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

Segue Group Co., Ltd. (TSE:3968) reported strong FY2025 Q3 year-to-date performance under JGAAP on a consolidated basis, with revenue of ¥17.86bn, up 28.3% YoY, indicating robust demand across its businesses. Gross profit reached ¥3.39bn, translating to a gross margin of roughly 19.0%, which is healthy for a solutions/integration-oriented model that includes product resale. Operating income surged 125.7% YoY to ¥1.44bn, evidencing strong operating leverage and improved cost discipline. Ordinary income exceeded operating income at ¥1.53bn, supported by positive non-operating items while interest expense remained minimal at ¥15.5m. Net income rose 54.2% YoY to ¥947m, with EPS of ¥29.92, implying meaningful bottom-line expansion despite a rising tax burden. The DuPont framework indicates ROE of 22.87%, driven by a 5.30% net margin, solid asset turnover of 0.846x, and relatively high financial leverage of 5.10x (assets/equity). Liquidity is adequate with a current ratio of 129.9% and a quick ratio of 109.6%, suggesting manageable short-term obligations even after excluding inventories. The capital structure is geared (total liabilities/equity 2.52x), but interest coverage of 92.8x reflects limited financial risk from interest-bearing debt. Working capital stands at ¥2.48bn, with inventories of ¥1.69bn supporting growth but warranting monitoring for turnover efficiency. On cash flows, operating, investing, and financing cash flows are shown as zero in the dataset, which indicates unreported values rather than actual zeros; therefore, cash flow-based assessments are constrained. Similarly, depreciation and amortization are shown as zero due to non-disclosure in the provided extract, limiting EBITDA analysis. The reported equity ratio is 0.0% in the dataset, but calculated equity/assets implies approximately 19.6%, highlighting a disclosure mismatch rather than a balance sheet anomaly. Dividend fields show DPS of ¥0 and payout ratio of 0.0%, which likely reflects either a conservative retention stance or missing dividend data; no inference should be drawn without the company’s official guidance. Overall, the quarter indicates strong revenue momentum, margin expansion, and elevated ROE, with manageable funding risk and adequate liquidity. Key uncertainties relate to the absence of cash flow disclosures and detailed share data, which restricts a full view of earnings quality and per-share capital allocation. Near-term outlook hinges on sustaining demand, executing projects without margin slippage, and managing working capital amid growth.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 5.30% × Asset turnover 0.846 × Financial leverage 5.10 = ROE 22.87%. Profit margin quality improved as operating income increased 125.7% YoY against 28.3% revenue growth, implying a materially higher operating margin (current OPM ~8.0%). Gross margin is 19.0%, indicating disciplined pricing/procurement and a favorable mix, while the spread between gross and operating margins (≈11.0% of sales consumed by SG&A) suggests good operating efficiency leverage in the period. Ordinary income exceeds operating income by about ¥92m, pointing to modest non-operating gains; interest expense is only ¥15.5m, so profitability is largely operational. The computed effective tax burden approximates 31% (¥425.7m tax on ~¥1.373bn pre-tax), consistent with domestic norms, supporting sustainability of net margins absent unusual tax items. Operating leverage is evident: OI growth far outpaced revenue, implying fixed cost absorption and/or scale benefits in SG&A. EBITDA cannot be assessed due to unreported depreciation and amortization; however, very high interest coverage (92.8x) corroborates strength at the operating profit level.

Growth Assessment

Top-line growth of 28.3% YoY to ¥17.86bn suggests strong demand in core offerings (likely network integration and security solutions), supported by order execution and potential market share gains. Profit growth outpaced sales (OP +125.7% YoY), indicating mix improvements and cost efficiencies rather than pure volume growth alone. Net income rose 54.2% YoY, slightly lagging operating income growth due to normalization of non-operating items and taxes. While revenue momentum appears robust, sustainability will depend on backlog conversion, project delivery schedules, and the durability of client capex/opex in IT/security. Margin expansion may moderate from this high-growth phase as the company invests to support scale or faces competition on large projects. The presence of inventories (¥1.69bn) suggests hardware-heavy or resale components; inventory turnover and obsolescence risk management will be key to sustaining gross margins. Given the positive spread between ordinary and operating income and low interest burden, underlying operational growth appears to be the primary driver. Outlook hinges on continued demand for cybersecurity/network solutions, potential cross-selling of services, and maintaining pricing discipline amid supply chain dynamics.

