Agent IG Holdings Co., Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥9.61B
• Operating Income: ¥75M
• Net Income: ¥26M
• Earnings per Unit (EPU): ¥11.34

Income Statement

Balance Sheet

Profitability Ratios

Unit 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: Soft quarter with thin profitability and elevated leverage, offset by decent asset turnover and sufficient near-term liquidity. Revenue reached 96.06 (100M JPY), indicating scale but low value capture at the bottom line. Operating income was 0.75, producing an estimated operating margin of about 0.8%. Ordinary income was also 0.75, as non-operating items roughly netted out (income 0.17 vs expenses 0.18). Profit before tax was 0.73 and net income was 0.26, implying a very slim net margin of roughly 0.27–0.30%. EPS came in at 11.34 JPY on 2,322,848 average shares. Interest expense was 0.14 with interest coverage of 5.28x, adequate but sensitive to any dip in EBIT. The effective tax rate was high at 63.8%, a notable drag on bottom-line conversion. Balance sheet shows total assets of 50.59 and equity of 13.50, implying a high D/E of 2.75x. Liquidity is modestly adequate with current ratio and quick ratio at 110.5%, supported by cash of 15.94 and receivables of 14.88. Intangibles are sizable (intangible assets 13.05 including goodwill 9.00), elevating potential impairment risk. DuPont ROE is 1.9%, driven by strong asset turnover (1.899x) but capped by very low net margin and high leverage. Operating vs net income divergence cannot be assessed due to missing cash flow data, which is an earnings quality limitation. With a reported ROIC of 7.0%, returns are around common target thresholds but may be pressured if margins do not improve. Near term, stabilizing the tax rate, protecting operating margin, and maintaining interest coverage will be critical. Forward-looking, deleveraging and improving margin mix are needed to raise ROE sustainably, while close monitoring of goodwill impairment and working capital discipline is warranted.

Profitability Analysis

ROE decomposition: ROE (1.9%) = Net Profit Margin (~0.27–0.30%) × Asset Turnover (1.899x) × Financial Leverage (3.75x). The binding constraint on ROE is clearly the very low net profit margin, despite healthy asset turnover and elevated leverage. The low margin reflects thin operating profitability (OPM ~0.8%) and an unusually high effective tax rate (63.8%) that suppresses net income. Non-operating items were roughly neutral in aggregate this quarter (0.17 income vs 0.18 expenses), so they did not lift margins. Given the data, operating leverage appears weak; costs likely scaled close to revenue, though SG&A detail is unreported. Sustainability: asset turnover at ~1.9x looks structurally solid for a services-heavy model; however, reliance on high leverage to achieve a modest ROE is not desirable. Margin changes versus prior periods cannot be assessed due to missing YoY data; the key concern is that any SG&A growth outpacing revenue would further compress already thin margins. Priority to improve ROE should be margin expansion (pricing, mix, cost control) and normalization of the tax rate, rather than additional leverage.

Growth Assessment

Top-line scale of 96.06 suggests the business is active, but monetization is limited as evidenced by OPM ~0.8% and NPM ~0.3%. We lack YoY/HoH comparisons, so growth trajectory and margin directionality cannot be determined. Ordinary income tracked operating income, indicating no material one-time gains this quarter; this is positive for recurring quality but leaves little cushion. Interest expense at 0.14 is meaningful relative to EBIT, constraining incremental earnings growth unless operating profit improves. The high effective tax rate (63.8%) materially reduced net income; if this normalizes, reported EPS could benefit without operational changes. Reported ROIC of 7.0% is around typical management targets, but sustained improvement likely requires better operating margins and disciplined capital deployment. Intangibles (goodwill 9.00 within intangibles 13.05) highlight a need to deliver synergies from past investments to support earnings growth and avoid impairments. With receivables of 14.88, revenue quality depends on collections; absent OCF data we cannot validate cash conversion. Outlook hinges on margin protection, tax rate normalization, and maintaining interest coverage; without these, net profit growth will remain constrained.

