TRADE WORKS Co.,Ltd FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.54B
• Operating Income: ¥117M
• Net Income: ¥-169M
• EPS: ¥1.40

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

Trade Works (3997) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥3,543 million, up 11.7% year on year, indicating healthy topline momentum. Despite this, operating income was flat at ¥117 million, implying notable margin compression and limited operating leverage during the period. Gross profit of ¥484 million translates to a gross margin of 13.7%, which is relatively thin for an IT/services company and suggests pricing pressure or elevated delivery costs. Operating margin stands at roughly 3.3% (¥117 million on ¥3,543 million sales), and net margin is 1.5% with net income of ¥53 million, reflecting sizeable non-operating and/or tax effects relative to earnings. Ordinary income equals operating income at ¥117 million, and interest expense was modest at ¥3.0 million, yielding a strong interest coverage of 38.6x and indicating low interest burden. The DuPont breakdown shows a calculated ROE of 2.93%, driven by a 1.50% net margin, 0.932x asset turnover, and 2.10x financial leverage—low profitability rather than balance-sheet inefficiency is the primary drag on returns. Total assets were ¥3,802 million and total equity ¥1,809 million, with total liabilities at ¥1,626 million; the debt-to-equity ratio stands at 0.90x, a moderate leverage level for the business profile. Liquidity looks sound with a current ratio of 154.8% and working capital of ¥613 million, suggesting adequate near-term funding for operations. Cash and cash flow statement items were not disclosed in the dataset (zeros denote unreported), which limits assessment of earnings convertibility and cash discipline. EPS was ¥1.40, but outstanding shares and book value per share were not disclosed in the provided data, constraining per-share and valuation diagnostics. The tax line shows a negative ¥25.8 million; however, the “effective tax rate” metric is shown as 0.0%, so tax quality cannot be reliably inferred from the dataset. Dividend per share and payout ratio are shown as 0.00, consistent with no dividend in the period, though disclosure limits remain. The combination of higher revenue and flat operating income points to cost creep (e.g., project delivery costs, labor), mix effects, or a deliberate growth investment phase. Overall, the company is growing but earnings quality and margin durability warrant attention, particularly absent operating cash flow disclosure. Given low ROE and thin margins, the near-term focus should be on margin recovery and cash generation to improve capital efficiency. Data limitations (notably cash flow, depreciation, share count, and equity ratio reporting) necessitate caution when drawing strong conclusions.

Profitability Analysis

ROE decomposition: ROE 2.93% = Net margin 1.50% × Asset turnover 0.932 × Financial leverage 2.10. Profitability, rather than asset utilization or leverage, is the primary constraint on returns. margin_quality: Gross margin 13.7% (GP ¥484m on revenue ¥3,543m) is thin and below typical software/dev margins, implying higher cost of delivery or pricing pressure. Operating margin ~3.3% (OI ¥117m) and net margin 1.5% highlight limited expense flexibility and some non-operating/tax impacts. Ordinary income equals operating income, indicating limited non-operating gains/losses aside from small interest. operating_leverage: Revenue rose 11.7% YoY while operating income was flat, indicating negative operating leverage this period. This suggests higher cost base (e.g., wage inflation, subcontracting, or upfront investments) offsetting scale benefits. Improving utilization, project mix, and SG&A efficiency will be key to restoring leverage.

Growth Assessment

revenue_sustainability: Topline growth of 11.7% YoY to ¥3,543m is solid; sustainability depends on backlog, client demand in financial IT, and ability to secure new wins without sacrificing pricing. profit_quality: Flat operating income amid rising sales implies weaker incremental margins. Interest expense is low (¥3.0m) and interest coverage strong (38.6x), so financing costs are not the issue; cost management and delivery efficiency are the focus. The negative tax line and reported 0.0% effective tax rate metric limit tax normalization analysis. outlook: Near-term outlook hinges on margin recovery through better project mix and cost control. If growth is driven by lower-margin projects or aggressive pricing, profitability could remain constrained; conversely, improved utilization and pricing discipline could restore operating leverage.

