Internetworking and Broadband Consulting Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥2.40B
• Operating Income: ¥565M
• Net Income: ¥410M
• EPS: ¥74.07

Income Statement

Balance Sheet

Cash Flow Statement

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: A strong FY2025 Q4 finish, with double-digit top-line growth translating into outsized earnings gains and high-quality cash generation. Revenue rose 15.0% YoY to 24.04, while operating income climbed 46.9% YoY to 5.65 and net income surged 78.5% YoY to 4.10. Gross profit reached 15.54, implying a robust gross margin of 64.7%. Operating margin expanded materially to an estimated 23.5% (5.65/24.04), up roughly 510 bps from ~18.4% last year (back-solved from growth rates). Net margin improved to 17.1%, roughly +610 bps YoY versus an estimated ~11.0% prior year, reflecting strong operating leverage and tight cost control. Cash generation was excellent: operating cash flow of 7.01 exceeded net income by 1.71x, and free cash flow was a solid 5.76 after modest capex. Liquidity remains conservative with a current ratio of 200% and cash/deposits of 19.26 against short-term loans of 8.00. Balance sheet strength is evident: equity of 22.73 on assets of 37.39 implies an equity ratio around 60.8% and a manageable D/E of 0.59x. Interest coverage is extremely high at 145x, underscoring low financial risk. ROE stands at 18.0% via DuPont (17.1% margin × 0.643x turnover × 1.64x leverage), driven primarily by margin expansion. One data caveat: reported profit before tax (2.69) is below net income (4.10), likely reflecting classification anomalies or non-recurring items/tax effects; we anchor on the reported net income for profitability assessment. Non-operating items were modest, with equity-method income of 0.20 contributing about 7.4% of earnings; this is not a trading-company profile and profit is primarily operating-derived. The effective tax rate is low at 14.5%, which supported net profit; sustainability of this rate should be monitored. Dividend capacity looks ample with a calculated payout ratio of 11.2% and FCF coverage of 12.5x, though actual DPS was unreported. Overall, the quarter showcases operating leverage, disciplined costs, and strong cash conversion, setting a constructive base for the next fiscal period. Forward-looking, margin resilience, OCF conversion, and any normalization in tax rate will be key determinants of sustaining the 18% ROE. With healthy liquidity and limited leverage, the company appears well-positioned to fund growth while maintaining optionality for shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 17.1% × 0.643 × 1.64x ≈ 18.0%. The component that changed most YoY appears to be net profit margin, given revenue growth of +15.0% vs operating income +46.9% and net income +78.5%, indicating significant operating leverage and possibly a lower effective tax rate. Business drivers: higher gross margin (64.7%) and contained SG&A relative to sales lifted operating margin to ~23.5%; modest non-operating income (0.33) and a low 14.5% tax rate further boosted net margin. Asset turnover at 0.643x is typical for a software/services model with sizable cash and receivables; improvements here are likely incremental rather than step-change. Financial leverage at 1.64x (assets/equity) remains conservative; leverage did not drive the ROE increase. Sustainability: margin gains from operating efficiency and scale effects can be partly sustainable, but the unusually low tax rate may normalize, tempering net margin. Watch for any SG&A growth acceleration; while we lack a YoY SG&A breakdown, the spread between revenue and operating income growth suggests SG&A discipline this year.

Growth Assessment

Top-line growth of +15.0% YoY to 24.04 indicates solid demand, likely in core network performance monitoring/IT solutions. Profit growth quality is high: operating income rose +46.9% and net income +78.5%, outpacing revenue due to operating leverage and a favorable tax rate. Gross margin at 64.7% underscores a value-added mix; operating margin improved to ~23.5%. Non-operating items (0.33) and equity-method income (0.20) were supportive but not the main drivers. The uplift in net margin to 17.1% may moderate if the effective tax rate normalizes above 14.5%. With OCF at 7.01 and FCF at 5.76, growth is supported by internal cash generation. Outlook: sustaining double-digit revenue growth with disciplined SG&A should maintain a mid-20s operating margin; key swing factors include hiring pace, pricing power, and project timing. Given the small contribution from affiliates, earnings should be less volatile than trading companies exposed to commodity cycles.

