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

Sharing Innovations (TSE:4178) reported FY2025 Q3 consolidated results under JGAAP showing notable top-line pressure and sharp profit contraction. Revenue was ¥3.383bn, down 12.1% YoY, highlighting a weaker demand environment and/or slower project execution. Operating income fell 64.8% YoY to ¥59m, indicating significant operating deleverage as fixed costs weighed on earnings amid lower sales. Ordinary income was ¥48m and net income was ¥8m, implying a very slim net margin of 0.24% per the provided DuPont inputs. The reported gross profit margin is 24.0%, pointing to constrained value-add or pricing pressure in the period. ROE calculated at 0.50% (NPM 0.24% × asset turnover 1.479 × leverage 1.44) underscores compressed profitability despite moderate balance sheet leverage. Balance sheet strength is solid: total assets ¥2.287bn, liabilities ¥866m, and equity ¥1.592bn imply an equity ratio of roughly 69.6% (despite the equity ratio field showing 0.0%, which is undisclosed rather than zero). Liquidity is ample with a current ratio of 259.8% and quick ratio of 259.8% given no inventories reported. Interest coverage is comfortable at 26.8x, reflecting limited financing burden despite weaker operating profit. Cash flow statements are not disclosed in this dataset (zeros denote unreported), limiting assessment of earnings-to-cash conversion and free cash flow. The net profit outcome appears influenced by tax and below-the-line items: reported income tax of ¥61m versus ordinary income of ¥48m and net income of ¥8m suggests non-standard items or tax adjustments under JGAAP. Dividend remains nil (DPS ¥0), consistent with preserving cash amid profit compression. Working capital stood at ¥1.118bn, supporting near-term operational flexibility. Overall, fundamentals show resilient financial health but materially reduced profitability, with evidence of high operating leverage and margin pressure. Near-term priority appears to be stabilizing revenue and improving cost efficiency to restore operating margins while maintaining a conservative capital structure. Data limitations, particularly the lack of cash flow disclosure and share count, constrain precision in cash-based and per-share analyses.

Profitability Analysis

ROE decomposition: Net margin 0.24% × asset turnover 1.479 × financial leverage 1.44 yields ROE of ~0.50%, aligning with the reported figure. The weak net margin is the primary drag, overwhelming reasonable asset efficiency and modest leverage. Operating margin is approximately 1.7% (¥59m/¥3,383m), significantly below typical IT services peers, reflecting reduced pricing power or underutilization. Gross margin is indicated at 24.0%; combined with the low operating margin, SG&A intensity remains high. Operating leverage was unfavorable: a 12.1% revenue decline translated to a 64.8% drop in operating profit, implying a high fixed-cost base and/or mix shift to lower-margin work. Ordinary margin (~1.4%) tracks operating trends, with minimal non-operating support; interest expense is minor at ¥2.2m. The tax line (¥61m) versus ordinary income (¥48m) and net income (¥8m) suggests non-recurring elements or deferred tax effects under JGAAP that compressed net margin. Without depreciation disclosure, EBITDA metrics are not available; however, the large drop in operating profit indicates limited capacity to absorb revenue shocks this quarter.

Growth Assessment

Revenue declined 12.1% YoY to ¥3.383bn, signaling soft demand or slower project starts/acceptance. Profit growth was markedly weaker: operating income fell 64.8% YoY to ¥59m, and net income dropped 92.0% YoY to ¥8m, evidencing outsized operational sensitivity. The reported gross margin of 24.0% suggests pressure either from mix (more lower-margin implementation work) or pricing. The minimal ordinary income and slim net margin indicate that cost savings have not kept pace with the revenue decline. With limited disclosure on order backlog or recurring revenue, the sustainability of topline remains uncertain. If the business has a sizable recurring or maintenance component, it could stabilize margins; absent that, project timing and utilization will drive volatility. Given comfortable liquidity and low interest burden, the company has capacity to invest in growth and efficiency, but execution will be key. Outlook hinges on demand recovery in core verticals, improved utilization/billing rates, and tighter SG&A control. Near-term growth visibility is moderate at best due to the absence of backlog and pipeline data in this dataset.

