TEAR Corporation FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥21.56B
• Operating Income: ¥1.64B
• Net Income: ¥882M
• EPS: ¥39.62

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: Solid top-line growth with stable operating efficiency, strong cash conversion, but balance sheet remains leveraged with tight short-term liquidity. Revenue rose 14.5% YoY to 215.63, while operating income increased 14.3% to 16.43 and net income advanced 18.5% to 8.91. Gross margin printed at 37.8%, and operating margin was 7.6% (16.43/215.63). Operating margin was essentially flat YoY, compressing by about 1 bp versus the prior-year estimate (~7.63% to ~7.62%). Ordinary income margin improved to 7.3%, a roughly 71 bp expansion YoY as operating leverage and lower relative non-operating drag helped. Net margin improved to 4.1%, up about 14 bp YoY on tax normalization and scale effects. ROE calculated at 10.4% (NPM 4.1% × AT 0.774 × leverage 3.24x), indicating returns are supported by leverage more than by margin strength. Cash generation was a standout: operating cash flow of 23.77 was 2.67x net income, aided by 10.89 of depreciation, resulting in positive FCF of 5.96 after 12.88 of capex. Interest coverage of 9.23x underscores manageable debt service despite a high D/E ratio of 2.24x. Liquidity is a watchpoint with a current ratio of 0.99 and slight negative working capital (-0.59), though cash of 45.41 comfortably exceeds short-term loans of 2.92. Tax rate was elevated at 36.2%, modestly constraining net profitability. Reported ROIC of 7.1% is at the lower end of management targets typically seen in service businesses, implying modest value creation above likely WACC. Goodwill (54.62) and intangible assets (68.06) comprise a sizable portion of the balance sheet, introducing impairment sensitivity. Dividend affordability looks reasonable with a calculated payout ratio of 50.5% and FCF coverage of 1.32x, but sustained capex and leverage constrain headroom. Overall, the quarter signals steady operational execution with strong cash quality, but the capital structure and liquidity profile warrant ongoing monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 10.4% = Net Profit Margin 4.1% × Asset Turnover 0.774 × Financial Leverage 3.24x. The largest contributor to achieving a double-digit ROE is financial leverage (3.24x), while margins remain mid-single-digit and asset turnover is below 1x reflecting an asset-heavy model (funeral halls). Versus last year, operating margin was broadly flat (about -1 bp), while net margin improved ~14 bp, likely from scale benefits and slightly better non-operating balance despite a 1.78 interest burden. The business driver appears to be healthy revenue growth (+14.5% YoY) with disciplined cost control (SG&A 65.11) keeping operating margin stable and lifting ordinary income margin by ~71 bp. This improvement is partly sustainable as scale benefits can persist, but it remains sensitive to volume per hall and pricing; interest costs and an elevated tax rate temper gains. Watch for any sign of SG&A growth outpacing revenue in future periods; in this period, operating income growth (+14.3%) tracked revenue growth, indicating neutral operating leverage.

Growth Assessment

Top-line growth of 14.5% suggests higher funeral volumes, contribution from newly opened/renovated halls, or pricing/mix improvements. Operating income growth (+14.3%) kept pace with revenue, implying stable unit economics. Ordinary income rose faster (+26.8%) due to operating scale and a smaller relative non-operating drag. Net income outpaced revenue (+18.5%) on improved operating scale and despite a 36.2% effective tax rate. EBITDA of 27.32 (12.7% margin) provides capacity for reinvestment, reflected in capex of 12.88. ROIC at 7.1% indicates modest value creation; improvement would require stronger same-store volumes, tighter SG&A, or better asset utilization. Non-operating income was modest (1.48) versus non-operating expenses (2.16), so future growth will rely mainly on core operations rather than financial gains. Outlook hinge-points: sustaining double-digit growth requires continued hall productivity, selective new openings, and maintaining price discipline amid cost inflation. With goodwill/intangibles significant, M&A-led growth remains a factor, but also raises integration and impairment risks.

