SuRaLa Net Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.45B
• Operating Income: ¥53M
• Net Income: ¥40M
• EPS: ¥-5.51

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

Verdict: A weak quarter with sharp profit compression and a swing to a net loss despite stable topline, driven by margin pressure and below-the-line drag. Revenue was 14.45 (100M JPY), down 0.9% YoY, with gross profit of 9.39 and a robust gross margin of 65.0%. Operating income fell 70.4% YoY to 0.53, implying operating margin declined to about 3.7%. Ordinary income was 0.61 (−66.9% YoY), while profit before tax was 0.98. Net income deteriorated to −0.34, translating to a net margin of −2.4% and EPS of −5.51 JPY. The effective tax rate was elevated at 59.2%, and post-tax/below-the-line adjustments and/or non-controlling interest effects further pressured the bottom line, creating a roughly −0.74 gap between post-tax PBT and reported net income. SG&A remained heavy at 7.58 (SG&A ratio ~52.5%), leaving limited operating leverage at near-flat revenue. On margins, operating margin compressed approximately 861 bps YoY (from ~12.3% to ~3.7% by our estimate), signaling significant deterioration in cost efficiency or mix. Balance sheet remains conservative: equity of 21.71, liabilities of 3.42, D/E of 0.16x, and cash and deposits of 9.50; current ratio is a strong 392%. Intangible assets are sizable at 10.79 (about 43% of total assets), highlighting impairment risk if growth underperforms. ROE calculated at −1.6% (NPM −2.4%, asset turnover 0.575x, leverage 1.16x) and ROIC at 2.2% both point to sub-par capital efficiency. Cash flow disclosure is absent, limiting assessment of earnings quality, working capital dynamics, and FCF coverage. Forward-looking, normalization of tax and below-the-line items could improve reported earnings, but sustained margin recovery requires tighter SG&A discipline or re-acceleration of revenue. Near term priorities include restoring operating margin, reducing earnings volatility below operating line, and defending ROIC above 5%+. Ample liquidity provides runway to execute, but continued profit softness heightens the risk of impairment and prolonged low returns.

Profitability Analysis

ROE decomposition: Net Profit Margin −2.4% × Asset Turnover 0.575 × Financial Leverage 1.16x = ROE −1.6% (matches reported). The largest driver of the decline is the net margin, which weakened on steep operating margin compression and adverse below-the-line effects (high effective tax rate and other adjustments). Operating margin fell to ~3.7% from an estimated ~12.3% a year ago as SG&A intensity stayed high (~52.5% of sales) against slightly lower revenue, eroding operating leverage. Gross margin remained strong at 65.0%, so the damage was primarily at the SG&A and non-operating/tax lines rather than in direct costs. The net margin deterioration appears partly cyclical/operational (cost discipline vs. revenue softness) and partly one-time or volatile (tax rate at 59.2% and post-tax adjustments/NCI impact). Sustainability: a normalization of the tax rate should mechanically lift NPM, but without revenue re-acceleration or SG&A control, operating margin recovery is uncertain. Flags: SG&A burden is high relative to sales; with revenue down 0.9% YoY and OI down 70.4%, cost growth or limited cost flexibility is a concern.

Growth Assessment

Revenue declined slightly (−0.9% YoY to 14.45), indicating stagnation rather than structural contraction. Profitability fell disproportionately, indicating unfavorable operating leverage and/or mix. With gross margin at 65.0%, the core product/service economics appear healthy; the problem lies in SG&A scalability and below-the-line volatility. Ordinary income (0.61) and operating income (0.53) point to core profitability remaining positive but thin. The sharp delta between PBT (0.98) and net income (−0.34) implies non-trivial below-the-line headwinds this quarter, which may not repeat at the same magnitude. Outlook hinges on pipeline conversion in core education solutions, retention/churn dynamics, and cost discipline; even modest top-line growth could yield a sizable bounce in operating margin if SG&A is contained. Absent cash flow data, we cannot validate whether growth is customer-prepayment driven or working-capital intensive, which is a limitation for sustainability assessment.