Financial Health

Total assets ¥2.287bn, total liabilities ¥866m, and equity ¥1.592bn imply an equity ratio of ~69.6% and liabilities/equity of ~0.54x, indicating a conservative capital structure. Current assets ¥1.818bn versus current liabilities ¥700m yield a current ratio of 259.8%, with no inventories reported, so the quick ratio is the same. Working capital is ¥1.118bn, providing a substantial liquidity cushion. Interest expense is modest at ¥2.2m, and interest coverage is strong at 26.8x (operating income/interest expense), mitigating short-term solvency risk. The balance sheet appears resilient enough to weather continued margin pressure. While the reported equity ratio field shows 0.0%, this reflects non-disclosure in that field; calculations from provided totals support a strong equity buffer.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this dataset (zeros denote unreported), so OCF/NI, FCF, and cash conversion cannot be assessed. The OCF/NI ratio shown as 0.00 and FCF 0 are not meaningful. Earnings quality thus cannot be validated via cash metrics, and working capital dynamics (DSO/DPO/DIO) are unavailable. Given the low net income and adequate working capital, cash burn risk appears limited in the near term, but confirmation requires actual cash flow statements. Monitoring receivables collection and project milestone billings will be important to assess cash realization from revenue.

Dividend Sustainability

DPS is ¥0.00 and payout ratio 0.0%, consistent with earnings preservation amid compressed profitability. Without disclosed OCF/FCF, coverage analysis cannot be completed; the reported FCF coverage of 0.00x is not informative given unreported cash flows. With ROE at ~0.5% and net margin at 0.24%, internal capital generation is currently weak, suggesting continued emphasis on reinvestment and balance sheet protection over distributions. The strong liquidity and low leverage provide optionality, but a dividend policy shift would likely require visible recovery in operating margin and cash generation.

Risk Assessment

Business Risks:

• Demand softness and project delays leading to revenue volatility (-12.1% YoY revenue).
• High operating leverage causing disproportionate profit declines (-64.8% YoY operating income).
• Margin pressure from pricing and/or unfavorable project mix (gross margin 24.0%, operating margin ~1.7%).
• Talent retention and wage inflation for engineers impacting SG&A and delivery costs.
• Competitive intensity in SI/IT services compressing margins and win rates.
• Client IT budget tightening or deferrals affecting pipeline conversion.

Financial Risks:

• Thin net margin (0.24%) leaves little buffer for shocks.
• Limited disclosure of cash flows constrains visibility on cash conversion and FCF.
• Potential tax and below-the-line volatility (income tax ¥61m vs ordinary income ¥48m).
• Small absolute profit base increases earnings volatility risk.
• Possible impairment risk if goodwill/intangibles exist (not disclosed here).

Key Concerns:

• Sustained margin compression with evidence of high fixed-cost absorption.
• Lack of cash flow data to validate earnings quality and liquidity trends.
• Tax effects and non-recurring items materially influencing bottom line.

Investment Implications

Key Takeaways:

• Revenue contracted 12.1% YoY to ¥3.383bn; profitability compressed sharply.
• Operating margin around 1.7% and ROE ~0.5% underscore weak current returns.
• Balance sheet is strong with ~70% equity ratio and current ratio ~260%.
• Interest burden is low; coverage 26.8x provides solvency comfort.
• Cash flow disclosure absent; earnings-to-cash conversion unverified.
• Dividend remains suspended; priority likely on margin recovery and reinvestment.

Metrics to Watch:

• Top-line trajectory and order backlog/booking trends.
• Gross margin and SG&A ratio to gauge pricing and cost discipline.
• Operating margin and ordinary margin recovery.
• Utilization rates, headcount mix, and billing rates.
• Operating cash flow, free cash flow, and working capital turns (DSO/DPO).
• Tax rate normalization and any extraordinary gains/losses.

Relative Positioning: Versus TSE Growth market IT services peers, the company currently exhibits weaker profitability and higher operating leverage sensitivity but maintains a comparatively strong balance sheet and liquidity.

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