NEO MARKETING Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥2.31B
• Operating Income: ¥10M
• Net Income: ¥15M
• EPS: ¥10.76

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

Verdict: Mixed quarter with resilient top-line growth but margin compression and profitability strained, partially offset by strong cash generation. Revenue rose 9.9% YoY to 23.06, while operating income fell 30.0% YoY to 0.10, indicating weaker operating leverage amid elevated SG&A. Gross profit was 10.79, translating to a gross margin of 46.8%, but the operating margin slipped to roughly 0.43%. Ordinary income declined 45.6% to 0.07, and net income fell 81.9% YoY to 0.26, despite a sizable tax benefit of 0.19 (effective tax rate -247.9%). Operating margin compressed by an estimated 25 bps YoY (from about 0.68% to 0.43%), and net margin contracted by roughly 580 bps (from ~6.9% to ~1.1%). SG&A of 10.68 nearly equaled gross profit, limiting operating leverage. Cash generation was a bright spot: operating CF of 0.49 (OCF/NI 1.88x) and investing CF of 2.07 drove FCF to 2.56, suggesting asset-light investment activity or asset disposals this quarter. Liquidity remains ample with a current ratio of 256% and cash of 10.19 against current liabilities of 5.59. However, interest coverage is thin at 1.95x and leverage measured by D/E is 1.28x, with a high implied Debt/EBITDA multiple given modest EBITDA of 0.26. ROE stands at 3.3% (DuPont: NPM 1.1% × AT 1.283 × leverage 2.28x), indicating low profitability despite moderate asset utilization and leverage. ROIC of 4.6% is below a typical 7–8% target, signaling value creation challenges absent improvement in margins or capital efficiency. The negative tax rate boosted bottom-line versus pre-tax profit this quarter but is unlikely to be recurring. Shareholder returns included 0.60 in buybacks, which were comfortably covered by FCF. Overall, forward-looking implications hinge on SG&A control, margin recovery, sustaining OCF, and stabilizing interest coverage; absent these, ROIC and ROE may remain sub-par. Data gaps (e.g., dividend details, detailed SG&A breakdown) limit deeper diagnostics but the available figures point to a need for margin discipline and cash flow consistency.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.3% = Net Profit Margin 1.1% × Asset Turnover 1.283 × Financial Leverage 2.28x. The biggest drag this quarter is Net Profit Margin, which fell sharply YoY as operating income declined 30% despite a 9.9% revenue increase, and net income dropped 81.9% even with a tax benefit. Business drivers: SG&A nearly matched gross profit, restricting operating margin to ~0.43%, and interest expense (0.05) kept ordinary income low (0.07). The tax credit temporarily cushioned net income versus PBT, masking otherwise weaker underlying profitability. Sustainability: The tax benefit is likely one-time, while the elevated SG&A burden appears structural unless cost actions are taken; thus, current NPM is unlikely to improve without deliberate cost control or pricing power. Asset turnover at 1.283 is reasonable for a marketing/services model and appears steady; leverage at 2.28x provides some ROE support but increases financial risk given thin interest coverage. Warning signs: SG&A growth appears to outpace gross profit growth this quarter (SG&A 10.68 versus gross profit 10.79), implying minimal operating spread; continued cost inflation (personnel, rent) without commensurate pricing could further compress margins.

Growth Assessment

Top-line growth of 9.9% YoY to 23.06 indicates healthy demand, likely from expanded client activity or project wins in the marketing solutions portfolio. However, profitability did not keep pace: operating income declined 30% YoY and ordinary income fell 45.6%, suggesting adverse mix, higher delivery costs, or investment in growth not yet monetized. Net income declined 81.9% YoY to 0.26; prior-year profits were significantly higher, implying either one-offs last year or a step-up in costs this year. The estimated operating margin compressed by ~25 bps YoY, and net margin by ~580 bps, underscoring margin pressure. EBITDA of 0.26 (1.1% margin) is thin, constraining flexibility to absorb shocks. On the positive side, OCF of 0.49 and positive investing CF of 2.07 lifted FCF to 2.56, indicating growth is not currently constrained by cash. Outlook: near-term growth is plausible given revenue momentum, but sustainable profit growth requires SG&A containment and improved project economics. Watch for pricing initiatives, mix shift toward higher-margin services, and utilization improvements to restore operating leverage. Absent margin recovery, ROIC at 4.6% suggests value creation will be limited even if revenue grows.

