Next Generation Technology Group Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥8.97B
• Operating Income: ¥795M
• Net Income: ¥617M
• EPS: ¥92.08

Income Statement

Balance Sheet

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

Verdict: Mixed quarter with solid top-line growth but weaker core profitability offset by below-the-line gains, resulting in headline net income growth despite a sharp YoY decline in operating profit. Revenue rose 11.5% YoY to 89.7, demonstrating healthy demand momentum. Gross profit was 23.8 with a gross margin of 26.5%. SG&A was 12.42, implying an SG&A ratio of roughly 13.8% of sales. Operating income fell 30.2% YoY to 7.95, translating to an operating margin of about 8.9% (down YoY in absolute terms, though exact bps change is not measurable due to lack of prior-period margin disclosure). Ordinary income decreased 30.6% YoY to 8.02, indicating pressure at the recurring income level. Non-operating income of 1.00 (12.5% of operating income) provided a modest cushion, while non-operating expenses were 0.82, and interest expense was 0.64, with solid interest coverage of 12.4x. Profit before tax printed at 10.74, exceeding ordinary income, implying material below-the-line gains outside ordinary operations. Net income increased 29.7% YoY to 8.01, driven by non-recurring items despite weaker operating performance. The effective tax rate, calculated against profit before tax, appears high at 42.6%, yet the relationship between PBT, tax, and net income suggests classification nuances under JGAAP or other below-the-line items; this should be monitored. Cash remained strong with cash and deposits at 80.92 and a robust current ratio of 206%, indicating ample liquidity. However, leverage is elevated with a D/E of 2.26x, warranting attention to refinancing and interest-rate risks. ROE stands at 12.1% via DuPont decomposition, aided by relatively high financial leverage (3.26x). ROIC is 5.4%, sitting just above warning territory and below the 7–8% benchmark, implying returns are modest relative to invested capital. Earnings quality cannot be fully assessed as operating cash flow was not disclosed, a key limitation. Looking ahead, sustaining growth will require improving core margins and ROIC while managing leverage and potential goodwill/intangible impairment risks.

Profitability Analysis

ROE (12.1%) decomposes into Net Profit Margin (8.9%) × Asset Turnover (0.416) × Financial Leverage (3.26x). The largest swing at the income-statement level appears to be the contraction in operating income (-30.2% YoY), which implies margin pressure at the core business despite 11.5% revenue growth. Business drivers likely include higher input costs or elevated SG&A (e.g., integration, hiring, or growth investments) compressing operating margin, while below-the-line gains boosted net profit margin relative to operating results. This pattern is unlikely to be sustainably repeatable if non-recurring gains are the source of net income growth; normalization would bring NPM closer to operating fundamentals. Asset turnover at 0.416 indicates moderate efficiency; rising asset base (goodwill 23.68, intangibles 24.00) could dilute turnover if acquisitions outpace integration. Financial leverage (3.26x) is the key support to ROE; while it lifts equity returns, it also raises risk (D/E 2.26x). Concerning trend: core profitability declined even as sales rose; without SG&A detail, the risk is that fixed-cost growth outpaced revenue, reducing operating leverage.

Growth Assessment

Top-line growth of 11.5% YoY is solid and suggests resilient demand or contribution from acquisitions. However, operating profit declined 30.2% YoY, signaling negative operating leverage and/or mix shift. Net income rose 29.7% YoY, likely aided by non-operating or extraordinary factors as PBT exceeded ordinary income by 2.72. The sustainability of profit growth is therefore questionable absent improvement in operating margin and ROIC (currently 5.4%). With non-operating income at 12.5% of operating profit, the contribution from non-core items is meaningful but not dominant; still, reliance on below-the-line items is not a durable earnings driver. Outlook hinges on restoring margin discipline (cost control, pricing) and extracting synergies from intangible-heavy investments. Without cash flow disclosure, we cannot validate whether growth is cash-generative—an important caveat for forward growth quality.

