WORLD HOLDINGS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥200.60B
• Operating Income: ¥7.57B
• Net Income: ¥2.13B
• EPS: ¥247.16

Income Statement

Balance Sheet

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: A strong FY2025 Q3 with clear operating leverage and sharply higher earnings, tempered by low ROIC and elevated leverage. Revenue rose 16.9% YoY to 2,006.0, while operating income surged 72.4% YoY to 75.68, evidencing solid cost discipline and mix improvement. Ordinary income increased 75.7% YoY to 75.44, and net income rose 125.8% YoY to 44.22, with EPS at 247.16 yen. Operating margin expanded to roughly 3.8% (75.68/2,006), up about 121 bps from an estimated 2.6% last year. Gross margin stands at 13.1%, though classification differences mean the reported cost of sales and gross profit lines do not reconcile arithmetically to operating income; interpret gross margin with caution. The DuPont ROE is 8.7%, driven by modest net margin (2.2%), decent asset turnover (1.146x), and high financial leverage (3.42x). Interest coverage is strong at 22.46x, reflecting manageable financing cost despite the leverage. Liquidity is healthy (current ratio 181.5%, quick ratio 180.1%), supported by cash and deposits of 367.64 and accounts receivable of 272.08. However, capital efficiency remains a concern: ROIC is 3.7%, below the 5% warning threshold. The effective tax rate is high at 50.2%, which, along with below-the-line items, appears to distort the linkage between profit-before-tax and net income; this suggests tax adjustments or extraordinary items. Non-operating income is modest at 3.98 against non-operating expenses of 4.96, implying performance is largely driven by the core business. Debt concentration in short-term loans (493.0) elevates refinancing/maturity risk even as overall liquidity is sound. Dividend affordability looks reasonable with a calculated payout ratio of 34.3%, but OCF and FCF are unreported, limiting coverage analysis. Forward-looking, continued revenue growth with cost control could sustain mid-single-digit operating margins, but improving ROIC above the cost of capital and gradually de-risking the balance sheet should be priorities. Key watch items are working capital dynamics, interest rate sensitivity given high short-term debt, and the sustainability of operating margin gains.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.7% = Net Profit Margin (2.2%) × Asset Turnover (1.146x) × Financial Leverage (3.42x). The largest delta YoY appears in profitability: operating income grew 72.4% vs revenue at 16.9%, pushing operating margin up about 121 bps, which in turn lifted net margin. Asset turnover at 1.146x is reasonable for a diversified human resources/solutions model and likely stable; leverage at 3.42x remains elevated but roughly in line with the reported balance sheet (assets 1,750.59 vs equity 511.16). Business drivers: revenue growth and improved operating efficiency (SG&A discipline relative to topline) explain most of the ROE uplift, while financing structure is unchanged as a contributor. Sustainability: revenue momentum plus incremental scale benefits could keep operating margin in the high-3% range, but the low ROIC (3.7%) signals that returns on new capital remain constrained; sustaining the current ROE depends on maintaining leverage and efficiency gains. Concerning trends to flag: leverage is high (D/E 2.42x), and a high effective tax rate (50.2%) could dampen net margin if it persists. SG&A rose, but given OP growth outpaced revenue, operating leverage is positive; however, lack of SG&A breakdown limits deeper cost diagnostics.

Growth Assessment

Topline growth of 16.9% indicates healthy demand across core businesses. Operating income grew 72.4%, demonstrating meaningful operating leverage and improved mix or utilization. Ordinary income (+75.7%) corroborates core P/L strength, with limited help from non-operating items (non-op income 3.98 vs non-op expenses 4.96). Net income growth (+125.8%) exceeded operating gains, likely reflecting below-the-line factors; the high effective tax rate and the PBT/NI presentation suggest classification/timing effects under JGAAP. Revenue sustainability appears reasonable near term, supported by scale benefits; however, the low ROIC (3.7%) suggests growth may be capital-intensive or burdened by working capital, requiring continued discipline to translate growth into value creation. Outlook: expect mid-teens revenue growth to normalize, with operating margin sustaining closer to 3.5–4.0% if cost control holds; upside depends on mix improvement and productivity, downside from wage inflation and pricing pressure.

