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

Financial Highlights

• Net Sales: ¥4.84B
• Operating Income: ¥-89M
• Net Income: ¥6M
• EPS: ¥-32.20

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

G-FACTORY (34740) reported FY2025 Q3 consolidated results under JGAAP with modest top-line growth but continued losses at all profit lines. Revenue was ¥4,841 million, up 1.5% YoY, indicating a stable but slow growth trajectory. Gross profit reached ¥2,303 million, implying a robust gross margin of 47.6%, which suggests a service-heavy mix and/or effective pricing versus direct costs. Despite the healthy gross margin, operating income was a loss of ¥89 million (flat YoY per disclosure), highlighting ongoing pressure from SG&A and fixed costs. Ordinary loss widened relative to operating loss to ¥139 million, reflecting net non-operating expenses, including ¥5.45 million in interest costs. Net loss was ¥210 million (EPS: -¥32.20), signaling that profitability remediation remains unfinished. The DuPont breakdown shows a net margin of -4.34%, asset turnover of 1.204x, and financial leverage of 3.07x, yielding an ROE of -16.02%; the negative ROE is primarily driven by the loss-making net margin, not asset efficiency. Balance sheet resilience is mixed: total assets were ¥4,022 million and total equity was ¥1,311 million, implying an equity ratio of roughly 32.6% despite a reported 0.0% figure (likely an unreported item). Liquidity appears adequate with current assets of ¥2,082 million and current liabilities of ¥1,108 million, translating into a current ratio of 188% and positive working capital of ¥974 million. Leverage is notable with a debt-to-equity ratio of 2.21x, and interest coverage is negative due to operating losses. Cash flow items (OCF, FCF, cash and equivalents) were not disclosed in the dataset, limiting earnings quality assessment and short-term liquidity visibility. Depreciation and amortization were not reported, which constrains EBITDA-based analyses and operating leverage calibration. The company paid no dividends (DPS: ¥0), appropriately preserving cash in a loss-making period. With operating losses flat YoY despite revenue growth, cost containment and operating efficiency are the key levers for near-term turnaround. The high gross margin provides a foundation, but SG&A discipline and revenue scale will determine the path back to break-even. Overall, the company maintains a reasonable equity cushion and liquidity buffer, but sustained losses and limited cash flow disclosure keep visibility low.

Profitability Analysis

ROE of -16.02% decomposes into: Net Profit Margin (-4.34%) x Asset Turnover (1.204x) x Financial Leverage (3.07x). The primary drag is the negative net margin; asset utilization is reasonable for a services-oriented business, and leverage is amplifying the negative margin into a double-digit ROE loss. Gross margin at 47.6% is solid, indicating that direct costs are well managed and/or business mix is favorable. However, the operating margin is -1.8% (operating loss of ¥89m on revenue of ¥4,841m), showing SG&A overhead outweighs gross profit leverage at current scale. Ordinary loss of ¥139m versus operating loss suggests incremental non-operating burdens (interest ¥5.45m and other non-operating items). Effective tax rate analysis is not meaningful in a loss year; a small tax expense (¥1.05m) likely reflects non-deductible items or minimum taxes. Operating leverage appears unfavorable this quarter: revenue rose 1.5% YoY while the operating loss remained, implying fixed costs did not adjust or mix effects offset incremental gross profit. Absent reported D&A, EBITDA cannot be reliably assessed, but given the operating loss and unreported D&A, EBITDA is likely negative as well. Profitability recovery hinges on SG&A optimization, utilization of gross margin to scale, and improving non-operating results.

Growth Assessment

Revenue grew 1.5% YoY to ¥4,841m, indicating steady but muted demand. Given the high gross margin, the business model appears capable of profitable growth at scale, but current SG&A intensity is preventing margin translation. The flat YoY operating loss implies that incremental revenue did not drop through, suggesting either higher operating expenses, adverse mix, or pricing pressure offsetting cost efficiencies. Ordinary and net losses reflect ongoing headwinds beyond core operations, including financing costs and other non-operating items. Without segment or order/backlog data, it is difficult to parse the sustainability of growth by business line; the modest growth rate suggests stability rather than a strong cyclical upswing. Near-term outlook depends on cost control and revenue mix, with particular sensitivity to utilization and project/contract economics. Given the small increase in revenue and continued losses, management focus likely remains on efficiency and selective growth rather than aggressive expansion.

