Segue Group Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥17.86B
• Operating Income: ¥1.44B
• Net Income: ¥630M
• EPS: ¥29.92

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: Strong topline and operating profit outperformance in FY2025 Q3, with notable margin expansion and robust ROE, partially tempered by extraordinary losses and a leveraged balance sheet. Revenue rose 28.3% YoY to 178.59, while operating income surged 125.7% YoY to 14.35, evidencing substantial operating leverage. Ordinary income increased 48.3% YoY to 15.27, supported by sizable non-operating gains of 4.44. Net income grew 54.2% YoY to 9.47, translating to a net margin of 5.3%. Operating margin is approximately 8.0% (14.35/178.59), up markedly versus last year. Based on back-solved priors, operating margin expanded by roughly 346 bps (from ~4.6% to ~8.0%). Net margin expanded by about 89 bps (from ~4.4% to ~5.3%). Ordinary margin likely improved by ~115 bps (from ~7.4% to ~8.6%). Earnings composition shows non-operating income as a meaningful contributor (non-operating income 4.44 vs operating income 14.35), and there appears to be a significant extraordinary loss drag, given ordinary income (15.27) exceeds profit before tax (10.56). Effective tax rate is elevated at 40.3%, which may reflect non-deductible items or jurisdictional mix. ROE calculates at a strong 22.9%, driven by improved profitability and high financial leverage (5.10x assets/equity). Liquidity is tight: current ratio 117.2% and quick ratio 85.6% sit below healthy benchmarks; D/E is high at 4.10x despite excellent interest coverage (92.8x). Cash flow metrics are unreported, limiting assessment of earnings quality and dividend coverage; FCF visibility is therefore low. Intangibles and goodwill are sizable at 27.91 versus equity of 41.41, implying potential impairment sensitivity. Looking ahead, the margin step-up and ROIC of 33.3% are positives, but sustainability hinges on maintaining operating efficiency, managing working capital, and avoiding further extraordinary losses. Investors should monitor the balance between recurring operating earnings and non-operating/extraordinary items, as well as leverage reduction and liquidity strengthening. Overall, execution is strong operationally, yet financial risk management remains a key focus.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.3% × 0.846 × 5.10x ≈ 22.9%. The most significant change appears in margins, with operating income up 125.7% on 28.3% revenue growth, implying meaningful operating leverage and cost discipline. Business drivers likely include scale effects and a richer mix in higher-margin services/solutions, alongside controlled SG&A growth relative to gross profit (exact SG&A mix unreported). Asset turnover at 0.846 is reasonable for a solutions-oriented IT/services business and likely stable YoY. Financial leverage is high at 5.10x (assets/equity), amplifying ROE; this is a double-edged sword that boosts returns but elevates risk. Sustainability: margin gains could persist if pricing power and utilization remain solid; however, the contribution from non-operating income and the presence of extraordinary losses suggest headline profitability may be more volatile than pure operations indicate. Watch for any SG&A outpacing revenue in coming quarters; at present, operating leverage is favorable (operating growth >> revenue growth), but the durability through market cycles is untested.

Growth Assessment

Revenue growth of 28.3% YoY is robust and broad-based in appearance, though detailed segment data are unavailable. Operating income rose 125.7% YoY, indicating significant operating leverage and improved mix. Ordinary income up 48.3% YoY reflects both operational gains and non-operating contributions (4.44). Net income up 54.2% YoY trails operating growth due to extraordinary losses and a high effective tax rate (40.3%). Sustainability: continued growth depends on demand for IT/security integration and services delivery capacity; any slowdown in project starts or public sector budget timing could moderate growth. Profit quality: reliance on non-operating income and exposure to extraordinary items introduces volatility; the goal should be to anchor more of earnings in recurring operating profit. Outlook: near-term momentum is solid with expanded margins and high ROIC (33.3%), but normalization of non-operating items and tighter liquidity could constrain aggressiveness in growth investments.

