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

Needswell Co., Ltd. (TSE:3992) delivered FY2025 Q4 consolidated results showing steady top-line growth with mixed operating performance and solid bottom-line expansion. Revenue rose 5.1% YoY to ¥10.03bn, indicating continued demand in its SI/IT services base. Gross profit reached ¥2.165bn with a gross margin of 21.6%, while operating income declined 2.5% YoY to ¥1.155bn, implying modest negative operating leverage and/or cost pressure in the period. Ordinary income was ¥1.169bn, only slightly above operating income, suggesting limited non-operating contribution. Net income increased 9.5% YoY to ¥887m, pointing to favorable below-the-line factors versus the prior year, likely a tax-rate effect. Operating margin stood at 11.5%, and EBITDA margin at 12.3%, reflecting a light D&A burden and an asset-light model typical of systems integration. DuPont analysis indicates a healthy ROE of 18.6%, driven by an 8.8% net margin, 1.54x asset turnover, and modest leverage of 1.36x. Liquidity appears very strong with a reported current ratio of 322.8% and working capital of ¥2.80bn, supported by low financial leverage (D/E ~0.30x). Operating cash flow of ¥795m equated to 0.90x of net income, a solid but not exceptional earnings cash conversion, with positive investing cash flow of ¥217m boosting headline free cash flow as defined (OCF + ICF) to ¥1.012bn. Interest expense is negligible (¥0.7m) and interest coverage extremely high (over 1,600x), underscoring minimal financial risk from debt. Although the disclosure shows an equity ratio of 0.0% and cash/equivalents of 0, these are likely undisclosed figures; using balances provided, the inferred equity ratio is approximately 73% (equity ¥4.77bn / assets ¥6.51bn). The reported effective tax rate metric of 0.0% is also inconsistent with disclosed income tax (¥395.5m) and net income; a rough estimate suggests a tax rate around 31%. Dividend data show 0.00 DPS and a 0% payout ratio; given the instruction that zeros can indicate non-disclosure, dividend policy for the period is unclear from this dataset. Overall, the company demonstrates healthy profitability, strong balance sheet resilience, and adequate cash generation, with the main watchpoints being cost control, working-capital discipline, and visibility into capital allocation and dividend policy.

Profitability Analysis

ROE_decomposition: Calculated ROE: 18.58% = Net Profit Margin (8.84%) × Asset Turnover (1.540x) × Financial Leverage (1.36x). This indicates ROE is primarily driven by respectable margins and efficient asset utilization, with only modest leverage contribution. margin_quality: Gross margin: 21.6%; Operating margin: 11.5% (¥1,155m/¥10,032m); Ordinary margin: 11.6%; Net margin: 8.84%. The small gap between operating and ordinary margins shows limited reliance on non-operating gains. D&A is low (¥82m), making operating profit close to EBITDA (¥1,237m), consistent with an asset-light services model. operating_leverage: Despite 5.1% revenue growth, operating income declined 2.5% YoY, signaling negative operating leverage in the period, likely due to higher personnel costs, subcontracting, or SG&A. Monitoring gross margin stability and SG&A ratio will be key to assessing whether cost pressures are transient or structural.

Growth Assessment

revenue_sustainability: Top-line growth of 5.1% YoY suggests steady demand in core SI and DX-related services. Sustainability will depend on order backlog, client retention, and pricing power amid wage inflation in the IT labor market. profit_quality: Net income rose 9.5% YoY despite lower operating profit, implying tailwinds from below-the-line items (likely tax). With ordinary income close to operating income, recurring non-operating boosts appear limited; thus, long-term profit quality hinges on restoring operating leverage. outlook: With strong balance sheet support and high interest coverage, the company has capacity to invest in headcount, training, and solutions/IP. Near-term growth will be influenced by utilization rates, mix shift to higher-value projects, and success in passing through cost increases to clients.

