DIGITAL HOLDINGS,INC. FY2025 Q3 Earnings Report

Financial Highlights

• Operating Income: ¥695M
• Net Income: ¥2.80B
• EPS: ¥104.53

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: Mixed quarter—core operations weakened sharply, but ordinary and bottom-line profits held up thanks to sizable non-operating gains and robust cash generation. Operating income fell to 6.95 (−56.7% YoY), signaling material pressure in core profitability despite gross profit of 85.90 and low depreciation of 1.68. Ordinary income rose to 33.97 (+22.5% YoY), highlighting heavy reliance on non-operating income of 11.76 this quarter and additional items not fully disclosed in the breakdown. Net income increased modestly to 18.29 (+2.1% YoY) aided by a small tax benefit (effective tax rate −1.4%). Comprehensive income swung to a loss of −14.13, implying significant unrealized valuation losses (likely on securities) offsetting the positive net income. Operating cash flow was strong at 41.21 (OCF/NI 2.25x), indicating high earnings quality and healthy cash conversion. The balance sheet is conservative: cash and deposits are 258.61, current assets 380.82 vs current liabilities 103.83 (current ratio 367%), and debt is modest (long-term loans 40.00; D/E 0.50x). Interest coverage is very strong at 77.2x, reflecting limited interest burden relative to EBITDA of 8.63. While revenue is unreported, the business continues to generate ample cash with minimal capex (0.03), supporting financial flexibility. Non-operating income represents a large share of earnings contribution this quarter (non-operating income ratio 64.3%), elevating volatility risk if market-driven gains normalize or reverse. ROIC is reported at 8.1%, at or slightly above typical management targets, but sustainability hinges on stabilizing core operating profit. Margin comparison in basis points cannot be fully quantified due to unreported revenue and lack of prior-period detail; on a gross-profit base, operating margin approximates 8.1% (OI/GP). The gap between ordinary income (33.97) and the sum of operating income plus reported non-operating items indicates additional non-operating or extraordinary components not itemized, complicating quality assessment. The negative total comprehensive income underscores mark-to-market headwinds that do not hit net income but reduce equity. Forward-looking, the company’s strong liquidity and cash generation provide a buffer for execution, but restoring core operating momentum is essential to reduce dependence on volatile non-operating gains and to support dividend sustainability (calculated payout ratio 63.8%).

Profitability Analysis

ROE decomposition (conceptual due to missing revenue and average equity): ROE = Net Profit Margin × Asset Turnover × Financial Leverage. Net Profit Margin: not calculable given unreported revenue; however, the NI of 18.29 and strong OCF indicate reasonable cash conversion despite margin pressure. Asset Turnover: not calculable (revenue unreported). Financial Leverage: 1.50x (Assets/Equity = 454.72/303.05), a modest leverage profile. Component that changed most: operating profitability deteriorated materially (Operating Income −56.7% YoY), while ordinary income improved due to higher non-operating gains; thus, the margin component (core) is the primary negative swing. Business reason: heavier contribution from non-operating income (11.76) and other non-operating/extraordinary items supported ordinary income despite core weakness; comprehensive loss suggests securities valuation swings. Sustainability: non-operating income is inherently volatile; unless core operating margins recover, the current profit mix is not sustainably repeatable. Concerning trends: core operating deleverage is evident—SG&A detail is unreported, but the deep OI decline against steady gross profit suggests operating expense growth or gross profit contraction not offset by cost control; reliance on non-operating income (64.3% ratio) heightens earnings volatility.

Growth Assessment

Revenue trajectory: not assessable (unreported). Profit growth: Ordinary income +22.5% YoY and net income +2.1% YoY mask a sharp −56.7% YoY decline in operating income, indicating non-operating items are driving headline growth. Quality of growth: low-to-mixed—core earnings momentum is weak; OCF strength (41.21) suggests collections and working capital helped, but sustainability depends on stabilizing core operations. Outlook drivers: normalization of market gains (investment securities), managing comprehensive loss drivers, and rebuilding operating margin. Efficiency: low capex intensity (0.03) supports cash generation even under slower growth. ROIC: 8.1% is at target; maintaining >8% will require improved core returns absent further market-driven gains.

