SIOS Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥13.61B
• Operating Income: ¥296M
• Net Income: ¥-13M
• EPS: ¥27.19

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: Mixed quarter with solid operating turnaround but weaker top line and unusual below-the-line items distorting headline net profits. Revenue declined 13.4% YoY to 136.05, but operating income surged 811.8% YoY to 2.96 as cost discipline and mix lifted profitability. Gross profit was 39.46, implying a 29.0% gross margin, while SG&A was 40.32, keeping operating margin thin at roughly 2.2%. Ordinary income rose 772.5% YoY to 3.63, helped by 1.31 in non-operating income (including 0.19 interest income), underscoring reliance on below-the-line gains this quarter. Net income fell 23.2% YoY to 2.35, indicating that last year benefited from sizable one-offs that did not recur, despite the strong operating recovery this year. Operating margin expanded by roughly +200 bps YoY (from ~0.2% to ~2.2%), while net margin contracted about 20 bps to 1.7% due to non-recurring effects and a very high effective tax rate. The effective tax rate printed an extraordinary 119.4%, and profit before tax of 0.65 contrasts with net income of 2.35, suggesting material extraordinary items or tax effects; disclosure gaps limit precise attribution. Financial leverage is elevated with D/E at 3.18x and equity at 17.52 versus liabilities of 55.77, although cash and deposits are sizable at 31.64. Liquidity is adequate but not robust: current ratio is 120.6% (below the >150% comfort benchmark), and quick ratio is the same given unreported inventories. DuPont ROE is 13.4%, driven by high asset turnover (1.856x) and leverage (4.18x), while net margin is modest. ROIC of -10.5% indicates returns below the cost of capital at this point; management must further enhance core profitability to create value. Earnings quality cannot be validated as operating cash flow was unreported; reliance on non-operating income increases uncertainty. Forward-looking, sustaining the operating margin gains while stabilizing revenue will be key, and strengthening the balance sheet (deleveraging, liquidity buffer) would reduce risk. Watch for normalization of the effective tax rate and clarity on extraordinary items in Q4. Overall, operational improvement is encouraging, but quality of earnings and capital efficiency remain concerns until cash conversion and recurring profit momentum are evidenced.

Profitability Analysis

ROE decomposition (DuPont): ROE 13.4% = Net Profit Margin (1.7%) × Asset Turnover (1.856x) × Financial Leverage (4.18x). The biggest change YoY came from net profit margin optics versus operating margin: operating margin improved materially (+~200 bps), but net margin contracted (~20 bps) due to unusual below-the-line/tax items. Business drivers: revenue fell 13.4% (likely weaker project flow or product sales), but gross margin held at 29.0% and SG&A growth was contained relative to the prior year, allowing operating leverage to kick in. Non-operating income (1.31) supported ordinary income; however, the very high effective tax rate (119.4%) and the gap between ordinary income (3.63) and profit before tax (0.65) imply one-time items that depressed PBT. Sustainability: operating profit improvement is more sustainable if driven by cost/mix, but the non-operating contribution and tax effects are unlikely to be repeatable in the same magnitude. Concern flags: SG&A (40.32) still exceeds gross profit (39.46), leaving a thin operating cushion; revenue decline outpaced any SG&A reduction, and dependence on non-operating items (non-operating income ratio 55.8%) remains high.

Growth Assessment

Top line contracted 13.4% YoY to 136.05, signaling soft demand or reduced project volumes. Operating income rose to 2.96 (+811.8% YoY), implying effective cost control and/or favorable mix; prior-year operating income was roughly 0.33 by inference. Ordinary income increased to 3.63 (+772.5% YoY), but this was aided by 1.31 in non-operating income. Net income declined 23.2% to 2.35, implying last year contained larger one-offs than this quarter despite better operations now. Revenue sustainability is uncertain given the magnitude of decline; further disclosure on segment drivers and pipeline is needed. Profit quality is mixed: operating trend is constructive, but reliance on non-operating gains and tax anomalies clouds underlying earnings power. Outlook: If management can stabilize revenue and maintain SG&A discipline, operating margin could normalize above 2% and support ROE in the low teens; otherwise, with negative ROIC (-10.5%), value creation remains challenged.

