NEXTAGE Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥652.07B
• Operating Income: ¥19.60B
• Net Income: ¥12.66B
• EPS: ¥161.65

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

AI Financial Analysis

Executive Summary

Verdict: Strong top-line growth with solid operating leverage, but earnings quality and cash conversion lag, leaving a balance-sheet-dependent growth profile. Revenue grew 18.0% YoY to 652.1bn JPY equivalent (6,520.72 in 100M), while operating income rose 51.4% to 19.6bn JPY (195.97), evidencing improved operating efficiency. Net income advanced 60.0% to 12.8bn JPY (128.11), pushing reported ROE to 16.2%, above the 15% ‘excellent’ benchmark. Gross margin printed at 17.2%, and operating margin improved to 3.0% from roughly 2.3% a year ago, a margin expansion of about 66 bps. Net margin was 2.0% versus c.1.5% last year, a ~51 bps expansion, aided by better operating leverage and a normal tax rate. DuPont shows ROE of 16.2% driven by high asset turnover (2.88x) and leverage (2.86x), with a modest net margin. Earnings quality is a concern: OCF was 9.19bn JPY versus NI of 12.81bn JPY (OCF/NI 0.72x), and cash conversion (OCF/EBITDA) was only 0.35x, signaling heavy working-capital consumption. Inventory intensity remains high (inventories at 39% of assets), pressuring quick liquidity and cash generation. Leverage is meaningful (D/E 1.86x; Debt/EBITDA 2.64x), though interest coverage is strong (21x+), and current ratio is healthy at 1.84x. FCF was positive at 1.86bn JPY (18.56 in 100M), but did not fully cover buybacks and the year-end dividend, implying reliance on cash balances/financing. Balance sheet shows notable shifts: cash down 50.5%, short-term loans down 59.5%, receivables up 73.2%, and treasury stock up materially (buybacks). Forward-looking, sustained growth hinges on inventory turnover normalization and WC discipline; otherwise, the company may need continued leverage to support expansion. Margin gains appear repeatable if scale efficiencies persist, but industry cyclicality in used car prices and potential markdown risk on inventories could cap further margin expansion. Overall, operational momentum is positive but tempered by cash conversion and inventory risk. The dividend payout is conservative (c.21%), but capital returns via buybacks outpaced FCF this term. Key watch items: inventory days, OCF/NI normalization, debt/EBITDA drift, and used-car price trends.

Profitability Analysis

ROE decomposition: ROE 16.2% = Net Profit Margin 2.0% × Asset Turnover 2.875 × Financial Leverage 2.86x. The most impactful contributors are high asset turnover and leverage; net margin, while improved, remains thin for retail benchmarks. Operating margin improved to 3.0% from ~2.3%, aided by operating leverage as revenue grew 18% while operating income rose 51%. SG&A ratio was approximately 14.2% of sales, suggesting fixed-cost dilution; SG&A growth was below gross profit growth, supporting margin expansion. 5-factor DuPont indicates: Tax burden 0.728 (normal), Interest burden 0.898 (manageable financing costs), and EBIT margin 3.0% (<5% benchmark; still a constraint). Business drivers: scale benefits from network expansion and mix likely improved reconditioning/finance/insurance attachment rates, while cost control limited SG&A growth. Sustainability: Some leverage of fixed costs should persist with growth, but used-car margin is cyclical; inventory valuation risk and price normalization could compress gross margin. Flag: Operating efficiency remains low for the industry benchmark (EBIT margin <5%); continued reliance on turnover and leverage to drive ROE elevates risk if sales slow.

Growth Assessment

Revenue expanded 18.0% YoY to 652.1bn JPY equivalent, indicating robust demand and network-driven growth. Operating income growth of 51.4% outpaced sales growth, confirming operating leverage. Net income grew 60.0%, benefiting from higher operating profit and stable tax burden. Gross margin at 17.2% appears stable to slightly improved, but durability depends on used-car pricing and inventory management. EBITDA was 26.2bn JPY (262.12) with a 4.0% margin; room for improvement exists via mix and process efficiency. With CapEx roughly in line with depreciation (CapEx/D&A 0.92x), growth investments seem steady rather than aggressive; store pipeline and reconditioning capacity utilization will shape next-year growth. Near-term outlook: continued top-line growth is plausible given momentum, but working capital intensity (receivables and inventories) could constrain free cash flow; management must prioritize turnover and WC discipline to support expansion without undue leverage. Key forward indicators: inventory days, sell-through rates, gross margin per vehicle, and finance/insurance penetration.

Financial Health

Liquidity is adequate: current ratio 1.84x (>1.5 benchmark), but quick ratio is low at 0.65x due to inventory-heavy model. No warning on current ratio (<1.0) is needed. Cash (17.7bn JPY) covers short-term loans (8.0bn JPY) 2.22x; current liabilities of 73.9bn JPY are well covered by current assets of 136.3bn JPY, limiting maturity mismatch risk. Solvency: D/E 1.86x (elevated but below 2.0 warning), Debt/EBITDA 2.64x (slightly above 2.5x investment-grade line), and Debt/Capital 46.6% (above 40% benchmark), indicating moderate leverage. Interest coverage is strong at 21.05x (EBIT-based) and 28.15x (EBITDA-based), suggesting manageable debt service. Notable B/S shifts: cash down 50.5% YoY, short-term loans down 59.5% (mix shift toward long-term debt of 61.2bn JPY), receivables up 73.2% (credit expansion/terms), and accounts payable up 39.8% (volume). Inventory at 88.5bn JPY (39% of assets) concentrates liquidity risk if market prices correct. No off-balance sheet obligations were disclosed in the provided data.

