Ultrafabrics Holdings Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥15.41B
• Operating Income: ¥1.19B
• Net Income: ¥559M
• EPS: ¥30.05

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: Soft quarter on earnings with severe margin compression, but cash flow delivery was robust. Revenue was essentially flat at 154.13 (+0.3% YoY), while operating income fell sharply to 11.94 (-45.1% YoY), and net income declined to 5.59 (-55.9% YoY). Operating margin compressed to 7.8% from roughly 14.2% a year ago, a decline of about 641 bps given stable top-line. Net margin fell to 3.6% from about 8.2% YoY, compressing roughly 461 bps, reflecting weaker operating leverage and a very high effective tax rate (60.2%). Gross margin remained high at 52.8%, but could not offset elevated SG&A (59.63; 38.7% of sales), driving the EBIT shortfall. Equity-method income was a small loss (-0.64), adding modest non-operating drag. Comprehensive income was slightly negative (-0.27) despite positive net income, suggesting adverse OCI items (likely FX translation) weighed on equity. Cash conversion was a bright spot: operating cash flow reached 30.96, or 5.5x net income, and free cash flow was 13.47 after 16.90 of capex. The balance sheet remains moderate with an equity ratio of 44.5% and D/E of 1.25x, but current-liquidity metrics are not disclosed. Capital efficiency weakened: ROE is 3.3% and ROIC is 3.5%, both below cost-of-capital proxies and flagged as a concern. Dividend affordability is mixed—calculated payout ratio is elevated at 118.4%, but FCF covered dividends 2.04x in the period. Earnings quality appears better than reported profit (OCF >> NI), yet the sustainability of this gap (likely working-capital tailwinds) is uncertain. Forward-looking, margin restoration (SG&A normalization, pricing/mix, and tax normalization) is the key to repairing ROE/ROIC. Near-term guidance sensitivity will hinge on demand recovery in end-markets and input/currency dynamics. Overall, the quarter evidences resilient gross profitability but underwhelming operating leverage and a tax burden that significantly dampened bottom-line.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.3% = Net Profit Margin (3.6%) × Asset Turnover (0.407x) × Financial Leverage (2.25x). The largest driver of the YoY decline is margin compression: operating margin fell an estimated ~641 bps (to 7.8% from ~14.2%), and net margin fell ~461 bps (to 3.6% from ~8.2%). Business drivers likely include higher SG&A intensity (38.7% of sales), adverse mix/pricing vs costs despite a still-strong 52.8% gross margin, and a very high effective tax rate (60.2%) that depressed after-tax returns. Asset turnover at 0.407x is low and broadly consistent with a brand/manufacturing model with sizable intangibles and goodwill (106.44 goodwill; 59.22 other intangibles), offering limited contribution to ROE this quarter. The elevated tax rate looks atypical and may reflect jurisdictional mix or valuation allowance effects; this portion appears less structural and could partially normalize, while the SG&A burden requires execution to sustainably reduce. Watch for warning signs: SG&A rose as a share of sales (while revenue was flat), indicating negative operating leverage; if SG&A growth is outpacing revenue, margin repair will be difficult without cost actions or top-line acceleration.

Growth Assessment

Revenue growth was flat (+0.3% YoY) despite steep profit declines, implying deterioration in operating leverage rather than demand collapse. Gross margin remains robust at 52.8%, suggesting core product value-add is intact; however, increased SG&A intensity curtailed operating profit. EBITDA was 23.98 (15.6% margin), showing some buffer above EBIT, but depreciation/amortization (12.04) limited operating profit and indicates a capital- and brand-investment-heavy asset base. Equity-method income was slightly negative (-0.64), not a primary growth driver this quarter. Profit quality is mixed: strong cash conversion versus weak reported earnings implies working-capital release or collection efficiency; sustainability depends on order cadence and inventory normalization (inventories 47.81). Outlook hinges on: 1) cost discipline to reduce SG&A ratio, 2) pricing/mix actions to defend operating margin, 3) normalization of the tax rate to bolster net margin, and 4) stabilization in FX and input costs. Without margin repair, the low ROIC (3.5%) signals constrained value creation even with flat to modest revenue growth.