Financial Health

Total assets were ¥4,022m and total equity ¥1,311m, implying an equity ratio of approximately 32.6% despite the reported 0.0% figure (likely undisclosed in XBRL). Total liabilities stand at ¥2,902m, putting debt-to-equity at 2.21x, which is elevated for a loss-making period but still backed by a meaningful equity cushion. Liquidity appears sound: current assets of ¥2,082m versus current liabilities of ¥1,108m yield a current ratio of 188% and positive working capital of ¥974m. With inventories unreported, the quick ratio equals the current ratio at 188%, though this may overstate true quick liquidity if inventories exist under different labels. Interest expense of ¥5.45m is modest, but interest coverage is negative due to operating losses, underscoring sensitivity to sustained earnings weakness. Solvency risks would rise if losses persist and require incremental borrowing; however, the current balance sheet suggests some runway for remediation.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, cash and equivalents, and depreciation were not disclosed in the provided dataset (zeros indicate unreported). As a result, OCF/Net Income and FCF cannot be meaningfully evaluated, and the reported OCF/NI ratio of 0.00 and FCF of 0 should not be interpreted as actual outcomes. Earnings quality assessment is therefore limited; the negative operating income suggests that cash generation from operations is likely weak absent large non-cash add-backs. Working capital is positive (¥974m), which supports liquidity, but the direction and magnitude of working capital changes are unknown. Without D&A, we cannot distinguish between accounting losses driven by non-cash charges versus true operating cash deficits. Monitoring future disclosures for OCF, capex, and changes in receivables/payables will be critical to assess cash conversion.

Dividend Sustainability

The company did not pay a dividend (DPS: ¥0) and recorded a net loss of ¥210m, making distributions imprudent at this stage. The reported payout ratio of 0.0% and FCF coverage of 0.00x stem from unreported cash flow data and should not be read as actual coverage. Given the operating loss and lack of disclosed OCF/FCF, dividend capacity currently depends on a return to profitability and demonstrable free cash flow generation. Policy-wise, preservation of cash is appropriate until earnings normalize. A sustainable reinstatement would require positive net income, consistent positive OCF, and adequate liquidity buffers.

Risk Assessment

Business Risks:

• Low revenue growth (1.5% YoY) limiting operating leverage realization
• SG&A intensity preventing translation of high gross margins into operating profits
• Potential client concentration or project timing risk typical for service/contract models
• Macroeconomic slowdown impacting demand in end markets (e.g., retail/restaurant support, leasing services)
• Pricing pressure and mix shifts that could erode gross margin
• Execution risk in cost control and turnaround efforts

Financial Risks:

• Sustained operating and net losses leading to erosion of equity
• Negative interest coverage and potential refinancing or covenant pressure if losses persist
• Elevated leverage (D/E 2.21x) amplifying earnings volatility
• Limited visibility due to unreported cash flow and cash balance data
• Working capital swings that could strain liquidity in the absence of strong OCF

Key Concerns:

• Negative ROE (-16.02%) driven by a -4.34% net margin
• Operating loss persists despite revenue growth, indicating cost/mix issues
• Cash flow metrics unreported, impeding assessment of liquidity and earnings quality

Investment Implications

Key Takeaways:

• Revenue grew modestly to ¥4,841m (+1.5% YoY) but profitability remains negative at all levels
• Gross margin of 47.6% is strong, but SG&A pressure yields an operating margin of -1.8%
• ROE at -16.02% reflects primarily margin weakness, not asset efficiency
• Liquidity is adequate (current ratio ~188%, working capital ¥974m), while leverage is elevated (D/E 2.21x)
• Cash flow data are not disclosed, limiting visibility into earnings quality and runway
• Dividend is suspended (DPS ¥0), appropriately conserving cash

Metrics to Watch:

• Operating margin progression and SG&A ratio
• Ordinary income trends and non-operating items
• Operating cash flow and free cash flow once disclosed
• Receivables and payables turnover, and overall working capital movements
• Leverage (D/E) and interest coverage
• Revenue growth by segment/mix and contract pipeline/backlog

Relative Positioning: Versus small-cap Japanese service peers, G-FACTORY shows above-average gross margins but weaker operating profitability and negative ROE, with moderate equity cushioning and relatively elevated leverage; near-term positioning hinges on executing cost controls and restoring operating margin.

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