Visual Processing Japan Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥934M
• Operating Income: ¥151M
• Net Income: ¥90M
• EPS: ¥56.96

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: A solid Q3 with healthy top-line growth and strong operating leverage driving notable margin expansion and double-digit profit growth. Revenue grew 4.2% YoY to 9.34 (100M JPY), while operating income rose 28.1% YoY to 1.51 and net income increased 13.4% YoY to 0.90. Gross profit reached 5.09, implying a gross margin of 54.5%, indicating a high-value-added mix. Operating margin improved to 16.2% (1.51/9.34), up about 300 bps YoY by our estimate based on the provided growth rates. Net margin rose to 9.6% (0.90/9.34), an improvement of roughly 80 bps YoY, reflecting better cost discipline and operating leverage. Ordinary income of 1.38 grew 17.3% YoY, though it sits below operating income, likely reflecting small non-operating adjustments not separately disclosed in XBRL. Effective tax rate was 33.9%, a headwind to bottom-line conversion. Liquidity is robust with a current ratio of 270.7% and cash and deposits of 6.96 versus current liabilities of 3.25, supporting operational resilience. Leverage remains conservative with D/E of 0.27x and an interest coverage ratio above 5,000x, underscoring minimal financial risk. ROE is 7.5% via DuPont (NPM 9.6% × Asset Turnover 0.612 × Leverage 1.27x), supported mainly by margin expansion rather than leverage. Reported ROIC of 19.9% indicates strong capital efficiency on the invested base. Earnings quality cannot be fully assessed due to unreported cash flow data; OCF/NI and FCF coverage are not calculable. The calculated payout ratio is a modest 24.2%, suggesting ample headroom for reinvestment and potential future shareholder returns, though DPS itself is unreported. Forward-looking, maintaining operating discipline to preserve the widened margin will be key, especially if demand moderates. Overall, Q3 demonstrates improving profitability and solid balance sheet strength, with the main caveat being limited disclosure on cash flows and SG&A composition.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.5% = Net Profit Margin 9.6% × Asset Turnover 0.612 × Financial Leverage 1.27x. The biggest driver of improvement versus last year appears to be Net Profit Margin, given revenue grew 4.2% while operating income rose 28.1%, implying approximately 300 bps operating margin expansion (from ~13.2% to ~16.2%). Asset turnover of 0.612 (Revenue 9.34 / Assets 15.25) is modest and consistent with an asset-light, cash-rich balance sheet; no clear YoY trend is available but the mix suggests efficiency is not the primary lever this quarter. Financial leverage is low at 1.27x (Assets/Equity), meaning ROE gains are not leverage-driven. Business reason: operating leverage from SG&A containment relative to revenue appears to be the core driver; with high gross margins (54.5%), incremental revenue drops through at a healthy rate. Sustainability: margin gains could persist if pricing and mix hold and cost control remains disciplined; however, without SG&A breakdown (personnel, rent, etc.), durability is uncertain. Watch for any re-acceleration of SG&A outpacing revenue, which would erode operating leverage. Also note ordinary income below operating income suggests minor non-operating drags; if recurring, they could slightly cap ROE gains.

Growth Assessment

Revenue expanded 4.2% YoY to 9.34, indicating steady demand. Profit growth outpaced sales: operating income +28.1% and net income +13.4%, confirming positive operating leverage. Operating margin rose to 16.2%, with estimated YoY expansion of ~300 bps; net margin improved ~80 bps to 9.6%. With gross margin at 54.5%, the business likely benefits from high-value services or software-like economics, supporting scalability. However, sustainability depends on maintaining pricing and utilization; any wage inflation or hiring ramp could raise SG&A intensity. Ordinary income grew 17.3% YoY but trails operating income, indicating small non-operating headwinds; these are not itemized, limiting visibility. ROE at 7.5% is acceptable for a cash-rich, low-leverage company; reported ROIC of 19.9% points to efficient deployment on the invested base. Overall outlook: moderate top-line growth with continued cost discipline should support margin resilience; key watchpoints are hiring pace, project timing, and tax rate normalization. Lack of disclosed R&D and depreciation data limits assessment of reinvestment cadence and potential future expense step-ups.

