Sun* Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥10.95B
• Operating Income: ¥920M
• Net Income: ¥902M
• EPS: ¥19.31

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 mixed quarter—solid topline growth but margin compression led to double-digit declines in operating and bottom-line profits. Revenue rose to 109.53 (億円), up 9.6% YoY, indicating demand resilience in core DX/IT services. Operating income declined 17.0% YoY to 9.20 (億円), with ordinary income down 19.1% to 9.96 (億円) and net income down 19.3% to 7.28 (億円). Gross profit reached 52.15 (億円), implying a gross margin of 47.6%, which remains healthy for a project/service-heavy model. Operating margin was 8.4% this quarter versus an estimated 11.1% a year ago, implying roughly 270 bps compression. Net margin was 6.7% versus an estimated 9.0% a year ago, implying about 230 bps compression. SG&A of 41.05 (億円) absorbed most of the gross profit, driving negative operating leverage; although a full YoY SG&A breakout is unreported, the math implies SG&A intensity increased. Non-operating income of 1.39 (億円) was primarily interest income (1.32), highlighting a cash-rich balance sheet supporting ordinary profit. Effective tax rate was 24.8%, consistent with a normalized rate and no outsized one-off tax items. Liquidity is very strong with cash and deposits of 89.32 (億円), current ratio 350%, and working capital of 83.63 (億円). Leverage remains conservative with D/E at 0.41x (total liabilities/equity) and estimated equity ratio near 71%. Earnings quality cannot be fully assessed due to unreported operating cash flow; however, high interest income and low interest expense (coverage 184x) suggest financial flexibility. Balance sheet shows 9.47 (億円) goodwill and 9.87 (億円) intangibles—areas to monitor for impairment risk if growth slows. With margins under pressure but demand still growing, the forward focus shifts to cost control, utilization, pricing discipline, and project mix to stabilize operating margins. Near term, interest income provides a non-operating tailwind, but sustainable profit recovery hinges on improving operating leverage. Overall, the company remains well-capitalized to fund growth, but must address cost intensity to defend ROE (7.1%).

Profitability Analysis

DuPont: ROE 7.1% = Net Profit Margin 6.7% × Asset Turnover 0.755 × Financial Leverage 1.41x. The largest change driver YoY is the net profit margin, given net income fell 19.3% despite 9.6% revenue growth. Business explanation: operating margin compression (estimated ~270 bps YoY) due to higher SG&A intensity (e.g., personnel costs, hiring/training for growth, or increased sales/overhead), partially offset by higher interest income. Sustainability: margin pressure is partially cyclical/operational (utilization, wage inflation, project mix) and could be reversible with pricing and utilization improvements; the interest income boost is likely temporary/externally driven (rate environment) and not a core structural driver. Warning flags: negative operating leverage (operating income down while revenue up), and implied SG&A growth exceeding revenue growth. Gross margin at 47.6% remains solid, suggesting pressure sits in SG&A rather than delivery cost inflation. Asset turnover of 0.755 is typical for a cash-heavy, asset-light services firm; leverage at 1.41x is conservative and not the ROE driver this quarter.

Growth Assessment

Revenue growth of 9.6% YoY to 109.53 (億円) indicates steady underlying demand. However, profit growth lagged due to cost intensity; operating income declined 17.0% and net income fell 19.3% despite higher revenue. Non-operating tailwind (interest income 1.32 (億円)) cushioned ordinary profit, but this is not a core engine of growth. The implied prior-year figures suggest operating margin fell from ~11.1% to 8.4%, underscoring unfavorable operating leverage. Without segment detail, sustainability of revenue growth is uncertain, but the balance sheet supports continued investment in hiring and capability expansion. Key to profit recovery: utilization rates, mix of fixed-price vs time-and-material projects, pricing power on renewals, and disciplined SG&A control. Near-term outlook: stable to moderate revenue growth with focus on margin stabilization; potential incremental benefit from interest income persists while rates remain elevated.