Financial Health

Liquidity: Current ratio 120.6% (below 150% benchmark but >100% minimum), quick ratio 120.6% (inventories unreported). Working capital is 10.66, and cash and deposits are 31.64, covering ~61% of current liabilities (51.75), mitigating near-term liquidity risk. Solvency: Debt-to-equity is high at 3.18x (warning >2.0). Equity is 17.52 against liabilities of 55.77, indicating a leveraged balance sheet. Interest coverage is very strong at 415.15x given minimal interest expense (0.01), so debt service cost is not an immediate burden. Maturity mismatch: With current liabilities 51.75 exceeding cash 31.64, the company depends on receivables collection (22.83) and ongoing cash generation to meet short-term obligations; close working capital management is critical. Off-balance sheet: No disclosures provided; cannot assess contingent liabilities or guarantees.

Cash Flow Quality

Operating cash flow (OCF) was unreported; thus OCF/Net Income cannot be calculated and earnings quality cannot be validated. Free cash flow and capex data are also unreported, preventing assessment of reinvestment intensity and cash coverage. Potential quality concerns include the sizable contribution from non-operating income and a highly unusual effective tax rate, both of which can decouple net income from cash. Working capital: Receivables (22.83) are significant relative to quarterly sales run-rate, so collection timing will influence OCF; inventories were unreported. No clear signs of manipulation can be inferred from available data, but the lack of CF disclosure is a limitation.

Dividend Sustainability

Dividend data (DPS, total paid, payout) are unreported, so sustainability cannot be quantified. With net income at 2.35 and retained earnings at 3.01 against owners' equity of 16.53, internal reserves appear limited relative to leverage (D/E 3.18x). Given negative ROIC (-10.5%) and uncertain cash flow, a conservative stance on dividends would be prudent until OCF coverage and earnings visibility improve; however, policy details are unavailable.

Risk Assessment

Business Risks:

• Revenue decline of 13.4% YoY suggests demand softness or project timing risk in core businesses.
• Thin operating margin (~2.2%) leaves little buffer against cost inflation or pricing pressure.
• High dependence on non-operating income this quarter (non-operating income ratio 55.8%) increases earnings volatility.
• Execution risk in reducing SG&A relative to gross profit, as SG&A (40.32) still exceeds gross profit (39.46).

Financial Risks:

• High leverage: D/E 3.18x (warning), equity only 17.52 vs liabilities 55.77.
• Liquidity below best-practice: current ratio 1.21 (below 1.5 benchmark), relying on receivable collections to fund near-term obligations.
• Tax/extraordinary item volatility: effective tax rate 119.4% and mismatch between ordinary income (3.63) and PBT (0.65) signal one-off effects.
• Negative ROIC (-10.5%) indicates value dilution risk if returns do not cover capital costs.

Key Concerns:

• Earnings quality uncertainty due to unreported cash flows (OCF/FCF) and reliance on non-operating gains.
• Potential maturity mismatch: current liabilities (51.75) exceed cash (31.64), necessitating tight working capital management.
• Limited retained earnings (3.01) constrain financial flexibility amid elevated leverage.

Investment Implications

Key Takeaways:

• Operational turnaround is evident: operating income +812% YoY with operating margin ~2.2%.
• Headline net profit declined YoY due to last year's one-offs and this quarter's unusual tax effects.
• Balance sheet carries high leverage (D/E 3.18x); liquidity is adequate but not robust (CR 1.21x).
• Capital efficiency is weak (ROIC -10.5%); further margin expansion and asset discipline are required.
• Non-operating income meaningfully supported ordinary profit; sustainability uncertain.

Metrics to Watch:

• Revenue trajectory and book-to-bill/pipeline detail in Q4 to assess demand stabilization.
• Operating margin progression and SG&A-to-sales ratio for sustained operating leverage.
• OCF and FCF once disclosed; target OCF/NI > 1.0 for quality confirmation.
• Working capital turns (DSO) and cash balance versus current liabilities.
• Normalization of effective tax rate and clarity on extraordinary items.
• Leverage trend (D/E) and any deleveraging actions or covenant disclosures.

Relative Positioning: Versus domestic IT/service peers, SIOS shows weaker top-line momentum, thinner operating margins, and higher financial leverage, partially offset by a sizable cash position; improving operating efficiency and cash conversion are prerequisites to close the gap.

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
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