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

For FY2025 Q3 (JGAAP, consolidated) of Digital Holdings (2389), reported operating income was 695 million yen, down 56.7% YoY, while net income rose 2.1% YoY to 1,829 million yen, indicating substantial below-the-line support. Ordinary income of 3,397 million yen far exceeded operating income, implying large non-operating gains (e.g., investment/affiliate income, valuation gains, or FX), which materially cushioned the P&L. Revenue is not disclosed in the dataset; however, the combination of cost of sales (3,965 million yen) and gross profit (8,590 million yen) implies an approximate revenue of 12.56 billion yen for the period, though this is an inference and not an official figure. On that basis, the implied gross margin would be high, suggesting a services mix and/or net revenue recognition typical for digital marketing and platform businesses. EBITDA was 863 million yen (operating income 695 million + D&A 168 million), highlighting modest non-cash charges and relatively light asset intensity. Interest expense was only 9 million yen, delivering strong interest coverage of 77.2x, underscoring limited financial risk from borrowing costs. The tax line shows a benefit (income tax: -38 million yen), further supporting bottom-line resilience in the quarter. The balance sheet is solid with total assets of 45.472 billion yen and total equity of 30.305 billion yen, implying an equity ratio of roughly 66.7% (computed), despite the disclosure placeholder showing 0.0%. Liquidity appears robust: current assets of 37.016 billion yen vs current liabilities of 10.322 billion yen translate to a current ratio of about 359%, with minimal inventories (12 million yen), supporting a high quick ratio. Operating cash flow was strong at 4.121 billion yen, approximately 2.25x net income, signaling high earnings quality and favorable working capital dynamics. Investing cash flow and cash balance were not disclosed (shown as 0), limiting visibility on capex and investment activity; financing cash flow was an outflow of 3.787 billion yen, likely reflecting debt reduction and/or shareholder returns other than cash dividends. Dividends are not reported (DPS 0, payout 0%), pointing to retained earnings or alternative capital allocation priorities this period. The DuPont ROE components are largely uncomputable due to revenue and average equity data gaps; however, leverage is modest at about 1.50x assets/equity, and profitability depends heavily on non-operating items this quarter. Overall, the company exhibits strong liquidity, low interest burden, and healthy operating cash generation, but operating profitability softness and reliance on non-operating income temper the quality of earnings. Key data limitations include undisclosed revenue, cash, investing cash flows, and share data, which constrain precision in ratio analysis and capital allocation assessment.

Profitability Analysis

Operating income of 695 million yen declined 56.7% YoY, indicating pressure at the core business level and/or elevated operating expenses. Ordinary income of 3,397 million yen vs operating income of 695 million yen implies approximately 2.7 billion yen of net non-operating gains, a significant driver of profit quality this quarter. Net income increased 2.1% YoY to 1,829 million yen due to the non-operating uplift and a small tax benefit (-38 million yen). EBITDA came in at 863 million yen, indicating modest D&A of 168 million yen; asset intensity is low. Gross profit was 8,590 million yen against cost of sales of 3,965 million yen; with revenue not disclosed, the implied revenue is about 12.56 billion yen, suggesting a high gross margin consistent with net revenue recognition and service-heavy mix. DuPont: with missing revenue and average equity, we cannot compute net margin or asset turnover reliably; financial leverage is approximately 1.50x (assets/equity). Given the large non-operating contribution, the underlying operating margin appears compressed, lowering the quality of earnings relative to ordinary/net income. Operating leverage appears unfavorable in the period, as a sharp YoY decline in operating income suggests either flat-to-soft gross profit or elevated SG&A relative to activity levels. Interest burden is negligible (interest expense 9 million yen), yielding a high coverage ratio of 77.2x, supportive of profitability resilience to rate changes.

Growth Assessment

Top-line growth cannot be assessed from disclosed figures as revenue is not reported; implied revenue from gross profit plus cost of sales is approximately 12.56 billion yen for the period, but should be treated cautiously. Operating income fell sharply (-56.7% YoY), indicating either weaker demand in core digital marketing, mix shift toward lower-margin activities, or higher operating investments (e.g., personnel, product development). Net income rose 2.1% YoY due to non-operating gains and tax benefits, not from operating improvement; hence profit growth quality is mixed. Ordinary income strength suggests ongoing monetization or valuation gains from investments/affiliates, which can be volatile. Sustainability depends on restoring operating momentum and reducing reliance on non-operating items. Near-term outlook hinges on client ad spending trends, platform policies, and the performance of investment portfolios and equity-method holdings. If OCF strength (4.121 billion yen) reflects durable working capital efficiency rather than one-offs, it could support continued reinvestment and stability despite operating softness.

