ORO Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.99B
• Operating Income: ¥1.86B
• Net Income: ¥1.23B
• Earnings per Unit (EPU): ¥77.96

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

Q3 FY2025 shows a mixed but resilient quarter for Oro: modest top-line growth with margin compression leading to lower profits, offset by solid cash generation and a strong balance sheet. Revenue grew 3.4% YoY to 59.94, while operating income declined 6.7% YoY to 18.56 and net income fell 10.6% to 12.34. Gross profit reached 38.74, translating to a robust gross margin of 64.6%, indicative of a high-value services mix. Operating margin stood at 31.0% (18.56/59.94), while net margin was 20.6%, both healthy but down YoY. Based on provided YoY rates, we estimate prior-period operating margin at ~34.3%, implying about 334 bps of operating margin compression. Likewise, the net margin likely compressed by ~319 bps from roughly ~23.8% to 20.6%. EBITDA was 21.24 with an EBITDA margin of 35.4%, showcasing still-strong underlying profitability. ROE was 12.8%, supported by a high net margin (20.6%), modest asset turnover (0.475x), and low leverage (1.30x). Cash flow quality was solid: operating cash flow (15.08) exceeded net income (12.34), with OCF/NI at 1.22x, and free cash flow at 13.99. The balance sheet remains conservative with an equity ratio of 76.7% and a D/E ratio of 0.30x, providing ample shock-absorption capacity. Liquidity appears strong with cash and equivalents of 90.47 and current assets of 112.37, although current liabilities were not disclosed. Dividend sustainability looks comfortable: the payout ratio is 45.2% and FCF coverage is 2.51x. The decline in operating and net income despite revenue growth suggests either SG&A growth or project mix/price pressure outweighing volume gains. Effective tax rate was 34.8%, a headwind to bottom line versus operating income trends. Looking ahead, restoring operating margin via utilization, pricing, and cost discipline will be key to re-accelerating ROE. Overall, Oro remains fundamentally sound, but near-term earnings momentum is constrained by margin pressure despite healthy cash generation.

Profitability Analysis

ROE (12.8%) decomposes into Net Profit Margin (20.6%) × Asset Turnover (0.475x) × Financial Leverage (1.30x). The primary driver of YoY deterioration is net margin contraction: operating income declined 6.7% YoY despite a 3.4% revenue increase, implying negative operating leverage. Estimated operating margin compressed from ~34.3% to 31.0% (-334 bps), and net margin from 23.8% to 20.6% (-319 bps). Business explanation: likely SG&A growth (headcount additions, wage inflation, sales/marketing, or development costs) and/or project mix/pricing pressure offsetting revenue growth; gross margin remains high at 64.6%, suggesting compression is mainly below gross profit (at the SG&A level). Asset turnover is modest at 0.475x, typical for cash-rich, asset-light IT/services models; no clear sign of improvement given revenue growth lagging balance sheet expansion. Leverage remains low (1.30x), so financial leverage contributed little to ROE change and is unlikely the culprit. Sustainability: gross margin resilience appears structural, but SG&A intensity could normalize with better utilization and pricing; absent cost control, the margin pressure could persist. Watch for any trend where SG&A growth outpaces revenue growth; given OI down with revenue up, this appears to be the case in the period.

Growth Assessment

Top-line growth was modest at +3.4% YoY to 59.94, implying stable demand but not yet re-acceleration. Profit growth lagged: operating income (-6.7% YoY) and net income (-10.6% YoY) declined, reflecting negative operating leverage. Gross margin at 64.6% remains a competitive strength, suggesting mix remains value-add; however, operating margin at 31.0% indicates SG&A absorption was weaker. EBITDA margin of 35.4% confirms healthy unit economics, but incremental margins are softer than prior year. Revenue sustainability appears intact given recurring/ongoing service characteristics typical to the sector, but the pace is subdued; winning larger projects or improving pricing will be needed to lift growth. Profit quality is solid with OCF > NI (1.22x), indicating earnings are backed by cash. Outlook hinges on cost discipline, utilization gains, and potential price updates to offset wage inflation. If management can curb SG&A growth and improve delivery efficiency, operating margin could re-expand; otherwise, mid- to high-20% operating margin could be the near-term floor. ROIC at 12.5% exceeds an 8% excellence benchmark, underscoring value creation even in a softer profit-growth quarter. Near-term catalysts would include evidence of pipeline conversion, improved hiring productivity, and stabilization of the effective tax rate.

