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

For FY2025 Q3 (consolidated, JGAAP), 株式会社環境フレンドリーホールディングス reported revenue of ¥773 million, a very sharp contraction of 93.3% year over year, indicating a significant scale-down in business volume or changes in consolidation scope/segment mix. Despite the drastic revenue decline, the company posted a reported gross profit of ¥365 million, implying a gross margin of 47.2%, which suggests pricing/mix resilience or cost pass-through in the remaining business lines. Operating income was a loss of ¥75 million (operating margin of -9.7%), pointing to SG&A not yet aligned with the downsized top line. Ordinary loss was ¥53 million and net loss was ¥127 million (net margin -16.4%), with minimal financial expenses (interest expense of only ¥0.17 million), so losses are operational rather than financing-driven. DuPont decomposition indicates ROE of -3.64%, driven by negative margins and very low asset turnover (0.136x), while financial leverage is modest at 1.63x. The balance sheet appears conservative with total liabilities of ¥309 million against total assets of ¥5,685 million and equity of ¥3,489 million, implying an equity ratio of ~61.4% even though a reported equity ratio of 0.0% was provided (likely an unreported placeholder). Liquidity looks ample: current assets of ¥3,168 million versus current liabilities of ¥298 million yield a current ratio of ~10.6x and working capital of ¥2,870 million. Debt-to-equity stands at a low 0.09x, underscoring low solvency risk despite current losses. Reported cash flow figures are unpopulated (all zeros), so operating, investing, and financing cash flows cannot be assessed from this dataset. Dividend per share is ¥0 with no payout, which is consistent with current losses and limited visibility on cash generation. The strong gross margin alongside negative operating income implies elevated fixed cost burden and/or step-up in SG&A that is not supported by current revenue scale. The extraordinarily low asset turnover suggests underutilized assets following the revenue collapse or assets tied to businesses not contributing to current sales. Interest coverage based on operating loss is negative, but absolute interest burden is de minimis given the light leverage. Overall, the company remains financially liquid and lightly levered, but profitability is under pressure due to severe volume contraction and cost absorption. Data limitations (notably cash flow and several zero placeholders) constrain a full assessment of earnings quality and FCF coverage. Key focus going forward will be the trajectory of revenue normalization, cost-rightsizing, and evidence of cash generation.

Profitability Analysis

ROE of -3.64% is explained by DuPont as: net margin -16.43%, asset turnover 0.136x, and financial leverage 1.63x. The primary drag is profitability, with operating margin at -9.7% (operating loss ¥75 million on ¥773 million revenue). Gross margin of 47.2% (¥365 million gross profit) is healthy, indicating pricing/mix strength or cost containment at the COGS level despite the sharp sales decline. SG&A burden is heavy at roughly ¥440 million (derived as gross profit minus operating income), equivalent to about 57% of sales, which is the key driver of operating losses. Ordinary margin improved versus operating due to low financial costs (interest expense only ¥0.17 million), so financing does not materially impact profitability. The very low asset turnover (0.136x) highlights underutilization of the asset base relative to current revenue, which depresses ROE even if margins were to normalize. Operating leverage appears unfavorable at the current scale: fixed costs within SG&A are not fully absorbed, so small changes in revenue likely have outsized impact on operating income. With depreciation and amortization not disclosed (reported as zero), EBITDA cannot be reliably assessed; however, given operating losses, EBITDA is likely negative or weak. The effective tax rate effectively rounds to zero due to losses, providing no tax shield benefit beyond loss carryforwards. Overall margin quality at the gross level is solid, but cost structure adjustments are needed to reach operating breakeven at the new revenue scale.

Growth Assessment

Revenue declined 93.3% YoY to ¥773 million, signaling either severe end-market weakness, loss of major contracts, divestitures, or consolidation changes. The resilience in gross margin suggests remaining revenue may be higher value or less price-sensitive, but scale has eroded materially. Operating losses reflect insufficient cost flexibility; unless revenue rebounds or costs are structurally reduced, earnings recovery will be challenging. Profit quality is currently low given negative operating/ordinary profits; moreover, lack of cash flow disclosure prevents triangulating accrual vs. cash earnings. Near-term outlook hinges on volume recovery and/or SG&A rationalization; with asset turnover at 0.136x, there is room for efficiency gains if utilization improves. Given the minimal interest burden and strong liquidity, the company has runway to execute restructuring or pursue growth re-acceleration. However, visibility is constrained by missing cash flow data and lack of segment/contract granularity. Sustainability of revenue will depend on customer retention, project pipeline, and any strategic repositioning post-downturn.

