G-FACTORY CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥4.84B
• Operating Income: ¥-89M
• Net Income: ¥6M
• Earnings per Unit (EPU): ¥-32.20

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: FY2025 Q3 was a weak quarter with a small topline increase but a swing to operating loss and a deep net loss, highlighting structural margin pressure and balance-sheet leverage. Revenue grew 1.5% YoY to 48.41, while gross profit was 23.03, implying a solid gross margin of 47.6%. SG&A reached 22.90, equating to a high cost ratio of 47.3%, leaving only a narrow 30 bps spread over gross margin and resulting in operating income of -0.89 (operating margin -1.8%). Ordinary income deteriorated to -1.39 (ordinary margin -2.9%), down 37.7% YoY, despite minimal non-operating items (income 0.05, expense 0.07). Net income fell to -2.10 (net margin -4.3%) and EPS (basic) was -32.20 JPY, indicating meaningful shareholder value erosion in the quarter. Interest expense was modest at 0.05, but with negative operating profit, interest coverage printed at -16.3x, a financial risk signal. The balance sheet shows total assets of 40.22 and equity of 13.11, translating to financial leverage of 3.07x and a D/E ratio of 2.07x, which is above our caution threshold. Liquidity is adequate with a current ratio of 170% and cash of 11.69, but leverage magnifies downside from continued losses. ROE was -16.0% via DuPont (Net margin -4.3% × asset turnover 1.204 × leverage 3.07x), with ROIC at -9.8%, both underscoring capital inefficiency. Notably, profit before tax is shown at 0.07 despite an ordinary loss, implying the presence of sizable extraordinary items; however, the quarter still ended with a net loss, indicating one-off gains were insufficient or offset elsewhere. Earnings quality cannot be verified due to unreported cash flow statements, but the divergence between losses and any implied extraordinary movements suggests low visibility. With operating losses and high SG&A density, near-term profit recovery likely hinges on cost actions and mix improvement rather than revenue growth alone. Forward-looking, the key swing factors are SG&A discipline, stabilization of extraordinary items, and maintaining liquidity amid elevated leverage. Given the combination of negative operating leverage and a levered balance sheet, risk management around debt service and covenant headroom becomes paramount. Overall, the quarter signals margin stress, negative capital returns, and rising financial risk despite adequate short-term liquidity.

Profitability Analysis

ROE decomposition (DuPont): ROE (-16.0%) = Net Profit Margin (-4.3%) × Asset Turnover (1.204x) × Financial Leverage (3.07x). The dominant negative driver is Net Profit Margin, as the company posted an operating loss and ended with a -4.3% net margin; asset turnover is reasonable for a services model and leverage merely amplifies the margin impact. Gross margin was 47.6% while the SG&A ratio was 47.3%, leaving just ~30 bps contribution to operating profit before other items; operating margin was -1.8% and ordinary margin -2.9%. Non-operating net impact was a marginal -0.02 (roughly -4 bps of revenue), so operating underperformance rather than financial income/expenses drove losses. The business reason appears to be SG&A spending levels roughly matching gross profit, leaving no buffer for profitability amid only +1.5% revenue growth. This looks structural rather than one-time: absent a clear cost reset or step-up in high-margin revenue, the narrow gross–SG&A spread suggests sustained pressure. Concerning trends include: (1) ordinary income down 37.7% YoY despite positive revenue growth, highlighting negative operating leverage; (2) interest coverage negative, indicating limited capacity to absorb financing costs; and (3) ROIC at -9.8%, well below the 5% warning threshold.

Growth Assessment

Revenue grew 1.5% YoY to 48.41, but profit metrics deteriorated sharply as costs outpaced sales gains. The SG&A intensity (47.3% of sales) effectively neutralized a healthy gross margin (47.6%), leading to an operating loss even with stable topline. Ordinary income fell 37.7% YoY, underscoring negative operating leverage from fixed cost absorption. With limited disclosure on segment mix and no R&D or depreciation detail, we cannot attribute the weakness to specific units, but the pattern suggests broad-based margin compression rather than a single loss event. Net loss (-2.10) implies either insufficient extraordinary gains or offsetting extraordinary losses/adjustments despite a reported small profit before tax, reducing visibility on recurring profitability. Near-term outlook depends on cost actions and mix shift to higher-margin services; modest revenue growth alone is unlikely to restore profitability. Watch for management commentary on SG&A restructuring, pricing power, and any one-off items that impacted Q3. Without evidence of structural fixes, growth in sales may continue to translate poorly into earnings.