Financial Health

Liquidity is marginally adequate: current ratio 110.5% and quick ratio 110.5%, slightly above minimum comfort but below a healthy 1.5x benchmark. Warning: Debt-to-Equity is high at 2.75x (>2.0 threshold), indicating elevated leverage risk. Maturity profile: current liabilities 29.23 vs current assets 32.30 provide a small buffer; cash 15.94 plus receivables 14.88 roughly cover current liabilities, but limited room for shocks. Long-term loans are 7.82; short-term loans are unreported, so total interest-bearing debt cannot be fully assessed. Interest coverage of 5.28x is acceptable, but thin operating margins leave little margin of safety if EBIT declines or rates rise. Intangibles are significant (intangibles 13.05, goodwill 9.00), reducing tangible equity and potentially constraining borrowing headroom. No off-balance sheet obligations are reported in the data provided.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be assessed—this is a key limitation. Without OCF, we cannot confirm earnings conversion or identify working capital-driven boosts/pressures. Receivables are sizable at 14.88 relative to revenue scale, making collection efficiency an important determinant of cash generation. With interest expense at 0.14 and thin EBIT, free cash flow resilience would rely on tight working capital management and modest capex; however, capex is unreported. We see no direct signs of working capital manipulation in the data, but the absence of OCF and inventory/OPA detail limits detection.

Dividend Sustainability

Dividend data (DPS, total dividends, payout ratio, FCF coverage) are unreported, so we cannot evaluate policy execution or coverage. With net income at 0.26 (and unknown OCF/FCF), any cash distribution would compete with deleveraging needs given D/E of 2.75x. Interest coverage is adequate but could deteriorate if earnings soften or rates rise, suggesting a prudent payout would be conservative until margins improve. If the effective tax rate normalizes, distributable earnings could increase without incremental operating risk; absent that, payout capacity is likely constrained.

Risk Assessment

Business Risks:

• Very thin operating and net margins (OPM ~0.8%, NPM ~0.3%) leave limited buffer against revenue or cost shocks.
• High effective tax rate (63.8%) depresses net income and EPS.
• Execution risk around monetizing past acquisitions given large intangibles/goodwill (intangible assets 13.05, goodwill 9.00).
• Revenue quality/collection risk given receivables of 14.88 and missing OCF data.
• Potential customer or project concentration risk (common in service models; not disclosed here).

Financial Risks:

• High leverage (D/E 2.75x) increases refinancing and covenant risk if earnings weaken.
• Liquidity only modestly above minimum (current ratio and quick ratio 1.105), leaving little cushion.
• Interest rate risk: rising rates would pressure interest coverage (currently ~5.3x) and net profit.
• Impairment risk: sizable goodwill could trigger non-cash charges in a downturn, reducing equity and tightening leverage.
• Maturity mismatch uncertainty due to unreported short-term borrowings.

Key Concerns:

• Earnings quality cannot be validated due to missing cash flow statement.
• Sustained ROE is dependent on leverage rather than margins, which is less resilient.
• Tax rate volatility may obscure underlying profitability trends.
• Non-operating items are small this quarter, offering limited offset to weak operations.

Investment Implications

Key Takeaways:

• Revenue scale of 96.06 with slim profitability (OPM ~0.8%, NPM ~0.3%).
• ROE 1.9% constrained by margin, despite strong asset turnover (1.899x) and high leverage (3.75x).
• Liquidity adequate but tight (current/quick ratio 1.105), requiring disciplined working capital.
• Interest coverage 5.28x is acceptable but sensitive to EBIT fluctuation.
• High effective tax rate (63.8%) materially reduces net income.
• Intangibles and goodwill are large, elevating impairment and balance sheet quality risk.

Metrics to Watch:

• Operating margin and net margin progression by quarter.
• OCF/Net Income and free cash flow once disclosed.
• Working capital turns: receivables collection days and any buildup.
• Interest coverage trend vs rate environment.
• Effective tax rate normalization and drivers.
• Leverage trajectory (D/E) and any deleveraging actions.
• Impairment testing outcomes for goodwill and other intangibles.

Relative Positioning: Versus small-cap service peers, the company exhibits stronger asset turnover but weaker profitability and higher leverage, resulting in a reliance on balance sheet risk rather than margin strength to achieve modest ROE.

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