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

Revenue grew 11.5% YoY to ¥8.97bn in FY2025 Q3 (cumulative), indicating healthy topline momentum despite a challenging cost backdrop. Gross profit reached ¥2.38bn, implying a gross margin of 26.5%, which is reasonable for a services/solution-oriented mix but suggests limited pricing power or higher input/implementation costs. Operating income declined 30.2% YoY to ¥0.80bn, compressing the operating margin to 8.9%, signaling significant operating deleverage from higher SG&A or project-related cost inflation. Ordinary income of ¥0.80bn was broadly in line with operating income, and interest expense was modest at ¥64m, underscoring limited non-operating distortion. Net income rose 29.7% YoY to ¥0.80bn, an unusual divergence from operating income trends that likely reflects period-specific items, tax effects, or prior-year base effects; data limitations prevent precise attribution. DuPont analysis shows ROE of 12.1%, driven by a net margin of 8.93%, asset turnover of 0.416x, and financial leverage of 3.26x, indicating leverage is a meaningful contributor to equity returns. Asset turnover is relatively low, consistent with a platform or holding-company-like model, while leverage boosts ROE to a respectable level above the market median. Liquidity is sound with a current ratio of 174.5% and quick ratio of 167.5%, and working capital of ¥3.76bn supports operational resilience. Solvency appears manageable with interest coverage at 12.4x, though the reported debt-to-equity of 1.72x indicates reliance on debt financing. Equity of ¥6.62bn against total assets of ¥21.58bn implies an equity ratio around 31% by our calculation (the reported 0.0% equity ratio should be treated as unreported). Cash flow data are not disclosed (OCF/FCF show as zero placeholders), limiting assessment of earnings-to-cash conversion. Dividend data show DPS and payout ratio at 0%, suggesting either a reinvestment phase or insufficient disclosure to evaluate policy consistency. Inventory is modest at ¥351m, pointing to a service-heavy model with limited working capital tied up in stock. Overall, the quarter reflects strong revenue growth but margin pressure at the operating level, with ROE supported by leverage and profitability rather than efficiency gains. The key near-term focus is restoring operating margin through SG&A discipline and execution, while monitoring funding costs and cash conversion. Data gaps, particularly in cash flow and D&A, constrain a full quality-of-earnings review.

Profitability Analysis

ROE_decomposition: Reported ROE is 12.10%, derived from Net Profit Margin 8.93% × Asset Turnover 0.416 × Financial Leverage 3.26. ROE is primarily supported by decent net margins and notable leverage, while the low asset turnover tempers returns. margin_quality: Gross margin of 26.5% is stable-to-moderate, but operating margin compressed to 8.9% (¥795m OI on ¥8,970m revenue), down sharply YoY as operating income fell 30.2% despite double-digit revenue growth. Ordinary income is close to operating income, suggesting limited reliance on non-operating gains. The apparent 0.0% effective tax rate conflicts with the disclosed income tax amount due to data limitations; margin analysis therefore relies on operating metrics. operating_leverage: Negative operating leverage this period: revenue +11.5% YoY vs operating income -30.2% YoY implies SG&A growth outpaced gross profit gains. This indicates cost pressure (personnel, integration, project delivery) or deliberate upfront investments that have yet to scale.

Growth Assessment

revenue_sustainability: Topline growth of 11.5% YoY is solid and likely reflects healthy demand in core solutions/services and/or consolidation effects. Sustainability will depend on backlog quality, customer retention, and the cadence of new engagements. profit_quality: Net income grew 29.7% YoY despite operating income declining YoY, suggesting period-specific items, tax, or prior-year comparables affected bottom-line growth. With cash flow data unreported, earnings quality cannot be validated via OCF conversion. outlook: Near-term growth prospects remain intact given the double-digit revenue trajectory, but restoring operating margin will be critical. Execution on cost control, pricing, and project delivery can re-establish operating leverage. Interest costs are manageable, but higher rates could modestly pressure ordinary income if leverage persists.

Financial Health

liquidity: Current ratio 174.5% and quick ratio 167.5% indicate strong short-term liquidity. Working capital stands at ¥3.76bn, and inventories are low at ¥351m, reducing liquidity risk tied to stock. solvency: Interest coverage is 12.4x (¥795m OI / ¥64m interest), providing ample buffer. Debt-to-equity is 1.72x, implying meaningful leverage; equity of ¥6.62bn vs total assets of ¥21.58bn suggests an equity ratio of roughly 30.7% (our calculation; reported equity ratio is unavailable). capital_structure: Leverage contributes materially to ROE (financial leverage 3.26x). The structure appears serviceable given coverage, but elevates sensitivity to earnings volatility and interest rate changes.

Cash Flow Quality

earnings_quality: Operating cash flow is unreported (displayed as zero), preventing assessment of OCF/NI conversion (shown as 0.00 due to data limitations). Depreciation and amortization are also unreported, obscuring non-cash components of earnings. FCF_analysis: Free cash flow is unreported (displayed as zero placeholder). Without OCF and capex details, FCF generation and coverage cannot be evaluated. working_capital: Inventories are modest; however, receivables/payables movements are not disclosed. Given revenue growth, monitoring DSO/DPO/CCC will be important to ensure growth does not consume disproportionate cash.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are shown as 0; treat as undisclosed rather than confirmed zero. With EPS at ¥92.08 and ROE at 12.1%, the company has capacity to consider distributions in principle, but no policy inference can be made from the provided data. FCF_coverage: FCF is unreported; hence dividend coverage by FCF cannot be assessed. policy_outlook: Given margin pressure and leverage reliance for ROE, management may prioritize reinvestment and balance sheet strength. Any dividend initiation or increase would depend on stabilizing operating margin and demonstrating consistent OCF.

Risk Assessment

Business Risks:

• Operating deleverage from rising SG&A and project delivery costs
• Pricing pressure or mix shift affecting gross margin
• Execution risk in scaling service platforms and integrating new businesses
• Customer concentration and contract renewal risk (not disclosed; typical for B2B service models)
• Talent retention and wage inflation in technical services

Financial Risks:

• Leverage exposure (Debt-to-Equity 1.72x) amplifies earnings volatility
• Interest rate sensitivity despite current 12.4x coverage
• Cash conversion risk given lack of disclosed OCF
• Potential working capital absorption as revenue scales
• Limited visibility on capex and D&A, obscuring maintenance vs growth investment needs

Key Concerns:

• Operating income down 30.2% YoY despite 11.5% revenue growth
• Reliance on leverage to sustain 12.1% ROE
• Insufficient cash flow disclosure to validate earnings quality

Investment Implications

Key Takeaways:

• Topline growth is solid at +11.5% YoY, but operating margin compressed materially
• ROE of 12.1% is respectable, supported by leverage and margin rather than efficiency
• Liquidity is comfortable; solvency is adequate with 12.4x interest coverage
• Cash flow data are missing, limiting confidence in earnings quality assessment
• Restoring operating leverage is the pivotal operational priority

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Gross margin trajectory and pricing/mix
• Asset turnover and capital efficiency
• Interest coverage and effective tax rate normalization
• OCF/Net income conversion and FCF once disclosed
• Equity ratio (our estimate ~31%) and Debt-to-Equity
• Backlog/orders and utilization rates (if disclosed)

Relative Positioning: ROE around 12% places the company modestly above the broader Japan market median, but efficiency (asset turnover 0.416x) lags peers in more asset-light service segments; leverage is a key driver of returns, and margin restoration will determine competitive standing.

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