Financial Health

Liquidity is strong: current ratio 350.4% and quick ratio 350.4%; no warning on liquidity thresholds. Cash and deposits stand at 89.32 (億円) versus current liabilities of 33.40 (億円), indicating ample coverage of short-term obligations. Maturity mismatch risk is low: short-term loans of 10.10 (億円) are comfortably covered by cash on hand; accounts payable of 3.80 (億円) are modest relative to receivables of 18.69 (億円). Solvency is conservative: total liabilities/equity (D/E) is 0.41x; long-term loans are 4.18 (億円) and interest expense is minimal (0.05 (億円)). Estimated equity ratio is approximately 70.7% (102.52/144.99), indicating a strong capital base. No off-balance sheet obligations are reported in the provided data. No explicit covenant or contingent liability disclosures are available in this dataset.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; this is a key limitation for earnings quality analysis. Non-operating income is largely interest income, consistent with strong cash balances, which supports ordinary profits but does not speak to core cash conversion. Working capital indicators appear reasonable: accounts receivable of 18.69 (億円) against nine-month revenue implies an approximate DSO around mid-40s days, within a normal range for IT services. Free cash flow is unreported; thus, coverage of capex and dividends cannot be evaluated. No signs of working capital manipulation can be identified from the limited data; however, confirmation requires OCF and detailed WC movements.

Dividend Sustainability

Dividend data are unreported for the period. With net income of 7.28 (億円) and substantial net cash (cash 89.32 (億円) vs. total interest-bearing loans 14.28 (億円)), balance sheet capacity for distributions exists if policy permits. However, without OCF and capex data, payout sustainability cannot be assessed. Given the growth orientation typical of DX/IT services firms, reinvestment priority may limit near-term payout. Policy outlook is uncertain due to lack of disclosures; monitor future guidance and any shareholder return policies.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation, hiring ramp, and SG&A growth outpacing revenue
• Utilization risk and project mix shifts (fixed-price vs T&M) affecting delivery margins
• Client budget tightening or project deferrals impacting near-term bookings
• Competitive pricing pressure in domestic DX/IT services
• Goodwill/intangible impairment risk (goodwill 9.47 (億円), intangibles 9.87 (億円)) if growth slows

Financial Risks:

• Dependence on interest income to support ordinary profit amid changing rate environment
• Receivables collection timing (AR 18.69 (億円)) though currently supported by strong cash
• Refinancing risk minimal but present on short-term loans (10.10 (億円))
• Potential FX exposure if offshore delivery centers are utilized (not disclosed in data)

Key Concerns:

• Negative operating leverage: operating income down 17% despite 9.6% revenue growth
• Operating margin compression (~270 bps YoY) requiring cost discipline
• Lack of cash flow disclosures limits assessment of earnings quality and dividend capacity
• Reliance on non-operating interest income for part of ordinary profit growth buffer

Investment Implications

Key Takeaways:

• Topline growth remains healthy at +9.6% YoY, but profitability declined
• Operating margin compressed to 8.4%, signaling elevated SG&A intensity
• ROE at 7.1% is supported by decent asset turnover and low leverage, but pressured by lower net margin
• Balance sheet strength (equity ratio ~71%, large cash) provides strategic flexibility
• Non-operating interest income is a notable support but not a structural lever

Metrics to Watch:

• Operating margin trajectory and SG&A/revenue ratio
• Order backlog and bookings conversion to sustain revenue growth
• Utilization rates and pricing on new/renewal contracts
• OCF/Net Income once disclosed; FCF after capex
• AR days and any build-up in unbilled receivables
• Any impairment indicators for goodwill/intangibles

Relative Positioning: Versus domestic IT services/DX peers, Sun Asterisk shows solid growth but weaker near-term operating leverage. Financial risk is low due to ample net cash, positioning the company defensively while it works to restore 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