Financial Health

Liquidity: Current ratio 0.99 and quick ratio 0.99 are below comfort thresholds; explicit warning as current ratio < 1.0. Working capital is slightly negative (-0.59), but cash of 45.41 more than covers short-term loans of 2.92, reducing near-term refinancing stress. Solvency: D/E 2.24x is high (warning threshold > 2.0); interest coverage of 9.23x and Debt/EBITDA of 3.88x partially mitigate risk. Capital structure: Long-term loans total 103.01, indicating reliance on term debt to fund an asset-heavy base; maturity profile not disclosed, so refinancing risk timing is unclear. Maturity mismatch risk: With current liabilities (61.06) slightly exceeding current assets (60.47), a tight liquidity buffer exists; ongoing strong OCF is important to bridge. Off-balance sheet obligations: Not disclosed; no data on leases/guarantees; note that funeral halls may have lease components under JGAAP that could be off-balance sheet. Equity base totals 86.03, with retained earnings of 52.05 supporting some absorption capacity.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income of 2.67x is well above the 0.8 threshold, supported by 10.89 of depreciation and likely favorable working capital. Free cash flow was positive at 5.96 after 12.88 of capex, leaving room for dividends and some deleveraging. No clear signs of working capital manipulation in the disclosed data; however, detailed AR/AP/inventory movements are unreported. Financing CF of -3.83 suggests modest net repayments or dividends; exact dividends and buybacks are unreported in CF detail. Sustainability: With EBITDA 27.32 and steady OCF, the company appears capable of funding maintenance capex and dividends; growth capex or acquisitions would likely require continued leverage or internally generated cash.

Dividend Sustainability

Calculated payout ratio is 50.5%, within the sustainable <60% benchmark. FCF coverage is 1.32x, indicating dividends are presently covered by free cash generation. Although DPS is unreported, implied total dividends are roughly 4.5 based on payout and FCF coverage triangulation. Balance sheet leverage (D/E 2.24x) and a current ratio of 0.99 constrain additional payout flexibility. Interest coverage remains strong at 9.23x, supporting ongoing distributions. Policy outlook: Expect a stable-to-modest growth dividend stance if OCF remains robust and capex stays disciplined; aggressive hikes would likely await deleveraging or higher ROIC.

Risk Assessment

Business Risks:

• Demand variability in funeral volumes per hall and regional competition impacting pricing and utilization
• Labor cost inflation pressuring SG&A and service margins
• Execution risk on new hall openings and M&A integration (given sizeable goodwill/intangibles)
• Potential changes in consumer preferences (direct cremation, lower-priced plans) compressing ARPU

Financial Risks:

• High leverage (D/E 2.24x) and tight liquidity (current ratio 0.99)
• Interest rate risk increasing finance costs on refinancing of 103.01 long-term loans
• Impairment risk due to high goodwill (54.62) and intangibles (68.06)
• Maturity mismatch with current liabilities slightly exceeding current assets

Key Concerns:

• Sustaining double-digit revenue growth while maintaining stable operating margins
• Maintaining OCF strength to cover dividends and capex amid tight liquidity
• Effective tax rate at 36.2% limiting net margin expansion
• Limited visibility on accounts receivable, inventory, and dividend cash outflows due to unreported line items

Investment Implications

Key Takeaways:

• Healthy top-line growth and stable operating margin drove ordinary and net margin expansion
• ROE at 10.4% is achieved largely through leverage; ROIC at 7.1% indicates modest value creation
• Cash flow quality is strong (OCF/NI 2.67x) with positive FCF after capex
• Balance sheet shows high leverage (D/E 2.24x) and sub-1.0 current ratio, warranting liquidity discipline
• Dividend appears covered (payout ~50%, FCF coverage 1.32x) but flexibility is limited by leverage and capex needs

Metrics to Watch:

• Same-hall funeral volumes and average revenue per service
• SG&A growth versus revenue growth and labor cost inflation
• ROIC progression versus a 7–8% target
• Net debt/EBITDA and interest coverage, especially on refinancing
• Current ratio trend and working capital movements
• Goodwill impairment indicators and hall-level profitability
• Effective tax rate normalization

Relative Positioning: Within domestic funeral service operators, the company exhibits above-peer revenue growth and solid cash conversion, but carries higher financial leverage and tighter liquidity than a conservative peer median; returns are acceptable (ROE ~10%) though driven by leverage rather than superior ROIC.

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