Financial Health

Liquidity is strong: current ratio 200.2% and quick ratio 197.6%, well above benchmarks; no warning triggers (CR <1.0) detected. Solvency is conservative: D/E 0.59x, equity ratio approximately 60.8% (22.73/37.39). Interest coverage is very robust at 145.21x, indicating minimal refinancing or rate risk on current debt levels. Maturity profile: short-term loans of 8.00 are fully covered by cash and deposits of 19.26 and sizable current assets of 26.69; maturity mismatch risk is low. Noncurrent liabilities are de minimis (0.01), suggesting limited long-term obligations. Off-balance sheet obligations were not disclosed (N/A); no explicit commitments identified from the provided data.

Cash Flow Quality

OCF/Net Income is 1.71x (>1.0), indicating high-quality earnings backed by cash conversion. Free cash flow of 5.76 comfortably covers likely maintenance capex (capex reported at only -0.05) and leaves capacity for growth investments or returns to shareholders. Working capital appears well-managed: accounts receivable at 6.60 versus revenue of 24.04 suggests roughly 3 months’ sales outstanding, reasonable for enterprise IT; inventories are minimal (0.34), consistent with a software/services model. No signs of working-capital-driven earnings management are evident, as cash generation outpaced accounting profit. Financing CF was -0.88, consistent with net debt repayment and/or dividends (unreported split). Overall cash position strengthened, with ample liquidity to meet short-term obligations.

Dividend Sustainability

While DPS was unreported, the calculated payout ratio is 11.2%, comfortably below the <60% benchmark for sustainability. FCF coverage is strong at 12.52x, implying ample headroom to fund dividends from internally generated cash even if profit moderates. With cash of 19.26 and low leverage, the company has flexibility to maintain or modestly increase shareholder returns in line with earnings. Policy outlook depends on growth investment needs versus return distribution; current metrics support sustainability, but confirmation of actual DPS and policy is needed.

Risk Assessment

Business Risks:

• Demand cyclicality and project timing in enterprise IT affecting quarterly revenue recognition
• Pricing pressure and wage inflation impacting gross and operating margins
• Customer concentration risk (not disclosed) typical of B2B software/services
• Dependency on skilled engineering talent and potential hiring cost escalation
• Sustainability of a low 14.5% effective tax rate

Financial Risks:

• Short-term loan reliance of 8.00 (though currently over-covered by cash)
• Potential interest rate increases affecting borrowing costs
• Receivables concentration and collection risk given 6.60 in AR

Key Concerns:

• Inconsistency between reported profit before tax (2.69) and net income (4.10), suggesting classification anomalies or one-off tax/extraordinary effects
• Limited disclosure of SG&A components and DPS, constraining full assessment of cost structure and return policy
• Possible normalization of margins if OPEX growth catches up with revenue

Investment Implications

Key Takeaways:

• Strong operating leverage: operating income +46.9% on revenue +15.0%
• Margin expansion: operating margin to ~23.5% (+~510 bps YoY), net margin to 17.1% (+~610 bps)
• High-quality cash conversion with OCF/NI at 1.71x and FCF of 5.76
• Balance sheet conservative: equity ratio ~60.8%, D/E 0.59x, interest coverage 145x
• ROE at 18.0% driven primarily by margin expansion rather than leverage

Metrics to Watch:

• Bookings/backlog and revenue visibility for the next fiscal year
• SG&A trajectory versus revenue growth (hiring and sales efficiency)
• Receivables days and cash conversion cycle
• Effective tax rate normalization
• Sustained operating margin at or above ~23%
• Capital allocation: DPS disclosure, buybacks, and growth capex

Relative Positioning: Versus domestic small-cap software/IT service peers, the company exhibits above-average operating margins, strong cash conversion, and low leverage, positioning it favorably on quality and capital efficiency while maintaining conservative financial risk.

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