Silver Egg Technology CO.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥787M
• Operating Income: ¥-29M
• Net Income: ¥-22M
• EPS: ¥-7.60

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

Verdict: FY2025 Q3 shows a weak quarter with contracting topline and deeper losses, but the balance sheet remains very robust with ample cash and negligible leverage. Revenue was 7.87 (hundred million JPY), down 15.2% YoY, indicating demand softness or client churn/downsizing in the core recommendation engine business. Operating income was -0.29, deteriorating 20.8% YoY, and ordinary income was -0.28, down 20.0% YoY, confirming limited operating leverage and insufficient cost absorption. Net income was -0.22, a 26.7% YoY decline, equating to a net margin of -2.8%. Operating margin was approximately -3.7% this quarter; based on prior-year implied figures, operating margin worsened by about 110 bps YoY (from roughly -2.6% to -3.7%). Ordinary margin similarly compressed by about 110 bps (from about -2.5% to -3.6%), and net margin compressed by about 100 bps (from around -1.8% to -2.8%). There is a notable mismatch: profit before tax is reported at +0.70 while net income is -0.22 with income tax of 0.26, implying the presence of sizable below-ordinary, non-recurring losses (estimated around -0.66) or tax-related adjustments not disclosed in the dataset. The effective tax rate on the reported PBT is 37.0%, but this is difficult to interpret given the negative bottom line. Cash and deposits stand at 11.79 against total current liabilities of 1.01, yielding a current ratio of 1384% and quick ratio of 1384%, indicating extremely strong liquidity. Total assets are 14.58 and equity is 14.04, implying an equity ratio near 96% and financial leverage of only 1.04x. Asset turnover is 0.54x, reflecting a light-asset, subscription/service model but also subdued growth. DuPont-calculated ROE is -1.6% (Net margin -2.8% × Asset turnover 0.54 × Leverage 1.04), with the drag clearly from margins. ROIC is reported at -8.1%, highlighting ongoing value dilution from current operations. With operating and ordinary losses persisting and revenue contracting, near-term earnings recovery hinges on stabilizing revenue and tightening costs; however, the cash buffer provides runway to execute a turnaround without balance sheet stress. Forward-looking, the company needs to demonstrate improvement in sales momentum (new wins and net retention) and cost discipline to restore positive margins.

Profitability Analysis

ROE = -2.8% (net margin) × 0.540 (asset turnover) × 1.04 (leverage) ≈ -1.6%. The largest change is net margin compression (~100 bps YoY) due to revenue decline (-15.2%) outpacing any visible cost adjustment, worsening operating loss by ~20.8%. This likely reflects weaker demand, pricing/mix headwinds, and fixed-cost rigidity. The effect appears ongoing rather than one-time without evidence of transient items improving operations. Watch for SG&A growth vs revenue once disclosed; current pattern suggests negative operating leverage.

Growth Assessment

Revenue fell 15.2% YoY to 7.87, signaling demand softness in core offerings. With operating and ordinary losses widening ~20% YoY, mix and/or pricing likely deteriorated in addition to volume. Absent disclosed gross profit and SG&A detail, we infer the revenue decline is the primary driver of margin compression. The reported PBT-positive/NI-negative pattern implies non-recurring items or valuation/tax effects, which do not support sustainable growth quality. Asset turnover at 0.54x suggests a stable, asset-light base but does not compensate for margin pressure. Near-term outlook depends on stabilizing ARR/net retention and re-accelerating bookings; without this, profitability will remain negative. Key forward indicators to watch: new customer wins, upsell/cross-sell traction, churn, and average revenue per client. Any shift to higher-margin modules or price increases could help, but evidence is not yet visible in the reported numbers.

Financial Health

No red flags on liquidity or leverage: Current Ratio 13.84x (>1.0), D/E 0.07x (<2.0). Cash 11.79 far exceeds current liabilities 1.01, keeping maturity mismatch risk low. Equity/asset ratio near 96% shows high solvency. Interest-bearing debt is unreported but total liabilities are small; off-balance obligations not disclosed.

Cash Flow Quality

OCF/Net Income is not calculable due to unreported OCF. Free cash flow is unreported; thus, dividend/capex coverage cannot be assessed. With large cash and low liabilities, near-term liquidity is strong, but we cannot confirm earnings-to-cash conversion or working capital dynamics.

Dividend Sustainability

Dividends are unreported. Given negative earnings and unknown OCF, sustainable dividends are not supported by operations; any payout would rely on cash reserves and retained earnings (8.53). Policy outlook is uncertain pending a return to profitability and positive OCF.

Risk Assessment

Business Risks:

• Revenue contraction and customer churn/downsizing risk.
• Competitive pressure in AI recommendation/personalization markets.
• Technology obsolescence risk and need for continuous R&D.
• Data privacy/compliance costs and constraints.

Financial Risks:

• Negative ROIC (-8.1%) and persistent losses.
• Potential extraordinary losses or tax impacts not disclosed.
• Scale risk and potential customer concentration (not disclosed).
• Uncertain cash flow generation due to lack of OCF disclosure.

Key Concerns:

• Margin compression with negative operating leverage.
• Inadequate visibility on cost structure (no gross profit/SG&A detail).
• Earnings quality opaque (OCF unreported).
• Dependence on cash reserves if losses persist.

Investment Implications

Key Takeaways:

• Demand softness: revenue down 15.2% YoY; operating loss widened 20.8% YoY.
• Margins deteriorated: operating margin ~-3.7% (≈-110 bps YoY), net margin -2.8% (≈-100 bps).
• ROE -1.6% driven by negative margins; asset turnover 0.54x and leverage 1.04x offer little offset.
• Balance sheet is a key strength: equity ratio ~96%, cash 11.79 vs current liabilities 1.01.
• ROIC -8.1% highlights urgency for turnaround to stop value erosion.
• Possible non-recurring losses or tax effects (~-0.66) below PBT complicate earnings quality assessment.

Metrics to Watch:

• ARR/net retention, new bookings, and churn rates.
• Gross margin and COGS trends once disclosed.
• SG&A trajectory vs revenue to gauge cost control and operating leverage.
• Operating cash flow and free cash flow conversion (OCF/NI > 1.0 as target).
• Customer concentration and top-10 customer contribution.
• Unit economics (LTV/CAC) and payback for new cohorts.

Relative Positioning: Within Japan’s small-cap AI/ML application providers, the company currently screens weaker on growth and profitability but stronger on liquidity and balance sheet conservatism. Restoring topline momentum and improving operating leverage are necessary to close the gap with peers exhibiting positive 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