Needs Well Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥10.03B
• Operating Income: ¥1.16B
• Net Income: ¥887M
• EPS: ¥23.42

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

Verdict: Solid topline growth with mixed profit dynamics—operating margin compressed modestly but net profit rose on non-operating/extraordinary gains, underpinned by a very strong balance sheet and healthy cash generation. Revenue grew 5.1% YoY to 100.32, while operating income declined 2.5% YoY to 11.55, and ordinary income fell 3.2% to 11.69. Net income increased 9.5% YoY to 8.87, implying supportive below-OP items and/or extraordinary gains (profit before tax 13.27 exceeds ordinary income by 1.58). Gross margin printed at 22.7% (gross profit 22.79 on sales 100.32). Operating margin was 11.5% (11.55/100.32), down from roughly 12.4% in the prior year, a compression of about 89 bps. Net margin improved to 8.8% from about 8.5% last year, an expansion of roughly 35 bps, aided by non-operating/extraordinary contributions. DuPont-calculated ROE is strong at 18.6% (Net Margin 8.8% × Asset Turnover 1.54 × Leverage 1.36x), consistent with the reported ROE. Earnings quality is acceptable: OCF/NI is 0.90x (above the 0.8x watch level but below 1.0x), with FCF of 10.12 supported by positive investing CF (likely non-recurring asset proceeds). Liquidity and solvency are robust: current ratio 319.5%, quick ratio 319.5%, and negligible interest burden (interest coverage 2,830x), with cash and deposits at 27.61 and receivables at 22.53 against current liabilities of 15.91. SG&A ratio is 11.2% of sales (11.23/100.32), with personnel-related line items disclosed; overall cost control looks reasonable but contributed to slight OP margin compression. Effective tax rate stands at 33.1%. The reported XBRL operating margin and ROA figures appear tagging-driven and not reflective of the calculated economics; our analysis uses calculated ratios. Forward-looking, sustainability hinges on stabilizing operating margin via utilization and pricing discipline while recognizing that FY gains from non-operating/extraordinary items and positive investing CF may not repeat. With net cash, ample liquidity, and moderate payout (calculated payout ratio 41.3%), the company has room to invest and maintain dividends. Key watch items: project mix (fixed-price risk), hiring/wage inflation vs billing rates, receivables discipline (DSO), and recurrence of extraordinary gains.

Profitability Analysis

DuPont decomposition: ROE 18.6% = Net Profit Margin 8.8% × Asset Turnover 1.540 × Financial Leverage 1.36x. The most notable component shift this year is margin-level dynamics: operating margin compressed from ~12.4% to 11.5% (-89 bps), while net margin expanded ~35 bps to ~8.8% on supportive below-OP items (ordinary income was below profit before tax by 1.58, indicating extraordinary gains). Business drivers: modest revenue growth (+5.1%) met by slightly higher cost intensity (gross margin 22.7%) and SG&A of 11.2% of sales, leading to weaker operating leverage; non-operating income (0.27) and extraordinary gains bridged the gap to deliver higher net profit. Sustainability: the OPM compression is operational and could persist if wage inflation/utilization pressure continues; the net margin uplift appears partly one-off given extraordinary contributions and positive investing CF. Asset turnover of 1.54 is healthy for an IT services model and likely sustainable with steady billing and collection cycles; leverage at 1.36x is low and stable. Concerning trend flags: operating income declined (-2.5% YoY) despite sales growth, indicating cost creep; we cannot confirm SG&A growth vs revenue due to lack of prior SG&A data, but current SG&A intensity bears monitoring.

Growth Assessment

Revenue grew 5.1% YoY to 100.32, consistent with steady demand. Operating profit declined 2.5% to 11.55, signaling negative operating leverage this period. Ordinary income fell 3.2% to 11.69, but profit before tax rose to 13.27 and net income to 8.87 (+9.5% YoY), implying supportive below-OP/extraordinary items. Gross margin stands at 22.7%; maintaining or expanding this will be key to restoring OP margin. Net margin improved to 8.8% from ~8.5% YoY, a positive but likely not purely recurring improvement. EBITDA was 12.29 (12.3% margin), indicating resilient core cash earnings. Outlook hinges on project mix (time-and-material vs fixed-price), pricing power to offset wage inflation, and utilization rates. The balance sheet strength enables continued investment in hiring, training, and selective M&A (goodwill 2.62, intangibles 6.34). Given positive investing CF this year, headline FCF may be above normalized run-rate; growth reinvestment capacity remains ample.

