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

For FY2025 Q3 (cumulative), Densan System Holdings posted strong topline and profit growth under JGAAP on a consolidated basis, with revenue of ¥50.18bn (+11.2% YoY) and operating income of ¥2.68bn (+83.2% YoY). The operating leverage is evident: operating margin expanded to approximately 5.3%, supported by relatively stable gross margin of 13.4% and disciplined SG&A spending. Net income rose to ¥2.24bn (+163.8% YoY), lifting the net margin to 4.45%, and driving an ROE of 9.37% via the DuPont bridge of 4.45% net margin, 0.684x asset turnover, and 3.08x financial leverage. Ordinary income (¥2.83bn) exceeds operating income by about ¥0.15bn, implying net positive non-operating items, while the gap between ordinary income and profit before tax alongside reported taxes suggests an estimated extraordinary loss of roughly ¥0.18bn. The effective tax rate, inferred from available figures, is about 14.8%, lower than Japan’s statutory rate, implying the benefit of tax credits, loss utilization, or income mix effects. Balance sheet quality appears sound: equity of ¥23.85bn against total assets of ¥73.35bn implies an equity ratio of roughly 32.5% and a debt-to-equity ratio of 1.65x, indicating moderate leverage. Liquidity is adequate, with a current ratio of 142.5% and a quick ratio of 140.8% supported by modest inventories (¥0.66bn). Interest expense is minimal (¥9m), yielding strong interest coverage of ~297x. The revenue and margin profile remain consistent with a payments/IT services mix—high-volume, lower gross margins offset by operating scale and SG&A discipline. With operating income growth outpacing revenue, the company is executing well on cost control and/or mix, enhancing earnings quality at the operating level. Cash flow data are not disclosed in the provided set, so cash conversion, free cash flow (FCF), and capex intensity cannot be assessed here. Dividend data are also not disclosed; EPS is ¥209.31 but DPS is unavailable, precluding payout analysis from this dataset. Overall, profitability momentum and moderate leverage support a constructive fundamental profile, albeit with the caveat that cash flow and capital allocation visibility are limited in this snapshot. Future performance will hinge on sustaining operating leverage, managing working capital in the payments business, and maintaining non-operating and extraordinary items at benign levels. Data limitations (cash flows, D&A, dividend amounts, share count) should be noted when interpreting ratios like EBITDA and coverage of dividends by FCF.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 4.45%
• asset_turnover: 0.684
• financial_leverage: 3.08
• calculated_ROE: 9.37%
• commentary: ROE is driven primarily by improved margins and moderate leverage; asset turnover of 0.684x is typical for a services platform with sizable current assets. margin_quality:
• gross_margin: 13.4%
• operating_margin: 5.3% (2,677m / 50,180m)
• ordinary_margin: 5.6% (2,830m / 50,180m)
• net_margin: 4.45%
• sg_and_a_to_sales: 8.0% (approx. 4,036m / 50,180m)
• insights: Gross margin is modest, consistent with payment processing/IT service mix, while significant operating margin expansion reflects tight SG&A control and/or favorable mix. operating_leverage: Revenue grew 11.2% YoY, but operating income surged 83.2% YoY, indicating strong operating leverage and improved cost absorption.

Growth Assessment

revenue_sustainability: Topline growth of 11.2% YoY suggests healthy demand in core payment and IT-related services; sustainability will depend on transaction volumes, customer retention, and cross-sell in enterprise/cloud services. profit_quality: Operating income growth far outpaced sales growth, pointing to quality improvement from cost discipline and potentially better pricing/mix. Ordinary income exceeding operating income implies a helpful non-operating contribution. outlook: If the company maintains SG&A efficiency and mix tailwinds, mid-single-digit operating margins appear defensible; continued scale in high-volume businesses could uphold low-teens gross margins with rising operating margin.

Financial Health

liquidity:

• current_ratio: 142.5% (53,876m / 37,804m)
• quick_ratio: 140.8% ((53,876m - 660m) / 37,804m)
• working_capital: ¥16,072m
• assessment: Adequate liquidity with limited inventory exposure; underscores a service-heavy model. solvency_and_capital_structure:
• total_assets: ¥73,351m
• total_liabilities: ¥39,452m
• total_equity: ¥23,847m
• equity_ratio: ≈32.5% (computed from provided totals)
• debt_to_equity: 1.65x
• interest_coverage: ≈297x (2,677m / 9m)
• assessment: Moderate leverage and very low interest burden provide balance sheet resilience.

Cash Flow Quality

earnings_quality: With absent cash flow disclosure in this dataset, cash conversion cannot be evaluated. Earnings quality at the operating level appears improved given margin expansion, but verification via OCF is not possible here. free_cash_flow_analysis: FCF cannot be determined without OCF and capex data; EBITDA is not inferable due to undisclosed D&A. working_capital: Inventories are low (¥660m), consistent with services. However, the payments business can carry material receivables/payables swings; monitoring collection cycles and settlement liabilities is important, though detailed components are not provided.

Dividend Sustainability

payout_ratio_assessment: DPS is not disclosed in the provided data; EPS is ¥209.31. Payout ratio cannot be assessed from this snapshot. fcf_coverage: Not assessable due to absent OCF/capex data. policy_outlook: Without dividend policy details or historical DPS, no view can be formed; future payouts will depend on sustained earnings growth and cash generation in settlement operations.

Risk Assessment

Business Risks:

• Transaction volume sensitivity in payment processing and agency services
• Margin pressure from competitive pricing in IT services and payments
• Client concentration risk if large enterprise or government contracts dominate
• Technology and cybersecurity risks tied to payment platforms and cloud services
• Regulatory and compliance changes in payments/settlement ecosystems

Financial Risks:

• Working capital volatility inherent to settlement cycles (receivables/payables timing)
• Potential extraordinary items impacting bottom line (inferred ~¥0.18bn loss this period)
• Exposure to non-operating income variability that lifts ordinary income above operating income
• Moderate leverage (D/E 1.65x) requires consistent earnings to sustain coverage, albeit interest burden is currently minimal

Key Concerns:

• Lack of disclosed cash flow data limits assessment of cash conversion and FCF
• Dividend capacity cannot be evaluated without DPS and cash flow details
• Sustainability of outsized operating leverage gains as growth normalizes

Investment Implications

Key Takeaways:

• Strong YoY profit growth with clear operating leverage and margin expansion
• Moderate leverage and robust interest coverage provide financial flexibility
• Ordinary income exceeds operating income, indicating supportive non-operating items
• Effective tax rate appears lower than statutory, aiding net margins
• Cash flow, D&A, and dividend data are not disclosed here, limiting completeness of analysis

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory
• Working capital movements (receivables, payables) and OCF once disclosed
• Composition of non-operating income and any extraordinary items
• Revenue mix between payment processing and IT services
• Capex intensity and D&A once reported, to gauge maintenance vs growth spend
• Dividend policy announcements and DPS

Relative Positioning: Compared to domestic IT services and payment processors, the company exhibits lower gross but improving operating margins reflective of a payments-heavy mix, supported by moderate leverage and strong coverage; execution on cost and mix appears to be the current differentiator.

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