EARLY AGE CO.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥3.29B
• Operating Income: ¥506M
• Net Income: ¥279M
• EPS: ¥88.07

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 weaker quarter with sharp top-line contraction and margin compression, partially cushioned by solid operating cash flow but overshadowed by heavy capex and elevated leverage. Revenue fell 30.4% YoY to 32.89, driving operating income down 43.1% YoY to 5.06 and net income down 47.1% YoY to 2.80. Gross profit was 10.38, implying a gross margin of 31.6% this quarter. Operating margin declined to 15.4% (5.06/32.89), while ordinary margin stood at 12.3% and net margin at 8.5%. Based on derived prior-year levels, operating margin compressed by roughly 340 bps (from ~18.8% to 15.4%) and net margin compressed by roughly 270 bps (from ~11.2% to 8.5%). Earnings quality was comparatively good: operating cash flow of 4.49 exceeded net income by 1.60x, indicating accruals did not inflate earnings. However, free cash flow was deeply negative at -12.46 due to sizable capex of -16.94, signaling investment-driven cash drain. The balance sheet shows total assets of 151.86 and total equity of 47.27, with a high D/E ratio of 2.21x that warrants caution. Liquidity is adequate but not robust: current ratio 129.6% (above 1.0 but below the 1.5 comfort threshold) and quick ratio 93.6% suggest some near-term tightness. Interest coverage of 4.77x is moderate, below the >5x strong benchmark. The revenue decline outpaced SG&A reductions (SG&A 5.32), pressuring operating leverage despite EBITDA of 7.42 (22.6% margin). Non-operating burdens, mainly interest expense of 1.06, further weighed on ordinary income (down 50.4% YoY). EPS (basic) was 88.07 JPY on average shares of ~3.18 million, with BVPS ~1,486 JPY. Dividend details were unreported; the calculated payout ratio is 40.9%, yet FCF coverage is negative, implying reliance on cash balances or financing if dividends are continued. Forward-looking, the mix of falling revenue, margin pressure, high leverage, and capex-heavy investment profile raises the bar for execution to restore returns; stabilization of sales and improved asset turnover are critical to defending ROE at 5.9%.

Profitability Analysis

DuPont decomposition (current): ROE 5.9% = Net Profit Margin 8.5% × Asset Turnover 0.217 × Financial Leverage 3.21x. The most material change versus last year is net margin compression (net income -47.1% vs revenue -30.4%), implying a roughly 270 bps decline in net margin (from ~11.2% to 8.5%), while leverage remains high and asset turnover is low. Business drivers include a sharp revenue contraction that did not fully translate into proportional cost reductions, plus higher non-operating drag from interest expense, squeezing ordinary income (-50.4% YoY). Operating margin also compressed by an estimated ~340 bps (from ~18.8% to 15.4%), indicating weaker operating leverage amid lower volumes. Asset turnover at 0.217 highlights an asset-heavy model; with revenue down and the asset base large, turnover likely deteriorated YoY, though we lack prior total assets to quantify. The margin pressure appears cyclical/volume-driven rather than purely one-time, but non-operating costs (interest) are structural under current leverage. SG&A at 5.32 did not fall commensurately with sales (no YoY SG&A disclosed), suggesting limited short-term flexibility; this is a watchpoint if revenue softness persists.

Growth Assessment

Revenue contracted 30.4% YoY to 32.89, a steep decline likely tied to project timing or softer demand in an asset-heavy, real-estate-like model. Operating income fell 43.1% and ordinary income 50.4%, indicating adverse operating and financial leverage effects. EBITDA margin remains decent at 22.6%, but lower than the implied prior-year level given operating margin compression. With OCF/NI at 1.60x, earnings quality is acceptable; however, negative FCF due to capex (-16.94) signals growth investments or asset renewal that must translate into future cash generation. Outlook hinges on the cadence of project completions/asset sales (or occupancy/ADR if rental) and the ability to pass through costs; absent a sales recovery, margins may remain under pressure. Near-term growth visibility is limited in the data; we would monitor backlog/pre-sales metrics, pipeline progress, and leasing/occupancy indicators to gauge sustainability.