Financial Health

liquidity: Current assets ¥1,730m vs current liabilities ¥1,118m; current ratio 154.8% and quick ratio 154.8% (no inventories reported) indicate comfortable short-term liquidity. Working capital stands at ¥613m. solvency: Total liabilities ¥1,626m vs equity ¥1,809m; debt-to-equity 0.90x suggests moderate leverage. Interest burden is light (interest expense ¥3.0m), with interest coverage 38.6x, indicating low refinancing risk from operations. capital_structure: Financial leverage at 2.10x (assets/equity) supports ROE but is not excessive. Equity ratio was not disclosed (shown as 0.0%); reliance on the provided leverage metric is more informative in this dataset.

Cash Flow Quality

earnings_quality: Operating cash flow is not disclosed (OCF shown as 0 denotes unreported), resulting in an OCF/Net Income ratio of 0.00 by placeholder. Thus, earnings convertibility to cash cannot be assessed from the provided data. FCF_analysis: Free cash flow is not available (unreported). With depreciation and amortization also unreported, we cannot separate cash/non-cash components of earnings or capex intensity. working_capital: Working capital is positive at ¥613m, which supports operations. However, without cash flow detail (e.g., receivables/payables changes, DSO/DPO), we cannot evaluate working capital drag or release during the period.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0.00, indicating no dividend in the period based on available data. With EPS at ¥1.40 and low ROE (2.93%), retention may be aimed at reinvestment or balance sheet strength. FCF_coverage: Free cash flow is unreported, so FCF coverage of dividends cannot be assessed. The reported FCF coverage metric of 0.00x reflects missing FCF rather than true coverage. policy_outlook: Given thin margins and low ROE, sustaining or initiating dividends would likely hinge on visible margin improvement and demonstrable OCF generation. Absent cash flow disclosure, a conservative stance on distributions is plausible.

Risk Assessment

Business Risks:

• Margin pressure from project mix, subcontracting, or pricing in competitive financial IT markets
• Execution risk on fixed-price or complex system integration projects
• Client concentration and timing risk of large orders/backlog in the financial sector
• Talent retention and wage inflation impacting delivery costs
• Potential delays in client budgets tied to market conditions in financial services

Financial Risks:

• Limited visibility on cash flow generation due to unreported OCF/FCF
• Moderate leverage (D/E 0.90x) could constrain flexibility if profitability weakens
• Working capital swings (receivables collection, milestone billing) could pressure liquidity
• Tax volatility given the negative tax line and limited transparency on effective tax rate

Key Concerns:

• Negative operating leverage despite 11.7% revenue growth
• Thin gross and operating margins (13.7% and ~3.3%)
• Low ROE at 2.93%, below typical cost of equity
• Insufficient disclosure on cash flows, depreciation, and share count limiting analysis

Investment Implications

Key Takeaways:

• Solid revenue growth (+11.7% YoY) but stalled operating profit indicates cost pressure
• ROE of 2.93% driven by low net margin (1.50%) rather than weak asset use or excessive leverage
• Liquidity adequate (current ratio 154.8%) and interest burden low (38.6x coverage)
• Margins and cash generation need to improve to enhance capital efficiency
• Disclosure gaps (OCF/FCF, D&A, equity ratio, share count) constrain deeper diagnostics

Metrics to Watch:

• Order backlog and booking-to-bill ratio
• Gross margin and operating margin progression
• SG&A ratio and personnel/subcontracting cost trends
• Operating cash flow, free cash flow, and receivables collection (DSO)
• Leverage (D/E) and any changes in interest costs
• Utilization rates and headcount productivity

Relative Positioning: Within Japan’s listed IT/services and fintech integrators, Trade Works exhibits healthy growth but below-average margins and ROE, with moderate leverage and adequate liquidity; improving delivery efficiency and cash conversion would be necessary to converge toward stronger peers.

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