RS Technologies Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥58.58B
• Operating Income: ¥11.06B
• Net Income: ¥8.42B
• EPS: ¥252.22

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: Strong top-line growth but margin compression and heavier reliance on non-operating income temper the quality of earnings in FY2025 Q3. Revenue grew 31.5% YoY to 585.8, while operating income rose 14.4% YoY to 110.6, and net income increased 19.2% YoY to 66.7. Gross profit reached 142.8, implying a gross margin of 24.4%. Operating margin stood at 18.9% (110.6/585.8), with ordinary income of 120.2 (ordinary margin 20.5%). Net profit margin was 11.4%, consistent with the DuPont input. Based on YoY growth rates and implied prior-period levels, operating margin compressed by roughly 280 bps (from about 21.7% to 18.9%), ordinary margin compressed by roughly 440 bps (from about 24.9% to 20.5%), and net margin compressed by about 120 bps (from about 12.6% to 11.4%). Non-operating income was sizable at 19.8, with interest income of 11.0, highlighting earnings support from cash yields; non-operating expenses were 5.8, yielding a net positive other income of about 14.1. Ordinary income growth (+8.5% YoY) lagged revenue growth, reflecting both margin pressure and the mix shift. ROE (DuPont) was 4.8% (net margin 11.4% × asset turnover 0.320 × leverage 1.31x), while ROIC was a healthy 12.7%, implying returns on operating capital are solid but diluted at the equity level by low leverage and a large cash balance. Liquidity is very strong: current ratio 369%, quick ratio 356%, and net cash position with cash and deposits of 839.6 significantly exceeding total interest-bearing debt (short-term 97.0, long-term 3.5). The effective tax rate was 24.0%, broadly in line with statutory expectations. Interest coverage was extremely strong at 197.5x, reflecting robust operating profits and minimal interest burden. Earnings quality assessment is constrained because operating cash flow was not disclosed; OCF/Net Income cannot be computed. Dividend capacity appears conservative with a 13.9% payout ratio, but FCF coverage is unassessable due to missing CF data. Forward-looking, sustaining revenue momentum while rebuilding operating margin and reducing reliance on non-operating income will be key to improving earnings quality and ROE. The large cash pile offers optionality for capex, M&A, or higher shareholder returns, but also suppresses asset turnover and ROE if not deployed.

Profitability Analysis

ROE was 4.8%, decomposed into Net Profit Margin (11.4%) × Asset Turnover (0.320) × Financial Leverage (1.31x). The most notable change versus the implied prior period is margin compression: operating margin fell from 21.7% to 18.9% (-280 bps) and ordinary margin from 24.9% to 20.5% (-440 bps), while net margin slipped by ~120 bps. Business drivers likely include mix effects, pricing pressure, and/or higher cost of sales relative to revenue, partially offset by higher interest income on cash which lifted ordinary income. Asset turnover at 0.320 suggests capital intensity and a sizable cash/investment balance are diluting efficiency; growth in assets (notably cash 839.6 and investment securities 160.4) likely outpaced revenue, pressuring turnover. Financial leverage remains conservative at 1.31x, limiting ROE uplift from gearing. The non-operating income ratio of 29.7% indicates a meaningful contribution from outside-core activities (notably interest income), which is not guaranteed to persist at current rates if interest rates normalize. SG&A was 46.1; without prior SG&A we cannot compare growth to revenue, but the gap between revenue growth (+31.5% YoY) and operating income growth (+14.4% YoY) flags adverse operating leverage in the period. Sustainability: margin compression tied to input costs or pricing may normalize if mix improves or if scale efficiencies kick in; however, the elevated contribution from interest income is cyclical relative to rates and cash levels and may be non-recurring in the medium term. Overall, ROIC at 12.7% signals the core business remains value-accretive, but the translation to ROE is muted by low leverage and low asset turnover.

Growth Assessment

Revenue expanded 31.5% YoY to 585.8, outpacing operating income growth of 14.4%, suggesting negative operating leverage during the period. Ordinary income rose 8.5% YoY, restrained despite higher interest income, reflecting pressure in core profitability. Net income grew 19.2% YoY to 66.7, aided by a manageable 24.0% effective tax rate and positive non-operating items. The growth mix indicates volume or scope expansion but with tighter margins, likely due to cost absorption, pricing, or product/customer mix. Interest income of 11.0 underscores the benefit of higher yields on a very large cash balance (839.6), which is supportive but not a structural driver of core growth. With ROIC at 12.7%, reinvestment into core operations is attractive; deployment of excess cash into high-ROIC projects could sustain growth while improving asset turnover. Near-term outlook hinges on margin recovery (cost discipline, ASP management) and maintaining demand momentum; recurring income growth will be more durable if operating margin stabilizes without relying on non-operating gains. Absent cash flow data, we cannot validate whether growth is cash-generative; monitoring OCF when disclosed is essential for durability.

