EPCO Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥4.74B
• Operating Income: ¥294M
• Net Income: ¥84M
• EPS: ¥33.04

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 a mixed but overall solid quarter for Epco: topline and ordinary income were strong, while operating margin slipped modestly and earnings quality cannot be verified due to missing cash flow data. Revenue rose 13.2% YoY to 47.44, signaling healthy demand across core services. Operating income increased 10.3% YoY to 2.94, lagging revenue growth and implying slightly weaker operating leverage. Ordinary income surged 77.7% YoY to 3.28, indicating a significant contribution from non-operating items versus the prior year. Net income jumped 250.5% YoY to 2.95, which, alongside a reported effective tax rate of 54.1%, suggests below-the-tax-line factors or classification differences versus profit before tax. Gross margin was 27.6%, reflecting solid cost discipline at the gross profit level. Operating margin printed at 6.2%, implying an estimated ~16 bps YoY compression (from roughly 6.36% to 6.20%), as operating costs outpaced revenue growth. The non-operating income ratio of 6.7% and the large gap between operating and ordinary income highlight an outsized contribution from non-core items this quarter. ROE is calculated at 6.6%, supported primarily by asset turnover of 0.844 and low financial leverage of 1.25x, with net margin at 6.2%. Liquidity is robust with a current ratio of 362.8% and net cash (cash and deposits 26.74 vs short-term loans 5.00), reducing near-term balance sheet risk. Solvency is conservative with D/E at 0.25x and interest coverage at 194.7x. ROIC is 6.3%, slightly below the typical 7–8% management target seen across Japanese firms, suggesting room for improved capital efficiency. Dividend payout ratio is shown at 101.1%, indicating potential pressure on dividend sustainability absent strong free cash flow (FCF not disclosed). Cash flow statements were not reported, so we cannot corroborate the sharp NI increase with operating cash generation. Forward-looking, the company appears well-capitalized to pursue growth, but sustaining earnings momentum likely requires improving operating leverage and validating profit quality with cash conversion in subsequent quarters.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.6% = Net Profit Margin 6.2% × Asset Turnover 0.844 × Financial Leverage 1.25x. The component with the most notable movement versus revenue trends appears to be net margin, as operating income growth (+10.3% YoY) lagged revenue growth (+13.2% YoY), implying slight margin pressure. Business driver: higher SG&A burden relative to sales and a greater reliance on non-operating items to bridge to ordinary income, while gross profitability (27.6% GPM) remained intact. Sustainability: the slight operating margin compression (~16 bps YoY) looks cyclical/manageable, but reliance on non-operating gains for ordinary income growth is less sustainable as a recurring driver. Watch for SG&A growth relative to revenue; with SG&A of 10.44 and no detailed breakdown, cost drift (e.g., labor inflation, IT, or rent) could continue to weigh on operating leverage if not offset by pricing and mix. Asset turnover at 0.844 is decent and likely benefited from revenue growth outpacing asset base expansion; this is generally sustainable if execution and demand hold. Financial leverage is low (1.25x), which is prudent, but it also limits ROE lift from gearing; any ROE improvement must come from margin expansion and/or better asset efficiency. Overall, profitability is acceptable but would be higher quality if the ordinary income gain were more clearly tied to recurring operating drivers.

Growth Assessment

Revenue growth of 13.2% YoY to 47.44 indicates resilient demand and successful execution in core offerings. Operating income growth of 10.3% lagged revenue, suggesting incremental cost pressure or investment for growth that has not fully translated into margin expansion. Ordinary income growth of 77.7% YoY far exceeded operating growth, implying meaningful non-operating tailwinds this period. Net income rose 250.5% YoY to 2.95; however, classification differences between profit before tax (1.84) and net income (2.95) limit transparency and call for caution until footnotes are available. Non-operating income ratio of 6.7% underscores that part of the growth is non-core. With ROIC at 6.3%, growth is occurring but not yet at optimal capital efficiency targets (7–8%). Outlook hinges on: stabilizing SG&A intensity, converting revenue growth into margin expansion, and improving visibility on the repeatability of non-operating contributions. Near-term, robust liquidity supports continued business development, but sustaining double-digit profit growth likely requires improved operating leverage rather than reliance on below-the-line items.

