Sharing Innovations Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.38B
• Operating Income: ¥59M
• Net Income: ¥102M
• EPS: ¥2.17

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: Weak quarter with pronounced profit compression despite a still-solid balance sheet. Revenue declined 12.1% YoY to 33.83, indicating demand softness or slower project intake/recognition. Gross profit was disclosed at 8.11 (gross margin 24.0%), but note an internal inconsistency with the reported cost of sales figure; we treat gross profit and margin as the reliable pair. Operating income fell 64.8% YoY to 0.59, implying operating margin of 1.7%. Ordinary income dropped 70.5% YoY to 0.48, while net income plunged 92.0% YoY to 0.08 (net margin 0.2%). Using YoY deltas, we estimate operating margin compressed roughly 270 bps (from ~4.4% to ~1.7%) and net margin compressed ~236 bps (from ~2.6% to ~0.2%). The decline in profitability appears driven by weaker top-line and negative operating leverage, with SG&A at 6.43 consuming the majority of gross profit. Earnings quality cannot be assessed due to unreported operating cash flow; this is a key limitation. Balance sheet remains conservative: current ratio 356%, cash 11.23 vs short-term loans 0.38, and D/E 0.44x. Asset turnover of 1.479 suggests efficient utilization relative to asset base, but ROE fell to 0.5% given the very thin net margin and modest leverage (1.44x). Effective tax rate is shown at 37.6%, though there are inconsistencies between PBT (1.63) and reported net income (0.08), implying undisclosed items; caution warranted when interpreting bottom line. Intangibles/goodwill are meaningful (goodwill 5.40, ~34% of equity), adding impairment risk if growth stalls. Forward-looking, restoring gross margin and controlling SG&A will be critical to re-expand operating margin toward prior levels. With CF data absent and DPS unreported, visibility on dividend capacity is limited; cash on hand and low leverage partially mitigate. Near term, watch for stabilization in revenue trajectory, normalization in margins, and clarity on tax/extraordinary items that distorted the quarter.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.5% = Net Profit Margin (0.2%) × Asset Turnover (1.479x) × Financial Leverage (1.44x). The largest deterioration came from Net Profit Margin, which fell sharply as operating income contracted 64.8% YoY on a 12.1% revenue decline, signaling negative operating leverage. Business drivers likely include weaker project demand or delays, pricing pressure, and/or higher personnel-related costs embedded in SG&A (6.43), which outpaced gross profit compression. Asset turnover at 1.479 remains decent and did not appear to be the primary drag; leverage at 1.44x is modest and stable, providing limited ROE amplification. Given the magnitude of margin compression, the change looks cyclical/operational rather than structural leverage-driven. Sustainability: a margin rebound is possible if revenue stabilizes and cost discipline improves; however, absent evidence of mix/pricing tailwinds, a quick snapback is uncertain. Concerning trend: implied SG&A intensity is high—SG&A/revenue ~19.0%, and SG&A grew in relative terms versus revenue contraction (i.e., SG&A leverage negative). Also note internal data inconsistencies (P/L taxonomy items) that obscure precise margin mix; our conclusions rest on the reported aggregate figures.

Growth Assessment

Revenue declined 12.1% YoY to 33.83, pointing to a slowdown in core demand and/or delayed client spending. Operating income fell to 0.59 (-64.8% YoY), indicating growth headwinds compounded by negative operating leverage. Ordinary income (-70.5% YoY) and net income (-92.0% YoY) demonstrate broad-based earnings pressure. We estimate prior-year operating margin at ~4.4% (derived), now 1.7%, underscoring the magnitude of compression. The reported non-operating line is small (income 0.02, expense 0.07), so core deterioration sits in operations rather than financial items. The large gap between profit before tax (1.63) and net income (0.08) suggests one-off or unclassified items (e.g., extraordinary losses, valuation adjustments, or minority interest effects) not separately disclosed here, limiting clarity on underlying run-rate earnings. With goodwill 5.40 and intangibles 5.56, the company’s growth model likely relies on acquired capabilities or software/IP; if revenue softness persists, impairment risk could rise. Outlook: near-term growth likely hinges on sales execution and backlog conversion; mix shift toward higher-margin services/SaaS would aid recovery. Absent cash flow data, we cannot validate whether the downturn is accompanied by working capital normalization or stress, which is material for sustainability.