Financial Health

Liquidity is very strong: current ratio 319.5%, quick ratio 319.5%; cash and deposits 27.61 plus receivables 22.53 comfortably cover current liabilities 15.91. No warning triggers: Current Ratio >> 1.0; D/E (provided) 0.36x is conservative, and interest-bearing debt is de minimis (long-term loans 0.24). Interest coverage is exceptionally high at 2,830.9x given negligible interest expense. Maturity mismatch risk is low: current assets 50.84 far exceed current liabilities 15.91. Solvency is robust with total equity 47.73 and total liabilities 17.40. No off-balance-sheet obligations are reported in the dataset. Working capital is ample at 34.93, though receivables at 22.53 imply a DSO around the low-80 days (approximate), worth monitoring but typical for SIers.

Cash Flow Quality

OCF of 7.95 vs net income of 8.87 implies OCF/NI = 0.90x—acceptable quality (above the 0.8x caution threshold) but not at the ideal >1.0x. Free cash flow is 10.12, supported by minimal capex (-0.10) and positive investing CF (2.17), the latter likely reflecting asset sales/redemptions rather than recurring inflows. Financing CF was -3.49, likely dividends and minor debt-related flows (dividends not disclosed numerically). Working capital: receivables are sizable relative to sales; no explicit signs of period-end pull-ins, but continued monitoring of DSO and unbilled AR is prudent. Overall, cash conversion is good but boosted by non-recurring investing inflows; normalized FCF could be lower absent such gains.

Dividend Sustainability

Calculated payout ratio is 41.3%, comfortably below the 60% benchmark, indicating room to sustain and potentially grow dividends, assuming earnings stability. FCF coverage is strong at 2.76x, suggesting dividends are well covered by cash generation even after capex. The net cash balance and low leverage further support dividend capacity. While DPS figures are not disclosed, the combination of stable profitability, modest reinvestment needs, and strong liquidity argues for sustainability. Caveat: FCF benefited from positive investing CF this period; on a normalized basis, coverage remains likely adequate but somewhat lower.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk potentially pressuring gross margin and OPM.
• Wage inflation and talent retention potentially outpacing billing rate adjustments.
• Client concentration/common SIer dependency patterns (not disclosed but typical) could amplify volatility.
• Receivables collection/DSO around low-80 days increases working capital sensitivity.
• Goodwill (2.62) and intangibles (6.34) pose impairment risk if acquired businesses underperform.

Financial Risks:

• Part of net profit uplift driven by extraordinary/non-operating items may not recur.
• Positive investing cash flow inflating FCF is likely non-recurring.
• Tax rate variability (effective tax 33.1%) could swing net margins.
• Limited disclosure on interest-bearing debt composition; however, overall leverage is low.

Key Concerns:

• Operating margin compression (~-89 bps YoY) despite revenue growth.
• Ordinary income decline (-3.2% YoY) masked by extraordinary gains to PBT.
• Potential elongation of receivables cycles impacting OCF if growth accelerates without tighter collections.

Investment Implications

Key Takeaways:

• Topline growth of 5.1% with slight operating deleverage; OP margin at 11.5%.
• Net profit up 9.5% aided by below-OP/extraordinary gains; net margin 8.8%.
• ROE is robust at 18.6% on healthy asset turnover and low leverage.
• Balance sheet is very strong: current ratio ~320%, net cash position, minimal debt.
• Cash conversion solid (OCF/NI 0.90x) with FCF elevated by non-recurring investing inflows.
• Dividend capacity appears sound with ~41% payout and 2.76x FCF coverage.

Metrics to Watch:

• Operating margin trajectory and gross margin mix by project type.
• SG&A discipline versus revenue growth to restore operating leverage.
• Receivables/DSO trends and unbilled AR to safeguard cash conversion.
• Composition of non-operating and extraordinary items; sustainability into next year.
• Hiring, utilization, and billing rate adjustments to offset wage inflation.
• Tax rate normalization and its impact on net margin.

Relative Positioning: Within domestic small-to-mid cap IT services/SI peers, Needswell shows above-average profitability (OP margin ~11.5%), high ROE (18.6%), and a conservative balance sheet with ample liquidity; near-term focus is on stabilizing operating margin and ensuring that earnings growth becomes more core-operating driven rather than reliant on extraordinary items.

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