ETS Group Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥11.26B
• Operating Income: ¥717M
• Net Income: ¥466M
• EPS: ¥73.22

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

ETS Group (FY2025 Q4, JGAAP, consolidated) delivered strong top-line growth with revenue at ¥11.261bn (+15.3% YoY), but profitability compressed, as operating income fell 3.1% YoY to ¥717m and operating margin settled at 6.4%. Net income increased modestly to ¥466m (+3.8% YoY), supported by a near-normal tax burden and manageable interest expense. DuPont analysis indicates an ROE of 13.53%, driven by healthy asset turnover (1.215x) and moderate financial leverage (2.69x), with a modest net margin of 4.14%. Gross margin of 15.3% and EBITDA margin of 8.3% reflect a thin-margin model, and operating leverage appears limited given the divergence between revenue growth and operating income decline. Ordinary income of ¥690m is slightly below operating income, indicating small net non-operating costs (largely interest). Operating cash flow was notably weak at -¥1.061bn, resulting in OCF/NI of -2.28 and negative free cash flow of -¥826m, pointing to a sizable working capital build or collections timing issues. Investing cash flow was an inflow of ¥235m, suggesting asset sales or low net capex, while financing inflows of ¥790m likely funded working capital needs. The balance sheet shows total assets of ¥9.269bn, liabilities of ¥5.825bn, and equity of ¥3.444bn; the implied equity ratio is roughly 37% (the reported 0.0% is an unreported placeholder), and debt-to-equity stands at 1.69x. Liquidity appears adequate with a reported current ratio of 160.6% and working capital of ¥2.60bn, though inventories are unreported, making the quick ratio equal to the current ratio by default and less informative. Interest coverage is comfortable at ~23x, mitigating near-term solvency risk despite higher leverage. EPS is ¥73.22; back-solving from net income implies roughly 6.36 million shares outstanding, as the reported shares data is unreported. No dividend was recorded (DPS ¥0; payout ratio 0%), consistent with the need to stabilize cash flows and reinforce liquidity. Key data limitations include unreported cash balance, inventories, and equity ratio; therefore, conclusions on liquidity buffers and working capital mix rely on inference. Overall, ETS shows robust growth and respectable ROE, but cash conversion and margin resilience are the main areas to watch in the near term.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 4.14%
• asset_turnover: 1.215
• financial_leverage: 2.69
• calculated_ROE: 13.53%
• commentary: ROE of 13.53% is primarily supported by solid asset turnover and moderate leverage, with a modest net margin constraining upside. margin_quality:
• gross_margin: 15.3%
• operating_margin: 6.4%
• EBITDA_margin: 8.3%
• net_margin: 4.14%
• observations: Revenue grew 15.3% YoY but operating income fell 3.1% YoY, implying cost inflation or mix effects compressed operating margin. Ordinary income (¥690m) below operating income (¥717m) indicates small non-operating drag, mainly interest. operating_leverage: Limited positive operating leverage in the period: strong sales growth did not translate into higher operating profit. This suggests a higher variable cost structure, pass-through lags, or increased SG&A to support growth. EBITDA grew less than revenue, and depreciation (~¥215m) is modest relative to sales, indicating the business is not highly asset-intensive.

Growth Assessment

revenue_sustainability: Top-line growth of +15.3% YoY is robust. The sustainability will hinge on retention of new customers, pricing power, and the ability to maintain volume without disproportionate cost increases. profit_quality: Net income rose 3.8% despite weaker operating leverage, aided by manageable interest and a normalizing tax burden. However, margins are thin and sensitive to cost pressures; quality is mixed given the negative OCF. outlook: If cost control improves or pricing catches up, some margin recovery is possible. Conversely, continued working capital intensity could dampen earnings-to-cash conversion. Focus on stabilizing gross margin and SG&A efficiency will be key to translating growth into profit.

Financial Health

liquidity: Current ratio 160.6% and working capital ¥2.60bn indicate adequate short-term coverage; quick ratio equals current ratio due to unreported inventories, so true quick liquidity is uncertain. Cash and equivalents are unreported, limiting visibility on immediate liquidity buffers. solvency: Debt-to-equity 1.69x and interest coverage ~23.3x suggest acceptable solvency. Equity ratio implied by balance sheet is ~37.2% (equity ¥3.444bn / assets ¥9.269bn), despite the reported 0.0% placeholder. capital_structure: Leverage is moderate, contributing to ROE without posing immediate coverage risk. Financing inflows of ¥790m in the year indicate reliance on external funding, likely to support working capital.

Cash Flow Quality

earnings_quality: OCF/Net income of -2.28 flags weak cash conversion. The gap between accounting earnings (¥466m) and OCF (-¥1,061m) likely reflects a sizable working capital build (e.g., receivables), timing of collections, or advance costs to support growth. FCF_analysis: Free cash flow of -¥826m (OCF -¥1,061m + investing CF ¥235m) is negative despite modest D&A and positive investing inflows, indicating that operations, not capex, drove the cash shortfall. working_capital: Inventories are unreported; therefore, the main drivers likely lie in receivables and payables. The scale of negative OCF alongside strong revenue growth suggests lengthened receivable days or reduced customer prepayments. Monitoring DSO/DPO trends is critical.

Dividend Sustainability

payout_ratio_assessment: Payout ratio is 0% (DPS ¥0; EPS ¥73.22). With negative FCF and reliance on financing inflows, the choice to retain earnings appears aligned with liquidity preservation. FCF_coverage: FCF coverage is 0.00x by definition with no dividend; cash generation does not currently support distributions. policy_outlook: Given cash conversion challenges, a conservative dividend stance is likely until OCF normalizes and working capital intensity eases. Any future payout would need to be supported by sustained positive OCF and improved cash buffer.

Risk Assessment

Business Risks:

• Margin compression risk from input cost inflation and pricing lags
• Execution risk in scaling operations without proportionate SG&A increases
• Customer concentration or contract renewal risk (not disclosed; typical for mid-sized firms)
• Competitive pressure leading to discounting and weaker gross margins

Financial Risks:

• Negative OCF and FCF requiring continued external financing
• Working capital intensity and potential receivables collection risk
• Interest rate risk on floating-rate debt given 1.69x D/E
• Liquidity buffer uncertainty due to unreported cash balance and inventories

Key Concerns:

• Sustained negative operating cash flow (-¥1.061bn) versus reported net income
• Operating margin down despite double-digit revenue growth
• Dependence on financing inflows (¥790m) to fund operations
• Data gaps (cash, inventories, equity ratio) obscuring precise liquidity assessment

Investment Implications

Key Takeaways:

• Solid ROE of 13.5% driven by asset turnover and moderate leverage, but thin margins cap returns
• Revenue growth strong (+15.3% YoY) yet operating income declined, indicating margin pressure
• Cash conversion is weak (OCF/NI -2.28; FCF -¥826m), highlighting working capital stress
• Balance sheet leverage moderate (D/E 1.69x) with strong interest coverage (~23x)
• Liquidity appears adequate on reported ratios, but true cash buffer is unclear due to unreported cash

Metrics to Watch:

• OCF/Net income and free cash flow trajectory
• Receivable days (DSO), payable days (DPO), and overall cash conversion cycle
• Gross and operating margin trends versus input costs
• Net debt/EBITDA and interest coverage
• Equity ratio (implied ~37%) and any changes from financing activities

Relative Positioning: Compared with typical small-to-mid cap peers, ETS exhibits above-average ROE supported by asset turnover and moderate leverage, but operates with thinner margins and notably weaker cash conversion, leaving it more exposed to working capital swings.

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