Financial Health

Liquidity is strong: current ratio 206.3% and quick ratio 199.8%, with cash of 80.92 comfortably exceeding short-term loans of 25.70 and total current liabilities of 59.57. Solvency shows elevated leverage: D/E at 2.26x (warning threshold >2.0), and total loans of 98.6 (short 25.7, long 72.9) vs equity of 66.22. Interest coverage is healthy at 12.42x, mitigating near-term debt service risk. Maturity mismatch risk is moderate: sizable cash and current assets (122.9) more than cover current liabilities (59.57), but refinancing risk exists given large long-term loans (72.9). Goodwill (23.68) and intangibles (24.00) comprise a meaningful portion of equity, raising impairment sensitivity. No off-balance sheet obligations were disclosed; absence of disclosure limits full risk assessment.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed—this is a key limitation for earnings quality analysis. Free cash flow is also unreported, preventing evaluation of coverage for dividends or growth capex. Working capital appears conservative with low inventories (3.90) and receivables (17.05) relative to revenue, but without period-over-period movement we cannot assess working capital release/consumption or potential window dressing. Given net income growth driven by below-the-line factors while operating profit declined, cash conversion risk should be considered until OCF is disclosed.

Dividend Sustainability

Dividend data (DPS, payout, total dividends) are unreported, so we cannot quantify payout ratio or FCF coverage. Retained earnings stand at 43.77, and liquidity is ample, suggesting capacity, but leverage (D/E 2.26x) and modest ROIC (5.4%) counsel against aggressive distributions without clear FCF support. Policy outlook cannot be inferred from the data provided; disclosure of dividend policy and mid-term capital allocation targets would be needed.

Risk Assessment

Business Risks:

• Core margin pressure despite revenue growth (operating income -30.2% YoY) indicating negative operating leverage or unfavorable mix.
• Integration and execution risk given sizable goodwill (23.68) and intangibles (24.00).
• Dependence on non-operating/extraordinary items to bridge earnings (PBT > ordinary income).
• Potential cost inflation (labor, procurement) compressing gross/operating margins.
• Customer or project concentration risk (not disclosed but typical for project-based or roll-up models).

Financial Risks:

• Elevated leverage with D/E 2.26x increasing refinancing and interest-rate risk.
• Impairment risk on goodwill/intangibles that could hit equity and ROE.
• Tax-rate volatility (reported effective tax 42.6%) affecting net profitability.
• Maturity profile concentration in long-term loans (72.9) requiring future refinancing under uncertain rates.

Key Concerns:

• Lack of operating cash flow and FCF disclosure—cannot validate earnings quality or dividend capacity.
• ROIC at 5.4% below 7–8% benchmark suggests value creation is modest relative to capital employed.
• Non-operating income ratio of 12.5% indicates a meaningful non-core contribution to results.
• Data anomaly between PBT, tax, and net income suggests classification effects under JGAAP; clarity needed.

Investment Implications

Key Takeaways:

• Strong revenue growth (+11.5% YoY) but core profit under pressure (OP -30.2% YoY).
• Headline net income up (+29.7% YoY) due to below-the-line items; sustainability is uncertain.
• ROE of 12.1% is leverage-assisted (3.26x), while ROIC at 5.4% lags value-creation benchmarks.
• Liquidity is robust (current ratio 206%), but D/E 2.26x flags elevated balance-sheet risk.
• Interest coverage is comfortable at 12.4x, limiting near-term solvency risk.
• Goodwill/intangibles are sizeable, elevating impairment sensitivity.
• Limited cash flow disclosure is the main obstacle to assessing earnings quality and dividend capacity.

Metrics to Watch:

• Operating cash flow and FCF (OCF/NI target >1.0).
• Operating margin trajectory and SG&A intensity.
• ROIC versus WACC and progress toward 7–8% benchmark.
• Leverage (Net debt/Equity) and refinancing schedule; interest coverage sustainability.
• Goodwill/intangible impairment testing outcomes and acquisition integration KPIs.
• Composition of non-operating/extraordinary gains and effective tax rate normalization.
• Working capital dynamics (receivables and inventories turnover).

Relative Positioning: Within small-to-mid cap peers, the company shows better-than-average liquidity and interest coverage but higher leverage and lower ROIC than desired, with earnings quality clouded by reliance on non-core items and lack of cash flow disclosure.

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