KITOKU SHINRYO CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥130.90B
• Operating Income: ¥7.96B
• Net Income: ¥1.29B
• EPS: ¥668.61

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: A very strong FY2025 Q3 (YTD) performance with outsized profit growth driven by operating leverage, albeit with some line-item inconsistencies that warrant caution. Revenue rose 50.4% YoY to 1,309.03, while operating income surged 377.1% YoY to 79.64, and ordinary income climbed 358.4% YoY to 80.11. Net income increased 342.2% YoY to 54.63, translating to a net margin of 4.2% and a calculated ROE of 26.4%. Operating margin expanded to about 6.1%, up from an estimated 1.9% a year ago, implying roughly 416 bps of OPM expansion on revenue growth of 50%. Net margin improved by approximately 276 bps YoY (from ~1.4% to ~4.2%) based on reconstructed prior-year figures. Gross margin is thin at 4.9%, but the unusually high operating margin versus gross margin suggests material contributions from other operating income or category reclassifications under JGAAP. Ordinary income is broadly aligned with operating income after modest non-operating items (non-op income 2.18 vs non-op expenses 1.40), and interest expense is small at 0.45, yielding an interest coverage of about 175x. Balance sheet strength is solid: current ratio 171%, quick ratio 152%, and D/E at 0.89x are comfortable for a low-margin food trader/processor. However, the profit before tax figure (17.66) and the reported tax (4.80) are inconsistent with net income (54.63), indicating disclosure mapping or aggregation issues; we treat the net income as more reliable since it aligns with the reported net margin and DuPont output. Operating cash flow was not disclosed, so we cannot verify earnings cash conversion, a key gap given the scale of working capital in this business. Working capital appears ample (120.94), and short-term loans (30.02) look well-covered by cash (38.47) and receivables (119.88), reducing near-term liquidity risk. With a calculated payout ratio of 20.3% and no evidence of aggressive leverage, dividend capacity appears conservative, pending cash flow confirmation. The step-up in profitability likely reflects improved procurement/price pass-through, mix, and scale efficiency, but sustainability hinges on commodity and FX conditions and retail pricing dynamics. The company’s low gross margin profile underscores vulnerability to volatility in rice/grain prices and inventory valuation effects. Overall, strong execution and operating leverage drove an excellent quarter, but the absence of cash flow data and line-item inconsistencies require a cautious interpretation and close monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 26.4% = Net Profit Margin (4.2%) × Asset Turnover (3.353x) × Financial Leverage (1.89x). The largest YoY change driver is net profit margin, reflecting a step-change in profitability: operating income rose 377% YoY versus revenue +50%, indicating powerful operating leverage and better spread management. Asset turnover at 3.35x is high and consistent with a trading/food distribution model, likely up modestly with revenue scale, but the dominant contribution to ROE improvement is margin expansion. Business reason: strong top-line growth, likely improved procurement terms and pass-through pricing in a rising commodity environment, and disciplined SG&A (47.93 vs revenue 1,309.03, SG&A ratio ~3.7%). Sustainability: partially sustainable if pricing power and mix gains are structural; however, thin gross margin (4.9%) and the anomaly of operating margin exceeding gross margin imply one-off other operating gains or classification effects that may not recur. Concerning trends: the mismatch between gross profit (64.62) and operating income (79.64) suggests reliance on other operating items; without detail, the quality of operating profit is less certain. Also, we cannot confirm whether SG&A growth exceeded revenue growth due to missing prior-year SG&A; current SG&A ratio appears low, which may revert if cost normalization occurs.

Growth Assessment

Revenue growth of 50.4% YoY to 1,309.03 indicates strong volume/value growth, likely driven by commodity price pass-through and possibly higher sales volumes across channels. Profit growth outpaced sales (operating income +377%, ordinary income +358%, net income +342%), evidencing robust operating leverage and improved spreads. Margin sustainability will hinge on continued price pass-through, procurement efficiency, and stable FX; thin gross margins suggest vulnerability if input costs move unfavorably. The non-operating line netted a small positive (about +0.78), indicating that core operations were the main driver of earnings. With ROE at 26.4% and asset turnover at 3.35x, efficiency is high for the business model. Outlook: if demand and pricing remain supportive, ordinary income could remain elevated; however, normalization of spreads, potential inventory revaluation, and FX volatility could dampen growth. Absence of segment detail and cash flow data limits visibility into recurring vs one-time drivers. Near-term, watch for evidence that SG&A discipline persists and that gross margins stabilize at a level consistent with the current OPM, confirming that other operating items are not masking core margin.

