MERF Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥82.46B
• Operating Income: ¥117M
• Net Income: ¥-178M
• EPS: ¥-14.37

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

MERF reported FY2025 Q4 (full-year) consolidated results under JGAAP with revenue of ¥82.463bn, up a modest 0.5% YoY, indicating a largely flat topline environment. Gross profit was ¥3.121bn, translating to a thin gross margin of 3.8%, consistent with a low-margin, high-turnover business model (likely wholesale/distribution). Operating income fell sharply to ¥117m (-91.9% YoY), highlighting significant margin compression and/or higher operating cost intensity. Ordinary income was negative at -¥220m, implying non-operating headwinds (e.g., interest costs and other financial items) overwhelmed the slim operating profit. Net income was -¥203m (EPS -¥14.37), a small net loss relative to sales (-0.25% margin), yet a notable deterioration from profitability targets. Despite accounting losses, operating cash flow was solid at ¥2.322bn, pointing to robust cash conversion likely supported by working capital inflows. Free cash flow was positive at ¥342m after ¥1.98bn of investing outflows, indicating the company funded investments internally this year. Liquidity appears adequate with a current ratio of 157.2% and quick ratio of 145.1%, supported by ¥23.421bn of current assets versus ¥14.901bn of current liabilities. Leverage is meaningful: debt-to-equity is 1.86x and financial leverage (A/E) is 2.79x, which boosted pre-downturn ROE but now amplifies the impact of earnings weakness. DuPont shows ROE of -2.20% driven by a slightly negative net margin (-0.25%) despite strong asset turnover (3.208x); leverage is a double-edged sword in this context. Interest expense of ¥95m combined with very low EBIT left limited interest coverage (reported 1.2x), underscoring tighter financial flexibility if profitability does not recover. Tax expense of ¥413m alongside a loss suggests non-recurring or structural tax effects under JGAAP, distorting the tax burden and reported net margin. The company paid no dividends (DPS ¥0), an appropriate stance given a loss year and the need to preserve cash amid margin pressure. Several fields (equity ratio, cash and equivalents, shares) show as 0 in the dataset and should be treated as undisclosed rather than true zero; conclusions rely on available non-zero items. Overall, MERF faces profitability headwinds with stable revenue, decent liquidity, and positive free cash flow, but downside risks persist given thin margins, operating leverage, and negative ordinary income.

Profitability Analysis

ROE_decomposition: DuPont indicates ROE of -2.20% = Net Profit Margin (-0.25%) × Asset Turnover (3.208x) × Financial Leverage (2.79x). The negative net margin is the primary drag; high turnover and leverage were insufficient to offset the loss. margin_quality: Gross margin of 3.8% is very thin and leaves little buffer for operating expenses. Operating margin was ~0.14% (¥117m / ¥82.463bn), collapsing 91.9% YoY, signaling cost pressure and/or unfavorable pricing/mix. Net margin at -0.25% reflects non-operating drag (interest and other items) and a sizable tax charge. operating_leverage: The steep fall in operating income versus flat revenue implies adverse operating leverage: small topline changes or cost inflation materially impact profits in a low-margin model. D&A of ¥238m against EBITDA of ¥355m indicates limited depreciation intensity; thus, the profit squeeze is primarily at the gross and SG&A levels. Interest coverage is thin (reported 1.2x), heightening sensitivity to further EBIT volatility.

Growth Assessment

revenue_sustainability: Revenue grew 0.5% YoY to ¥82.463bn, suggesting stable demand but limited pricing power or share gains. The high asset turnover (3.208x) and low inventories (¥1.807bn) versus sales are consistent with a fast-moving distribution model, but sustainability depends on maintaining volume throughput. profit_quality: Profitability weakened markedly despite stable sales, indicating margin compression at gross or SG&A levels. The negative ordinary income underscores external pressures (financing or other non-operating costs). A tax expense of ¥413m despite a loss introduces volatility in bottom-line quality. outlook: Near-term growth appears constrained by pricing pressure and cost inflation. Recovery depends on gross margin stabilization, tighter SG&A control, and mitigation of non-operating losses. With FCF positive, MERF has some capacity to invest in efficiency initiatives, but restoring operating margin above financing costs is critical for a return to positive ordinary income and ROE.

