RECOMM CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥13.09B
• Operating Income: ¥407M
• Net Income: ¥331M
• EPS: ¥2.87

Income Statement

Balance Sheet

Cash Flow Statement

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: Solid top-line growth with meaningful operating margin expansion and clean cash conversion, partially offset by low ROIC and reliance on short-term debt. Revenue rose 12.0% YoY to 130.88, while operating income increased 51.4% YoY to 4.07, evidencing operating leverage. Gross profit reached 31.54 for a gross margin of 24.1%, indicating stable pricing and cost control. Operating margin improved to 3.1% (4.07/130.88), and we estimate roughly 81 bps of YoY expansion based on the reported growth rates. Ordinary income of 1.42 is below operating income, implying net non-operating losses, but profit before tax rebounded to 4.47, suggesting other items supported pre-tax earnings. Net income was 2.32 (+176.6% YoY), with an effective tax rate of 26.1%, aligning with normal levels. Cash generation quality was strong: operating cash flow of 4.72 was 2.03x net income, and free cash flow was positive at 1.40 after 2.13 of capex. Balance sheet shows total assets of 127.39 and total equity of 54.44 (equity ratio 40.0%); debt-to-equity stands at 1.34x, within a conservative-to-moderate range. Short-term loans are sizable at 31.32 versus cash and equivalents of 26.80, creating some refinancing and liquidity management needs. Goodwill of 23.96 (about 18.8% of assets) is material, adding impairment risk if acquisitions underperform. ROIC is low at 3.1%, below the 5% warning threshold, indicating capital efficiency remains a key improvement area. DuPont-derived ROE is 4.3% (vs reported 0.1%), suggesting the reported figure may reflect averaging, OCI effects, or definitional differences. Dividend outflows (1.31) appear covered by free cash flow (FCF coverage 1.06x), and the calculated payout ratio is 57%, just within a sustainable band. Equity method income of 0.34 contributed about 7.5% of profits, indicating low dependency on affiliates. Forward-looking, sustaining margin gains while lifting ROIC above the cost of capital and terming out short-term debt will be crucial to improving valuation resilience.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 1.8% × Asset Turnover (AT) 1.027 × Financial Leverage (FL) 2.34x ≈ ROE 4.3%. Component change: The largest inferred improvement was NPM, given operating income grew 51.4% on 12.0% revenue growth. Business drivers: Better operating leverage (SG&A grew slower than revenue) and potentially improved mix contributed to higher operating margin (3.1%). Sustainability: Operating leverage gains can persist if revenue growth continues and cost discipline remains, though normalization risk exists without continued scale. Concerning trends: ROIC at 3.1% remains below the 5% threshold, and ordinary income lagging operating income suggests recurring non-operating costs (e.g., interest, FX, or other losses) that dilute bottom-line quality. Additional note: Estimated operating margin expanded by ~81 bps YoY (from ~2.3% to ~3.1%), indicating positive margin momentum.

Growth Assessment

Revenue growth of 12.0% YoY to 130.88 demonstrates solid demand and/or successful expansion initiatives. Operating income growth of 51.4% YoY indicates improving operating leverage and cost control. Net income rose 176.6% YoY to 2.32, aided by stronger operations and normalized tax. Equity method income contributed 0.34 (7.5% of profits), a minor but supportive tailwind. Profit quality is supported by OCF exceeding NI (2.03x), indicating earnings were backed by cash. Outlook hinges on sustaining topline growth and further SG&A productivity; maintaining the current gross margin (24.1%) while expanding operating margin above 3% would be constructive. Given low ROIC (3.1%), growth should emphasize higher-return projects and disciplined capital allocation. Mix improvements and pruning underperforming assets could lift both ROIC and ROE. Near-term, refinancing/rollover of short-term loans and interest cost management may influence ordinary income and bottom-line volatility.

