Oriental Consultants Holdings Company Limited FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥95.36B
• Operating Income: ¥5.62B
• Net Income: ¥1.07B
• EPS: ¥318.41

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: A solid FY2025 performance with double-digit top-line growth and stronger profitability, but cash flow quality deteriorated due to working capital outflows and a heavier short-term funding mix. Revenue rose 10.5% YoY to 953.65, supported by robust project execution and healthy demand in core engineering/consulting services. Operating income increased 20.5% YoY to 56.22, outpacing sales growth. Ordinary income climbed 43.6% YoY to 57.77, aided modestly by net non-operating gains (interest/dividends) while non-operating expenses remained contained. Net income surged 47.0% YoY to 38.19, with the effective tax rate at 30.3%. We estimate operating margin expanded by roughly 49 bps to 5.9% (from ~5.4% a year ago), reflecting better operating leverage. Net margin improved by ~99 bps to 4.0% (from ~3.0%), as stronger core profits translated to the bottom line. Gross margin printed at 22.1%; while YoY comparables are not disclosed, the OPM expansion implies at least stable gross profitability and disciplined SG&A. ROE was a healthy 13.3%, driven primarily by higher net margin and supported by asset turnover of 1.22 and financial leverage of 2.73x. ROIC of 10.5% exceeds typical 7–8% targets, indicating value-accretive operations above the cost of capital. Cash flow quality is a clear weak spot: operating cash flow was -17.13 against net income of 38.19 (OCF/NI -0.45x), pointing to significant working capital consumption. Free cash flow was -35.19, with investing cash outflows (-18.06) and share repurchases (-15.85) funded by net financing inflows (+32.93), increasing reliance on short-term debt (184.65). Liquidity is adequate with a current ratio of 129% and large receivables (419.62), but the short-term debt load introduces refinancing sensitivity. The equity ratio is roughly 36.7% (our calculation), and interest coverage is strong at 26x, mitigating immediate solvency concerns despite a D/E of 1.73x. Going forward, sustaining margin gains and normalizing working capital will be key to restoring positive FCF and supporting dividends/buybacks without leverage creep.

Profitability Analysis

DuPont decomposition (FY2025): ROE 13.3% = Net Profit Margin 4.0% × Asset Turnover 1.220 × Financial Leverage 2.73x. The biggest driver YoY appears to be the net profit margin, which rose from 3.0% to 4.0% (+99 bps), outpacing the estimated operating margin expansion of ~49 bps as non-operating items were modestly positive and taxes broadly stable. Asset turnover at 1.22 reflects efficient utilization of the asset base in a project-based consulting model; changes vs. last year are not disclosed but likely modest given similar scale effects. Financial leverage at 2.73x (consistent with D/E 1.73x) enhanced ROE, with a tilt toward short-term borrowings supporting working capital. Business drivers: stronger project mix and utilization likely lifted OPM, while controlled SG&A relative to revenue delivered operating leverage (SG&A at 154.55 vs revenue growth of 10.5%). Sustainability: the margin uplift appears operational rather than one-time, supported by revenue growth and limited reliance on non-recurring gains; however, persistence depends on maintaining utilization and pricing amid potential labor cost inflation. Watch-outs: SG&A disclosure is limited, but the absolute SG&A level implies continued cost discipline; if SG&A growth were to exceed revenue growth in FY2026, the operating leverage could reverse.

Growth Assessment

Revenue growth of 10.5% YoY to 953.65 indicates healthy demand across core service lines and possibly higher order conversion. Operating income grew 20.5%, demonstrating positive operating leverage and improved mix/efficiency. Ordinary income growth (+43.6%) and NI growth (+47.0%) exceeded OI growth, but the contribution from non-operating items was modest (net +1.55), suggesting bottom-line improvement is largely core-driven. Equity method income (0.54) is immaterial to profit composition, reinforcing the reliance on operating activities. Profit quality is mixed: P&L improvements are strong, but cash conversion lagged due to working capital outflows (negative OCF), which could be seasonal or timing-related in project deliveries/collections. Outlook hinges on backlog execution, client budget trends in public infrastructure, and the company’s ability to pass through labor cost increases. ROIC at 10.5% indicates growth is accretive; maintaining double-digit ROIC while normalizing OCF would strengthen the growth narrative. Near-term, management focus should be on DSO improvements and controlling project WIP to restore FCF.

