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

Surala Net (TSE:3998) reported FY2025 Q3 consolidated results under JGAAP showing resilient topline but sharp profitability compression. Revenue was ¥1,445 million, down 0.9% YoY, indicating broadly stable demand despite a soft environment. Gross profit was ¥938.8 million, with a gross margin of 65.0%, highlighting a still-strong unit economics profile. Operating income fell to ¥53 million (−70.4% YoY), implying a material increase in operating expenses and negative operating leverage. Ordinary income was ¥61 million, suggesting modest non-operating gains of roughly ¥8 million. Net income deteriorated to a loss of ¥34 million (−80.5% YoY), implying extraordinary losses and/or a heavy tax burden relative to pre-tax earnings under JGAAP. The DuPont breakdown yields ROE of −1.57% driven by a −2.35% net margin, 0.575x asset turnover, and low financial leverage of 1.16x. The balance sheet appears conservative: total assets of ¥2,513 million against total liabilities of ¥374 million and equity of ¥2,171 million indicate a recalculated equity ratio near 86% (the reported 0% is a data placeholder). Liquidity looks ample with a current ratio of ~399% given current assets of ¥1,446.6 million and current liabilities of ¥362.4 million. Working capital stands at ¥1,084.3 million, offering a solid buffer to absorb near-term volatility. Despite healthy gross margins and balance sheet strength, earnings quality is clouded by the disconnect between ordinary income and net loss, pointing to one-off items or tax effects in the quarter. Cash flow data are not disclosed in this dataset (zeros are placeholders), limiting assessment of operating cash conversion and free cash flow. The absence of reported depreciation suggests either low capital intensity or non-disclosure; similarly, interest expense is unreported, consistent with low leverage. Dividend remains at ¥0, aligning with a reinvestment posture amid a net loss. Overall, the quarter reflects solid gross profitability but significant cost pressure at the SG&A layer, producing negative operating leverage and a bottom-line loss, while the balance sheet provides substantial resilience.

Profitability Analysis

ROE of −1.57% is explained by −2.35% net margin, 0.575x asset turnover, and 1.16x financial leverage. Gross margin is strong at 65.0% (gross profit ¥938.8m on revenue ¥1,445.0m), indicating healthy pricing/mix and/or scalable digital content economics. Operating margin compressed to 3.7% (operating income ¥53m), down sharply from an implied ~12% a year ago (given −70.4% YoY OI decline), signaling substantial SG&A inflation or investment. SG&A (implied) was ~¥885.8m (= gross profit − operating income), or ~61.3% of sales, likely elevated by personnel, content development, marketing, and/or platform costs. Ordinary income exceeded operating income by ~¥8m, implying net non-operating gains (e.g., subsidies, financial income) partially offsetting operating pressure. The swing from ordinary profit (¥61m) to net loss (¥34m) suggests extraordinary losses and/or a high effective tax burden under JGAAP classification this quarter. Operating leverage was negative: a 0.9% revenue decline translated into a 70%+ contraction in operating profit, underscoring a high fixed-cost base or planned front-loaded investments. Asset turnover of 0.575x points to moderate capital efficiency for an edtech platform model. Financial leverage is low (assets/equity ~1.16x), limiting ROE amplification—appropriate given current earnings volatility.

Growth Assessment

Revenue declined 0.9% YoY to ¥1,445m, suggesting near-flat top-line trajectory through Q3. The stability implies core customer retention and steady adoption, though softer new bookings or delayed deployments may have weighed. Gross margin stability at 65% indicates revenue quality remained intact, with no material discounting pressure evident. Profit quality weakened materially as SG&A expanded faster than revenue, compressing operating income (−70.4% YoY). The persistent positive ordinary income suggests underlying operations remain viable, but bottom-line weakness reflects one-offs and/or tax effects. Outlook hinges on: (1) normalization of SG&A run-rate post investment cycle, (2) timing of education budget decisions and procurement (seasonality can be material in this sector), and (3) cohort expansion and upsell into existing institutions. Given the modest top-line fluctuation and high gross margin, revenue sustainability appears reasonable if churn remains controlled. However, near-term profit recovery requires stricter cost discipline or re-acceleration in bookings to restore operating leverage. Without disclosed order backlog/deferred revenue data here, forward visibility is limited. Monitoring Q4 seasonality and any announced contract wins will be key for assessing exit velocity into FY2026.