Financial Health

liquidity: Current ratio 157.2% and quick ratio 145.1% indicate adequate short-term liquidity. Working capital stands at ¥8.521bn, offering a buffer for operations. Cash and equivalents were undisclosed in the dataset (reported as 0), so the immediate cash cushion cannot be assessed directly. solvency: Total assets ¥25.705bn vs total equity ¥9.218bn implies financial leverage of 2.79x. Debt-to-equity is 1.86x, indicating meaningful reliance on interest-bearing liabilities. With ordinary income negative and interest coverage thin, solvency is acceptable but sensitive to profit recovery. capital_structure: Liabilities total ¥17.129bn vs equity ¥9.218bn. The balance between current and non-current liabilities appears manageable (current liabilities ¥14.901bn), but refinancing risk rises if profitability remains subdued. Equity ratio was not disclosed (0% in dataset should be treated as missing).

Cash Flow Quality

earnings_quality: OCF of ¥2.322bn against net income of -¥203m (OCF/NI = -11.44) indicates strong cash generation relative to accounting loss, likely driven by working capital inflows and non-cash charges (D&A ¥238m). This points to better cash earnings than accruals suggest for the period. FCF_analysis: Free cash flow was positive at ¥342m after ¥1.98bn investing outflow, demonstrating internal funding capacity for investments despite weak earnings. Sustainability hinges on maintaining working capital efficiency and stabilizing operating margins. working_capital: Current assets ¥23.421bn and inventories ¥1.807bn suggest efficient inventory management relative to sales volume. The positive OCF likely benefited from receivables collection and/or payables management; monitoring the durability of these inflows is key.

Dividend Sustainability

payout_ratio_assessment: No dividend was paid (DPS ¥0; payout ratio 0%). Given negative net income and pressured operating profit, a zero payout aligns with balance sheet preservation. FCF_coverage: With no dividend, FCF coverage is not a constraint (reported 0.00x reflects no cash outflow for dividends). Positive FCF of ¥342m provides optionality to rebuild resilience. policy_outlook: A resumption would likely be contingent on restoring positive ordinary income, improving interest coverage, and demonstrating repeatable FCF after working-capital normalization. Near-term policy likely remains conservative.

Risk Assessment

Business Risks:

• Thin structural margins (3.8% gross margin) leave limited room for cost shocks or price competition.
• Adverse operating leverage: small sales or cost changes materially impact EBIT.
• Customer/supplier bargaining power typical of distribution models could pressure pricing.
• Execution risk in cost control and mix/pricing initiatives needed to restore operating margin.
• Potential exposure to cyclical end-markets that dampen volume growth.

Financial Risks:

• Negative ordinary income and low interest coverage (1.2x) increase vulnerability to rate or spread increases.
• Leverage is meaningful (D/E 1.86x; A/E 2.79x), amplifying earnings volatility.
• Tax expense despite losses introduces bottom-line volatility and cash tax risk.
• Refinancing and covenant headroom risk if profitability fails to recover.
• Dependence on working capital inflows to support OCF may not be repeatable.

Key Concerns:

• Sustained margin compression with operating income down 91.9% YoY.
• Negative ordinary income indicating non-operating drags on profitability.
• Need to defend gross margin while controlling SG&A to restore coverage of interest costs.

Investment Implications

Key Takeaways:

• Topline stable (+0.5% YoY) but profitability under significant pressure.
• DuPont: negative margin (-0.25%) overrides strong asset turnover (3.21x), resulting in ROE of -2.20%.
• Liquidity adequate (current ratio 157%) and FCF positive (¥342m), offering near-term flexibility.
• Leverage meaningful (D/E 1.86x) with thin interest coverage (1.2x), necessitating earnings recovery.
• Cash conversion was strong this year (OCF ¥2.322bn), but sustainability must be validated.

Metrics to Watch:

• Gross margin trajectory and pricing/mix improvements.
• SG&A ratio and operating margin recovery to cover financing costs.
• Ordinary income trend and non-operating items (interest, FX, other).
• Interest coverage (EBIT/interest and EBITDA/interest) and refinancing profile.
• Working capital metrics: receivables days, payables days, inventory turns.
• Free cash flow after normalized working capital movements.

Relative Positioning: Within low-margin, high-turnover distribution/wholesale peers, MERF’s revenue scale is solid but margins are currently below sustainable levels, leaving it more exposed to cost inflation and financing costs; liquidity is adequate, and positive FCF offers a mitigation lever if operational margins can be stabilized.

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
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