Densan System Holdings Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥50.18B
• Operating Income: ¥2.68B
• Net Income: ¥869M
• EPS: ¥209.31

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: Strong quarter with double-digit top-line growth and outsized bottom-line expansion, albeit with some line-item inconsistencies that warrant caution in interpretation. Revenue rose 11.2% YoY to 501.8, while operating income surged 83.2% YoY to 26.77, indicating meaningful operating leverage. Ordinary income increased 74.5% YoY to 28.30, and net income jumped 163.8% YoY to 22.35, lifting the net margin to 4.5%. Gross margin printed at 13.4%, and the operating margin was approximately 5.3%, implying improved profitability against the prior year. Back-solving prior period levels, operating margin appears to have expanded by roughly 209 bps YoY (from ~3.2% to ~5.3%). Net margin expanded by roughly 257 bps YoY (from ~1.9% to ~4.5%), reflecting both operating leverage and supportive non-operating gains. Non-operating income totaled 2.13 (notably dividends of 1.07), contributing about 9.5% of ordinary income and providing an additional earnings tailwind. ROE calculated via DuPont is 9.4%, up primarily on higher net margin rather than leverage or asset efficiency changes. Liquidity is adequate with a current ratio of 136% and quick ratio of 134%, and the company holds substantial cash and deposits of 216.8. That said, the reported D/E ratio of 2.08x is elevated versus our benchmark, but net cash is positive when offsetting interest-bearing debt with cash. Interest coverage is extremely strong at ~297x, implying low near-term interest burden risk. There are notable data inconsistencies: operating income does not reconcile to gross profit minus SG&A, and profit before tax (12.89) does not bridge to the reported net income (22.35) given the tax charge, suggesting missing extraordinary items or classification differences. Cash flow data are unreported, so we cannot corroborate earnings quality via OCF/NI or FCF, which is a key limitation. Dividend metrics (DPS) are not disclosed, though an indicative payout ratio of 29% looks conservative if supported by cash generation. Forward-looking, the mix of operating recovery and modest non-operating contributions supports the outlook, but sustainability hinges on order momentum, service mix, and confirmation from operating cash flow once disclosed.

Profitability Analysis

ROE decomposition (DuPont): ROE 9.4% = Net Profit Margin 4.5% × Asset Turnover 0.684 × Financial Leverage 3.08x. The largest change YoY appears to be net profit margin expansion, as net income grew +163.8% versus revenue +11.2% (implying margin uplift), while leverage and turnover likely moved less. Business drivers include stronger operating income (+83.2% YoY) indicative of improved operating leverage and cost control, and a modest uplift from non-operating income (dividends and gains). The margin improvement is partly sustainable if driven by mix shift to higher-margin services and disciplined SG&A, but the size of the jump suggests some one-off or low-repeatability items may be present, especially given the reconciliation inconsistencies and non-operating tailwinds. Asset turnover at 0.684 is typical for an IT services/payment-related integrator and is unlikely to be the primary ROE driver this quarter. Financial leverage (3.08x) is elevated on a total-liability basis, but net debt is negative due to high cash; leverage did not drive the ROE improvement. Watch for SG&A growth relative to revenue: on face value SG&A is 52.52 (10.5% of revenue), but it does not reconcile to operating income, indicating classification differences; despite this, operating leverage was strong. Overall, ROE improvement is quality-skewed toward operating profit gains, supplemented by non-operating income, with some uncertainty from data gaps.

Growth Assessment

Top-line growth of +11.2% YoY to 501.8 suggests healthy demand, likely in core IT/payment-related services and solutions. Operating income growth of +83.2% significantly outpaced sales, implying improved pricing/mix or scale benefits. Ordinary income (+74.5%) and net income (+163.8%) show additional uplift beyond pure operations, reflecting both better fundamentals and non-operating contributions (dividends 1.07 and small investment gains). Operating margin rose to ~5.3% from an estimated ~3.2% YoY, indicating material operating leverage. Net margin rose to 4.5% from ~1.9%, signposting enhanced profit capture. Sustainability depends on the repeatability of non-operating items and the durability of cost efficiencies; the non-operating income ratio is 9.5% of ordinary income, so profits remain primarily operating-driven. With cash flows unreported, we cannot validate whether growth is accompanied by healthy cash conversion. Backlog/order intake and recurring fee mix (if applicable) will be critical to sustaining momentum into FY-end. Overall growth quality appears improved, but confirmation via cash flow and clearer line-item reconciliations is needed.

