Environment Friendly Holdings Corp. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥773M
• Operating Income: ¥-75M
• Net Income: ¥-81M
• EPS: ¥-0.43

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 shows severe topline contraction and loss-making operations despite ample liquidity, with capital efficiency meaningfully below benchmark. Revenue was 7.73 (100M JPY), down 93.3% YoY, while gross profit was 3.65 (100M JPY), implying a gross margin of 47.2%. SG&A totaled 4.44 (100M JPY), pushing operating income to -0.75 (100M JPY) and ordinary income to -0.53 (100M JPY). Net income came in at -1.27 (100M JPY), translating to EPS of -0.43 JPY on an average share count of 294.9 million. The DuPont decomposition yields a net margin of -16.4%, asset turnover of 0.136, and financial leverage of 1.63x, resulting in ROE of -3.6%. ROIC is reported at -3.2%, well below the 5% warning threshold. Liquidity remains strong with cash and deposits of 28.91 (100M JPY), current assets of 35.44 (100M JPY), and a current ratio of 554%. Leverage is moderate with a D/E of 0.63x and total liabilities of 21.97 (100M JPY) against equity of 34.89 (100M JPY). Despite reported interest expense near zero, the interest coverage metric is flagged at -438.6x, reflecting negative operating earnings. Retained earnings are negative at -0.90 (100M JPY), indicating limited capacity to fund distributions from accumulated profits. The revenue collapse and negative margins suggest significant business disruption or portfolio reset. Margin expansion or compression in basis points versus prior periods cannot be quantified due to lack of disclosed prior-quarter margin data. Earnings quality cannot be evaluated fully as operating cash flow is unreported; thus, OCF versus net income divergence is unknown. The balance sheet shows meaningful intangible assets (intangible assets 8.39 and goodwill 1.51; total 9.90, about 17% of total assets), posing impairment risk if losses persist. Forward-looking, stabilizing revenues and restoring positive operating leverage are priority, while refinancing risk resides mainly in long-term loans of 15.54 (100M JPY). Overall, the quarter underscores urgent profitability remediation amid otherwise solid short-term liquidity.

Profitability Analysis

ROE decomposes into Net Profit Margin (-16.4%) × Asset Turnover (0.136) × Financial Leverage (1.63x) = -3.6% ROE. The largest drag is the net margin: operating loss of -0.75 (100M JPY) and net loss of -1.27 (100M JPY) on a very small revenue base of 7.73 (100M JPY) drives the negative margin. Asset turnover is low at 0.136, reflecting subdued revenue relative to a 56.85 (100M JPY) asset base. Financial leverage at 1.63x is moderate and not the primary driver of the ROE outcome. Business reason: a 93.3% YoY revenue contraction suggests sharp demand decline, project delays/cancellations, or strategic portfolio changes, while SG&A (4.44) now exceeds gross profit (3.65), inverting operating leverage. Sustainability: the negative margin appears cyclical/one-off only if revenue normalizes; otherwise, absent cost realignment, losses could persist. Concerning trends include cost absorption issues (SG&A > gross profit) and capital efficiency deterioration (ROIC -3.2%). With no detailed SG&A breakdown, we cannot verify whether fixed costs (e.g., personnel, rent) are driving deleveraging, but the pattern is consistent with fixed-cost burden on a shrunken revenue base.

Growth Assessment

Revenue declined 93.3% YoY to 7.73 (100M JPY), indicating a sharp contraction rather than transitory noise. Profitability is negative across operating, ordinary, and net levels, implying that current revenue scale is below breakeven. Absent reported order backlog or segment detail, revenue sustainability is uncertain; recovery requires either topline normalization or structural cost reductions. Non-operating contributions are minimal (non-operating income 0.04; expenses 0.07), so earnings are predominantly driven by core operations. With asset turnover at 0.136, the company is underutilizing its asset base, limiting growth efficiency. Outlook hinges on rebuilding volume while protecting gross margin (reported 47.2%); however, SG&A right-sizing may be necessary to restore positive operating margin. Given negative retained earnings and ROIC below cost of capital benchmarks, organic growth should prioritize returns over scale until profitability is restored.