Financial Health

Liquidity: Current assets were 112.37 with cash and equivalents at 90.47; current ratio is not disclosed, but liquidity appears ample. No warning triggered for Current Ratio < 1.0 due to lack of disclosure. Solvency: Total liabilities are 29.37 against equity of 96.80, with an equity ratio of 76.7% and D/E of 0.30x, indicating a conservative balance sheet; no warning for D/E > 2.0. Maturity mismatch risk cannot be fully assessed as current liabilities and interest-bearing debt maturities were unreported; however, sizeable cash suggests low short-term refinancing risk. Off-balance sheet obligations were not disclosed; no indications provided. Overall capital structure is strong and supports ongoing investment and dividends.

Cash Flow Quality

OCF/Net Income is 1.22x (15.08/12.34), indicating good earnings quality. Free cash flow of 13.99, after modest capex (-0.57), comfortably covers dividends; FCF sustainability appears high given low capex intensity and strong gross margins. Financing CF was -6.33, primarily reflecting dividends (-4.84) with no notable buybacks, consistent with a conservative capital return stance. Working capital appears well managed given OCF strength; no signs of end-period working capital inflations (e.g., payables stretch or receivables build) are evident from the disclosed aggregates. No red flags (OCF/NI < 0.8) observed.

Dividend Sustainability

Payout ratio is 45.2%, within a sustainable range (<60%). FCF coverage is 2.51x, indicating dividends are well covered by organic cash generation. Cash and equivalents of 90.47 provide additional buffer for stability through cycles. With ROE at 12.8% and ROIC at 12.5%, there is room to balance reinvestment and returns to shareholders. Absent large capex or M&A, the current dividend level appears maintainable; scope for moderate growth exists if margin headwinds ease. Specific DPS figures were not reported, so assessment is based on payout and cash flow coverage.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and higher SG&A intensity relative to revenue growth
• Project mix and pricing risk impacting operating and net margins
• Execution risk in scaling delivery capacity and utilization in line with demand
• Potential slowdown in client IT/marketing budgets affecting order intake and backlog

Financial Risks:

• Limited visibility on current liabilities and interest-bearing debt maturities (maturity mismatch assessment constrained)
• Tax rate volatility (effective tax rate at 34.8%) impacting net profit
• Customer concentration risk (common in B2B services), though not disclosed here

Key Concerns:

• Operating margin compression of ~334 bps YoY despite revenue growth
• Net income down 10.6% YoY, signaling negative operating leverage
• Data gaps (non-operating items, detailed SG&A, and current liabilities) limit full diagnostics

Investment Implications

Key Takeaways:

• Healthy gross margin (64.6%) and EBITDA margin (35.4%) but operating margin compressed to 31.0%
• ROE of 12.8% and ROIC of 12.5% indicate continued value creation despite profit pressures
• Cash generation strong: OCF/NI 1.22x and FCF 13.99; balance sheet conservative (equity ratio 76.7%)
• Dividend appears sustainable with a 45.2% payout and 2.51x FCF coverage
• Near-term earnings momentum hinges on SG&A control, utilization, and pricing discipline

Metrics to Watch:

• Operating margin trend and SG&A as a percentage of revenue
• Order intake/backlog growth vs. headcount growth (utilization proxy)
• Effective tax rate stabilization
• Working capital turns (AR days) and OCF conversion
• Revenue growth re-acceleration toward high single digits

Relative Positioning: Within Japanese IT/services peers, Oro exhibits above-average margins and strong cash generation with a low-leverage balance sheet; current challenge is restoring operating leverage as growth normalizes.

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