Notable B/S Changes

Treasury Stock: -4.61 → -41.90 (-808.9%) - Significant buybacks; supports EPS/ROE but reduces cash and flexibility. Accounts Receivable: 116.30 → 201.40 (+73.2%) - Aggressive credit expansion alongside growth; elevates collection risk and WC needs. Short-term Loans: 197.01 → 79.73 (-59.5%) - Shift in funding mix away from short-term facilities; reduces near-term refinancing risk but increases reliance on long-term debt. Cash and Deposits: 357.11 → 176.86 (-50.5%) - Cash draw to fund WC and shareholder returns; lowers liquidity buffer. Accounts Payable: 124.35 → 173.84 (+39.8%) - Higher purchasing volume; some supplier financing support but potential reversal risk. Retained Earnings: 515.95 → 616.79 (+19.5%) - Accumulated profits net of dividends/buybacks; supports equity base though increase lags NI growth due to capital returns.

Cash Flow Quality

OCF of 9.19bn JPY versus NI of 12.81bn JPY yields OCF/NI 0.72x, below the 0.8 benchmark, indicating weaker earnings-to-cash conversion. Cash conversion (OCF/EBITDA) was 0.35x, pointing to substantial working-capital absorption (receivables up, inventory heavy), not necessarily accounting aggressiveness; the accruals ratio is low at 1.6%, which supports accounting quality. Free cash flow was positive at 1.86bn JPY after 6.10bn JPY of CapEx, but did not cover total shareholder returns (share repurchases of 4.40bn JPY plus year-end dividend), implying use of cash balances/financing. Sustainability: to sustain dividends and buybacks without levering up, OCF must improve via tighter inventory and receivable management. Working capital signals: significant YoY increase in receivables (+73%) and payables (+40%) align with higher activity but can reverse if sales slow; monitor for stretching of payables or rising delinquency in receivables.

Dividend Sustainability

Declared year-end DPS is 33 JPY, with an estimated payout ratio around 20.8% on the reported NI, a conservative level. FCF coverage is 0.70x, indicating the dividend plus buybacks exceeded internally generated cash this term. With CapEx around depreciation (0.92x), maintenance needs appear funded, but incremental capital returns depend on improving OCF. Balance sheet capacity exists but is not unlimited given D/E at 1.86x and Debt/EBITDA at 2.64x. Policy outlook: a sustainable base dividend is supported by low payout; variable/buyback intensity should be calibrated to FCF and inventory cycle.

Risk Assessment

Business risks include Used-car price volatility affecting gross margins and inventory valuation., High inventory concentration (39% of assets) raising markdown/liquidity risk in a downturn., Receivables growth (+73% YoY) elevating credit and collection risk., Operating margin thin at 3.0%, leaving limited buffer against shocks., Execution risk from network expansion and staffing/training affecting SG&A control and throughput..

Financial risks include Leverage moderate-to-elevated: D/E 1.86x and Debt/EBITDA 2.64x slightly above investment-grade comfort., Weak cash conversion (OCF/EBITDA 0.35x) increases dependence on debt or cash for growth and returns., Quick ratio 0.65x underscores reliance on inventory monetization for liquidity., Potential covenant headwinds if EBITDA softens (limited headroom vs 2.5x benchmark)..

Key concerns include Earnings quality flags: OCF/NI 0.72x and cash conversion 0.35x., Inventory and receivables expansion outpacing sales growth, risking WC reversals., Shareholder returns (buybacks + dividend) outstripping FCF in the period., Sensitivity to interest rate increases on floating-rate borrowings and floorplan-type financing..

Investment Implications

Key takeaways include Growth momentum is strong with 18% sales growth and 51% operating profit growth., ROE of 16.2% is attractive but relies more on turnover and leverage than margin strength., Operating margin expansion (~66 bps YoY) shows scaling benefits, yet absolute margin remains below 5% benchmark., Earnings-to-cash conversion is weak; WC normalization is essential to sustain returns and de-lever., Balance sheet can support operations, but incremental buybacks should pace with FCF to avoid leverage creep..

Metrics to watch include Inventory days and aged inventory ratios, OCF/Net income and OCF/EBITDA, Gross margin per vehicle and SG&A ratio, Debt/EBITDA and interest coverage, Receivables turnover and delinquency, Used-vehicle price indices and auction clearance rates.

Regarding relative positioning, Within Japan’s used-car retail peers, the company exhibits above-industry growth and ROE supported by high asset turnover, but operates with thinner margins and higher working-capital intensity; leverage is higher than conservative retailers yet interest coverage remains strong.