Financial Health

Liquidity: Current ratio 170.2% and quick ratio 170.2% indicate adequate near-term liquidity; cash and deposits of 11.69 cover current liabilities of 10.31. Solvency: D/E is 2.07x (warning: >2.0), and financial leverage is 3.07x, raising sensitivity to earnings volatility. Interest-bearing debt detail is limited, but long-term loans total 6.24; noncurrent liabilities are 16.80, suggesting a meaningful long-term obligation base beyond loans. Interest coverage is -16.3x due to operating losses, highlighting weak debt service capacity despite small absolute interest burden. Maturity mismatch risk appears moderate near term given current assets (17.54) > current liabilities (10.31), but sustained losses could erode equity and liquidity buffers. No off-balance sheet obligations are disclosed in the provided data. Explicit flags: D/E > 2.0 warrants caution; current ratio is above 1.0, so no immediate liquidity warning.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so OCF/Net Income and FCF coverage cannot be assessed. Earnings quality risk is elevated by the gap between ordinary loss and the reported small profit before tax, implying extraordinary items influenced results; without cash flow data, we cannot confirm cash conversion. Working capital appears conservative (cash 11.69; A/R 1.55; current liabilities 10.31), reducing immediate liquidity strain, but negative operating profit typically correlates with weak cash generation absent favorable working capital swings. We see no direct signs of working capital manipulation in the limited data, but the absence of OCF limits our assessment. Sustainability of any dividends or discretionary capex cannot be determined without FCF disclosure.

Dividend Sustainability

Dividend data are unreported. Given negative net income (-2.10) and ROE (-16.0%), internal funding for dividends is weak this period. Cash on hand (11.69) provides some flexibility, but with interest coverage negative and D/E > 2.0, preserving liquidity is likely a priority over distributions. Payout ratio and FCF coverage cannot be calculated due to missing OCF/FCF. Unless profitability recovers or one-off cash inflows exist, sustained dividends would be difficult to justify from a cash and covenant perspective.

Risk Assessment

Business Risks:

• High SG&A intensity (47.3% of sales) compresses operating margin and creates negative operating leverage.
• Modest revenue growth (+1.5% YoY) insufficient to offset fixed cost base, risking continued losses.
• Potential reliance on extraordinary items to bridge earnings, increasing volatility of reported profit.
• Execution risk around cost restructuring and pricing/mix improvements needed to restore profitability.

Financial Risks:

• Elevated leverage: D/E 2.07x and financial leverage 3.07x heighten downside in a loss-making period.
• Negative interest coverage (-16.3x) indicates weak debt service capacity if losses persist.
• ROIC of -9.8% suggests capital inefficiency and potential covenant pressure if metrics are monitored by lenders.
• Liquidity erosion risk over time if operating losses continue and extraordinary support subsides.

Key Concerns:

• Ordinary income down 37.7% YoY despite revenue growth points to structural margin deterioration.
• Discrepancy between ordinary loss and reported profit before tax suggests material extraordinary items not detailed, lowering transparency.
• Lack of cash flow disclosure prevents validation of earnings quality and dividend capacity.
• Sensitivity to cost inflation (labor, rent, outsourced services) given the narrow gross–SG&A spread.

Investment Implications

Key Takeaways:

• Topline grew slightly, but margins compressed to an operating loss; net margin -4.3%.
• SG&A ratio nearly equals gross margin (47.3% vs 47.6%), leaving negligible operating buffer.
• ROE -16.0% and ROIC -9.8% flag capital inefficiency.
• Leverage elevated (D/E 2.07x) with negative interest coverage, increasing financial risk.
• Visibility is low due to unreported cash flows and undisclosed extraordinary items affecting PBT/NI.

Metrics to Watch:

• SG&A-to-sales ratio and actions to reduce fixed costs.
• Operating margin recovery toward breakeven and positive.
• OCF and FCF when disclosed; OCF/NI > 1.0 as a quality marker.
• Debt level, interest coverage, and any covenant-related disclosures.
• Any extraordinary gains/losses and their recurrence.

Relative Positioning: Versus small-cap domestic service peers, G-FACTORY exhibits weaker profitability (negative operating and ordinary margins), higher leverage (D/E > 2.0), and lower capital returns (ROE and ROIC negative), though near-term liquidity appears comparatively adequate due to cash holdings.

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