GENERATION PASS CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥16.55B
• Operating Income: ¥114M
• Net Income: ¥134M
• EPS: ¥19.88

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

Verdict: A mixed quarter — modest top-line growth and improved profitability metrics were overshadowed by a sharp deterioration in cash flow. Revenue rose 2.0% year over year to 165.52, while operating income increased 39.9% to 1.14, signaling better operating efficiency on a thin margin base. Ordinary income jumped to 1.78 (+700.9% YoY), aided by 0.74 in non-operating income and low interest costs, while net income increased 11.5% to 1.61. Gross profit reached 45.15 with a gross margin of 27.3%, and EBITDA was 1.72, implying an EBITDA margin of about 1.0%. Operating margin improved to roughly 0.69% (1.14 / 165.52). Based on the YoY growth rates provided, we estimate operating margin expanded by about 19 bps (from ~0.50% to ~0.69%), and net margin improved by roughly 9 bps (from ~0.89% to ~0.97%). ROE was calculated at 8.5%, driven by a 1.0% net margin, 3.576x asset turnover, and 2.45x financial leverage. Liquidity appears sound on headline ratios (current ratio 163%, quick ratio 104%), and interest coverage is strong at about 12x. However, earnings quality was weak: operating cash flow was -6.25 despite 1.61 of net income (OCF/NI -3.88x), and free cash flow was -6.97 after -0.55 of capex. Working capital intensity remains high with inventories of 15.85 and receivables of 12.50, while accounts payable sits at 7.70, likely contributing to the OCF shortfall. The capital structure leans on short-term loans of 12.30, elevating refinancing and liquidity management risk if cash conversion remains weak. Tax burden was light (effective tax rate ~10.6%), supporting bottom-line growth alongside non-operating income. Reported ratio fields showing 0.0% in XBRL should be treated as unreported, not true zeros. Forward-looking, sustaining improved margins will require better working capital discipline and reducing dependency on non-operating gains. The company enters the new fiscal year with adequate liquidity but must address cash conversion to support growth and any shareholder return ambitions.

Profitability Analysis

DuPont decomposition indicates ROE of 8.5% = Net Profit Margin (≈0.97–1.00%) × Asset Turnover (3.576x) × Financial Leverage (2.45x). The biggest incremental contributor this quarter appears to be net profit margin, given operating income grew 39.9% versus revenue growth of 2.0%, alongside a low effective tax rate and sizable non-operating income (0.74 equals ~65% of operating income). Asset turnover remains high for an inventory-based commerce model, reflecting efficient asset utilization at the reported period-end asset base of 46.29. Leverage at 2.45x provided additional ROE uplift but is not excessive for a trading model; however, reliance on short-term loans increases sensitivity to cash conversion. The improvement in ordinary income suggests non-operating tailwinds (interest income 0.03 and other items) bolstered profitability beyond operations. Sustainability looks mixed: modest structural gains in operating margin may be repeatable if SG&A remains contained, but the contribution from non-operating income and a low tax rate may not be persistent. With EBITDA margin only ~1.0% and operating margin ~0.69%, profitability remains razor-thin, implying high sensitivity to gross margin or logistics cost fluctuations. We cannot verify whether SG&A growth outpaced revenue due to unreported SG&A breakdown and YoY detail; thus, we cannot flag operating deleverage from SG&A.

Growth Assessment

Top-line growth was modest at +2.0% YoY to 165.52, likely reflecting stable demand but limited volume/price growth. Operating profit growth of +39.9% indicates improved mix or cost control, although gross margin disclosure is point-in-time at 27.3% and prior YoY margin is unavailable. Ordinary income growth (+700.9%) was outsized relative to operating growth, indicating a material non-operating tailwind. Net income increased 11.5% to 1.61, with EPS at 19.88 JPY on 8.12 million average shares, benefiting from a low tax rate (~10.6%). Given EBITDA margin near 1.0%, future profit growth will depend on maintaining gross margin and controlling logistics and platform fees. Without SG&A breakdown, we cannot assess specific cost drivers; however, the low operating margin suggests limited buffer against cost inflation. Revenue sustainability will hinge on inventory turns and marketplace execution; inventories at 15.85 imply continued working capital support for sales. Outlook-wise, if the company normalizes working capital and preserves margin gains, incremental operating leverage could continue; conversely, a repeat of negative OCF would constrain growth investment.

