Gaiax Co., Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.58B
• Operating Income: ¥121M
• Net Income: ¥451M
• EPS: ¥22.43

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

Gaiax (3775) reported FY2025 Q3 (consolidated, JGAAP) revenue of ¥2,584 million, up a modest 0.8% YoY, indicating largely flat topline momentum. Despite a strong gross profit of ¥1,747.9 million and a very high gross margin of 67.6%, profitability compressed significantly further down the P/L. Operating income fell to ¥121 million (-71.5% YoY), implying substantial SG&A inflation or reduced operating scale efficiency. Ordinary income of ¥149 million exceeded operating income, indicating positive non-operating contributions, while net income was ¥114 million (-74.7% YoY), equating to a 4.41% net margin. The DuPont bridge shows ROE at 8.85% = net margin 4.41% × asset turnover 1.064 × financial leverage 1.89, with ROE supported more by leverage and asset efficiency than margin. Asset turnover of 1.064x is healthy for an IT/services-centric model with light inventories. The balance sheet appears robust: total assets ¥2,428 million and total equity ¥1,288 million imply an equity ratio of about 53% (the reported 0.0% is clearly an undisclosed placeholder), and liabilities of ¥1,075.7 million suggest moderate leverage (D/E ~0.84x). Liquidity is strong with current assets of ¥2,173.0 million against current liabilities of ¥724.8 million (current and quick ratios both ~300%), yielding working capital of ¥1,448.2 million. Interest expense is minimal (¥1.234 million), producing an interest coverage of ~98x, underscoring low financial risk from debt service. The effective tax burden is very low (income tax ¥2.9 million vs ordinary income ¥149 million), likely reflecting tax loss carryforwards or timing effects. Cash flow statements are undisclosed in this dataset (all zeros reflect missing data), limiting assessment of cash conversion and free cash flow. Depreciation is also undisclosed, so EBITDA figures shown as zero are not meaningful. Dividend is nil, consistent with a reinvestment-oriented stance and near-term earnings pressure. Overall, Gaiax maintains solid balance sheet and liquidity strength, but faces near-term profitability headwinds due to operating cost pressure. Absent cash flow disclosure, we cannot validate earnings quality; monitoring working capital and OCF is essential in subsequent quarters.

Profitability Analysis

ROE_decomposition: ROE 8.85% = Net margin 4.41% × Asset turnover 1.064 × Leverage (Assets/Equity) 1.89. Margin contraction is the primary drag; asset efficiency is stable and leverage provides a modest boost. margin_quality: Gross margin is very high at 67.6%, consistent with a services/platform-heavy mix. Operating margin is 4.7% (¥121m/¥2,584m), down sharply YoY given the -71.5% operating income change, indicating elevated SG&A or reduced operating leverage. Net margin at 4.41% benefits from low taxes and small non-operating gains (ordinary > operating). operating_leverage: Negative operating leverage this period: revenue +0.8% YoY while operating income -71.5% YoY implies fixed cost absorption issues or step-up in growth investments. The gap between gross and operating margins points to SG&A as the swing factor.

Growth Assessment

revenue_sustainability: Revenue growth of +0.8% YoY suggests a mature or temporarily stagnant demand environment. With no segment disclosure here, sustainability hinges on retention and pipeline conversion in core service lines. profit_quality: Profitability relies on high gross margin but is vulnerable to SG&A intensity. Ordinary income exceeding operating income implies non-operating support (e.g., finance income, equity-method gains), which may be less recurring than core operations. outlook: Near-term outlook depends on SG&A normalization and monetization of the existing client base. If cost actions or scale efficiencies materialize, operating margin could recover from the current 4–5% range; otherwise, earnings remain sensitive to small revenue fluctuations.

Financial Health

liquidity: Current assets ¥2,173.0m vs current liabilities ¥724.8m; current and quick ratios both ~300%. Working capital is ¥1,448.2m, indicating ample near-term liquidity. solvency: Total liabilities ¥1,075.7m vs equity ¥1,288.0m yields D/E ~0.84x and an implied equity ratio ~53% (assets ¥2,428m). Interest coverage ~98x reflects minimal debt service burden. capital_structure: Moderate leverage with strong equity buffer. Non-operating items positively contribute to ordinary income; mix of liabilities not disclosed, but overall indebtedness appears manageable given coverage.

Cash Flow Quality

earnings_quality: Cash flow data are undisclosed in this dataset (OCF shown as 0 reflects non-reporting). Therefore, we cannot corroborate earnings with cash generation or assess cash conversion. FCF_analysis: Free cash flow is not inferable due to missing OCF and capex/depreciation detail. EBITDA is also undisclosed, so leverage metrics tied to EBITDA are not meaningful. working_capital: With inventories not reported and strong current asset position, working capital appears ample. However, without receivables/payables breakdown or OCF, we cannot assess DSO/DPO trends or potential working capital build.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is zero; payout ratio reported as 0.0% reflects a non-distributing stance despite positive EPS (¥22.43). Given compressed operating income, retaining earnings is consistent with preserving balance sheet strength. FCF_coverage: FCF coverage cannot be evaluated due to undisclosed OCF and capex. The reported 0.00x is a placeholder, not an indication of inability to fund dividends. policy_outlook: With earnings under pressure and a focus likely on reinvestment and margin recovery, continuation of a conservative or nil dividend policy appears plausible until cash flow visibility and margin normalization improve.

Risk Assessment

Business Risks:

• Operating leverage risk: small revenue changes causing outsized swings in operating income due to fixed SG&A base.
• Client concentration or project timing risk typical in IT/services leading to quarterly volatility.
• Dependence on non-operating gains to support ordinary income, which may be non-recurring.
• Competitive pressure in digital/IT services potentially compressing pricing and utilization.
• Execution risk in scaling newer businesses or ventures if applicable.

Financial Risks:

• Margin compression risk from elevated SG&A and limited short-term pricing power.
• Cash conversion uncertainty due to undisclosed OCF and working capital movements.
• Potential tax normalization from an unusually low effective tax burden (~2%), which could reduce net margins.
• Refinancing/interest rate sensitivity minimal now but could rise if leverage increases.

Key Concerns:

• Sharp YoY decline in operating income (-71.5%) despite flat revenue.
• Reliance on non-operating items to lift ordinary income above operating income.
• Lack of disclosed cash flow data impeding assessment of earnings quality and FCF.

Investment Implications

Key Takeaways:

• Topline essentially flat (+0.8% YoY) while profitability deteriorated sharply at the operating level.
• ROE at 8.85% is sustained by asset efficiency and leverage rather than core margin strength.
• Balance sheet and liquidity are strong (equity ratio ~53%, current ratio ~300%, interest coverage ~98x).
• Non-operating contributions supported ordinary income; sustainability uncertain.
• Cash flow and depreciation data are undisclosed, limiting visibility on cash earnings and reinvestment needs.

Metrics to Watch:

• SG&A ratio to sales and trajectory of operating margin recovery.
• OCF and FCF once disclosed; receivables/payables and contract liabilities movement.
• Revenue growth reacceleration and backlog/pipeline health.
• Composition of non-operating gains/losses (finance income, equity-method results).
• Effective tax rate normalization and its impact on net margin.
• Asset turnover and working capital efficiency (DSO/DPO) when details are available.

Relative Positioning: Within TSE-listed IT/services peers, Gaiax shows strong gross margins and balance sheet liquidity but weaker current-period operating leverage and heavier reliance on non-operating income; near-term positioning hinges on restoring SG&A efficiency and validating 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