KYODO PUBLIC RELATIONS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.01B
• Operating Income: ¥957M
• Net Income: ¥471M
• EPS: ¥61.80

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 solid Q3 with double-digit top-line growth and margin expansion translating into a sharp rebound in bottom-line profitability. Revenue rose 13.8% YoY to 60.10, while operating income increased 15.9% YoY to 9.57 and ordinary income rose 15.5% to 9.54. Net income surged 39.8% YoY to 5.38, implying meaningful operating leverage and improved net profitability. Operating margin is approximately 15.9% (9.57/60.10), up modestly YoY given operating profit outpaced revenue. We estimate operating margin expanded by about 28 bps YoY (from roughly 15.6% to 15.9%), and net margin expanded by about 166 bps YoY to 8.9%. Gross margin is reported at 40.3%, indicating healthy value-add in service delivery, though the gross profit figure does not reconcile with revenue less cost of sales; we rely on the reported margin. The non-operating result was neutral (0.09 income offset by 0.09 expense), and the swing in earnings was principally operational. Profit before tax of 7.78 is below ordinary income, suggesting approximately 1.8 in extraordinary losses; this, along with a high effective tax rate of 39.4%, tempered the flow-through to net income. Liquidity is very strong with a current ratio of 370% and a sizable net cash position (cash and deposits 33.05 vs total debt 2.31). Leverage remains low (D/E 0.36x provided; interest coverage of 215x), supporting resilience. ROE improved to a calculated 12.5%, driven by higher net margin and modest asset turnover of 1.02x with conservative leverage of 1.36x. Comprehensive income exceeded net income by 0.90, indicating positive OCI contributions. Earnings quality cannot be fully assessed due to unreported cash flow figures; OCF/NI and FCF are N/A. Dividend payout appears conservative at 19.7%, likely sustainable given cash levels, though FCF coverage is unreported. Forward-looking, sustained client demand and operating discipline position the company for continued profit growth, but extraordinary losses and the elevated tax rate merit monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 12.5% = Net Profit Margin 8.9% × Asset Turnover 1.023 × Financial Leverage 1.36x. The most significant YoY improvement appears in net profit margin (net income +39.8% vs revenue +13.8%), implying better operating leverage and possibly improved pricing/mix. Operating margin expanded modestly (~28 bps by our estimate), while non-operating effects were neutral and extraordinary losses reduced PBT, partially offset by stronger operating performance. The business driver is likely revenue scale benefits and controlled SG&A relative to sales; operating income growth outpaced revenue, indicating cost discipline and/or higher utilization. Sustainability: operating margin gains from scale look repeatable if demand holds; however, the extraordinary loss this quarter (implied ~1.8) is likely one-time but should be confirmed. Watch for SG&A growth relative to revenue; the reported SG&A level implies an SG&A ratio around 26–27% of revenue, but some line items are unreported and gross profit does not reconcile with cost of sales, so margin mix may shift with further disclosures.

Growth Assessment

Top-line growth of 13.8% YoY signals strong client activity and potentially increased project volume or pricing gains in PR/communications services. Operating income growth of 15.9% suggests positive operating leverage, with margin improvement confirming scale benefits. Net income growth of 39.8% outpaced both revenue and operating income, reflecting better net margin despite a high effective tax rate and the presence of extraordinary losses. The non-operating line was effectively flat, so growth quality is primarily operational rather than financial income-driven. Order momentum, client spend trends, and retention will determine sustainability; current metrics imply resilient demand. Given the cash-rich balance sheet and low leverage, the company is positioned to invest in capacity or M&A if needed. However, the implied extraordinary losses and elevated tax rate could introduce volatility to quarterly bottom-line growth. Overall outlook is constructive if revenue growth persists and one-off losses normalize.

Financial Health

Liquidity is very strong: current ratio 370.3% and quick ratio 370.3%, with working capital of 35.04. Cash and deposits of 33.05 far exceed short-term loans of 0.50 and total debt of 2.31, minimizing refinancing risk. Solvency is conservative: reported D/E of 0.36x and interest coverage of 215x indicate ample capacity to service debt. No explicit red flags: Current Ratio well above 1.0 and D/E far below 2.0. Maturity mismatch risk appears low as current assets (48.00) comfortably exceed current liabilities (12.96). No off-balance sheet obligations were reported; absence of disclosure limits a comprehensive view, but nothing material is indicated in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not reported, so we cannot calculate OCF/Net Income or FCF coverage. As such, we cannot fully assess earnings-to-cash conversion this quarter. The strong net cash position provides a buffer, but confirmation via OCF would be ideal. Working capital appears manageable given cash and receivables; no clear signs of working capital manipulation can be inferred without cash flow and detailed WC disclosures. Until OCF is disclosed, treat earnings quality as unverified but supported by conservative leverage and liquidity.

Dividend Sustainability

The calculated payout ratio is 19.7%, indicating a conservative distribution relative to earnings. FCF coverage is unreported; however, cash on hand (33.05) and low debt levels suggest high capacity to sustain ordinary dividends under current conditions. With profitability improving and limited interest burden, dividend continuity appears supported absent a sharp downturn. Policy visibility is limited due to missing dividend flow data (DPS by quarter and total dividends paid not disclosed) and missing OCF/FCF.

Risk Assessment

Business Risks:

• Cyclicality of client marketing/PR budgets affecting project volumes and pricing
• Execution risk on scaling staff/utilization to meet demand without eroding margins
• Potential client concentration (not disclosed) typical in agency businesses
• Talent retention and wage inflation pressures impacting SG&A

Financial Risks:

• Extraordinary losses (~1.8 implied) introducing earnings volatility
• High effective tax rate (39.4%) dampening net income conversion
• Data gaps on cash flows limit visibility into earnings quality
• Small absolute scale increases sensitivity to individual large projects

Key Concerns:

• Non-reconciling gross profit vs cost of sales figures; reliance on reported margins
• Unreported OCF and FCF prevent assessment of cash conversion and dividend coverage
• Lack of SG&A breakdown obscures cost drivers and operating leverage sources
• Potential persistence of special losses if related to restructuring or impairments

Investment Implications

Key Takeaways:

• Strong Q3 with 13.8% revenue growth and operating margin around 15.9%
• Net margin expanded to 8.9%, driving ROE to 12.5%
• Liquidity and leverage are very conservative, providing resilience
• Extraordinary losses and a high tax rate constrained PBT and NI; monitor normalization
• Earnings quality appears operationally driven but is unverified due to missing cash flow data

Metrics to Watch:

• Operating cash flow and OCF/Net Income ratio (target >1.0)
• Details and recurrence of extraordinary gains/losses
• Effective tax rate trajectory and drivers
• Order pipeline/client spend indicators and utilization
• SG&A growth vs revenue and headcount/productivity metrics

Relative Positioning: Within domestic PR/communications peers, the company exhibits stronger-than-typical liquidity (net cash) and healthy mid-teens operating margins, positioning it favorably on balance sheet strength and profitability, while data transparency on cash flows and the appearance of extraordinary losses present areas to clarify versus best-in-class peers.

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