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

Neo Marketing (41960) delivered FY2025 Q4 results with revenue of ¥2,306m, up 9.9% YoY, indicating solid top-line expansion. Gross profit was ¥953.9m, implying a robust gross margin of 41.4%, consistent with a service-heavy model. Despite healthy gross profitability, operating income was only ¥10m, down 30.0% YoY, reflecting substantial SG&A absorption and weak operating leverage. Ordinary income was ¥7m and net income ¥26m, with a reported net margin of 1.13%, underscoring margin compression at the bottom line. EBITDA was ¥21.8m, translating to a very thin 0.9% margin, highlighting limited cost flexibility. DuPont analysis shows ROE of 3.29%, driven primarily by asset turnover of 1.283 and moderate leverage (assets/equity ~2.28x), with the low net margin as the main drag. Liquidity indicators are strong on reported figures: current ratio 232.5% and working capital of ¥633.3m, though cash and cash equivalents were undisclosed in XBRL (shown as zero). Financial leverage appears moderate with total liabilities/equity of 1.11x and an interest coverage ratio of 2.9x, but the slim EBIT buffer warrants monitoring. Operating cash flow was ¥49m, 1.88x net income, suggesting reasonable earnings-to-cash conversion for the period, albeit on a small earnings base. Free cash flow was disclosed at ¥256m, aided by a ¥207m net inflow in investing cash flows, which likely reflects asset disposals or low capex rather than recurring cash generation. The company paid no dividend (DPS ¥0.00), consistent with earnings preservation in a low-margin context. The reported effective tax rate metric (0.0%) is not indicative of the actual tax burden; the presence of ¥34.5m tax expense against small pre-tax profit implies one-off tax items or timing differences under JGAAP. Balance sheet strength and positive FCF support solvency, but sustained improvement in operating margin is needed to enhance returns. Overall, the business shows resilient sales growth with pressured profitability, adequate liquidity, and manageable leverage, but future performance hinges on SG&A discipline and improving operating leverage. Data limitations exist for several items reported as zero in XBRL (e.g., cash, equity ratio, shares), and inferences are made where possible.

Profitability Analysis

ROE of 3.29% decomposes into a net margin of 1.13%, asset turnover of 1.283, and financial leverage of 2.28x. The primary headwind is margin: operating margin is 0.43% (¥10m/¥2,306m), ordinary income margin ~0.30%, and net margin 1.13%. Gross margin is sound at 41.4%, but SG&A intensity is very high, leaving limited operating profit despite a near 10% revenue increase. EBITDA margin of 0.9% indicates minimal operating cushion and limited pricing power or elevated operating costs (e.g., personnel, marketing, or project delivery costs). Interest coverage at 2.9x is acceptable but thin given the small EBIT base; any earnings volatility could pressure coverage. Operating leverage was negative this year: revenue rose +9.9% YoY while operating income fell -30.0% YoY, implying SG&A growth outpaced gross profit growth. Margin quality is mixed: gross margin supports the model, but conversion to operating income is weak, suggesting scope for cost optimization, mix improvement, and utilization gains.

Growth Assessment

Revenue growth of +9.9% YoY to ¥2,306m suggests healthy demand and possible client expansion or higher project volumes. However, profit growth is not keeping pace: operating income declined -30.0% YoY, highlighting cost inflation or increased spending (e.g., sales capacity or product development) ahead of revenue realization. Net income of ¥26m (down 81.9% YoY) indicates amplified bottom-line sensitivity to operating performance and potential non-operating/tax effects. Asset turnover at 1.283 confirms efficient use of the asset base to drive sales, but without margin expansion, growth does not translate into attractive returns. The positive investing cash flow (¥207m) that boosted FCF likely reflects non-recurring items (asset sales or investment redemptions) and should not be viewed as a sustainable growth driver. Outlook hinges on SG&A control, pricing/mix improvements, and operating efficiency to restore positive operating leverage; sustaining double-digit revenue growth without corresponding cost control would keep earnings subdued. Revenue sustainability appears reasonable given recent momentum, but profit quality must improve to support higher ROE.