Financial Health

Liquidity appears adequate: current ratio 163.3% and quick ratio 104.1% exceed healthy thresholds. Working capital is 16.95, supported by cash and deposits of 8.01 and receivables of 12.50, offset by payables of 7.70. Solvency: debt-to-equity is 1.45x, at the conservative threshold per benchmarks, warranting monitoring but not an immediate red flag. Short-term loans are 12.30, while noncurrent liabilities are only 0.63, indicating a maturity profile skewed to short-term debt; this presents a maturity mismatch risk if cash conversion remains weak. Interest coverage is strong (~12x), suggesting manageable interest burden under current earnings. Equity stands at 18.87 with retained earnings of 7.46, providing some cushion. No off-balance sheet obligations are disclosed in the provided data. Explicit warnings: Current ratio is above 1.0 (no warning) and D/E is at ~1.45x (borderline versus the 1.5x guideline, but not above 2.0).

Cash Flow Quality

Earnings quality is weak this quarter: OCF/Net Income is -3.88x, far below the >1.0 benchmark, signaling that accounting profits did not translate to cash. Free cash flow was -6.97 after -0.55 of capital expenditures, indicating the business required external financing (FinCF +2.97) to fund operations and investment. The magnitude of negative OCF is most plausibly explained by working capital outflows, consistent with an inventory-heavy balance sheet (inventories 15.85, receivables 12.50) and modest payables (7.70). We cannot confirm quarter-on-quarter changes in specific working capital lines due to absent prior-period data; thus, we do not assert any working capital manipulation. The reliance on short-term loans alongside negative OCF increases the importance of normalizing inventory and receivables. Sustaining dividends or incremental capex from internal cash is not feasible unless OCF rebounds.

Dividend Sustainability

Dividend information is unreported, so payout ratio and DPS cannot be assessed. With free cash flow at -6.97 and operating cash flow negative, internal coverage for any dividend outlay would be strained in the short term. Retained earnings of 7.46 provide balance sheet capacity, but recurring distributions would require improved cash generation. Policy outlook cannot be inferred from the provided data; any dividend resumption or increase should be contingent on restoring positive OCF and stabilizing working capital.

Risk Assessment

Business Risks:

• Razor-thin operating margin (~0.69%) and EBITDA margin (~1.0%) leave little buffer against cost inflation or volume shocks.
• Dependence on working capital (inventories 15.85, receivables 12.50) increases exposure to demand volatility and inventory obsolescence.
• Non-operating income (0.74) materially supports ordinary income, and may be non-recurring.
• Low effective tax rate (~10.6%) may normalize upward, pressuring net profit.
• E-commerce/logistics industry exposure to shipping cost inflation and platform fee changes.

Financial Risks:

• Negative operating cash flow (-6.25) versus positive net income (1.61) indicates weak cash conversion.
• Short-term debt concentration (12.30) versus limited cash (8.01) raises refinancing and liquidity management risk.
• Debt-to-equity at ~1.45x is at the conservative threshold; further debt to fund working capital could push leverage higher.
• Inventory-heavy current assets increase liquidity risk if sell-through slows.

Key Concerns:

• OCF/NI of -3.88x (well below 0.8 threshold) flags earnings quality.
• Free cash flow of -6.97 necessitated financing cash inflows (+2.97).
• Margin sustainability is uncertain given reliance on non-operating income and low tax burden.
• Data limitations: unreported SG&A breakdown and dividend data constrain visibility.

Investment Implications

Key Takeaways:

• Revenue +2.0% YoY to 165.52 with operating income +39.9% to 1.14; ordinary income 1.78 and net income 1.61 (+11.5%).
• Operating margin improved to ~0.69% (estimated +~19 bps YoY), net margin to ~0.97% (estimated +~9 bps).
• ROE 8.5% driven by 1.0% net margin, 3.576x asset turnover, and 2.45x leverage.
• Cash conversion deteriorated: OCF -6.25; FCF -6.97.
• Liquidity acceptable (CR 163%, QR 104%), but funding skewed to short-term loans (12.30).
• Non-operating income (0.74) and low tax rate (~10.6%) amplified bottom line; persistence uncertain.

Metrics to Watch:

• OCF/Net Income (>1.0 target) and free cash flow trajectory.
• Inventory turnover and receivables days (to reduce working capital drag).
• Gross margin and logistics costs (sensitivity driver for thin OPM).
• Short-term debt balances vs cash and undrawn facilities.
• Non-operating income contribution and effective tax rate normalization.

Relative Positioning: Versus small-cap Japanese e-commerce and trading peers, the company shows strong asset turnover but thinner operating margins and weaker cash conversion this quarter; leverage sits toward the higher end of conservative ranges, with liquidity adequate but reliant on short-term funding.

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