SCAT Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥2.60B
• Operating Income: ¥193M
• Net Income: ¥126M
• EPS: ¥43.76

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

SCAT Co., Ltd. (TSE: 3974) delivered steady topline performance in FY2025 Q4, with revenue of 26.05 (100M JPY), up 0.4% YoY. Profitability improved meaningfully: operating income rose 30.6% YoY to 1.93, and ordinary income increased 25.8% to 1.97, indicating operating leverage despite modest sales growth. Net income was 1.25, up 25.2% YoY, translating to a net margin of 4.8% and EPS of 43.76 JPY. Gross margin stood at 39.7%, and operating margin at 7.4%, with EBITDA margin at 12.5%, reflecting solid cost control and healthy contribution from depreciation and amortization (1.33). Cash generation was strong, with operating cash flow (OCF) of 2.82 exceeding net income by 2.26x, and free cash flow (FCF) positive at 0.88 despite investing outflows of 1.94. The balance sheet is conservative and liquid: cash and deposits of 12.40 and accounts receivable of 2.59 compare favorably to current liabilities of 4.83, yielding a current (and quick) ratio of 334.7%. Leverage is low, with total liabilities of 9.97 and long-term loans of just 0.55; implied equity ratio is about 67% (equity 20.38 / assets 30.35). Interest burden is negligible (interest expense 0.01) with very strong coverage (146.7x). DuPont analysis yields ROE of 6.1%, driven by a 4.8% net margin, 0.858x asset turnover, and 1.49x financial leverage; the ROE level is modest but improving given margin expansion. Tax rate is 33.4%, consistent with domestic statutory levels, implying limited tax shield from leverage. Working capital management appears conservative with substantial cash holdings and low payables (0.68), limiting supplier financing but supporting resilience. Reported operating and ROA ratios in XBRL (0.1%) appear inconsistent with the income statement and balance sheet; we rely on calculated metrics here. Dividend metrics in XBRL are sparse; the calculated payout ratio is 54.5% and FCF coverage is 1.29x, suggesting room to sustain payouts within current cash generation. With small absolute scale (total assets 30.35) but robust liquidity, the company is positioned to self-fund investment while maintaining flexibility. Data gaps exist for detailed SG&A, R&D, and dividend amounts, but the available figures support a view of improving profitability, high cash conversion, and low financial risk.

Profitability Analysis

ROE decomposition (DuPont): Net margin 4.8% × Asset turnover 0.858 × Leverage 1.49x = ROE 6.1%. Operating margin is 7.4% (1.93 / 26.05), indicating that non-operating items net to a small positive (non-op income 0.08, expenses 0.03). Gross margin is 39.7%, suggesting decent pricing and cost discipline. EBITDA margin of 12.5% (EBITDA 3.26) provides a healthy buffer over D&A (1.33), and interest is minimal (0.01), so pre-tax profits largely reflect operating performance. YoY, operating income grew 30.6% on just 0.4% revenue growth, implying favorable operating leverage driven by either mix or SG&A efficiency; SG&A details are unreported, but the ratio SG&A/Revenue is 32.3%, leaving room for further operating leverage if growth accelerates. Ordinary income margin is 7.6%, close to operating margin, confirming low non-operating noise. Effective tax rate of 33.4% moderately suppresses net margin; absent leverage, there is limited tax shield. Overall profitability quality is solid, with margins consistent across levels and limited reliance on below-the-line items.

Growth Assessment

Revenue growth of 0.4% YoY indicates a flat demand environment or conservative order timing. Profit growth was robust (OP +30.6%, NI +25.2%), suggesting mix improvements or cost efficiencies rather than volume-driven expansion. Sustainability hinges on maintaining gross margin near 40% and keeping SG&A growth below revenue growth; the quarter demonstrates that dynamic. With EBITDA of 3.26 and D&A of 1.33, the company has capacity to invest without sacrificing near-term profit. Non-operating contributions are small and unlikely to drive growth, which is appropriate for quality of earnings. Outlook: If revenue growth normalizes into low-to-mid single digits while maintaining current margin structure, ROE can edge up from 6.1% via improved asset turnover and modest margin expansion. A flat or soft macro backdrop would cap top-line acceleration; however, high cash levels support selective growth investments or tuck-in acquisitions. Data limitations (no backlog, no segment detail) constrain precision on demand sustainability.