Financial Health

Liquidity is strong: current assets 12.94 vs current liabilities 3.30; current ratio 391.6% and quick ratio 391.6%. No warning on liquidity (Current Ratio >> 1.0). Solvency is conservative: total liabilities 3.42 vs equity 21.71; D/E 0.16x, far below any risk threshold. Cash and deposits of 9.50 provide meaningful cushion relative to quarterly operating income volatility. Maturity mismatch risk appears low given the large working capital buffer (working capital 9.64). Balance sheet composition carries concentration in intangibles (10.79, ~43% of assets), raising potential impairment risk if medium-term growth disappoints. No off-balance sheet obligations were reported in the provided data. Equity ratio (calculated) ~86% supports resilience, though low leverage also depresses ROE when margins are thin.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow were not disclosed; OCF/Net Income, FCF, and FCF coverage cannot be calculated. Therefore, we cannot validate earnings quality via cash conversion or assess working capital movements (e.g., receivables, deferred revenue). With net income negative but operating profit positive, cash conversion could still be acceptable if below-the-line items are non-cash; however, this remains unverified. Dividend and capex coverage by FCF cannot be assessed. No clear signs of working capital manipulation can be inferred due to data gaps.

Dividend Sustainability

Dividend data (DPS, payout, total dividends) are unreported. With net income at −0.34 for the period and no OCF/FCF disclosure, we cannot evaluate payout ratios or FCF coverage quantitatively. Balance sheet liquidity (cash 9.50; low leverage) suggests capacity to maintain a modest distribution if policy requires, but prudence would favor preserving cash until margins recover and cash generation is evidenced. Policy outlook not available in the dataset; monitor guidance and capital allocation commentary.

Risk Assessment

Business Risks:

• Demand softness or order timing in the education market leading to negative operating leverage
• High SG&A intensity (~52.5% of sales) limiting scalability if revenue growth remains tepid
• Product mix or pricing pressure despite maintaining a 65% gross margin
• Execution risk in sales/implementation cycles with schools and education institutions

Financial Risks:

• Sub-par capital efficiency (ROIC 2.2%) heightens risk of value dilution if not improved
• Large intangible asset base (~43% of assets) increases impairment risk in a weak growth scenario
• Earnings volatility below operating line (59% effective tax rate and other post-tax adjustments) obscures net income visibility
• Data limitations on cash flows impede assessment of cash conversion and FCF sustainability

Key Concerns:

• Operating margin compression of ~861 bps YoY to ~3.7%
• Net loss (−0.34) despite positive operating income and PBT, implying sizable below-the-line drag
• ROE at −1.6% and asset turnover at 0.575 indicate low overall efficiency
• Potential for further downside if SG&A is not aligned to current revenue run-rate

Investment Implications

Key Takeaways:

• Topline essentially flat (−0.9% YoY) but profits fell sharply (OI −70.4%), highlighting weak operating leverage
• Gross margin strong at 65%, but SG&A ratio (~52.5%) constrains profitability
• Net loss driven by high tax and below-the-line items despite positive PBT
• Balance sheet strength (current ratio ~392%, D/E 0.16x) provides runway to execute a turnaround
• ROIC of 2.2% underscores urgency to improve capital efficiency

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• Effective tax rate normalization and the magnitude of below-the-line adjustments/NCI
• Order intake, bookings, and retention/churn indicators in core education businesses
• Operating cash flow and FCF once disclosed (cash conversion >100% of NI as a quality signal)
• Intangible asset amortization/impairment and any extraordinary items

Relative Positioning: Within Japan-listed edtech peers, the company exhibits solid gross margins and a conservative balance sheet but currently lags on operating leverage and capital efficiency; near-term performance depends on cost discipline and conversion of pipeline to re-expand margins.

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