Financial Health

Liquidity is strong: current assets ¥3,167,899 thousand vs. current liabilities ¥297,974 thousand, yielding a current ratio of ~10.6x and substantial working capital of ~¥2,869,925 thousand. Quick ratio equals current ratio due to inventories reported as zero (likely undisclosed), so actual quick liquidity may be lower but still appears very robust. Solvency risk is low with total liabilities of ¥309,449 thousand against equity of ¥3,489,000 thousand; debt-to-equity is 0.09x. The computed equity ratio is approximately 61.4% (equity/asset), indicating a conservative capital structure despite a reported 0.0% metric that likely reflects non-disclosure. Interest expense is minimal at ¥171 thousand, and while interest coverage on EBIT is negative, absolute debt service burden appears negligible. Asset base of ¥5,685,000 thousand relative to revenue implies low utilization; improving turnover is key to restoring returns. No detail on interest-bearing debt composition, maturities, or covenants is provided, limiting deeper solvency analysis.

Cash Flow Quality

Operating, investing, and financing cash flows are reported as zero, which should be treated as unreported rather than actual zeros. Consequently, OCF/Net Income and Free Cash Flow cannot be meaningfully interpreted from this dataset. Earnings quality cannot be validated via cash conversion metrics, working capital cash movements, or capex intensity. With inventories reported as zero and no breakdown of receivables/payables, we cannot assess working capital dynamics or potential build-ups that could pressure cash. Depreciation and amortization are undisclosed, preventing approximation of cash earnings via EBITDA. Given the negative operating income and ordinary income, internal cash generation is likely weak absent significant non-cash add-backs or working capital releases, but this remains unverified. The strong balance sheet liquidity provides some buffer against unknown cash burn in the short term.

Dividend Sustainability

The company paid no dividend (DPS ¥0) with a payout ratio of 0%, consistent with reported net losses. Without disclosed operating or free cash flow, FCF coverage cannot be assessed, and the reported FCF coverage of 0.00x reflects non-disclosure rather than actual capacity. Given the current loss profile and need to preserve liquidity while revenues are depressed, a conservative stance on shareholder returns is prudent. Future dividend capacity will depend on restoring positive operating income, improving asset turnover, and demonstrating consistent cash generation. Policy visibility is limited due to lack of disclosures on capital allocation priorities or target payout ratios.

Risk Assessment

Business Risks:

• Severe revenue contraction (-93.3% YoY) indicating potential structural demand loss or customer concentration risk.
• Operating leverage risk from high fixed SG&A relative to current scale, pressuring margins.
• Low asset turnover (0.136x) suggesting underutilized assets and execution risk in ramping utilization.
• Potential contract/project timing volatility if business is project-based.
• Limited disclosure of segment/market drivers reduces visibility into recovery trajectory.

Financial Risks:

• Operating and net losses despite strong gross margin, implying ongoing cash burn risk if not offset by working capital releases.
• Negative interest coverage from operating losses (though absolute interest burden is minimal).
• Cash flow data unreported, obscuring liquidity runway and FCF sustainability.
• Inventories reported as zero (likely undisclosed), limiting assessment of working capital risks.

Key Concerns:

• Sustainability of gross margin at 47% if revenue mix normalizes or competitive pressure increases.
• Ability to right-size SG&A quickly to re-attain operating breakeven.
• Dependence on improvements in asset turnover to lift ROE from negative territory.
• Data inconsistencies (e.g., reported equity ratio 0.0%) and substantial non-disclosures, complicating analysis.

Investment Implications

Key Takeaways:

• Top line collapsed YoY, but gross margin remains strong, indicating margin resilience in remaining business.
• Negative operating income driven by high SG&A versus shrunken sales; cost actions and scale recovery are critical.
• Balance sheet is robust with low leverage and ample liquidity (current ratio ~10.6x, equity ratio ~61%).
• Asset turnover is very low, materially depressing ROE; improving utilization is a key lever.
• Cash flow visibility is limited due to unreported cash flow statements and D&A.

Metrics to Watch:

• Quarterly revenue trajectory and order backlog/pipeline indicators.
• SG&A as a percentage of sales and progress on fixed cost reduction.
• Operating margin and ordinary margin inflection to positive territory.
• Asset turnover improvement (Revenue/Total Assets) and any asset rationalization.
• Cash flow from operations and free cash flow once disclosed.
• Gross margin stability amid any volume recovery.

Relative Positioning: Compared with Tokyo Stock Exchange peers, the company exhibits much weaker near-term profitability and utilization but stronger balance sheet conservatism and liquidity; execution on revenue recovery and cost rationalization will determine whether the solid gross margin can translate to competitive operating margins.

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