Financial Health

Liquidity is solid: current ratio 181.5% and quick ratio 180.1% exceed healthy thresholds. No warning on current ratio (<1.0) is needed. Solvency is the weak point: D/E 2.42x triggers a high leverage warning (>2.0). Interest coverage is strong at 22.46x (OP 75.68 / interest expense 3.37), suggesting manageable servicing capacity today. Maturity profile shows concentration in short-term loans (493.0) versus cash (367.64) and receivables (272.08); while current assets (1,406.12) cover current liabilities (774.92), the reliance on short-term funding elevates refinancing risk. Noncurrent liabilities are sizable (464.50) with long-term loans at 386.17, indicating a mixed maturity stack. Off-balance sheet obligations are unreported; no guarantees/commitments disclosed here. Equity totals 511.16, with retained earnings of 433.07 underpinning capital, but leverage remains elevated relative to peers with similar business risk.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed directly. As such, we cannot apply the OCF/NI < 0.8 quality flag. Working capital composition (high receivables relative to payables and low inventories) is typical for staffing/solutions businesses; however, the scale of short-term borrowings suggests OCF may be used to bridge timing of receivable collections. Without OCF and capex disclosure, dividend and capex coverage by internally generated cash cannot be validated. No clear signs of working capital manipulation can be inferred from the limited data; monitoring days sales outstanding and changes in short-term debt would be prudent once cash flow statements are available.

Dividend Sustainability

The calculated payout ratio is 34.3%, within a conservative range (<60%), implying affordability from earnings. However, FCF coverage is unreported, so we cannot confirm cash coverage of dividends. With leverage elevated (D/E 2.42x) and ROIC at 3.7%, management may prioritize deleveraging or selective reinvestment; a stable-to-modest dividend trajectory appears plausible provided operating momentum continues and OCF remains healthy. Absent explicit DPS/FCF data, our view relies on earnings capacity rather than cash metrics; confirmation awaits full cash flow disclosures.

Risk Assessment

Business Risks:

• Demand cyclicality in staffing/HR and solution businesses impacting utilization and pricing
• Wage inflation and labor availability pressures compressing gross margins
• Client concentration or contract repricing risk affecting revenue visibility
• Execution risk in integrating businesses with goodwill/intangibles (goodwill 73.15; intangibles 76.30)

Financial Risks:

• High leverage (D/E 2.42x) and reliance on short-term loans (493.0) increase refinancing and interest rate risk
• Low ROIC (3.7%) below the 5% warning threshold implies weak capital efficiency
• High effective tax rate (50.2%) depresses after-tax earnings and may be volatile
• Potential mismatch between PBT and NI driven by below-the-line items could add earnings volatility

Key Concerns:

• Sustaining operating margin gains amid cost inflation
• Cash flow opacity (OCF/FCF unreported) obscures dividend and debt service coverage
• Balance sheet concentration in receivables necessitates strong collection discipline
• Possible classification differences in reported gross profit and PBT/NI complicate margin analysis

Investment Implications

Key Takeaways:

• Strong operating leverage: OP +72.4% on revenue +16.9%, with operating margin up ~121 bps to ~3.8%
• ROE at 8.7% is acceptable but underpinned by high leverage (3.42x assets/equity)
• ROIC at 3.7% signals the need to improve capital efficiency for sustainable value creation
• Liquidity is ample, but short-term debt concentration heightens refinancing sensitivity
• Earnings quality cannot be confirmed due to missing OCF/FCF; monitor cash conversion

Metrics to Watch:

• OCF/Net Income and FCF once disclosed
• Operating margin trajectory and SG&A intensity
• DSO/receivables turns and changes in short-term borrowings
• ROIC improvement relative to WACC
• Effective tax rate normalization and below-the-line items

Relative Positioning: Operational momentum is solid versus domestic HR/solutions peers on near-term growth and coverage metrics (interest coverage strong), but leverage is higher and ROIC lower than best-in-class, placing the company in a mid-tier efficiency position with above-average balance sheet risk.

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