LION OFFICE PRODUCTS CORP. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥37.02B
• Operating Income: ¥1.19B
• Net Income: ¥848M
• EPS: ¥30.55

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

FY2025 Q4 shows a solid top-line and profit delivery with a notable uptick in net profitability, but cash conversion was weak. Revenue rose 6.1% YoY to 370.22, with operating income up 9.1% YoY to 11.89 and net income up 19.7% YoY to 9.12. Gross profit reached 90.58, implying a gross margin of 24.5%, consistent with controlled cost of sales at 279.64. Operating margin improved to 3.2% (11.89/370.22), up roughly 9 bps YoY based on inferred prior-year figures. Net margin expanded to 2.5% (9.12/370.22), approximately +28 bps YoY, aided by stronger operating leverage and limited non-operating drag. Ordinary income was 12.75 (+9.2% YoY), with ordinary margin improving about 9 bps to 3.4%. ROE is calculated at 7.5% via DuPont (Net margin 2.5% × Asset turnover 1.478 × Leverage 2.05x), broadly healthy for a mid-cap office supplies player. ROIC of 11.6% exceeds typical 7–8% targets, signaling solid capital efficiency. Liquidity remains robust with a current ratio of 176% and quick ratio of 122%, supported by 59.45 in cash and deposits. Leverage is moderate (reported D/E 1.05x), and interest coverage is very strong at 132x given minimal interest expense (0.09). The main concern is earnings quality: operating cash flow was slightly negative at -0.06 despite positive earnings, yielding an OCF/NI ratio of -0.01x, driven likely by working capital build. Free cash flow was -2.30, indicating investment and/or inventory/receivable absorption outpaced cash generation in the period. Dividend data are largely unreported; the calculated payout ratio of 9.8% suggests a conservative stance, but FCF coverage was negative (-2.56x), implying near-term reliance on cash reserves for distributions. Forward-looking, modest margin expansion and ROIC > cost of capital are positives, but sustained improvement hinges on normalizing working capital and maintaining pricing power. The balance sheet provides flexibility to navigate a soft cash conversion quarter, though repeat occurrences would pressure dividend optics and capex capacity. Overall, quality of earnings is the watchpoint; if cash conversion improves, the margin gains should translate into stronger FCF.

Profitability Analysis

ROE decomposes to 7.5% = Net Profit Margin (2.5%) × Asset Turnover (1.478) × Financial Leverage (2.05x). Among the components, net margin appears to have improved the most (+~28 bps YoY) versus operating margin (+~9 bps YoY) based on derived prior-year figures (revenue ~349.0 and operating income ~10.90). The improvement likely stems from operating leverage (SG&A held relative to gross profit) and limited non-operating drag (non-op income 1.20 vs expenses 0.33) with a normalized effective tax rate of 28.3%. Asset turnover at 1.478 indicates decent utilization of a 250.56 asset base and is broadly consistent with a mid-volume distributor/manufacturer mix; no clear evidence of step-change this quarter. Leverage at 2.05x is moderate and not the driver of ROE change. The drivers seem sustainable if demand holds and pricing/mix remains favorable; however, the weak cash conversion could foreshadow future pressure on margin if inventory risks materialize. Watch for SG&A growth outpacing revenue; with SG&A at 78.68 vs gross profit 90.58, the cost base is tight, and any wage or logistics inflation could compress margins.

Growth Assessment

Revenue grew 6.1% YoY to 370.22, indicating resilient demand across core office supplies/furnishings channels. Operating income rose 9.1% YoY to 11.89, outpacing sales growth and implying slight operating leverage; operating margin is 3.2% (+~9 bps YoY). Net income advanced 19.7% YoY to 9.12, lifting net margin to 2.5% (+~28 bps YoY), aided by controlled non-operating items. Gross margin is steady at 24.5%, suggesting pricing/mix and procurement were broadly stable. EBITDA of 15.26 yields a 4.1% margin; incremental improvement likely reflects cost discipline rather than one-off gains. Non-operating income (1.20) and expense (0.33) were modest; results are primarily operational. ROIC of 11.6% indicates value creation above typical cost of capital, supporting reinvestment capacity if cash conversion normalizes. Sustainability of growth relies on channel demand, inventory management, and maintaining price/mix; any office demand softness or channel destocking could moderate top-line momentum. Near-term outlook is constructive but tempered by the need to recover working capital and convert earnings to cash.

Financial Health

Liquidity is sound: current ratio 176.4% and quick ratio 122.4% exceed healthy benchmarks. No warning on current ratio (<1.0) or leverage; D/E at 1.05x is moderate and within conservative bounds for the industry. Short-term loans (7.20) are comfortably covered by cash (59.45) and current assets (183.37), limiting maturity mismatch risk; current assets exceed current liabilities by 79.42 of working capital. Long-term loans are modest at 3.51, and interest coverage is very strong at 132x, indicating minimal refinancing risk. Total liabilities of 128.29 are well supported by 122.26 of equity (49% equity ratio implied), though the reported equity ratio itself is unreported. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not imply absence of such commitments.

Cash Flow Quality

OCF was -0.06 versus net income of 9.12, producing an OCF/NI ratio of -0.01x, which flags low earnings quality this period (below the 0.8 threshold). The primary driver is likely working capital build (receivables/inventory increase not directly disclosed YoY, but implied by negative OCF in a profitable quarter) rather than core profitability issues. Investing CF was -2.24, reflecting ongoing capex or investment, and financing CF was -1.75, likely dividends and/or debt service. Free cash flow was -2.30, indicating cash outflow after operations and investments; this is not sustainable if repeated, but the cash balance (59.45) provides buffer. No clear signs of working capital manipulation are evident from the point-in-time data; however, inventory and receivables management should be monitored given the OCF shortfall. Restoration of positive OCF in subsequent quarters is key to validate earnings quality.

Dividend Sustainability

Dividend per share and total dividend amounts are unreported; however, a calculated payout ratio of 9.8% suggests a conservative distribution policy relative to earnings. Free cash flow coverage was -2.56x this period, implying distributions (if any) would have been funded from cash reserves rather than FCF. With strong liquidity and low interest burden, the company can sustain modest dividends near term, but repeated negative FCF would erode flexibility. Policy outlook likely remains conservative until cash conversion normalizes; absent explicit guidance, assume maintenance rather than aggressive hikes. Monitoring actual dividend declarations and subsequent OCF will be crucial to reassess sustainability.

Risk Assessment

Business Risks:

• Demand cyclicality in office supplies/furnishings leading to revenue volatility
• Pricing pressure from large distributors and e-commerce channels compressing margins
• Input cost inflation (paper, plastics, logistics) potentially reducing gross margin
• Inventory obsolescence risk amid product mix changes and slower-moving SKUs

Financial Risks:

• Weak cash conversion this period (OCF/NI -0.01x) increasing reliance on cash reserves
• Working capital build risk (receivables/inventory) potentially tying up liquidity
• Moderate leverage (D/E 1.05x) could limit flexibility if earnings soften
• Interest rate normalization could modestly raise financing costs, though exposure is currently low

Key Concerns:

• Earnings quality flagged by negative OCF against positive NI
• