MBK Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥3.38B
• Operating Income: ¥285M
• Net Income: ¥-76M
• EPS: ¥-2.90

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Merchant Bankers Co., Ltd. (31210) reported FY2025 Q4 consolidated results under JGAAP with revenue of 33.83 and operating income of 2.85, implying an operating margin of about 8.4% despite a sizable top-line decline of 23.9% YoY. Gross profit of 7.90 translates to a gross margin of 23.3%, with SG&A at 5.04 (about 14.9% of sales), indicating reasonable cost containment at the operating level. However, substantial non-operating expenses of 4.25—driven largely by 2.43 of interest expense—more than offset 1.08 of non-operating income, pushing ordinary income to -0.31 and net income to -0.85. The interest burden is evident in the interest coverage ratio of 1.17x, highlighting thin headroom against financing costs. DuPont metrics show a net margin of -2.5%, asset turnover of 0.219, and financial leverage of 3.32x, resulting in ROE of -1.8%; negative profitability combined with high leverage is the core pressure point. Balance sheet shows total assets of 154.40 with a heavy tilt to noncurrent assets (131.79, roughly 85% of assets), while equity is 46.52 and long-term loans are 101.05, underscoring leverage and refinancing sensitivity. Liquidity appears ample on ratios—current and quick ratios of ~411%—but absolute liquidity is modest (current assets 22.61, cash and deposits 15.95), and the structure is dependent on low near-term liabilities rather than large cash buffers. Cash flow performance is a relative bright spot: operating cash flow of 23.57 was strong versus the net loss (OCF/NI -27.7x due to negative NI), generating free cash flow of 10.55 when including investing outflows. Investing CF was -13.02, including capex of -9.46, suggesting disciplined investment relative to operating inflows. Financing CF was -7.75, reflecting deleveraging and 1.47 of share repurchases, with an implied net cash increase of about 2.80. Dividend-related disclosures are limited; reported DOE is 0.0 and DPS is unreported, and FCF coverage of dividends (if any) appears very high, implying distributions were minimal or nil. The key issue is the divergence between acceptable operating profitability and negative bottom line due to financing costs and other non-operating items. Sustainability hinges on reducing interest burden, improving asset turnover, and maintaining positive OCF without relying on one-off working capital releases. Data gaps (e.g., SG&A detail, DPS, inventory, some securities lines) limit full diagnostics, but available figures clearly point to leverage management and interest expense as the critical levers for restoring positive ordinary income and ROE.

Profitability Analysis

ROE decomposition (DuPont): Net margin -2.5% × Asset turnover 0.219 × Financial leverage 3.32x = ROE -1.8%. Operating profitability remains decent with gross margin 23.3% (7.90/33.83) and operating margin ~8.4% (2.85/33.83), supported by SG&A at ~14.9% of sales. EBITDA of 5.67 yields a 16.8% EBITDA margin, indicating some operating flexibility and non-cash D&A support. The key drag is below operating line: non-operating income 1.08 vs non-operating expenses 4.25 (net -3.17) turns ordinary income to -0.31 despite positive OI. Interest expense of 2.43 drives most of the non-operating drag; interest coverage is thin at 1.17x (OI/interest), signaling limited cushion. Operating leverage appears controlled: despite a 23.9% revenue decline, operating income fell 12.6% YoY, implying decremental margins were managed via cost control and/or mix. Margin quality: gross-to-operating spread (23.3% to 8.4%) implies SG&A absorption is reasonable for the scale, but sensitivity to volume remains given modest asset turnover (0.219). The negative ordinary margin and net margin reflect financing structure rather than core operations; improving interest burden or enhancing asset productivity would most directly lift ROE.

Growth Assessment

Revenue declined 23.9% YoY to 33.83, indicating pressure on underlying activity or project timing. Operating income contracted by a lesser 12.6% YoY, suggesting some resilience in mix or cost control. With asset turnover at 0.219, capacity utilization/productivity appears low, consistent with a balance sheet skewed to noncurrent assets; growth likely depends on monetizing or rotating assets rather than purely expanding the asset base. Profit quality is mixed: operating margins are acceptable, but ordinary and net losses underscore that financing costs and non-operating items are the gating factors for earnings growth. Near-term outlook hinges on stabilizing revenue, sustaining gross margin near the low-20% range, and executing measures to reduce interest expense or refinance at better terms. If OCF strength reflects recurring cash generation from core operations, it supports growth reinvestment; however, if OCF was driven by working capital releases, growth visibility is weaker. Limited disclosure on segment drivers and order/backlog restricts visibility on sustainability of revenues. Overall, a return to positive ordinary income will likely require either top-line recovery with operating leverage or balance sheet optimization to reduce non-operating drag.

