TOWA Hi SYSTEM CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥2.41B
• Operating Income: ¥549M
• Net Income: ¥448M
• EPS: ¥201.13

Income Statement

Balance Sheet

Cash Flow Statement

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

Towa High System (41720) reported FY2025 Q4 (JGAAP, non-consolidated) results showing healthy top-line and margin expansion. Revenue rose 13.9% YoY to ¥2,406m, with operating income up a faster 30.2% to ¥549m, indicating positive operating leverage. Net income increased 11.5% YoY to ¥448m, translating to a net margin of 18.6% and EPS of ¥201.13. Gross profit was ¥1,602m, implying a high gross margin of 66.6%, consistent with a software/service-heavy mix. Ordinary income of ¥652m exceeded operating income by ¥103m, suggesting non-operating gains (likely interest/dividend income or other non-operating items) supported bottom line quality. DuPont decomposition indicates ROE of 10.68%, driven by an 18.62% net margin, 0.51x asset turnover, and modest leverage of 1.13x. On the balance sheet, total assets were ¥4,721m and total equity ¥4,196m, implying an equity ratio of approximately 88.9% despite the reported 0.0% (equity ratio disclosure appears unreported in the metric table). Liquidity is strong with current assets of ¥1,984m versus current liabilities of ¥387m, yielding a current ratio of 5.12x and working capital of ¥1,596m. Operating cash flow was ¥461m, roughly in line with net income (OCF/NI = 1.03), pointing to solid earnings quality. Free cash flow was negative at ¥-274m due to sizable investing cash outflows of ¥-735m, indicating growth or renewal investments that depress near-term FCF. Interest expense is shown as 0 (likely not disclosed), and with liabilities low (debt-to-equity 0.11x), interest coverage is effectively not a constraint. The effective tax rate reported as 0.0% is not representative; based on income tax expense of ¥186m and pre-tax income implied at roughly ¥634m, the effective tax rate is about 29–30%. Dividend data (DPS and payout) are shown as zero and appear undisclosed; therefore dividend stance cannot be inferred from this dataset. Overall profitability and cash conversion are sound, leverage is conservative, and near-term FCF is weighed by investment spending. Key watchpoints are the sustainability of operating leverage, the composition of non-operating gains, and whether investing outlays translate into revenue durability. Data gaps (notably equity ratio, cash balance, share count, dividend figures) constrain precision on selected ratios and per-share context, but the available non-zero data support a constructive view on core earnings quality and balance sheet strength.

Profitability Analysis

ROE of 10.68% decomposes into: net profit margin 18.62% × asset turnover 0.51x × financial leverage 1.13x. Operating margin was approximately 22.8% (¥549m/¥2,406m), with EBITDA margin at 26.1% (EBITDA ¥628m). Gross margin of 66.6% underscores a high-value software/service model; cost discipline and pricing supported YoY operating income growth outpacing sales (+30.2% vs +13.9%), evidencing positive operating leverage. Ordinary income margin was about 27.1%, reflecting ¥103m non-operating gains above operating income; while supportive, it introduces a non-operating component to total profitability. Effective tax rate recalculated at roughly 29–30% (¥186m tax on ~¥634m pre-tax income) rather than the 0.0% shown in the metrics table. With interest expense not disclosed and liabilities low, financial expenses are not diluting margins. Overall, profitability quality is solid, with core operating earnings the primary driver and non-operating contributions incremental.

Growth Assessment

Revenue grew 13.9% YoY to ¥2,406m, a healthy pace for a vertical software/services firm. Operating income rose 30.2% YoY to ¥549m, indicating scale benefits and cost absorption (SG&A efficiency not disclosed but implied). Net income increased 11.5% to ¥448m; the smaller YoY growth vs operating income suggests normalizing taxes and lower incremental non-operating gains vs prior year. Revenue sustainability appears supported by high gross margins (66.6%) and stable core operations; however, order intake/ARR/backlog are not disclosed, limiting visibility on forward momentum. The ¥-735m investing cash flow points to stepped-up growth or renewal investments (capex or intangibles/R&D), which could underpin future revenue but depress near-term FCF. Ordinary income exceeding operating income highlights ancillary income as a contributor; monitoring reliance on non-operating items is important for quality of growth. Outlook hinges on conversion of recent investments into recurring or repeat revenue and maintaining operating leverage as the business scales.

