KIDS STAR Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥885M
• Operating Income: ¥221M
• Net Income: ¥142M
• EPS: ¥55.47

Income Statement

Balance Sheet

Profitability Ratios

Share Information

Dividend 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, high-margin quarter with conservative balance sheet strength, but limited cash flow disclosures constrain earnings quality assessment. Revenue reached 8.85 (100M JPY), generating gross profit of 5.51 and operating income of 2.21, translating to healthy gross and operating margins of 62.2% and roughly 25.0%, respectively. Ordinary income was 2.22 and net income was 1.41, implying a net margin of 15.9% and EPS of 55.47 JPY (diluted: 54.41 JPY). Non-operating items were small and benign, with 0.05 income (largely 0.04 interest income) and 0.04 expenses, indicating minimal reliance on financial income. The cost structure appears disciplined: SG&A of 3.29 equals 37.2% of sales, leaving substantial operating profitability. Liquidity is a standout positive: cash and deposits of 23.69 cover current liabilities of 4.99 almost 5x, yielding a current and quick ratio of 491%. The capital structure is conservative with total liabilities of 5.01 against equity of 23.25 (D/E ≈ 0.22x), and interest-bearing debt is unreported, suggesting low financial risk. Asset efficiency is modest (asset turnover 0.313), reflecting a cash-heavy balance sheet and a business not highly asset-turnover intensive. DuPont ROE is 6.1%, driven primarily by strong net margin, partially offset by low asset turnover and low leverage. We cannot quantify YoY or QoQ margin expansion/compression in basis points due to unreported prior-period comparatives. Earnings quality cannot be validated because operating cash flow was unreported (OCF/NI N/A), a key limitation. The effective tax rate is 35.9%, which appears normal for JGAAP domestic filers and not a source of unusual volatility. Intangible assets of 3.06 are meaningful relative to total assets (about 10.8%), implying potential future amortization/impairment sensitivity. Reported ROIC of -321.9% is almost certainly a calculation artifact given positive operating income and a cash-rich balance sheet; we do not treat it as economically meaningful. Forward-looking, the firm enters the next quarter with ample liquidity and room to invest, but sustainability of margins and cash conversion should be verified when cash flows are disclosed. In sum, the quarter shows attractive profitability and very strong liquidity with low leverage, but the absence of cash flow and dividend data remains the key analytical gap.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.1% = Net Profit Margin (15.9%) × Asset Turnover (0.313) × Financial Leverage (1.22x). The largest driver is the high net margin; asset turnover is low and leverage is modest, dampening overall ROE. Business reason: strong gross margin (62.2%) and controlled SG&A (37.2% of revenue) produce a c.25% operating margin and a 15.9% bottom-line margin; low turnover reflects a cash-heavy asset base and modest receivables. Sustainability: gross margin durability depends on pricing power and mix; SG&A discipline seems stable, but without R&D/DA detail the cost base flexibility is hard to gauge. Non-operating swings appear minimal this quarter, supporting quality of operating profit. Watch for negative trends such as SG&A growth outpacing revenue; with no YoY data, we cannot confirm operating leverage direction. Overall, margin strength is the current ROE anchor; improvements in asset efficiency (deploying cash) or modest leverage could lift ROE if risk appetite allows.

Growth Assessment

Revenue and profit sustainability cannot be benchmarked YoY or QoQ due to missing comparative disclosures. The profit mix is primarily operating-driven; ordinary income marginally exceeds operating income due to small net non-operating gains (interest income), suggesting recurring core earnings quality. High gross margin indicates favorable unit economics; the c.25% operating margin suggests room to invest while remaining profitable. However, the absence of depreciation, amortization, and R&D disclosure limits visibility on reinvestment intensity and scalability. Intangible assets of 3.06 imply capitalized development or acquired intangibles that could affect future growth through amortization or impairment. Outlook hinges on maintaining pricing/mix and efficient SG&A while deploying excess cash into growth opportunities. Key uncertainty: lack of OCF/FCF data to validate that growth is cash-generative.