Financial Health

Liquidity is strong: current ratio 256% and quick ratio 256%, with cash and deposits of 10.19 exceeding current liabilities of 5.59 by a comfortable margin. Solvency: debt-to-equity is 1.28x (acceptable but not low), and long-term loans total 4.45; there is no explicit short-term loan disclosure. Interest coverage at 1.95x is below the 2.0x comfort threshold, flagging sensitivity to earnings volatility. Maturity mismatch risk appears limited in the near term given sizable cash versus current liabilities, but refinancing risk exists over the medium term if earnings do not improve. Off-balance sheet obligations are not disclosed in the provided data. There is no explicit warning trigger on Current Ratio (<1.0) or D/E (>2.0), but the combination of modest EBIT and fixed interest costs warrants caution.

Cash Flow Quality

OCF/Net Income is 1.88x, generally supportive of earnings quality this quarter. Free cash flow was 2.56, driven by 0.49 OCF and 2.07 investing inflows, suggesting asset sales or low capex requirements (capex reported near zero). This level of FCF covered the 0.60 of share repurchases and would likely support a modest dividend if declared. Working capital detail is limited, but with AR at 3.33 and cash at 10.19, liquidity is strong; no clear signs of working capital manipulation are evident from the limited data. Caution: the negative effective tax rate boosted NI; normalization of taxes could lower OCF/NI mechanically if OCF does not rise correspondingly.

Dividend Sustainability

Dividend data are unreported, so payout ratios and DPS cannot be assessed directly. Capacity-wise, FCF of 2.56 comfortably covers the 0.60 buybacks executed, implying room for shareholder returns if policy permits. However, low EBITDA and thin interest coverage suggest prudence: sustaining or increasing cash returns should be balanced against the need to strengthen margins and interest coverage. If a dividend is paid, maintaining a payout ratio below ~60% of normalized earnings would be advisable for resilience; current NI includes a tax benefit and may overstate sustainable distributable profit.

Risk Assessment

Business Risks:

• Margin pressure from SG&A nearly matching gross profit, limiting operating leverage
• Execution risk in project delivery and pricing in a competitive marketing/services market
• Potential demand cyclicality from client budget adjustments, particularly in downturns
• Goodwill/intangible impairment risk (goodwill 1.29, intangibles 1.80) if performance lags
• Dependence on tax benefits this quarter; normalization could reduce net profitability

Financial Risks:

• Thin interest coverage at 1.95x, leaving limited buffer against earnings shocks
• High implied Debt/EBITDA given EBITDA of 0.26 versus loans of 4.45
• Refinancing risk on long-term loans if cash flows weaken
• Potential volatility in net income due to tax items (negative effective tax rate this quarter)

Key Concerns:

• ROIC at 4.6% below typical 7–8% targets indicates weak capital efficiency
• Operating margin compressed to ~0.43%, down ~25 bps YoY
• Net margin dropped to ~1.1%, down ~580 bps YoY
• Ordinary income fell 45.6% YoY despite revenue growth, showing poor operating leverage

Investment Implications

Key Takeaways:

• Top-line growth solid (+9.9% YoY) but profitability deteriorated (OP -30% YoY).
• Operating margin compressed to ~0.43%; SG&A intensity is the main headwind.
• Net income declined 81.9% YoY despite a one-off tax benefit; underlying earnings weaker.
• Cash position is strong and FCF of 2.56 covered 0.60 buybacks; liquidity is not a constraint.
• Interest coverage at 1.95x and low ROIC (4.6%) are primary financial constraints.
• Near-term upside depends on cost control, pricing, and mix shift to higher-margin offerings.

Metrics to Watch:

• SG&A to sales ratio and headcount/compensation trends
• Operating margin and EBITDA margin trajectory
• OCF consistency and working capital (DSO/AR trends)
• Interest coverage and net debt/EBITDA
• ROIC improvement versus cost of capital
• Any disclosures on dividends and capital allocation policy
• Composition of investing CF (recurring vs one-off disposals)

Relative Positioning: Within Japanese small-cap marketing/services peers, the company shows competitive revenue growth but weaker profitability and capital efficiency, offset by a strong cash buffer; improving operating leverage and stabilizing coverage would be needed to close the gap with higher-margin peers.

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