Financial Health

Total assets are ¥1,798m against total equity of ¥790m, implying leverage of ~2.28x assets/equity and liabilities/equity of ~1.11x, a moderate capital structure. Current assets are ¥1,111m versus current liabilities of ¥478m, yielding a strong current ratio of 232.5% and sizable working capital of ¥633m. The quick ratio equals the current ratio based on reported zero inventories (treated as undisclosed), implying limited inventory risk typical of service models. Interest expense is ¥3.48m; with operating income of ¥10m, interest coverage is 2.9x—adequate but with little headroom if earnings soften. The reported equity ratio in XBRL is 0.0% (undisclosed); based on balance sheet totals, implied equity ratio is roughly 43.9% (¥790m/¥1,798m), indicating a reasonably healthy solvency position. Financing cash inflow of ¥48m suggests minor net borrowings or equity-related movements, not materially altering leverage. Overall, liquidity is comfortable and solvency is sound, but improving operating profitability is important to maintain coverage and cushion.

Cash Flow Quality

Operating cash flow was ¥49m versus net income of ¥26m (OCF/NI 1.88x), indicating decent conversion this period despite a small earnings base. Working capital appears broadly supportive, with significant reported working capital of ¥633m, though detailed components (receivables/payables timing) are not disclosed. Free cash flow was ¥256m, benefiting from a ¥207m net inflow in investing cash flows; this likely reflects divestments or reduced investment rather than recurring cash generation from operations. EBITDA of ¥21.8m and D&A of ¥11.8m suggest limited non-cash add-backs; the low EBITDA margin underscores reliance on working-capital swings and non-operating inflows to support FCF. Given the modest OCF and very low operating margin, cash flow quality would improve materially with better operating efficiency and disciplined SG&A. Absence of disclosed cash and equivalents constrains a full liquidity assessment; however, the strong current ratio provides comfort that near-term obligations are manageable.

Dividend Sustainability

The company paid no dividend (DPS ¥0.00) and has a 0.0% payout ratio, consistent with preserving capital amid weak profitability. With net income at ¥26m and operating profitability thin, retaining earnings is prudent to support reinvestment and buffer volatility. Reported FCF of ¥256m appears ample for coverage but is flattered by positive investing cash flows that may be non-recurring; thus, using FCF to gauge sustainable dividend capacity would be optimistic. Balance sheet capacity (implied equity ratio ~44% and moderate leverage) provides flexibility, but a sustainable dividend policy would require consistently higher operating cash generation and improved margins. Near-term policy outlook likely emphasizes reinvestment and balance-sheet strengthening over distributions until operating margins improve.

Risk Assessment

Business Risks:

• Margin pressure from rising SG&A and personnel costs outpacing gross profit growth
• Project timing and mix volatility inherent to marketing/research services
• Client concentration and budget cyclicality tied to macro conditions
• Competitive intensity reducing pricing power and utilization rates
• Execution risk in scaling capabilities to match revenue growth

Financial Risks:

• Thin operating margin and low EBITDA margin (0.9%) limiting shock absorption
• Interest coverage at 2.9x vulnerable to earnings volatility
• Dependence on working-capital timing to support OCF
• FCF buoyed by investing inflows that may be non-recurring
• Tax expense volatility under JGAAP impacting bottom line

Key Concerns:

• Negative operating leverage despite near 10% revenue growth
• SG&A intensity eroding operating income
• Sustainability of positive FCF given investing cash inflows
• Limited visibility on cash balance due to undisclosed cash and equity ratio items

Investment Implications

Key Takeaways:

• Top-line growth is solid (+9.9% YoY), but profitability is under pressure (OP -30% YoY).
• Gross margin remains healthy at 41.4%, yet SG&A absorption drives a sub-1% EBITDA margin.
• ROE of 3.29% is constrained primarily by low net margin despite decent asset turnover and moderate leverage.
• Liquidity appears strong (current ratio 232.5%), and leverage is manageable (D/E 1.11x).
• OCF exceeds net income (1.88x), but FCF relies on positive investing inflows and may not be repeatable.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Order backlog/visibility and utilization rates
• OCF/NI conversion and days sales outstanding (DSO)
• Recurring capex versus asset disposal proceeds
• Interest coverage and any changes in borrowing costs

Relative Positioning: Within Japan’s marketing and research services space, the company demonstrates competitive top-line growth and efficient asset turnover but lags peers on operating margin and EBITDA margin, suggesting a need for cost discipline and improved operating leverage to align returns with the sector.

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