Financial Health

Liquidity is very strong: current assets 1,195.2 vs current liabilities 323.6 yields a current ratio of 369.3% and a quick ratio of 355.8% (both comfortably above benchmarks). The company is in a net cash position: cash and deposits 839.6 vs total interest-bearing loans of 100.5 (short-term 97.0, long-term 3.5). Debt-to-equity is conservative at 0.31x, and interest coverage is 197.5x, indicating minimal solvency risk. Calculated equity ratio is approximately 76.5% (total equity 1,400.1 / total assets 1,831.5), implying a very solid capital base. Maturity mismatch risk is low given cash substantially exceeds short-term borrowings and current assets far surpass current liabilities. Off-balance sheet obligations were not reported; none can be assessed from the provided data. There are no warnings on Current Ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed; therefore, OCF/Net Income and FCF cannot be calculated. As a result, earnings quality cannot be validated via cash conversion metrics, and we cannot assess working capital dynamics in the period. The large cash balance (839.6) provides a cushion and suggests cumulative past positive cash generation, but period-specific cash conversion remains unknown. Without OCF, we cannot flag or dismiss potential working capital-driven earnings effects; watch for discrepancies between revenue growth and AR/inventory movements when data becomes available (AR 221.3 and inventories 43.7 appear modest relative to revenue scale, but turnover cannot be computed without flow-period data). Dividend and capex coverage by FCF are not assessable.

Dividend Sustainability

The calculated payout ratio is 13.9%, indicating substantial headroom relative to common sustainability thresholds (<60%). Cash on hand (839.6) and low leverage reinforce capacity to maintain or modestly increase dividends. However, FCF coverage cannot be determined due to missing cash flow and capex data, which is a key limitation for assessing sustainability under varying business conditions. Given the notable contribution from non-operating income (29.7% of operating income), a prudent payout policy remains appropriate until core operating cash flow trends are confirmed. Policy outlook likely stays conservative, consistent with low payout and strong balance sheet optionality.

Risk Assessment

Business Risks:

• Margin compression amid rapid revenue growth indicates potential pricing pressure or cost inflation risk.
• Dependence on non-operating income (notably interest income) to support ordinary earnings exposes results to rate cycles.
• Semiconductor cycle risk affecting demand for the company’s products and services (industry cyclical).
• Customer and product mix concentration risk could amplify volatility in margins and volumes.
• Cost pressures (materials, energy, logistics) may continue to weigh on gross margin.

Financial Risks:

• Interest rate risk on cash: declining rates would reduce interest income that currently supports ordinary profit.
• Reinvestment risk: large cash balances depress asset turnover and ROE if not deployed into high-return projects.
• Short-term loan rollover risk is limited but present (short-term loans 97.0), though mitigated by ample cash.
• Market risk on investment securities (160.4) could introduce valuation volatility.

Key Concerns:

• Operating margin compression (~280 bps YoY) despite strong revenue growth.
• Ordinary margin compression (~440 bps YoY) even with higher interest income.
• Lack of cash flow disclosure prevents validation of earnings quality and FCF.
• High share of non-operating income (29.7%) raises questions about core profit momentum.

Investment Implications

Key Takeaways:

• Strong revenue growth (+31.5% YoY) but negative operating leverage with operating income up only +14.4%.
• Core profitability under pressure; operating and ordinary margins compressed materially YoY.
• ROIC is solid at 12.7%, but ROE is muted at 4.8% due to low leverage and low asset turnover from large cash.
• Earnings supported by interest income (11.0), increasing reliance on external factors (rate environment).
• Balance sheet is robust (net cash, equity ratio ~76.5%), offering strategic flexibility.

Metrics to Watch:

• Operating cash flow and FCF (when disclosed) and OCF/NI ratio (target >1.0).
• Operating margin trajectory and SG&A efficiency versus revenue growth.
• Asset turnover improvements via cash deployment or inventory/AR management.
• Non-operating income sensitivity to interest rates and investment securities valuation.
• Capex plans and returns (to leverage strong ROIC while lifting ROE).

Relative Positioning: Financially conservative with strong liquidity and ROIC, but currently exhibits lower ROE and increased reliance on non-operating income compared with high-quality peers that sustain operating margin expansion and stronger cash conversion.

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