Financial Health

Liquidity: Current ratio is not calculable due to missing current liabilities data; however, current assets total 81.78 and cash & equivalents are 26.80. No explicit warning on current ratio, but short-term loans of 31.32 are large versus on-hand cash, pointing to rollover risk. Solvency: Debt-to-equity is 1.34x (below the 1.5x conservative benchmark upper bound), indicating moderate leverage. Interest-bearing debt totals at least 43.39 (short-term 31.32 + long-term 12.07). Equity ratio is 40.0%, offering a reasonable capital buffer. Maturity mismatch: Concentration in short-term loans (31.32) against receivables (26.31) and inventories (24.06) requires careful working capital management; terming out a portion of short-term debt would reduce refinancing risk. Off-balance sheet: Not disclosed; no explicit off-BS obligations reported in the provided data. Asset quality: Goodwill of 23.96 (~18.8% of assets) is material, raising impairment sensitivity if acquired businesses underperform.

Cash Flow Quality

OCF/Net Income is 2.03x (>1.0), indicating high earnings quality and strong cash backing. Operating CF of 4.72 covered dividends (1.31) and most capex (2.13), leaving positive FCF of 1.40. FCF coverage of dividends is 1.06x, suggesting the current dividend level is just covered by organic cash generation. Working capital: Positive OCF suggests either stable collections or inventory discipline; no signs of aggressive working capital release are evident from the limited data. Sustainability: With EBITDA at 6.82 and capex at 2.13, maintenance of FCF depends on sustaining EBITDA and stable working capital; heightened interest costs (not disclosed) could pressure FCF if rates rise or debt grows.

Dividend Sustainability

Calculated payout ratio is 57.0%, within the <60% benchmark for sustainability, though headroom is limited. FCF coverage ratio of 1.06x indicates dividends are funded from free cash flow with a thin buffer. Dividends paid were 1.31 versus OCF of 4.72, which is acceptable. Balance sheet flexibility is moderate (D/E 1.34x; equity ratio 40%), but high short-term debt creates a preference for conservative distributions. Policy outlook: Without clear DPS guidance (unreported) and given low ROIC (3.1%), management may prioritize reinvestment or balance sheet strengthening over dividend increases unless profitability and ROIC improve.

Risk Assessment

Business Risks:

• Low ROIC at 3.1% indicates suboptimal capital efficiency and potential value dilution versus cost of capital.
• Goodwill concentration (~18.8% of assets) heightens impairment risk if acquired units underperform.
• Ordinary income below operating income suggests recurring non-operating costs (e.g., FX/interest/other losses) that can depress recurring profit.
• Execution risk in sustaining operating margin expansion from 3.1% given competitive dynamics.

Financial Risks:

• Refinancing risk due to high short-term loans (31.32) relative to cash (26.80).
• Debt/EBITDA of 6.36x indicates elevated leverage versus cash earnings capacity.
• Potential interest rate sensitivity (interest expense not disclosed), which could pressure ordinary income and FCF.
• Liquidity visibility limited as current liabilities detail is unreported.

Key Concerns:

• Capital efficiency below threshold (ROIC <5%).
• Reliance on short-term borrowings to fund operations and/or working capital.
• Potential volatility from non-operating items leading to a gap between operating and ordinary income.

Investment Implications

Key Takeaways:

• Strong YoY operating leverage: revenue +12% vs operating income +51.4%.
• Operating margin expanded to ~3.1% (estimated +81 bps YoY).
• High cash conversion (OCF/NI 2.03x) supports earnings quality.
• Leverage moderate by D/E (1.34x) but high on a Debt/EBITDA basis (6.36x).
• ROIC at 3.1% remains the main structural weakness.
• Goodwill at ~19% of assets introduces impairment sensitivity.
• Dividend appears covered by FCF (1.06x) but with limited buffer.

Metrics to Watch:

• Operating margin trajectory and SG&A/revenue ratio.
• ROIC improvement toward >5% and path to >7-8% medium term.
• Ordinary income drivers (interest expense, FX, other non-operating items).
• Short-term debt rollover profile and any debt terming-out.
• Working capital turns (DSO, DIO, DPO) and OCF stability.
• Goodwill impairment testing outcomes and segment profitability.

Relative Positioning: Within small-cap peers, the company shows improving operating efficiency and solid cash conversion but lags on capital efficiency (ROIC) and carries above-average short-term funding reliance; continued margin gains and deleveraging/terming out debt would be needed to shift toward a stronger quality profile.

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