Financial Health

Liquidity: very strong—current ratio 366.8%, quick ratio 366.8%, working capital 276.99. Solvency: conservative—Debt-to-Equity 0.50x; long-term loans 40.00 vs cash 258.61 indicate net cash. Interest coverage 77.22x is robust. No warnings for Current Ratio <1.0 or D/E >2.0. Maturity mismatch: limited—short-term loans only 0.84 versus large current assets of 380.82; accounts payable 80.17 is well covered by cash and receivables. Off-balance sheet: not disclosed; no information on guarantees or leases beyond what’s reported. Equity impact: total comprehensive income negative (−14.13) reduces equity despite positive net income, highlighting valuation sensitivity of financial assets.

Cash Flow Quality

Earnings quality: high—OCF/NI 2.25x exceeds the >1.0 benchmark. Free cash flow: not fully disclosed, but OCF 41.21 minus minimal capex 0.03 implies strong implied FCF (~41.18) before financing and other investing flows. Coverage: implied FCF comfortably covers typical dividend needs (calculated payout ~63.8% of NI) and provides room for debt service and selective investment. Working capital: OCF strength likely aided by favorable receivables/payables dynamics; no signs of aggressive manipulation can be confirmed or ruled out due to limited disclosure. Sustainability: with low capex and high cash, FCF resiliency is good, but an overreliance on non-operating gains for earnings is a swing factor for future OCF if core profit does not recover.

Dividend Sustainability

Policy and payout: reported DPS is unreported; calculated payout ratio is 63.8%, slightly above the <60% benchmark. Cash coverage: OCF of 41.21 and substantial cash on hand (258.61) suggest near-term dividend capacity is solid even with modest profit volatility. FCF coverage: implied FCF (~41.18) would comfortably cover an estimated cash dividend burden if payout remains near current levels; however, sustainability medium-term depends on stabilizing core operating income. Risks: earnings mix skewed to non-operating income and comprehensive losses could pressure distributable reserves if valuation losses persist. Outlook: given balance sheet strength and cash generation, maintaining dividends appears manageable; increases would likely require evidence of core operating recovery.

Risk Assessment

Business Risks:

• Core operating income decline (−56.7% YoY) indicates margin and/or demand pressure in core businesses.
• Dependency on non-operating income (non-operating income ratio 64.3%) to support ordinary profit.
• Volatility in investment-related gains/losses affecting both P/L and OCI.
• Execution risk in cost control and operating leverage amid soft core profit.

Financial Risks:

• Valuation risk on investment securities (comprehensive income −14.13) can erode equity.
• Potential earnings volatility from negative effective tax rate normalization.
• Concentration of cash and financial assets elevates exposure to market conditions.

Key Concerns:

• Discrepancy between reported ordinary income (33.97) and the sum of operating and reported non-operating items suggests additional items not broken out, reducing transparency.
• Revenue and SG&A breakdowns unreported, limiting margin and cost structure visibility.
• Sustainability of ROIC at 8.1% hinges on recovery in core operations.

Investment Implications

Key Takeaways:

• Core profitability weakened sharply even as net profit held steady on non-operating contributions.
• Cash generation and balance sheet strength provide a cushion for execution and shareholder returns.
• Earnings mix is skewed to non-core items this quarter, raising volatility and visibility concerns.
• Negative comprehensive income points to market valuation headwinds that may persist if conditions remain adverse.

Metrics to Watch:

• Operating income trend and OI/GP margin recovery from 8.1% (OI/GP).
• Non-operating income breakdown (gains on securities, dividends, other) and its share of ordinary income.
• Comprehensive income trajectory versus net income (OCI sensitivity to markets).
• OCF versus NI and working-capital drivers (AR/AP cycles).
• ROIC progression relative to the 8% threshold.
• Dividend payout trajectory versus implied FCF coverage.

Relative Positioning: Financially conservative with strong liquidity and net cash, but relatively weaker in core operating momentum this quarter; visibility is lower due to high non-operating income reliance and negative OCI impact.

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