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

Sun Asterisk delivered FY2025 Q3 consolidated revenue of ¥10,953m, up 9.6% YoY, but profitability compressed as operating income declined 17.0% to ¥920m. Gross profit was ¥5,215m, implying a solid gross margin of 47.6%, yet SG&A of roughly ¥4,295m (39.2% of sales) absorbed most of the gross profit and drove margin pressure. Operating margin settled at 8.4%, down YoY as revenue growth failed to translate into proportional operating profit growth, indicating negative operating leverage in the period. Ordinary income of ¥996m exceeded operating income, suggesting a modest tailwind from non-operating items; interest expense was immaterial at ¥5m. Net income was ¥728m, down 19.3% YoY, translating into a net margin of 6.65%. The DuPont profile shows ROE at 7.10%, decomposed into a net margin of 6.65%, asset turnover of 0.755x, and financial leverage of 1.41x. ROA is approximately 5.0% (net margin × asset turnover), which is respectable for an asset-light digital/IT services model. Balance sheet strength is a clear positive: total assets of ¥14,499m are supported by total equity of ¥10,252m, implying an equity ratio of roughly 70.7% by our calculation (the disclosed 0.0% equity ratio appears unreported). Liquidity looks ample with current assets of ¥12,235m versus current liabilities of ¥3,268m, yielding a current ratio of 374% and working capital of ¥8,967m. Interest coverage is very strong at ~184x (operating income/interest expense), reflecting minimal financial risk from debt service. The effective tax rate implied by net income and income tax is about 29%, not 0%, indicating the reported 0% is an uninformative placeholder due to disclosure limitations. Cash flow statements (OCF/ICF/FCF) are not disclosed in the provided data; hence, cash conversion and free cash flow coverage cannot be assessed from this dataset. Dividend remains nil (DPS ¥0, payout 0%), consistent with reinvestment in growth or a conservative capital allocation stance. Overall, Sun Asterisk exhibits healthy top-line momentum and a strong balance sheet, but near-term profit pressure from higher SG&A or mix effects tempered operating income, resulting in negative operating leverage and a moderate 7.1% ROE.

Profitability Analysis

ROE_decomposition: ROE 7.10% = Net Margin 6.65% × Asset Turnover 0.755 × Financial Leverage 1.41. This implies ROA of ~5.02% and modest leverage. Ordinary margin is 9.10% (¥996m/¥10,953m) and operating margin is 8.40% (¥920m/¥10,953m). margin_quality: Gross margin is robust at 47.6%, consistent with higher-value digital/IT services. However, SG&A of ~¥4,295m consumed ~82% of gross profit, compressing operating margin. Net margin of 6.65% benefited slightly from non-operating income with minimal interest expense. operating_leverage: Revenue grew 9.6% YoY while operating income declined 17.0% YoY, indicating negative operating leverage in the period. The margin delta suggests cost growth (primarily SG&A) outpaced revenue, and/or project mix shifted toward lower-margin work. Tightening SG&A intensity will be key to restoring operating leverage.

Growth Assessment

revenue_sustainability: Top-line growth of 9.6% YoY indicates continued demand, likely driven by ongoing digital transformation spending and offshore development capacity. Sustainability will hinge on backlog visibility, client retention, and utilization rates. profit_quality: With operating income declining despite higher sales, current profit quality is pressured by cost drift or mix. Ordinary income outperformance versus operating income suggests some reliance on non-operating gains, though modest. Effective tax rate inferred at ~29% aligns with normalizing profitability. outlook: If SG&A can be normalized relative to growth and pricing/utilization improve, operating margin could recover. However, wage inflation, recruitment/training costs, and potential pricing pressure are headwinds. Maintaining gross margin near current levels while improving SG&A efficiency is the primary lever for earnings reacceleration.

Financial Health

liquidity: Current assets ¥12,235m vs current liabilities ¥3,268m yield a current ratio of ~374% and working capital of ¥8,967m. Quick ratio mirrors current ratio due to undisclosed inventories; liquidity appears ample. solvency: Total liabilities ¥3,682m vs equity ¥10,252m implies debt-to-equity of ~0.36x. Interest coverage ~184x underscores very low financial risk. Based on balance sheet figures, equity ratio is ~70.7% (10,252/14,499). capital_structure: Low leverage with strong equity base and minimal interest burden. Ordinary income exceeds operating income, indicating small non-operating contributions; no evidence of dependence on financial income.

Cash Flow Quality

earnings_quality: Cash flow statement items (OCF/ICF/FCF) are not disclosed in the provided data, so cash conversion cannot be assessed. The reported OCF/NI ratio of 0.00 is a placeholder and not economically meaningful. FCF_analysis: Free cash flow not available. With depreciation unreported (0 placeholder) and capex unknown, EBITDA and FCF cannot be reliably derived. working_capital: Working capital is strong at ¥8,967m, suggesting capacity to absorb receivable swings. However, without OCF details, the timing of collections and payables cannot be evaluated.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 with a reported payout ratio of 0%. Given net income of ¥728m and strong equity, the company has capacity but appears to prioritize reinvestment or balance sheet strength. FCF_coverage: Not assessable due to undisclosed OCF and capex. Any FCF coverage ratio based on the provided 0 figures would be misleading. policy_outlook: With moderate ROE (7.1%) and growth investments implied by cost base, maintaining a no-dividend stance is consistent. Future distributions would depend on improving operating leverage and demonstrable, recurring FCF.

Risk Assessment

Business Risks:

• Project-based revenue with potential volatility in backlog and utilization
• Wage inflation and hiring/training costs in delivery centers impacting margins
• Pricing pressure or client budget rationalization in a softer macro environment
• Execution risk in scaling larger or more complex digital projects
• Client concentration risk if top customers represent meaningful share of sales

Financial Risks:

• Limited: low leverage and minimal interest expense reduce refinancing risk
• Working capital swings (receivables/advance billings) could affect cash conversion
• FX exposure if offshore delivery costs or revenues are in foreign currencies

Key Concerns:

• Negative operating leverage despite 9.6% revenue growth
• High SG&A intensity (≈39% of sales) suppressing operating margin
• Lack of disclosed cash flow data, obscuring FCF and cash conversion

Investment Implications

Key Takeaways:

• Top-line growth remains solid at 9.6% YoY, but margins compressed and OP fell 17%
• Gross margin is strong (47.6%), signaling value-added services, but SG&A needs tighter control
• ROE of 7.1% is supported more by operations than leverage (assets/equity 1.41x)
• Balance sheet is robust with ~70.7% equity ratio and 374% current ratio
• Cash flow profile is undisclosed; FCF generation and conversion are key unknowns

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Backlog/book-to-bill, utilization, and billing rates
• Client concentration and churn
• Headcount growth and wage inflation vs pricing power
• Cash conversion (OCF/NI) and DSO once disclosed
• Gross margin stability by project mix

Relative Positioning: Asset-light, low-leverage digital/IT services profile with strong gross margins but currently weaker operating leverage versus growth peers; balance sheet strength is a differentiator, while near-term earnings execution hinges on SG&A discipline and mix/pricing management.

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