Financial Health

Total assets: ¥2,513m; total liabilities: ¥373.7m; total equity: ¥2,171m. Recalculated equity ratio is ~86.4% (= 2,171/2,513), despite the reported 0% placeholder. Current assets: ¥1,446.6m vs current liabilities: ¥362.4m imply a current ratio of ~3.99x and working capital of ¥1,084.3m—strong short-term liquidity. Quick ratio approximates the current ratio as inventories are not disclosed (likely minimal for a digital model). Debt-to-equity is 0.17x on a total-liability basis, reflecting a lightly levered balance sheet; interest expense is not disclosed but likely immaterial. Solvency risk appears low given high equity and low liabilities. Capital structure is conservative, providing capacity to absorb earnings volatility or invest for growth without immediate external financing. Absent cash disclosures in this dataset, precise cash runway cannot be determined; however, the large net working capital suggests flexibility. No evidence of covenant risk is observable from the provided data.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported in this dataset (zeros are placeholders), so OCF/NI, FCF, and cash conversion cannot be assessed quantitatively. Earnings quality signals are mixed: strong gross margins suggest sound unit economics, but the divergence between ordinary income and net loss indicates one-off items (extraordinary losses and/or tax effects) that complicate run-rate profitability. Working capital appears abundant (¥1,084.3m), but the composition (cash vs receivables vs prepaid items) is not disclosed here; hence, liquidity quality and collection risk cannot be gauged. Without depreciation disclosure, EBITDA cannot be reliably computed; capital intensity is likely low but not verifiable from this data. Free cash flow coverage of dividends is not meaningful given no dividend and absent cash flow data. Key to earnings quality will be evidence of positive OCF in Q4 and FY close, stability of receivables days, and limited reliance on non-operating gains.

Dividend Sustainability

Annual DPS is ¥0.00 with a reported payout ratio of 0%, consistent with a reinvestment stance and the current net loss. Given unreported cash flows, FCF coverage cannot be evaluated from this dataset. The conservative balance sheet (equity ~86% of assets; low liabilities) would support optionality in the medium term, but near-term dividend capacity is constrained by negative net income and the need to prioritize growth investments and profitability restoration. Policy-wise, management is likely to emphasize growth and product development over distributions in the current cycle. Any initiation or increase of dividends would reasonably require sustained positive earnings and demonstrable positive OCF. Absent guidance, we assume a continued no-dividend posture in the near term.

Risk Assessment

Business Risks:

• Negative operating leverage due to high fixed-cost base amid flat revenue
• Education budget timing and procurement seasonality affecting quarterly volatility
• Competitive intensity in edtech (pricing pressure, feature parity, freemium/discounting)
• Customer concentration in public/educational institutions and potential renewal risk
• Curriculum or policy changes impacting product alignment and adoption
• Execution risk in content development and platform enhancements
• International expansion execution (if applicable) with localization and compliance hurdles

Financial Risks:

• Earnings volatility from extraordinary items and tax effects under JGAAP
• Limited visibility on cash flows and cash balance due to non-disclosure in this dataset
• Potential receivables collection risk (AR aging not disclosed)
• Margin risk from continued SG&A growth outpacing revenue
• Dilution risk if external financing is pursued (not indicated but possible if investments accelerate)

Key Concerns:

• Operating income down 70.4% YoY despite only a 0.9% revenue decline
• Net loss (¥34m) despite positive ordinary income (¥61m), implying one-off charges or high tax burden
• Inability to assess cash conversion due to unreported cash flow statements in this dataset

Investment Implications

Key Takeaways:

• Topline broadly stable (−0.9% YoY) with strong 65% gross margin, indicating intact unit economics
• Significant negative operating leverage drove operating margin down to 3.7%
• Low leverage and high equity ratio (~86%) provide balance sheet resilience
• Bottom-line loss driven by non-operating/extraordinary and tax effects; need clarity on one-offs
• Visibility limited by absent cash flow disclosures; monitoring OCF and receivables is critical

Metrics to Watch:

• SG&A ratio and headcount trajectory
• New bookings, renewal rates, and net revenue retention
• Deferred revenue/backlog and seasonality into Q4
• AR days and cash balance disclosure in the full-year report
• Operating cash flow and capex to confirm low capital intensity
• Gross margin stability and pricing/mix trends

Relative Positioning: Within Japanese edtech and small-cap software peers, Surala Net exhibits high gross margins and a conservative balance sheet but currently lags on operating profitability due to elevated SG&A, with earnings more volatile than peers emphasizing tighter cost control; upside depends on restoring operating leverage while maintaining revenue stability.

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