Financial Health

Liquidity is strong: current ratio 270.7% and quick ratio 270.7%, with cash and deposits 6.96 comfortably exceeding current liabilities 3.25. There is no warning on current ratio (<1.0) or leverage (D/E > 2.0); D/E stands at a conservative 0.27x. All reported liabilities are current; noncurrent liabilities are unreported, so there may be undisclosed long-term obligations, but based on available data, maturity mismatch risk appears low. Interest-bearing debt is unreported, but interest expense is effectively de minimis, evidenced by a >5,000x interest coverage ratio using ordinary income. Equity is 11.98 against total assets of 15.25, yielding financial leverage of 1.27x, which is conservative. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed; this is the primary limitation to earnings quality analysis. With high cash on hand and low leverage, near-term liquidity for operations and minor capex appears adequate. Without working capital detail (inventories, payables dynamics beyond accounts payable) and no OCF data, we cannot identify any working capital-driven earnings quality issues or manipulation signals. Until OCF is disclosed, we cannot validate whether accruals are rising or whether earnings are cash-backed.

Dividend Sustainability

DPS is unreported, but the calculated payout ratio is 24.2%, implying a conservative distribution against earnings. Given the strong cash position (6.96) and low leverage, near-term capacity to sustain dividends appears comfortable. FCF coverage cannot be evaluated due to unreported OCF and capex. Policy outlook: with ROE at 7.5% and ROIC reported at 19.9%, retention for growth investments remains attractive; a balanced approach of modest dividends with potential for incremental returns as visibility improves seems plausible. Confirmation will require disclosure of DPS and cash flow statements.

Risk Assessment

Business Risks:

• Operating leverage sensitivity: if revenue growth slows, the widened operating margin could compress.
• Talent and wage inflation risk given service/software-like gross margin profile.
• Customer concentration risk typical for smaller-scale companies (revenue 9.34), though not disclosed.
• Project timing/recognition risk affecting quarterly volatility.
• Technology obsolescence/intangible asset impairment risk (intangible assets 0.61).

Financial Risks:

• Limited cash flow disclosure obscures OCF sustainability and FCF coverage.
• Tax rate volatility (effective tax 33.9%) impacting net margin.
• Potential undisclosed long-term liabilities as noncurrent liabilities are unreported.

Key Concerns:

• Ordinary income below operating income suggests minor non-operating drags not itemized.
• Inability to verify OCF/NI or FCF due to unreported cash flow data.
• Small absolute scale increases vulnerability to single-client or project shocks.

Investment Implications

Key Takeaways:

• Healthy top-line growth (+4.2% YoY) with strong operating leverage (+28.1% OI).
• Operating margin expanded to 16.2% (+300 bps YoY); net margin to 9.6% (+80 bps).
• Balance sheet is conservative: current ratio 271%, D/E 0.27x, substantial cash buffer.
• ROE 7.5% driven mainly by margin improvement; leverage contribution is minimal.
• Reported ROIC 19.9% indicates efficient capital deployment.
• Earnings quality assessment constrained by lack of OCF and capex data.

Metrics to Watch:

• OCF/Net Income and FCF once cash flow statements are disclosed.
• SG&A growth versus revenue to gauge sustainability of operating leverage.
• Effective tax rate trajectory and any one-off tax impacts.
• Pipeline/booking trends to sustain mid-teens operating margin.
• Working capital movements (receivables, payables) for cash conversion.
• Any disclosure on DPS and capital allocation (capex, buybacks).

Relative Positioning: Within small-cap, asset-light service/software-oriented peers, the company exhibits above-average margins, strong liquidity, and conservative leverage; disclosure depth on cash flows and SG&A is below peers, which limits visibility on earnings quality and reinvestment cadence.

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