Financial Health

Liquidity: Current assets of 35.44 (100M JPY) versus current liabilities of 6.40 (100M JPY) yield a current ratio of 554% and a quick ratio of 554%, both strong. Cash and deposits are 28.91 (100M JPY), providing substantial near-term coverage, including short-term loans of 1.80 (100M JPY). Solvency: Total liabilities are 21.97 (100M JPY) against equity of 34.89 (100M JPY), resulting in a D/E of 0.63x, within conservative bounds (<1.5x). Maturity profile: Long-term loans of 15.54 (100M JPY) dominate liabilities, implying refinancing/interest rate risk concentrated beyond the current period but manageable near term given liquidity. No explicit off-balance sheet obligations are reported in the provided data. Warning thresholds: Current ratio > 1.0 (no warning), D/E < 2.0 (no warning).

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be computed. Consequently, we cannot test the OCF/NI quality threshold of 0.8 or assess working capital cash conversion. With cash and deposits at 28.91 (100M JPY) and negative net income of -1.27 (100M JPY), liquidity headroom appears adequate in the short run, but sustainability of cash burn depends on unreported OCF and capex. No signs of working capital manipulation can be assessed due to missing cash flow and inventory data; receivables are modest at 1.72 and payables at 0.42 (100M JPY).

Dividend Sustainability

Dividend data are unreported, and payout ratios/FCF coverage are not calculable. Given net income of -1.27 (100M JPY) and retained earnings at -0.90 (100M JPY), internal capacity to fund dividends appears limited until profitability recovers. With ROE at -3.6% and ROIC at -3.2%, prioritizing balance sheet stability and reinvestment/turnaround over distributions would be consistent with typical policies under JGAAP when accumulated profits are negative. Policy outlook cannot be inferred without guidance; any distributions would likely rely on non-recurring sources or capital transactions, neither of which is indicated in the data.

Risk Assessment

Business Risks:

• Revenue collapse (-93.3% YoY) indicating demand shock, execution issues, or portfolio reset
• Negative operating leverage with SG&A (4.44) exceeding gross profit (3.65)
• High dependence on restoring topline given limited non-operating income
• Intangible assets including goodwill totaling 9.90 (100M JPY) (~17% of assets) implying impairment risk if losses persist

Financial Risks:

• Sustained losses driving negative retained earnings (-0.90), constraining financial flexibility
• Refinancing risk on long-term loans of 15.54 (100M JPY) in a higher-rate environment
• Interest coverage flagged at -438.6x due to negative operating income, highlighting sensitivity to any increase in interest burden
• Asset turnover at 0.136 indicating underutilization of asset base and depressed capital efficiency (ROIC -3.2%)

Key Concerns:

• Path to breakeven given current revenue scale and fixed cost base
• Potential need for cost restructuring to align SG&A with shrunken revenue
• Earnings quality assessment hindered by missing cash flow disclosures
• Potential covenant or rating considerations if losses persist (data not provided)

Investment Implications

Key Takeaways:

• Severe topline contraction to 7.73 (100M JPY) with net loss of -1.27 (100M JPY)
• Gross margin level appears resilient at 47.2%, but scale is insufficient to cover SG&A
• Capital efficiency weak: ROE -3.6%, ROIC -3.2%, asset turnover 0.136
• Balance sheet liquidity strong: cash 28.91 (100M JPY), current ratio 554%, D/E 0.63x
• Intangibles at ~17% of assets add impairment downside if recovery lags

Metrics to Watch:

• Revenue run-rate and order intake/backlog to gauge recovery
• Operating margin trajectory and SG&A as a percentage of sales
• OCF and FCF once disclosed; OCF/NI ratio target >1.0
• ROIC progression toward >5% near-term and >7–8% medium-term
• Net debt and debt maturity ladder versus cash balance

Relative Positioning: Versus TSE small-cap peers, the company exhibits superior short-term liquidity and conservative leverage but materially weaker profitability and capital efficiency; near-term equity story depends on restoring revenue scale and positive operating leverage while preserving cash.

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