Financial Health

Total assets are 45.472 billion yen, liabilities 15.150 billion yen, and equity 30.305 billion yen, implying an equity ratio of ~66.7% and financial leverage of ~1.50x (assets/equity), both conservative for the sector. Current assets of 37.016 billion yen vs current liabilities of 10.322 billion yen yield a current ratio of ~359%, with inventories negligible (12 million yen), indicating strong liquidity and low working capital risk. Interest expense is only 9 million yen, and interest coverage is 77.2x, suggesting minimal solvency risk from debt service. Debt-to-equity is shown as 0.50x in the dataset; absent detail on interest-bearing debt, we treat this as an overall leverage proxy rather than true net debt metrics. Financing cash outflow of 3.787 billion yen implies active liability management and/or shareholder returns (buybacks or dividends not disclosed), which the balance sheet appears capable of absorbing. Overall solvency and liquidity are strong, though missing cash balance disclosure limits precision on immediate liquidity buffers.

Cash Flow Quality

Operating cash flow was 4.121 billion yen versus net income of 1.829 billion yen (OCF/NI ~2.25x), indicating strong cash conversion and supportive earnings quality in the period. D&A is modest (168 million yen), consistent with low capital intensity; however, investing cash flows are not disclosed, so true maintenance and growth capex cannot be assessed, and free cash flow (FCF) cannot be reliably calculated (dataset placeholder shows 0). Working capital appears favorable given the large gap between current assets and liabilities; the strong OCF likely reflects collection efficiency and limited inventory needs (inventories only 12 million yen). Without investing CF, we cannot parse the split between operating improvements and one-off working capital releases. Financing CF outflow of 3.787 billion yen suggests capacity to fund obligations and potential shareholder returns from internally generated cash. Overall, cash flow quality is good on an operating basis but incomplete due to undisclosed investing activity and cash balance.

Dividend Sustainability

Dividends per share and payout are not disclosed (both shown as 0, indicating no data rather than actual zero), so explicit sustainability cannot be measured this quarter. From a capacity standpoint, the combination of strong OCF (4.121 billion yen), light interest burden (9 million yen), and robust equity base suggests headroom for distributions, subject to investment needs. However, missing investing CF and cash balance data prevent confirmation of free cash flow coverage. The reliance on non-operating gains for ordinary/net income this quarter may argue for a conservative payout stance until operating profitability normalizes. Policy outlook likely prioritizes reinvestment and balance sheet strength, with potential for opportunistic buybacks or variable dividends tied to investment realizations if that is consistent with past practice.

Risk Assessment

Business Risks:

• Cyclicality in digital advertising and client marketing budgets
• Platform dependency (search/social/media policy changes affecting campaign performance and fees)
• Execution risk in new service lines and incubated businesses
• Competition and pricing pressure in digital marketing/services
• Concentration risk in large clients or channels
• Human capital retention and wage inflation impacting SG&A

Financial Risks:

• Earnings dependence on non-operating gains and investment income, which can be volatile
• Potential mark-to-market swings on investment securities and equity-method holdings
• Limited visibility on investing cash flows and capex due to undisclosed data
• Possible goodwill/intangible impairment risk under JGAAP if operating performance weakens
• Interest rate risk is low currently but could rise if leverage increases from future investments

Key Concerns:

• Sharp YoY decline in operating income (-56.7%) despite stable bottom line
• Ordinary income significantly exceeding operating income, indicating lower-quality earnings mix
• Missing disclosures for revenue, investing CF, cash, and share data limit analytical precision

Investment Implications

Key Takeaways:

• Core operating profitability is under pressure, with operating income down 56.7% YoY
• Net income resilience (+2.1% YoY) is driven by non-operating gains and a small tax benefit
• Balance sheet strength is notable with an implied equity ratio of ~66.7% and current ratio ~359%
• Operating cash flow is strong at 4.121 billion yen (OCF/NI ~2.25x), supporting funding flexibility
• Interest burden is minimal (coverage 77.2x), reducing solvency risk
• Data gaps (revenue, investing CF, cash, DPS) constrain full assessment of margins and capital allocation

Metrics to Watch:

• Trend in operating income and SG&A efficiency to gauge recovery in core profitability
• Composition of non-operating income (securities gains, equity-method income, FX) and its volatility
• Working capital drivers within OCF to confirm sustainability of cash conversion
• Investing cash flows and capex to determine true free cash flow and reinvestment needs
• Client demand indicators and gross profit trajectory for underlying revenue health
• Equity ratio, net cash position, and any changes in interest-bearing debt

Relative Positioning: Within Japan’s digital marketing and platform services peers, the company shows stronger-than-average liquidity and conservative leverage, but weaker near-term operating profitability and higher reliance on non-operating income to sustain net earnings.

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