Financial Health

Liquidity: Current ratio 136% and quick ratio 134% indicate adequate short-term liquidity, though below our 150% comfort benchmark. No warning for current ratio (<1.0) is triggered. Solvency: Reported D/E 2.08x exceeds our 2.0 threshold; we flag this as high leverage on a total-liabilities basis. However, interest-bearing debt totals ~55.86 (ST 50.00, LT 5.86) versus cash of 216.8, implying net cash of ~160.9 and low funding risk from debt service. Interest coverage is very strong at ~297x, indicating ample buffer. Maturity mismatch: Current liabilities are high at 481.94, but are backed by 655.45 of current assets (notably cash 216.8 and receivables 130.32); short-term loans (50.00) are small relative to cash. Equity ratio (calculated) is approximately 32.5% (238.47 / 733.51), providing a reasonable capital base. Off-balance sheet obligations are not disclosed; none identified from provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, preventing a direct assessment of earnings quality. We therefore cannot compute OCF/Net Income; no <0.8 warning can be applied. Working capital structure shows receivables of 130.32 versus payables of 72.09 and low inventories (11.44), consistent with a services-heavy model; absent cash flow data, we cannot detect working capital timing effects or potential quarter-end optimization. With net cash of ~160.9 and modest capex needs typical of IT/services, FCF is plausibly positive, but this remains unverified. Dividend and share repurchase cash outflows are unreported; thus FCF coverage of shareholder returns cannot be assessed.

Dividend Sustainability

DPS is unreported, but the calculated payout ratio is 29.0%, which is conservative relative to our <60% benchmark. Given strong earnings growth and a net cash position, dividends appear supportable on paper. That said, absence of OCF/FCF data prevents confirmation of cash coverage. If non-operating contributions (e.g., dividends from securities) are volatile, earnings-based payout safety could overstate true sustainability; monitoring OCF/NI and working capital is key. Policy outlook cannot be inferred without management guidance; the balance sheet can likely accommodate stable or modestly increasing dividends if cash generation aligns with earnings.

Risk Assessment

Business Risks:

• Execution risk on large IT/payment implementation projects leading to margin variability
• Pricing pressure and competition in systems integration and BPO services
• Client concentration risk typical for enterprise/公共 sector integrators (not disclosed here)
• Dependency on non-operating income (dividends/gains) for a portion of ordinary income

Financial Risks:

• Reported high D/E ratio (2.08x) despite net cash; potential stakeholder focus on gross leverage
• Refinancing/rollover risk on short-term borrowings (50.00) if credit conditions tighten
• Interest rate risk on floating-rate debt (if applicable), though interest burden is currently minimal
• Potential working capital swings (receivables vs payables) impacting cash conversion

Key Concerns:

• Income statement reconciliation inconsistencies (GP - SG&A != Operating Income)
• Profit before tax and tax expense do not bridge to reported net income, suggesting missing extraordinary items/reclassifications
• Absence of cash flow statements limits verification of earnings quality and dividend cover
• Limited disclosure of SG&A breakdown and depreciation/amortization obscures cost structure and EBITDA profile

Investment Implications

Key Takeaways:

• Robust quarter: revenue +11.2% YoY; operating income +83.2%; net income +163.8%
• Operating margin expanded an estimated ~209 bps YoY to ~5.3%
• Net margin expanded ~257 bps YoY to 4.5%, aided by non-operating income (dividends 1.07)
• ROE at 9.4% is healthy, driven mainly by margin expansion
• Liquidity adequate (current ratio 136%, cash 216.8) and net cash ~160.9 despite high reported D/E
• Interest coverage extremely strong (~297x), indicating low near-term financial stress
• Data inconsistencies and missing cash flow disclosure temper confidence in the durability of improvements

Metrics to Watch:

• Operating cash flow to net income ratio (target ≥1.0) and free cash flow
• SG&A to revenue and staff cost trends for signs of sustained operating leverage
• Receivables days and payables days to monitor cash conversion
• Composition of non-operating income (recurrence of dividend income vs one-offs)
• Equity ratio and any changes in short-term borrowings
• Order backlog and recurring revenue mix to gauge forward visibility

Relative Positioning: Versus domestic IT services and payment-related peers, the company shows faster profit growth and improving margins this quarter, with a stronger net cash position than headline leverage suggests; however, disclosure gaps (cash flows, segment details) and line-item inconsistencies reduce visibility relative to best-in-class peers with more transparent reporting.

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