YKT CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥8.32B
• Operating Income: ¥-276M
• Net Income: ¥29M
• EPS: ¥1.84

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: FY2025 Q3 was weak operationally with an operating loss, and a small net profit was only achieved via non-operating and/or extraordinary gains, signaling low earnings quality. Revenue was 83.22 (−0.5% YoY), gross profit was 15.39, and SG&A was 15.63, resulting in operating income of −2.76. Ordinary income was −1.94 (−90.7% YoY), while profit before tax was 0.37 and net income was 0.21 (−7.9% YoY), implying material non-operating/extraordinary support. Gross margin stood at 18.5%, and the implied operating margin was −3.3%. Interest expense was 0.18 and interest coverage was −15.0x, highlighting strained operating profitability relative to financing costs. Total assets were 137.20 with equity of 78.89, implying an equity ratio of about 57.5% and a debt-to-equity ratio of 0.74x; liquidity looks solid with a current ratio of 227.5% supported by cash and deposits of 45.55. Short-term loans were 13.00 and long-term loans 11.65, implying net cash of roughly 20.9 when netting borrowings against cash. Total comprehensive income was −1.77, indicating sizable other comprehensive losses (likely FX or securities valuation losses) despite the positive bottom line. DuPont shows ROE at a very low 0.3%, driven by a razor-thin net margin (0.2%), moderate asset turnover (0.607), and leverage of 1.74x. ROIC was −3.7%, well below trading/industrial benchmarks, underscoring value destruction at the operating level. We cannot compare margin expansion/compression in basis points due to absent prior-period margin disclosures; however, the negative operating margin indicates a deterioration vs typical profitable periods. Earnings quality is a concern because operating cash flow is unreported and net income was achieved despite an operating loss, implying reliance on non-operating and special gains. With non-operating income of 1.37 and non-operating expenses of 0.77, non-core items netted +0.60, which was insufficient to offset the operating loss; PBT turned positive, implying additional extraordinary impact not itemized here. Dividend sustainability looks weak given a calculated payout ratio of 283.5% against minimal earnings and negative ROIC, though cash on hand provides near-term flexibility. Forward-looking, a restoration of gross profit growth and SG&A discipline is essential to regain positive operating margins and cover interest costs through operations. Key watchpoints include order intake in core machinery/equipment businesses, gross margin stabilization, and visibility on operating cash flow.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 0.2% × 0.607 × 1.74 ≈ 0.3%. The binding constraint on ROE is the extremely low net margin, as operating income was negative and the period's profit relied on non-operating/extraordinary items. Asset turnover at 0.607 is moderate for a trading/industrial distributor profile, and leverage at 1.74x is not high enough to offset weak margins. Change analysis is limited by absent prior-period component disclosure; however, the shift into an operating loss suggests margin deterioration rather than turnover or leverage as the primary driver. Business reason: SG&A (15.63) exceeded gross profit (15.39), erasing operating profit despite okay gross margins of 18.5%; this points to either lower volume/pricing pressure or elevated fixed costs (e.g., personnel, rents, logistics) not matched by revenue. Sustainability: reliance on non-operating gains to deliver net profit is not sustainable; margin repair via cost control and mix improvement is necessary. Concerning trends: SG&A exceeding gross profit, ordinary income down 90.7% YoY despite relatively flat revenue (−0.5% YoY), and negative interest coverage (−15.0x).

Growth Assessment

Top-line was flat to slightly down (−0.5% YoY), indicating weak demand or delayed shipments. Profit quality deteriorated sharply: ordinary income fell 90.7% YoY and operating income turned negative, with gross margin at 18.5% insufficient to cover SG&A. Net income of 0.21 was achieved despite operating losses, implying one-time or non-recurring support; comprehensive income was negative (−1.77), suggesting adverse FX/securities valuation impacts. Without operating cash flow disclosure, revenue sustainability is uncertain; order backlog and booking trends would be critical to assess H2 recovery potential. Outlook hinges on: recovery in core industrial/machinery demand, stabilization of gross margins via mix/pricing, and SG&A rationalization to restore positive operating margin. Near-term, expect earnings to remain sensitive to FX and non-operating items while core operations recover.