Financial Health

Liquidity is adequate but not excess: current ratio 129.2% and quick ratio 129.2% (no material inventories disclosed). No warning for current ratio (<1.0), but it is below the >150% comfort benchmark. Short-term loans are sizable at 184.65 versus cash of 99.33 and receivables of 419.62; current assets of 621.62 cover current liabilities of 481.12, but the maturity profile is short and implies refinancing/collection execution risk. Solvency: D/E is 1.73x (above the 1.5x conservative benchmark but below a 2.0x red flag); equity ratio is approximately 36.7% (286.91/781.84). Interest coverage is strong at 26.37x, indicating headroom on interest costs even if rates rise modestly. Noncurrent liabilities are light (13.81), concentrating obligations in the short term. Off-balance sheet obligations are not disclosed; given the industry, guarantees on project performance or JV commitments could exist but are not reported here.

Cash Flow Quality

OCF was -17.13 versus NI of 38.19, yielding OCF/NI of -0.45x, which is a clear quality flag and implies significant working capital absorption (likely higher receivables/WIP at year-end). Investing CF was -18.06, including capex of -4.18 and other investments (possibly IT systems or small M&A); FCF was -35.19. Financing CF of +32.93, despite share repurchases of -15.85, suggests incremental borrowing or other financing to bridge negative FCF. Dividend cash outflow is unreported, limiting full coverage analysis; however, FCF coverage for dividends would be weak this year given negative FCF. Working capital signs to monitor: elevated receivables (419.62) relative to revenue point to collection timing; any stretch in DSO or advances to subcontractors could depress OCF. No evidence of aggressive WC manipulation is visible from the limited line items, but the magnitude of OCF/NI divergence warrants scrutiny into billing milestones and client payment cycles.

Dividend Sustainability

Calculated payout ratio is 56.5%, within the <60% benchmark and supported by strong earnings. However, FCF coverage is -1.63x, indicating the dividend (and buybacks) were not covered by internally generated cash this year and relied on financing. With ROE at 13.3% and ROIC at 10.5%, earnings capacity supports distributions if working capital normalizes; sustainability depends on restoring positive OCF in FY2026. Policy outlook: with buybacks of 15.85 executed, capital returns appear active; continuation should be paced against leverage and WC normalization to avoid creeping refinancing risk. Lack of reported DPS and total dividend cash paid is a limitation for precise coverage assessment.

Risk Assessment

Business Risks:

• Project execution and utilization risk affecting margins and milestone billing.
• Client budget/cycle risk, particularly exposure to public infrastructure spending.
• Labor cost inflation and tight engineering talent supply pressuring gross margin.
• Receivables collection timing and potential DSO elongation impacting OCF.
• Subcontractor cost volatility and capacity constraints.

Financial Risks:

• High short-term debt (184.65) vs. cash (99.33) increases refinancing and interest rate sensitivity.
• Negative OCF and FCF reliance on financing in FY2025.
• D/E at 1.73x above conservative benchmark, limiting balance sheet flexibility if OCF remains weak.
• Potential covenant or liquidity pressure if working capital outflows persist.

Key Concerns:

• OCF/NI of -0.45x signals poor cash conversion this year.
• Concentrated current liability profile (current liabilities 481.12) heightens maturity mismatch risk.
• Limited disclosure on SG&A composition and dividends restricts fine-grained analysis.
• Any slowdown in order intake/backlog could quickly erode operating leverage.

Investment Implications

Key Takeaways:

• Earnings momentum is strong with double-digit revenue and faster operating profit growth.
• Operating and net margin expanded (~+49 bps OPM, ~+99 bps NPM), lifting ROE to 13.3%.
• ROIC of 10.5% indicates value-accretive growth above cost of capital.
• Cash conversion is weak; negative OCF and FCF were funded by short-term debt amidst buybacks.
• Balance sheet is adequate but skewed to short-term liabilities; interest coverage remains strong.

Metrics to Watch:

• OCF/Net Income and Free Cash Flow normalization in FY2026.
• DSO and receivables turnover; backlog-to-sales (if disclosed).
• Operating margin trajectory versus labor/subcontractor cost inflation.
• Short-term debt level and refinancing profile; equity ratio trend.
• ROIC sustainability and capital allocation (capex, M&A, buybacks, dividends).

Relative Positioning: Within Japan’s engineering/consulting peer set, the company demonstrates above-average ROIC and improving margins, but lags best-in-class names on cash conversion this year and carries a higher short-term funding mix than more conservative 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