Financial Health

Liquidity: Current assets 22.61 vs current liabilities 5.50 yield a current and quick ratio of ~411%, aided by cash and deposits of 15.95. Absolute liquidity is adequate relative to near-term obligations, though total current assets are modest in the context of a 154.40 balance sheet. Solvency/structure: Total liabilities 107.87 and equity 46.52 imply a debt-to-equity (liabilities/equity) of 2.32x. Noncurrent liabilities dominate (102.37), with long-term loans at 101.05, reflecting heavy reliance on interest-bearing debt. Financial leverage (assets/equity) is 3.32x; with negative ROE and thin interest coverage, solvency risk is centered on the cost of debt and refinancing terms rather than immediate liquidity. Asset composition: noncurrent assets 131.79 (~85% of assets) indicates a capital-intensive, less liquid profile; equity buffer is 46.52. Working capital is positive at 17.10, reducing short-term stress, but long-dated debt concentration elevates duration and refinancing risk.

Cash Flow Quality

Earnings quality: OCF of 23.57 versus net income of -0.85 (OCF/NI -27.73x) indicates cash generation far exceeds accounting profit, driven by non-cash charges (D&A 2.82) and/or favorable working capital movements. Given interest expense is typically included in OCF under JGAAP, strong OCF despite interest outflow is notable. Free cash flow (defined here as OCF + Investing CF) was 10.55, after investing outflows of -13.02, including capex of -9.46; this implies cash generation sufficient to fund investments and some financing outflows. Net cash change approximates +2.80 (OCF 23.57 - 13.02 - 7.75), consistent with cash preservation despite a net loss. Working capital dynamics are not fully disclosed (limited AR/AP/inventory detail), but the magnitude of OCF suggests either collection of receivables/other current assets or liability timing benefits; sustainability of such benefits is uncertain. EBITDA of 5.67 supports cash earnings, but the gap to OCF implies significant WC release or other operating cash items in the period. Overall, cash flow quality appears solid this period, but durability needs validation in subsequent quarters.

Dividend Sustainability

Dividend disclosure is limited: DPS unreported, DOE 0.0, and total dividends paid not disclosed. The reported payout metrics are inconsistent (calculated payout -74.8% vs reported 0.3%), reflecting either data gaps or definitional differences; we therefore cannot reliably assess payout from earnings. On a cash basis, FCF of 10.55 implies ample theoretical coverage of any modest dividend, with FCF coverage indicated at 16.58x, suggesting distributions—if any—were small. Given negative net income and ongoing leverage with high interest costs, a conservative distribution stance would be consistent with balance sheet priorities. Without explicit policy guidance, we assume stability or minimal dividends until ordinary income turns sustainably positive and interest coverage improves.

Risk Assessment

Business Risks:

• Revenue volatility from project timing and asset transaction cycles, evidenced by -23.9% YoY sales decline
• Low asset turnover (0.219) indicating sensitivity to utilization and monetization of noncurrent assets
• Margin compression risk if sales softness persists, given fixed-cost absorption within SG&A and D&A
• Limited disclosure on segment mix and pipeline reduces visibility into revenue sustainability

Financial Risks:

• High leverage with long-term loans of 101.05 and liabilities/equity of 2.32x
• Thin interest coverage at 1.17x; earnings vulnerable to interest rate increases or funding cost spikes
• Refinancing and duration risk given concentration in noncurrent liabilities (102.37)
• Negative ordinary and net income despite positive operating income, driven by non-operating expenses
• Cash flow sustainability risk if current OCF strength reflects one-off working capital releases

Key Concerns:

• Interest burden (2.43) more than absorbing operating profits at the ordinary income level
• Negative ROE (-1.8%) despite positive operating margin, highlighting structural financing drag
• Asset-heavy, illiquid balance sheet (noncurrent assets 131.79) limiting flexibility in stress scenarios

Investment Implications

Key Takeaways:

• Core operations profitable (8.4% operating margin) but financing costs push ordinary and net income negative
• Leverage remains the key strategic constraint: 101.05 in long-term loans and 2.32x liabilities/equity
• Strong OCF (23.57) and positive FCF (10.55) provide near-term funding capacity despite accounting loss
• Interest coverage at 1.17x leaves limited cushion; improving financing terms would directly lift earnings
• Revenue decline (-23.9% YoY) compresses asset turnover; monetization and utilization are critical to ROE

Metrics to Watch:

• Ordinary income trajectory and interest expense trend
• Interest coverage (operating income / interest) and effective funding costs
• Asset turnover (sales/total assets) and revenue recovery
• OCF sustainability versus working capital swings; FCF after capex
• Leverage ratios (liabilities/equity, long-term loans) and refinancing progress
• Gross and operating margins stability amid revenue changes

Relative Positioning: Versus small-cap Japanese financial/asset-heavy peers, the company shows acceptable operating margins but weaker bottom-line profitability due to higher financing costs, above-average balance-sheet leverage, and lower asset turnover; cash generation was comparatively strong this period, but ongoing interest burden and refinancing risk temper the quality of earnings.

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