SOLITON SYSTEMS K.K. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥13.90B
• Operating Income: ¥1.86B
• Net Income: ¥722M
• EPS: ¥76.36

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

Soliton Systems (30400) reported FY2025 Q3 (cumulative) consolidated results under JGAAP showing solid top-line growth and a sharp recovery in profitability. Revenue rose 5.0% year over year to ¥13.904bn, while operating income surged 79.0% to ¥1.864bn, indicating strong operating leverage. Gross profit reached ¥5.725bn, implying a gross margin of 41.2%, which is healthy for a security/network solutions vendor and suggests improved mix or disciplined pricing. Operating margin expanded to 13.4% (¥1.864bn/¥13.904bn), up markedly versus last year’s level implied by the 79% YoY increase on a 5% revenue gain. Ordinary income of ¥1.913bn slightly exceeded operating income, suggesting modest net non-operating gains. Net income increased 95.0% YoY to ¥1.415bn, with a net margin of 10.2%. DuPont analysis shows ROE of 11.4%, driven by a 10.2% net margin, asset turnover of 0.585x, and financial leverage of 1.92x. The balance sheet appears conservative: equity is ¥12.411bn against total assets of ¥23.782bn, implying an equity ratio of roughly 52.2% (the 0.0% figure provided is an undisclosed item placeholder, not an actual value). Liquidity looks strong with a current ratio of 192.7% and working capital of ¥10.052bn, providing ample buffer for execution into the fiscal year-end. Inventory is relatively modest at ¥0.601bn, consistent with a solutions/software-heavy model. Cash flow statements were not disclosed in this dataset; as such, operating cash flow and free cash flow cannot be assessed from the provided figures. Similarly, depreciation, interest expense, and cash balances are not disclosed here, limiting some quality-of-earnings diagnostics. Despite these constraints, the sharp improvement in operating income on modest revenue growth implies effective cost control and/or an improving revenue mix toward higher-margin offerings. The effective tax rate, inferable from reported tax expense and net income, is approximately 20%, consistent with a normalized rate. Dividend details were not provided; payout and FCF coverage cannot be evaluated from this data. Overall, results indicate healthy momentum, stronger profitability, and a solid financial position, albeit with incomplete cash flow disclosure that restrains assessment of earnings-to-cash conversion.

Profitability Analysis

ROE is 11.4%, decomposed as net margin 10.18% × asset turnover 0.585 × financial leverage 1.92. Operating margin stands at 13.4% (¥1,864m / ¥13,904m), reflecting significant operating leverage given revenue grew 5% while operating income rose 79% YoY. The gross margin of 41.2% is robust and suggests favorable mix or pricing discipline; it also provides room to absorb operating expenses. Ordinary margin is 13.8% (¥1,913m / ¥13,904m), indicating minor positive non-operating contributions. Net margin is 10.2% (¥1,415m / ¥13,904m). The inferred effective tax rate is about 20.1% (¥356m tax / [¥1,415m net + ¥356m tax]). EBITDA is not disclosed; however, operating income provides a conservative proxy for core profitability in the absence of D&A detail. Overall, profitability quality appears strong with improved operating efficiency and cost containment evident in the high incremental margin.

Growth Assessment

Top-line growth of 5.0% YoY to ¥13.904bn is steady, suggesting sustained demand in core security/network solutions. Profit growth is significantly outpacing revenue, with operating income up 79% and net income up 95% YoY, pointing to favorable mix shift and SG&A leverage. The large expansion in operating margin on modest revenue growth implies structural improvements rather than solely volume-driven gains. Sustainability of growth will depend on backlog conversion and seasonality into Q4 (common in Japan IT/solutions), as well as the pipeline for high-margin products. Without segment disclosure here, growth breadth across product lines cannot be verified. Non-operating items had a small net positive effect (ordinary income > operating income by ¥49m), so the profit trajectory appears primarily operational. The outlook hinges on maintaining gross margin discipline and managing delivery capacity, as operating leverage cuts both ways if demand softens. Given the strong balance sheet and liquidity, the company is well-positioned to support continued growth. However, the absence of cash flow disclosure limits validation of profit quality through cash conversion.