Financial Health

Liquidity: Current ratio is not disclosed; we cannot assess near-term coverage. Working capital equals reported current assets of 112.36, but current liabilities are unreported, limiting conclusions on liquidity adequacy or maturity mismatch. Solvency: Equity ratio is 44.5%, and D/E is 1.25x—moderate and below the 1.5x caution threshold; no explicit warning on high leverage. Cash and equivalents are 20.48, and financing cash flow was -23.20 (likely debt repayment and/or dividends), suggesting active balance sheet management. Goodwill (106.44) and intangibles (59.22) are sizable relative to equity (168.54), introducing potential impairment sensitivity if earnings remain weak. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF of 30.96 versus net income of 5.59 yields OCF/NI = 5.54x, indicating high earnings quality this period. Free cash flow was positive at 13.47 after capex of 16.90, supporting internal funding of shareholder returns and reinvestment. With OCF/NI well above the 0.8 threshold, quality appears strong, but the durability depends on working-capital dynamics (receivables 34.88, inventories 47.81) that are not broken out in detail; a one-time inventory drawdown or collections catch-up could have boosted OCF. No clear signs of working capital manipulation are detectable from the limited data; monitoring days inventory and DSO/ DPO trends will be important. Interest expense was not disclosed, so cash interest burden and coverage cannot be evaluated.

Dividend Sustainability

The calculated payout ratio is 118.4%, which is above the <60% benchmark and not sustainable if earnings remain at current levels. However, FCF coverage is 2.04x for the period, indicating dividends were covered by internally generated cash this quarter. Dividends paid were 7.15 against FCF of 13.47, suggesting near-term affordability. Given ROE at 3.3% and ROIC at 3.5%, returning more than earnings via dividends would erode balance sheet flexibility over time unless profitability rebounds. Policy outlook: a stable-to-cautious stance seems prudent until operating margin and the tax rate normalize; future payouts should be aligned with sustainable FCF rather than transient working-capital benefits.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A intensity (38.7% of sales) amid flat revenue.
• Demand softness or mix shifts in key end-markets (e.g., premium interiors) could cap pricing power.
• Input cost and supply volatility affecting synthetic materials, with pass-through timing risk.
• Large goodwill and intangibles (165.66 total) increase impairment risk if earnings stay weak.
• FX translation and transaction exposure evidenced by negative total comprehensive income.

Financial Risks:

• Low capital efficiency (ROIC 3.5%, ROE 3.3%) below typical cost of capital.
• Liquidity transparency is limited (current liabilities undisclosed), obscuring near-term coverage.
• Potential tax-rate volatility (effective tax 60.2%) materially influences net income.
• Negative equity-method income (-0.64) introduces small non-operating earnings volatility.

Key Concerns:

• Operating margin compressed ~641 bps YoY; recovery path depends on SG&A control and mix.
• Net margin compressed ~461 bps with an unusually high effective tax rate.
• Comprehensive income turned negative, indicating FX/OCI headwinds to equity despite positive NI.

Investment Implications

Key Takeaways:

• Revenue held flat, but operating income fell 45% YoY, highlighting negative operating leverage.
• Operating margin at 7.8% vs ~14.2% last year; net margin 3.6% vs ~8.2%—substantial compression.
• Cash flow outperformed earnings (OCF/NI 5.5x), yielding positive FCF of 13.47.
• Balance sheet moderate (equity ratio 44.5%, D/E 1.25x), but liquidity detail is limited.
• Capital efficiency is weak (ROIC 3.5% flagged), necessitating margin recovery for value creation.

Metrics to Watch:

• SG&A-to-sales ratio and progress on cost control initiatives.
• Operating margin trajectory and pricing/mix vs input cost trends.
• Effective tax rate normalization and drivers (jurisdictional mix/one-offs).
• Working-capital turns (inventory and receivables) sustaining OCF.
• Impairment risk indicators given high goodwill/intangibles.
• FX impacts on OCI and comprehensive income.

Relative Positioning: Within synthetic leather/premium interior materials peers, Ultrafabrics maintains strong gross margin but underperforms on operating leverage and capital efficiency this quarter; near-term differentiation will depend on SG&A normalization, stable pricing, and tax-rate relief to restore ROIC toward sector norms.

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