Financial Health

Liquidity is strong: current ratio 355.8% and quick ratio 355.8%, with cash and deposits of 11.23 vs current liabilities of 4.79. No warning on current ratio (<1.0) or leverage (D/E 0.44x is conservative). Interest-bearing debt consists of short-term loans 0.38 and long-term loans 2.16; cash coverage of short-term obligations is ample. Maturity mismatch risk appears low: current assets 17.03 comfortably exceed current liabilities 4.79. Equity stands at 15.92, with an equity buffer that supports solvency. Goodwill 5.40 (~24% of total assets, ~34% of equity) is notable; a potential impairment would reduce equity but not cash. No off-balance sheet obligations are reported in the provided data; we cannot rule them out. Interest coverage is strong at 26.82x, consistent with low financial risk despite weak operating income. Overall, the balance sheet can support near-term volatility, though sustained earnings weakness could gradually erode coverage metrics.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be calculated; earnings quality assessment is constrained. Given net income of only 0.08, even modest negative working capital movements could swing OCF materially; we lack visibility on receivables collections (AR 4.77) and unbilled positions. Free cash flow and capex are unreported; thus, sustainability of cash generation for reinvestment and shareholder returns cannot be verified. With cash at 11.23 and limited short-term debt (0.38), liquidity is sufficient for operations, but we cannot corroborate whether cash is being replenished by operations or drawdowns. No clear signs of working capital manipulation can be assessed from the partial snapshot; monitoring DSO, contract liabilities, and unbilled receivables would be prudent once disclosed.

Dividend Sustainability

Dividend data (DPS, payout, FCF coverage) are unreported, so we cannot quantify current distribution policy or coverage. With net income at 0.08 in the period and OCF unreported, we cannot compute a payout ratio or FCF coverage. Balance sheet liquidity (cash 11.23) and low leverage provide optionality, but earnings weakness argues for conservatism until profitability normalizes. Retained earnings of 8.26 indicate accumulated capacity, but the lack of cash flow disclosure prevents assessing sustainability of any dividend. Policy outlook: expect management to prioritize margin recovery and cash preservation over incremental distributions if current trends persist.

Risk Assessment

Business Risks:

• Demand softness evidenced by -12.1% YoY revenue decline
• Negative operating leverage driving margin compression (operating margin ~1.7%)
• Cost pressure within SG&A with high expense intensity relative to revenue
• High goodwill/intangibles relative to equity, raising impairment risk if growth stalls
• Execution risk in project delivery and utilization rates affecting gross margin

Financial Risks:

• Earnings volatility with net margin at 0.2% leaves little buffer for shocks
• Data inconsistencies between PBT and net income suggesting undisclosed extraordinary/minority items
• Cash flow opacity (OCF, FCF unreported) limiting assessment of earnings quality
• Concentration risk if revenue is dependent on a limited set of clients or verticals (not disclosed)

Key Concerns:

• Margin compression of ~270 bps at operating level and ~236 bps at net level YoY
• Inability to verify OCF/NI (quality) and FCF coverage for any shareholder returns
• Tax/extraordinary item reconciliation gaps (PBT 1.63 vs NI 0.08) create uncertainty over sustainable earnings
• Potential for goodwill impairment if revenue softness persists

Investment Implications

Key Takeaways:

• Top-line contraction (-12.1% YoY) and sharp profit compression (-64.8% operating income) define the quarter
• ROE fell to 0.5% driven primarily by net margin deterioration; leverage remains modest at 1.44x
• Balance sheet is conservative (current ratio 356%, D/E 0.44x), providing resilience
• Goodwill/intangibles are sizeable; impairment sensitivity rises if revenue/margins do not recover
• Lack of cash flow disclosure and P/L inconsistencies reduce confidence in run-rate earnings

Metrics to Watch:

• Gross margin trend and reconciliation of cost of sales vs gross profit disclosure
• Operating margin recovery toward >4% and SG&A/revenue ratio trajectory
• Operating cash flow, FCF, and OCF/NI ratio (>1.0 target)
• Receivables (DSO) and backlog/booking indicators
• Tax rate normalization and clarity on extraordinary/minority items affecting PBT to NI bridge
• Goodwill impairment testing outcomes and ROIC versus cost of capital

Relative Positioning: Within Japan small/mid-cap IT/services peers, the company currently shows below-peer profitability and higher earnings volatility, offset by stronger-than-average liquidity and conservative leverage; near-term performance hinges on stabilizing revenue and restoring margin discipline.

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