Financial Health

Total assets are ¥23.782bn and total equity is ¥12.411bn, implying an equity ratio of ~52.2% (calculated), indicative of a sound capital base. Total liabilities are ¥11.002bn (liabilities-to-equity ~0.89x), suggesting moderate leverage primarily from operating liabilities rather than interest-bearing debt (interest expense not disclosed). Liquidity is strong: current assets ¥20.897bn versus current liabilities ¥10.845bn yields a current ratio of 192.7%; the quick ratio is ~187.1% given low inventories (¥0.601bn). Working capital stands at ¥10.052bn, supporting operational flexibility and seasonality. Cash and equivalents are not disclosed here, preventing a net cash/debt view; nonetheless, the liability structure appears manageable relative to equity.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, and cash balances are not disclosed in this dataset; therefore, OCF/Net Income and free cash flow cannot be evaluated from the provided figures. Earnings quality assessment must rely on accrual-based indicators: gross margin (41.2%) and operating margin (13.4%) show healthy unit economics, and modest inventory (¥0.601bn) reduces the risk of inventory-related accrual distortions. Working capital is ample, but without period-to-period movement data, we cannot judge cash conversion cycles or OCF sustainability. Depreciation and amortization are undisclosed, so non-cash expense contributions to earnings cannot be quantified. Conclusion: profit quality appears strong from margins, but confirmation via cash conversion is not possible with the provided data.

Dividend Sustainability

Dividend per share, payout ratio, and FCF coverage are not disclosed in the provided data. With net income of ¥1.415bn for the period and a strong equity base, the capacity for distributions appears supported in principle, but sustainability cannot be assessed without an explicit dividend policy, cash flow data, or share count details. In the absence of OCF/FCF figures and DPS, we cannot evaluate payout coverage or alignment with policy. Any outlook on dividends remains indeterminate based solely on this dataset.

Risk Assessment

Business Risks:

• Revenue concentration in security/network solutions could expose results to procurement cycles and IT budget timing.
• High operating leverage: significant profit sensitivity to modest revenue fluctuations following recent margin expansion.
• Competitive pricing pressure in cybersecurity and network solutions markets could compress gross margins.
• Project execution and delivery capacity constraints, particularly if demand accelerates into seasonal peaks.
• Technology obsolescence and the need for continuous R&D to maintain product relevance.

Financial Risks:

• Limited visibility on cash flow generation due to undisclosed OCF/FCF, constraining assessment of earnings-to-cash conversion.
• Potential working capital swings around fiscal year-end seasonality affecting liquidity despite strong current ratios.
• Exposure to non-operating gains/losses is small but could introduce volatility to ordinary income.
• Unreported interest expense and cash balances limit precise solvency and coverage analysis, though leverage appears modest.

Key Concerns:

• Absence of cash flow statements and depreciation detail impedes verification of earnings quality.
• Dividend policy and payout track record not discernible from the provided data.
• Equity ratio shown as 0.0% in the data feed is an undisclosed placeholder; reliance on calculated metrics is necessary.

Investment Implications

Key Takeaways:

• Profitability inflected strongly: operating income up 79% YoY on 5% revenue growth, operating margin ~13.4%.
• ROE at 11.4% is supported mainly by improved net margin (10.2%) rather than high leverage.
• Balance sheet strength with an estimated equity ratio of ~52% and current ratio ~193% provides resilience.
• Non-operating items were modestly positive; core operations are the primary earnings driver.
• Cash flow and DPS not disclosed; confirmation of earnings sustainability via OCF/FCF is pending.

Metrics to Watch:

• Order backlog/pipeline and Q4 seasonality impacts on revenue recognition.
• Gross margin trajectory and pricing discipline amid competitive pressures.
• SG&A efficiency and operating margin sustainability post-large expansion.
• Working capital movements and disclosed OCF in the full-year report.
• Any updates on dividend policy and capital allocation (buybacks, investments).

Relative Positioning: Within Japan’s security/network solutions peers, Soliton’s FY2025 Q3 profile shows above-average margin momentum and solid balance sheet conservatism; however, visibility is somewhat below best-in-class due to missing cash flow disclosures in this dataset.

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