Financial Health

Liquidity is strong: current assets 36.64 vs current liabilities 10.10 yields a current ratio of 362.8% and quick ratio of 362.8% (no inventories reported). There is no warning trigger (current ratio > 1.0). Cash and deposits of 26.74 comfortably exceed short-term loans of 5.00, indicating a net cash position and low refinancing risk. Solvency is conservative with total liabilities 11.28 vs equity 44.96 (D/E 0.25x). Interest coverage is very strong at 194.7x, and interest expense is minimal (0.02). Maturity mismatch risk appears low given the scale of cash relative to short-term debt. No off-balance sheet obligations were disclosed in the data provided; absence of disclosure does not preclude their existence (e.g., leases or guarantees). Overall balance sheet resilience is high.

Cash Flow Quality

Operating cash flow, investing cash flow, and FCF were not reported, so OCF/Net Income and FCF coverage cannot be assessed. Consequently, we cannot validate whether the sharp increase in net income is accompanied by cash generation (OCF/NI > 1.0 benchmark). With dividends and capex unreported, sustainability of shareholder returns and investment capacity cannot be corroborated by FCF. Working capital indicators from the balance sheet are healthy (ample cash and modest payables), but without period cash flows we cannot rule out timing effects or working capital pulls that may have affected OCF. No signs of working capital manipulation can be asserted or dismissed due to data limitations.

Dividend Sustainability

The calculated payout ratio of 101.1% suggests dividends may exceed earnings this period, which is typically unsustainable unless supported by robust, recurring free cash flow or excess cash balances. However, DPS, total dividends paid, and FCF are unreported, so we cannot confirm the basis of the payout calculation or its coverage. The company has strong liquidity (cash 26.74 vs short-term loans 5.00), which could temporarily support distributions, but long-term sustainability should align with OCF/FCF generation and earnings durability. Policy outlook is indeterminate from the provided data; monitoring management guidance, payout policy targets, and next-quarter cash flow disclosures is essential.

Risk Assessment

Business Risks:

• Operating margin pressure as SG&A outpaces revenue (+13.2% sales vs +10.3% operating income implies negative operating leverage).
• Dependence on non-operating contributions to drive ordinary income growth, which may not be recurring.
• Potential exposure to labor cost inflation and talent availability, given service-oriented cost structure.
• End-market cyclicality (e.g., housing, energy services, and BPO demand) that could slow revenue momentum.

Financial Risks:

• Dividend payout reportedly above 100%, risking cash draw if not backed by FCF.
• Interest rate risk is limited but present on short-term borrowings (5.00) if rates rise.
• Data gaps on long-term debt and leases (unreported), which could obscure true leverage.

Key Concerns:

• Inconsistency between profit before tax (1.84) and net income (2.95) suggests classification effects (e.g., below-tax-line items) that reduce transparency.
• Lack of cash flow disclosure prevents assessment of earnings quality (OCF/NI) and FCF coverage.
• ROIC at 6.3% is below the 7–8% target range, indicating room for better capital efficiency.

Investment Implications

Key Takeaways:

• Topline growth robust at +13.2% YoY; operating leverage modestly negative (~16 bps OM compression).
• Ordinary income strength (+77.7% YoY) likely aided by non-operating items; sustainability uncertain.
• Net income surge (+250.5% YoY) not verifiable on cash basis due to missing OCF.
• Balance sheet is strong with net cash and low D/E (0.25x).
• ROE 6.6% underpinned by asset turnover and low leverage; margin improvement needed for further gains.
• Payout ratio above 100% raises sustainability questions in absence of FCF data.
• ROIC 6.3% below typical target suggests focus on margin/asset efficiency improvements.

Metrics to Watch:

• OCF/Net Income and Free Cash Flow in the next quarter.
• Operating margin trend and SG&A growth versus revenue.
• Composition of non-operating income/expenses and any extraordinary items.
• ROIC progression toward 7–8% threshold.
• Dividend policy guidance and DPS versus earnings/FCF.
• Order intake/backlog or pipeline indicators for revenue visibility.

Relative Positioning: Financially conservative with ample liquidity versus many small-cap peers; however, profitability quality appears more mixed given slight operating margin compression and reliance on non-operating items this quarter. Clearer cash flow support and improved operating leverage would strengthen the relative case.

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