Financial Health

Liquidity: Current ratio 129.9% and quick ratio 109.6% indicate adequate near-term coverage; working capital is positive at ¥2.48bn. Inventories of ¥1.69bn (roughly 9–10% of revenue) are material and must turn efficiently to avoid cash tie-up. Solvency: Total liabilities of ¥10.44bn vs equity of ¥4.14bn yield a debt-to-equity (liabilities/equity) of 2.52x, demonstrating leverage at the consolidated level; however, interest coverage is very strong at 92.8x, suggesting most liabilities may be non-interest-bearing (e.g., payables). The calculated equity ratio is about 19.6% (equity/assets), despite the dataset showing 0.0% (a disclosure limitation). Capital structure: Assets of ¥21.10bn and financial leverage (A/E) of 5.10x contribute to high ROE but reduce balance sheet cushion; prudent leverage management remains important as the company scales. No cash and equivalents were disclosed in the dataset (shown as zero), so absolute liquidity buffers cannot be assessed here.

Cash Flow Quality

Cash flow data (operating, investing, financing) are unreported in this extract and appear as zeros; therefore, OCF/NI and FCF cannot be evaluated from the provided data. Earnings quality must be inferred from accrual signals: positive inventories and strong growth may imply working capital absorption, but we cannot quantify receivable/payable movements without the statement of cash flows. With operating income rising faster than revenue, some margin expansion appears structural; however, without OCF, we cannot confirm cash conversion. Depreciation and amortization are unreported, limiting the ability to separate non-cash components of earnings and compute EBITDA or maintenance capex. Free cash flow coverage of dividends cannot be assessed due to missing OCF and capex details.

Dividend Sustainability

Dividend per share is shown as ¥0 and payout ratio 0.0%, likely reflecting either non-payment or missing disclosure for the period; we cannot conclude the full-year policy from this. EPS is ¥29.92 YTD, indicating capacity for dividends in principle, but sustainability should be judged against free cash flow, which is unreported here. With a geared balance sheet (liabilities/equity 2.52x) and growth investment needs, retention could be prioritized; however, absent management guidance and FCF data, payout sustainability cannot be assessed quantitatively. FCF coverage and cash on hand are unavailable in this dataset, so policy outlook remains uncertain.

Risk Assessment

Business Risks:

• Execution risk on large projects and integration schedules affecting revenue recognition and margins
• Inventory management risk (turnover and potential obsolescence) given hardware/ resale exposure
• Pricing pressure and competitive intensity in network/security solutions
• Supply chain constraints impacting delivery timelines and costs
• Customer concentration risk typical in SI/VAR models (not disclosed here)

Financial Risks:

• Leverage sensitivity with liabilities/equity at 2.52x, reducing balance sheet flexibility
• Working capital absorption during growth potentially straining liquidity
• Limited visibility on cash and equivalents and OCF due to unreported cash flow statements
• Potential increase in interest rates or funding costs from current low base
• Tax rate normalization around ~30% reducing net margin leverage

Key Concerns:

• Absence of cash flow disclosure (OCF/FCF) prevents assessment of earnings-to-cash conversion
• Reported equity ratio 0.0% conflicts with calculated ~19.6%, indicating data disclosure gaps
• Unreported depreciation/amortization and shares outstanding hinder EBITDA and per-share capital allocation analysis

Investment Implications

Key Takeaways:

• Strong top-line growth (+28.3% YoY) with disproportionate operating profit expansion (+125.7% YoY) indicates material operating leverage
• ROE of 22.87% supported by improved margins, solid asset turnover, and higher financial leverage
• Liquidity is adequate (current 130%, quick 110%) but inventory and working capital need close monitoring amid growth
• Interest coverage is very high (92.8x), implying limited immediate interest burden despite leverage
• Cash flow and D&A data are unreported, constraining assessment of earnings quality and FCF

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Gross and operating margin trends as growth normalizes
• Inventory turnover days and receivables/payables days for working capital discipline
• OCF/NI and FCF once disclosed, including capex requirements
• Equity ratio and net debt metrics to track balance sheet resilience
• Tax rate trajectory and any extraordinary/non-operating income impacts

Relative Positioning: Within Japan’s IT integration/security peer set, the company’s current growth and operating leverage appear above peer averages, with ROE elevated by both margin expansion and higher leverage; however, incomplete cash flow disclosure and a geared balance sheet warrant a more cautious relative stance until cash conversion and capital allocation are clearer.

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