Financial Health

Total assets ¥4,721m and total equity ¥4,196m imply an equity ratio of ~88.9% (the reported 0.0% is an undisclosed metric), indicating a very strong capitalization. Total liabilities of ¥442m drive a low debt-to-equity ratio of ~0.11x. Liquidity is ample: current assets ¥1,984m vs current liabilities ¥387m yield a current ratio of 5.12x and quick ratio effectively similar (no inventories reported). Working capital is ¥1,596m, providing cushion for growth and seasonality. Interest-bearing debt details are not disclosed; interest expense is shown as 0, suggesting minimal or no financial debt burden. Solvency risk is low given the large equity base and limited liabilities.

Cash Flow Quality

Operating cash flow of ¥461m compares well with net income of ¥448m (OCF/NI 1.03), indicating solid earnings-to-cash conversion and limited accrual strain. Depreciation and amortization totaled ¥78.6m; EBITDA of ¥628m provides a clearer view of cash earnings capacity. Free cash flow was negative at ¥-274m due to significant investing outflows of ¥-735m, likely representing capex or capitalization of software development/intangibles; this is consistent with a growth investment phase rather than weak operations. Working capital appears well-managed given the OCF/NI ratio >1; detailed components (AR, AP, deferred revenue) are not disclosed, preventing deeper granularity on DSO/DPO. Sustainability of OCF will depend on revenue growth and maintaining current margin structure as investments are absorbed.

Dividend Sustainability

Dividend figures (DPS 0.00, payout 0.0%, FCF coverage 0.00x) appear undisclosed rather than actual zeros, so dividend policy cannot be assessed from this dataset. With net income of ¥448m and negative FCF of ¥-274m due to elevated investing outflows, near-term FCF coverage of hypothetical dividends would depend on the cadence of investment spend and available cash reserves (cash balance is not disclosed). The strong equity base and low leverage provide flexibility, but absent confirmed DPS or policy guidance, payout ratio assessment and sustainability conclusions are not possible. Monitoring stated dividend policy, target payout, and timing of investment normalization is key.

Risk Assessment

Business Risks:

• Revenue visibility and order timing risk given lack of disclosed backlog/ARR metrics
• Dependence on non-operating income (ordinary income > operating income by ¥103m) to augment profits
• Execution risk on growth investments (¥-735m investing CF) achieving expected returns
• Potential customer concentration typical in vertical software/healthcare IT (not disclosed)
• Pricing and cost inflation pressures that could erode gross margin (66.6%)
• Talent retention and hiring in a competitive IT labor market
• Product roadmap and cybersecurity/service reliability risks

Financial Risks:

• Sustained negative free cash flow if elevated investment persists
• Working capital timing (receivables collections/advance billings) affecting OCF despite current strength
• Limited disclosure on cash and debt could mask refinancing or liquidity nuances
• Potential increase in amortization from capitalized development reducing future operating margins

Key Concerns:

• Negative FCF in the period due to heavy investing outflows
• Ordinary income dependence for part of total profit
• Data limitations on dividends, cash balance, and share count

Investment Implications

Key Takeaways:

• Core profitability is strong with operating margin ~22.8% and ROE 10.7% driven primarily by a high net margin
• Operating leverage evident as OP grew +30% YoY vs revenue +14%
• OCF aligned with earnings (OCF/NI 1.03) supports earnings quality
• Balance sheet is conservative with ~89% equity ratio and low liabilities (D/E ~0.11x)
• Free cash flow negative on stepped-up investments (¥-735m investing CF), a key variable for near-term cash returns

Metrics to Watch:

• Bookings/ARR/backlog and churn/retention to gauge revenue durability
• SG&A ratio and operating margin to assess sustained operating leverage
• Non-operating income as a share of pre-tax profit
• Capex and capitalized development vs OCF (FCF trajectory)
• Working capital metrics (DSO/DPO/deferred revenue) and OCF/NI
• Cash and equivalents balance and any interest-bearing debt
• Gross margin stability

Relative Positioning: Versus domestic vertical software peers on the TSE, the company exhibits above-average gross margins and strong balance sheet conservatism, with profitability supported by operating leverage; near-term FCF is weaker due to elevated investment, making execution on growth initiatives and conversion to recurring cash flows the key differentiators.

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