Financial Health

Liquidity is very strong: current assets 24.49 versus current liabilities 4.99 (current ratio 4.91x; quick ratio 4.91x). There is no warning on current ratio (<1.0) or leverage; D/E at ~0.22x is conservative. Cash and deposits of 23.69 cover total liabilities 4.99 multiple times, minimizing near-term refinancing risk. Maturity mismatch risk appears low given the heavy cash position relative to current liabilities. Interest-bearing debt is unreported; given the low D/E and positive interest income, funding appears equity- and cash-based rather than debt-reliant. Noncurrent liabilities are de minimis (0.02), implying limited long-dated obligations. No off-balance sheet obligations are disclosed in the provided data set; absence of disclosure does not rule out leases/commitments.

Cash Flow Quality

Operating cash flow is unreported; thus, OCF/Net Income and FCF cannot be calculated, preventing a quality check against earnings. In the absence of OCF, we cannot determine working capital tailwinds/headwinds or cash conversion cycle trends. The small receivables balance (0.47) versus revenue scale suggests limited collection exposure, but timing effects remain unknown. With cash at 23.69 and no known debt service, liquidity cushions near-term cash flow uncertainty. Until OCF is disclosed, we cannot assess sustainability of funding dividends/capex from internal cash generation or identify potential working capital management (e.g., payables stretch) risks.

Dividend Sustainability

Dividend data (DPS, total dividends, payout ratio) are unreported, so we cannot evaluate current distributions. From a capacity perspective, the company holds significant cash and no visible debt service burden, which would normally support dividend flexibility. However, without OCF/FCF, we cannot confirm that dividends (if any) are covered by free cash flow rather than balance sheet drawdown. Policy stance is unknown; monitor future disclosures for payout ratio and FCF coverage.

Risk Assessment

Business Risks:

• Margin sustainability risk if pricing power or mix weakens, given heavy reliance on high gross margins.
• Intangible asset amortization/impairment risk (intangible assets 3.06), which could pressure operating profits.
• Scale risk: small revenue base (8.85) may imply customer concentration or volatility (not disclosed).
• Execution risk around deploying a large cash balance into value-accretive growth.

Financial Risks:

• Cash flow opacity: OCF/FCF unreported, preventing validation of earnings quality.
• Interest rate risk on cash holdings influencing non-operating income.
• Potential undisclosed lease or other off-balance sheet commitments.

Key Concerns:

• Data limitation on cash flows and dividends constrains assessment of sustainability.
• Low asset turnover (0.313) depresses ROE despite strong margins.
• Reported ROIC of -321.9% appears non-economic/technical; metric unreliability could mislead stakeholders if not contextualized.

Investment Implications

Key Takeaways:

• High-margin quarter: gross margin 62.2%, operating margin ~25.0%, net margin 15.9%.
• ROE 6.1% primarily margin-driven; low asset turnover and low leverage cap returns.
• Balance sheet is very conservative: cash 23.69, current ratio 4.91x, D/E ~0.22x.
• Earnings quality cannot be verified without OCF; dividend capacity/policy unreported.
• Intangible asset load (3.06) introduces amortization/impairment sensitivity.

Metrics to Watch:

• Operating cash flow and OCF/NI ratio (target >1.0).
• Free cash flow after any growth capex and dividend coverage.
• Gross and operating margin trajectory (bps changes) once comparatives are available.
• Asset turnover improvement via cash deployment or revenue growth.
• Any disclosure on interest-bearing debt and lease liabilities.
• Amortization of intangibles and impairment testing outcomes.
• Tax rate stability versus 35.9% effective rate.

Relative Positioning: Within small-cap peers, the company screens favorably on liquidity and operating margins but lags on capital efficiency due to low asset turnover; overall leverage is conservative, and visibility on cash generation is weaker than best-in-class peers due to missing cash flow disclosure.

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