Financial Health

Liquidity is strong: current assets 16.16 vs current liabilities 4.83 yield a current (and quick) ratio of 334.7%, supported by cash and deposits of 12.40. Working capital of 11.33 underscores a conservative stance. Solvency is robust: total liabilities are 9.97 against equity of 20.38 (implied equity ratio ~67%), and long-term loans are only 0.55. Debt-to-equity of 0.49x (based on total liabilities) is moderate on that definition but interest-bearing debt is minimal, keeping financial risk low. Interest coverage is very high at 146.7x, reflecting low financing costs. Asset base is balanced between current (16.16) and noncurrent (14.20) assets, with limited goodwill (0.07) and modest intangible assets (2.02), implying low impairment risk. Overall capital structure favors resilience and self-funding capacity.

Cash Flow Quality

OCF of 2.82 exceeds net income of 1.25 by 2.26x, indicating strong earnings quality and favorable working capital movements or non-cash charges (D&A 1.33). Investing CF of -1.94 includes capex of -1.11 and other investing outflows (-0.83), resulting in FCF of 0.88 (OCF + Investing CF). Positive FCF alongside profit growth supports the sustainability of operations and potential distributions. Working capital appears well managed given high cash balances and modest receivables (2.59) relative to sales, though inventory data is unreported. The ratio of EBITDA (3.26) to OCF (2.82) is close, suggesting limited inflation of EBITDA by working capital build. Overall, cash conversion is healthy and repeatable absent large swings in receivables or capex.

Dividend Sustainability

Dividend details (DPS, total dividends paid) are unreported, but a calculated payout ratio of 54.5% and FCF coverage of 1.29x suggest distributions are broadly aligned with earnings and supported by cash generation. DOE is reported as 0.0%, likely an uninformative tag rather than a policy signal. With net income of 1.25 and FCF of 0.88, the company appears capable of funding dividends and maintenance capex without incremental debt. The substantial cash balance (12.40) further underpins capacity to sustain dividends through moderate profit volatility. Policy outlook cannot be confirmed without disclosed guidance, but the balance of earnings quality, liquidity, and low leverage is supportive of stable or gradually improving shareholder returns, barring a step-up in growth investments.

Risk Assessment

Business Risks:

• Low top-line growth (0.4% YoY) suggests sensitivity to macro or competitive pressures that could limit operating leverage.
• Potential wage inflation or hiring to support growth could pressure SG&A and compress operating margins.
• Customer concentration or contract timing risk (not disclosed) could increase revenue volatility.
• Limited non-operating income diversity; profits depend primarily on core operations.
• Intangible asset base (2.02) implies some exposure to technology obsolescence or amortization impact if growth slows.

Financial Risks:

• Operating leverage: if revenue declines, profits could fall faster given fixed cost base in SG&A.
• Tax rate at 33.4% offers limited downside buffer to net margin.
• Investing CF beyond maintenance capex (-1.94 total) could rise if strategic investments accelerate, reducing FCF coverage.
• Reliance on cash balances for liquidity; redeployment into growth or returns to shareholders could lower liquidity cushion.

Key Concerns:

• Sustainability of margin gains with only marginal revenue growth.
• Data gaps on SG&A breakdown, R&D, and dividends hinder precise assessment of cost drivers and payout policy.
• Discrepancies in certain reported ratios (e.g., reported operating margin, ROA) versus calculated figures due to XBRL tagging.

Investment Implications

Key Takeaways:

• Profitability improved significantly (OP +30.6% YoY) on flat sales, indicating positive operating leverage and cost discipline.
• Cash generation is robust (OCF/NI 2.26x; FCF 0.88), supporting reinvestment and distributions.
• Balance sheet strength (implied equity ratio ~67%, long-term loans 0.55) and high liquidity (cash 12.40) reduce financial risk.
• ROE at 6.1% is modest; further improvement likely requires sustained margin expansion and/or higher asset turnover.
• Interest burden is negligible, so profit trajectory will primarily reflect core operations.

Metrics to Watch:

• Revenue growth trajectory and any disclosed backlog or order trends.
• Gross margin sustainability around ~40% and SG&A ratio to sales.
• OCF conversion (OCF/NI) and working capital movements (DSO given AR of 2.59).
• Capex intensity versus OCF and any uptick in investing CF beyond -1.94.
• Tax rate stability and any changes in effective tax drivers.
• Dividend disclosures (DPS, total payout) to validate the 54.5% calculated payout and 1.29x FCF coverage.

Relative Positioning: Within Japan small-cap software/services peers, SCAT appears more liquid and less leveraged than average, with margins in the mid-range and ROE slightly below peer leaders; operational execution, not financial engineering, is the primary driver of returns.

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