Financial Health

liquidity: Current assets ¥4,052.9m vs current liabilities ¥1,255.7m imply a current ratio of 322.8% and robust working capital of ¥2,797.2m. Quick ratio equals current ratio due to undisclosed inventories; true quick ratio may be slightly lower but still strong. solvency: Total liabilities ¥1,423.0m vs equity ¥4,773.0m yield D/E of ~0.30x. Using provided balances, the inferred equity ratio is ~73.3% (vs reported 0.0%, likely a disclosure placeholder). Interest burden is minimal (¥0.7m), and coverage is extremely high. capital_structure: Leverage is conservative (assets/equity 1.36x). The company has ample capacity for strategic investments or shareholder returns without stressing the balance sheet.

Cash Flow Quality

earnings_quality: OCF/Net Income at 0.90 indicates decent cash conversion, though slightly below 1.0, suggesting some working-capital absorption or timing effects. FCF_analysis: Free cash flow reported at ¥1,012m is based on OCF + Investing CF (¥795m + ¥217m). Positive investing CF likely reflects asset sales or reduced investment; for sustainability, maintenance and growth capex requirements should be considered. On a more conservative basis (OCF − capex), sustainable FCF could be lower if capex resumes. working_capital: Strong current ratio and positive OCF suggest manageable receivables and payables. However, in SI businesses, quarterly OCF can be volatile due to billing cycles and milestone collections; monitoring DSO and unbilled receivables is important.

Dividend Sustainability

payout_ratio_assessment: Reported DPS and payout ratio are 0.00; given the data policy, this likely indicates non-disclosure rather than an actual zero. Based on EPS of ¥23.42 and strong ROE, the company has capacity for dividends, but the actual policy is not ascertainable from this dataset. FCF_coverage: With reported FCF of ¥1,012m, coverage of a hypothetical dividend would be ample. However, the positive investing CF may be non-recurring; sustainable coverage should be assessed using OCF and normalized capex. policy_outlook: Capital allocation flexibility is high given low leverage and strong liquidity. Clarity on dividend policy, potential payout targets, or share repurchases would be a meaningful catalyst for shareholder return visibility.

Risk Assessment

Business Risks:

• Wage inflation and talent retention pressures impacting gross margin in a labor-intensive SI model
• Pricing pressure from large enterprise clients and competitive bidding
• Project execution risk (scope creep, delays) affecting profitability and cash timing
• Client concentration risk typical of mid-sized SIers
• Cyclical or discretionary nature of DX/IT spending amid macro uncertainty
• Shift toward fixed-price or outcome-based contracts increasing delivery risk

Financial Risks:

• Working-capital swings due to milestone billing and receivable collection cycles
• Positive investing cash flow may be non-recurring (asset disposals), inflating reported FCF
• Limited disclosure on cash and equivalents, equity ratio, and per-share metrics in this dataset
• Potential need for incremental hiring or subcontracting that raises cost base ahead of revenue

Key Concerns:

• Negative operating leverage despite revenue growth
• Unclear dividend policy and capital return framework
• Dependence on maintaining utilization and successful cost pass-through

Investment Implications

Key Takeaways:

• Healthy ROE at 18.6% supported by solid margins and efficient asset use with modest leverage
• Top-line growth of 5.1% YoY but operating profit down 2.5% indicates margin pressure
• Strong balance sheet (inferred equity ratio ~73%) and minimal interest burden
• Solid cash generation (OCF/NI 0.90), though reported FCF buoyed by positive investing CF
• Visibility into dividend/capital return policy remains limited in this dataset

Metrics to Watch:

• Gross margin and SG&A ratio for signs of cost control and operating leverage recovery
• Order backlog, book-to-bill, and utilization rates for revenue visibility
• DSO/unbilled receivables and OCF/NI for cash conversion quality
• Capex trends and composition of investing CF (recurring vs one-off)
• Headcount growth, attrition, and subcontracting ratio to manage delivery and margins
• Tax rate normalization vs this period’s implied level (~31%)

Relative Positioning: Within Japanese mid-cap SI peers, Needswell shows above-average balance sheet strength, solid ROE driven by efficient asset use, and typical service-model margins. Near-term relative performance will hinge on restoring operating leverage and demonstrating consistent cash conversion while clarifying shareholder return policies.

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