Financial Health

Liquidity: Current ratio 117.2% (below 1.5x healthy benchmark) and quick ratio 85.6% signal tight liquidity; explicit warning is not triggered for current ratio (<1.0), but quality of current assets matters as inventories are sizable (48.10). Solvency: D/E is high at 4.10x (warn: >2.0); assets/equity leverage 5.10x aligns with DuPont. Interest coverage is very strong at 92.8x (operating income vs interest expense 0.15), mitigating near-term interest burden. Maturity mismatch: Current assets 178.74 vs current liabilities 152.54 indicate positive working capital, but cash + receivables (95.34) are below current liabilities, implying reliance on inventory turnover and short-term financing; short-term loans are 14.17 against cash 40.85. Off-balance sheet: none reported in provided data. Balance sheet composition: goodwill and intangibles total 27.91 versus equity 41.41 (around 67% of equity), elevating impairment sensitivity.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net income cannot be assessed, limiting earnings quality evaluation. Free cash flow and capital expenditures are unreported; therefore, FCF coverage of dividends and debt service cannot be determined. Working capital signals: accounts receivable 54.49 and inventories 48.10 are substantial relative to quarterly scale; without turnover data, we cannot infer stretch or pull-forward. Potential manipulation signs cannot be assessed given missing OCF and WC detail. Given tight quick ratio, cash conversion discipline will be important to sustain growth and any shareholder returns.

Dividend Sustainability

Payout ratio (calculated) is 37.8%, which is within a generally sustainable range (<60%). However, with OCF and FCF unreported, coverage by cash generation is unknown. High leverage (D/E 4.10x) suggests priority may need to balance deleveraging with distributions. Interest coverage is ample, but liquidity buffers are modest (quick ratio 0.86x). Policy outlook cannot be inferred from disclosures here; stability of dividends will depend on maintaining operating cash conversion and avoiding further extraordinary loss impact.

Risk Assessment

Business Risks:

• Execution risk on IT/integration projects leading to cost overruns or delays
• Demand cyclicality in corporate IT spending and public sector budget timing
• Supply chain and vendor availability for network/security hardware affecting delivery schedules
• Competition-driven pricing pressure compressing margins

Financial Risks:

• High leverage: D/E 4.10x and assets/equity 5.10x amplify earnings and downside
• Liquidity tightness: quick ratio 85.6% and dependence on inventory turnover
• Earnings volatility from non-operating items (non-operating income 4.44) and extraordinary losses dragging PBT
• Elevated effective tax rate (40.3%) reducing net profitability
• Goodwill/intangibles 27.91 vs equity 41.41 raise impairment risk in downturns

Key Concerns:

• Extraordinary losses implied by the gap between ordinary income (15.27) and PBT (10.56)
• Non-operating income ratio reported at 46.8%, indicating meaningful reliance beyond core operations
• Absence of cash flow disclosure prevents verification of earnings quality and dividend coverage
• Maturity profile concentration in current liabilities (152.54) versus liquid current assets

Investment Implications

Key Takeaways:

• Material operating margin expansion (~346 bps YoY) with operating income +126% on +28% revenue
• Strong ROE at 22.9% and high ROIC at 33.3% signal excellent capital efficiency
• Ordinary income supported by sizable non-operating gains, but extraordinary losses reduced PBT
• Balance sheet is leveraged (D/E 4.10x) and liquidity is tight (quick ratio 0.86x)
• Tax headwinds (40.3% ETR) and potential impairment sensitivity warrant caution

Metrics to Watch:

• Operating cash flow and FCF (OCF/NI ideally >1.0)
• Working capital turns: AR days and inventory days vs AP days
• Extraordinary gains/losses and reconciliation from ordinary income to PBT
• Effective tax rate normalization
• Leverage trajectory (D/E) and interest coverage stability
• Composition and sustainability of non-operating income
• Goodwill/intangible impairment indicators

Relative Positioning: Operationally outperforming with above-peer margin expansion and ROE, but financially more leveraged and less liquid than ideal; sustained execution and cash conversion are necessary to justify the elevated return profile.

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