Financial Health

Liquidity is strong: current assets 98.74 vs current liabilities 43.41 imply a current ratio of 227.5%; quick ratio is the same given unreported inventories. No warning on current ratio (<1.0) or leverage; D/E is 0.74x, within conservative bounds. Equity ratio is approximately 57.5% (78.89/137.20), indicating a solid capital base. Maturity profile: short-term loans 13.00 are covered by cash and deposits of 45.55 and receivables of 23.56, limiting near-term rollover risk. Long-term loans are 11.65; overall borrowings total 24.65 against cash 45.55, yielding net cash of about 20.9. However, negative operating income and −15.0x interest coverage point to a risk that persistent operating losses could erode cushions over time. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be assessed. Earnings quality is weak: positive net income (0.21) despite an operating loss (−2.76) and negative ordinary income (−1.94) indicates reliance on non-operating and/or extraordinary items. Absence of working capital details (inventories, payables turns) precludes detecting potential manipulation; however, receivables are 23.56, and payables are 12.21, with no inventory figure disclosed. Given negative ROIC (−3.7%) and negative operating margin, internally generated cash is likely pressured until operations normalize. Dividend and capex coverage from FCF cannot be evaluated due to missing OCF and capex data.

Dividend Sustainability

The calculated payout ratio is 283.5%, which is well above the typical sustainability threshold (<60%) and is incongruent with negative operating earnings and negative ROIC. While the company holds net cash (~20.9) and ample liquidity, funding dividends from the balance sheet is not a long-term solution. FCF coverage is not calculable due to missing OCF and capex, adding uncertainty. Policy outlook: absent a clear recovery in operating margin and cash generation, sustaining a high payout would likely require drawing down cash, suggesting a risk of dividend adjustment if fundamentals do not improve.

Risk Assessment

Business Risks:

• Demand cyclicality in core industrial/machinery end-markets leading to revenue volatility
• Gross margin pressure from pricing competition and product mix
• Execution risk in SG&A control as costs currently exceed gross profit
• Dependence on non-operating/extraordinary gains to achieve net profit

Financial Risks:

• Negative operating margin and −15.0x interest coverage indicate inability to cover financing costs from operations
• Negative ROIC (−3.7%) implies value destruction if sustained
• Potential FX valuation impacts evidenced by negative comprehensive income (−1.77)
• Refinancing risk would rise if operating losses persist, though currently mitigated by net cash

Key Concerns:

• Ordinary income down 90.7% YoY on nearly flat revenue
• SG&A (15.63) exceeding gross profit (15.39)
• Reliance on non-operating and extraordinary items to post positive net income
• Lack of operating cash flow disclosure limits assessment of earnings quality and dividend coverage

Investment Implications

Key Takeaways:

• Core operations are loss-making this period (operating margin −3.3%) despite 18.5% gross margin
• Net income positive (0.21) due to non-operating/extraordinary items; comprehensive income negative
• Liquidity and capital structure are sound (current ratio 227.5%, equity ratio ~57.5%, net cash ~20.9), providing near-term buffer
• ROE is just 0.3% and ROIC is −3.7%, pointing to poor capital efficiency
• Earnings recovery hinges on SG&A discipline and gross margin stabilization

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Gross margin trajectory and product mix
• Order intake/backlog and shipment timing
• Operating cash flow and free cash flow
• Interest coverage and non-operating income reliance
• ROIC and working capital turns (receivables, inventories when disclosed)

Relative Positioning: Versus domestic industrial distributors/trading peers, YKT currently exhibits weaker operating profitability and capital efficiency but stronger liquidity; near-term performance appears more dependent on non-operating items and extraordinary factors than on recurring operations.

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