, suggesting the quarter’s profit growth is primarily margin-driven rather than volume-driven. Operating income growth of +32.4% YoY outpaced sales, indicating improved pricing, mix, or input cost relief. Ordinary income growth of +23.6% reflects a continued boost from dividend income (1.83), which may not be recurring at the same level. Net income +15.8% YoY is solid but moderated by a 33.9% effective tax rate and likely some below-ordinary items (PBT 10.62 < ordinary income 11.96). With non-operating income ratio at 35%, profit composition is skewed toward financial income, increasing volatility in growth. Given the low asset turnover (0.436x), structural revenue acceleration may be limited absent category expansion or acquisitions. Outlook hinges on maintaining gross margin gains and stable SG&A, while managing potential headwinds from raw material and energy costs. Absent visibility into cash flows and capex, the sustainability of profit growth cannot be fully validated.

Financial Health

Liquidity is exceptionally strong: current ratio 578.6% and quick ratio 543.0%, with cash and deposits of 90.69 covering short-term loans of 14.27 multiple times. Solvency appears conservative: D/E 0.25x and total liabilities 88.42 vs equity 359.61. Interest coverage is 67x (operating income 9.43 / interest expense 0.14), indicating minimal near-term refinancing risk. Maturity mismatch risk is low: current assets 215.56 vs current liabilities 37.26, and cash on hand exceeds total short-term borrowings. Investment securities are sizeable at 115.73 (25.8% of total assets), introducing market valuation and income volatility exposure. No off-balance sheet obligations are disclosed; data limitations prevent assessment of lease liabilities or guarantees if any.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex are unreported; thus OCF/Net Income and FCF cannot be calculated. Given the high non-operating income contribution (including dividends received), cash conversion may deviate from operating profit, but this cannot be confirmed. Working capital metrics (AR 31.36, inventory 13.26, AP 11.43) relative to revenue look conservative, suggesting limited buildup; however, without period-over-period deltas, potential working capital release effects cannot be assessed. Dividend coverage by FCF is not determinable due to missing OCF and capex data.

Dividend Sustainability

The calculated payout ratio is 131.8%, which exceeds earnings capacity and would be unsustainable over time if funded solely by current-period profits. However, the company holds ample cash (90.69) and has low leverage, allowing near-term dividends to be funded from the balance sheet if desired. Without OCF and capex data, FCF coverage of dividends is unknown, limiting confidence. Policy direction is not disclosed; if management targets stable or progressive dividends, sustaining above-earnings payouts will require improved operating cash generation or ongoing financial income.

Risk Assessment

Business Risks:

• Raw material price volatility (wheat and related grains) impacting gross margin
• Energy and logistics cost fluctuations affecting COGS and distribution expenses
• Pricing power limitations in domestic flour and food markets with intense competition
• Demand elasticity in B2B and retail channels affecting volume amid price changes

Financial Risks:

• Earnings reliance on non-operating income (35% ratio), particularly dividend income from investment securities
• Market valuation risk and impairment risk on investment securities (115.73, 25.8% of assets)
• Potential mismatch between accounting profit and cash flow (OCF unreported)
• Interest rate changes could affect dividend income from financial holdings and borrowing costs, though leverage is low

Key Concerns:

• Low ROIC at 2.1% (<5% warning) and ROE at 2.2%, indicating subpar capital efficiency
• Payout ratio at 131.8% suggests potential strain on dividend sustainability absent stronger FCF
• Limited top-line growth (+0.6% YoY), implying reliance on margin management for earnings growth
• Data gaps (cash flow statement, capex, DPS details) hinder full quality-of-earnings assessment

Investment Implications

Key Takeaways:

• Strong margin-driven profit growth with operating margin up ~116 bps YoY despite flat sales
• Very conservative balance sheet and liquidity, minimizing financial risk
• Earnings mix includes sizable non-operating income; profit quality sensitivity to market conditions
• Capital efficiency remains weak (ROIC 2.1%, ROE 2.2%); structural improvement needed
• Dividend payout appears above earnings; sustainability depends on cash generation or policy adjustment

Metrics to Watch:

• Operating cash flow and FCF once disclosed (OCF/NI > 1.0 as quality threshold)
• Gross margin trajectory versus wheat and energy cost trends
• SG&A discipline relative to sales growth
• Non-operating income (dividends) stability and investment securities valuation
• ROIC progression toward 5–8% and asset turnover improvement

Relative Positioning: Within Japanese food processors, the company exhibits superior balance sheet strength and recent margin improvement but lags peers on capital efficiency and sustainable growth, with higher exposure to financial income volatility.

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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