Financial Health

Liquidity: current ratio 129.6% (above 1.0 but below the 1.5 healthy benchmark); quick ratio 93.6% indicates some reliance on inventories or other current assets to meet near-term obligations. Solvency: D/E is high at 2.21x (warning threshold >2.0), and long-term loans total 85.08, underscoring leverage dependence. Interest coverage at 4.77x is moderate; not distressed, but below the >5x strong mark. Maturity profile: current liabilities (15.57) are covered by current assets (20.18), limiting immediate mismatch risk; however, the capital structure is skewed to noncurrent debt (89.01 of liabilities), raising refinancing and interest rate sensitivity over the medium term. Off-balance sheet obligations: none reported in the provided data.

Cash Flow Quality

OCF/NI is 1.60x, comfortably above the 0.8 threshold, indicating acceptable earnings quality with supportive working capital dynamics. Free cash flow is -12.46 due to heavy capex of -16.94, implying that internal cash generation does not currently cover investment outlays. With financing CF of +7.84, the company relied on external funding (or debt roll/issuance) to support capex while maintaining liquidity. No explicit signs of working capital manipulation are evident from the limited line items; receivables and payables are unreported, which constrains forensic assessment. Sustainability: unless capex moderates or monetization improves, FCF is likely to remain negative, pressuring leverage and dividend capacity.

Dividend Sustainability

Dividend details are unreported; the calculated payout ratio is 40.9%, within a typical sustainable range versus earnings. However, FCF coverage is deeply negative (-10.88x), meaning any cash dividends are not covered by free cash flow and would require drawdown of cash (13.13) or incremental financing. DOE is reported at 0.0% (likely an XBRL anomaly), so we defer to the calculated payout signal with caution. Policy outlook: with leverage elevated (D/E 2.21x) and capex heavy, prudent capital allocation would prioritize balance sheet resilience; any continuation or increase in dividends would depend on restoring positive FCF or reducing investment intensity.

Risk Assessment

Business Risks:

• Top-line contraction of 30.4% YoY indicates demand/timing risk in core operations
• Operating margin compression (~340 bps) suggests weaker operating leverage resilience
• Asset-heavy model with low asset turnover (0.217) exposes returns to utilization/sales volatility
• Execution risk on large capex program (-16.94) requiring successful monetization

Financial Risks:

• High leverage (D/E 2.21x) increases sensitivity to earnings shocks
• Interest rate/refinancing risk with long-term loans of 85.08 and interest expense of 1.06
• Moderate interest coverage (4.77x) below strong benchmark
• Negative free cash flow (-12.46) necessitating external funding or cash drawdowns

Key Concerns:

• Sustained negative FCF could further elevate leverage if investments do not yield timely returns
• Liquidity buffer only moderate (current ratio 129.6%, quick ratio 93.6%) amid revenue pressure
• Data gaps (receivables, payables, rent expenses) limit visibility into working capital and cost structure

Investment Implications

Key Takeaways:

• Earnings deteriorated materially with revenue -30.4% and net income -47.1% YoY
• Margin compression at both operating (~340 bps) and net levels (~270 bps)
• Earnings quality is acceptable (OCF/NI 1.60x) but FCF negative due to heavy capex
• Balance sheet levered (D/E 2.21x) with moderate interest coverage (4.77x)
• Recovery depends on sales stabilization and improving asset turnover to support ROE (5.9%)

Metrics to Watch:

• Backlog/pre-sales or occupancy/ADR and churn
• Asset turnover and inventory/asset monetization velocity
• OCF/NI and working capital movements (receivables, payables)
• Capex pace versus committed pipeline returns
• Net debt/EBITDA and interest coverage trajectory

Relative Positioning: Within asset-heavy, real-estate-adjacent peers, profitability remains decent but is trending down; leverage is on the high side and FCF is weaker due to investment intensity, implying below-average financial flexibility until cash generation improves.

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