Financial Health

Liquidity is strong: current ratio 171.2% and quick ratio 151.7% comfortably exceed benchmarks. No warning triggers (current ratio <1.0 or D/E >2.0) are present; reported D/E is 0.89x, indicating moderate leverage for a distributor, and interest coverage is very strong at 175x. Maturity mismatch risk appears low: short-term loans (30.02) are covered by cash (38.47) and further supported by receivables (119.88) and inventories (33.14). Total liabilities (183.81) versus current assets (290.89) suggest ample current asset coverage. Off-balance sheet obligations are not disclosed; given the industry, purchase commitments could exist but are not visible in the data. Equity of 206.64 provides a solid capital base, with retained earnings at 182.69 supporting resilience.

Cash Flow Quality

Operating cash flow was not reported, so OCF/Net Income and free cash flow cannot be assessed. Consequently, we cannot verify earnings quality via cash conversion metrics; this is a material limitation for a working-capital intensive, low-margin business. Potential working capital sensitivities include receivables collection risk (A/R 119.88) and inventory carrying (33.14), but current balances appear manageable relative to revenue scale. Without OCF and capex, dividend and investment capacity assessments rely on accrual metrics only, reducing confidence. No clear signs of working capital manipulation can be identified from the limited snapshot, but the scale of A/R relative to cash underscores the importance of collection discipline.

Dividend Sustainability

Calculated payout ratio is 20.3%, which is conservative versus typical sustainability thresholds (<60%). FCF coverage cannot be determined due to missing OCF and capex, so cash sufficiency for dividends is unverified. Balance sheet strength and low interest burden are supportive of dividends, but durability depends on sustaining ordinary income and healthy cash conversion. Policy outlook cannot be inferred from the data; no DPS was disclosed for the period.

Risk Assessment

Business Risks:

• Commodity price volatility (rice/grains) affecting procurement costs and gross margins
• FX fluctuations impacting imported raw materials and pricing
• Inventory valuation risk in a volatile price environment
• Customer concentration and bargaining power from large retailers/wholesalers
• Thin structural margins (gross margin 4.9%) magnifying small pricing/mix changes

Financial Risks:

• Earnings quality uncertainty due to lack of OCF disclosure
• Potential reliance on other operating income given OI > gross profit anomaly
• Receivables collection risk (A/R 119.88) relative to cash (38.47)
• Exposure to short-term funding markets (short-term loans 30.02), albeit currently well-covered

Key Concerns:

• Line-item inconsistencies: PBT (17.66) and tax (4.80) do not reconcile with net income (54.63)
• Margin quality: operating margin notably exceeds gross margin, suggesting classification effects or one-time items
• Limited visibility on capex and investment needs due to missing cash flow data

Investment Implications

Key Takeaways:

• Exceptional profit growth with strong operating leverage (OPM up ~416 bps YoY)
• High ROE (26.4%) driven primarily by margin expansion and high asset turnover
• Sound liquidity and solvency with current ratio 171% and interest coverage ~175x
• Earnings quality uncertain without OCF; monitor cash conversion closely
• Structural thin margins imply elevated sensitivity to commodity and FX swings

Metrics to Watch:

• Operating cash flow and FCF trends vs net income
• Gross margin stability and reconciliation with operating margin
• SG&A ratio trajectory relative to revenue growth
• Receivables days and inventory days
• Commodity input costs (rice/grain) and FX (USD/JPY)
• Any disclosure on extraordinary/other operating income items

Relative Positioning: Within Japanese food trading/processing peers, the company currently exhibits superior ROE and operating leverage with a conservative payout, supported by a solid liquidity profile; however, earnings visibility is lower than best-in-class due to disclosure gaps and margin classification anomalies.

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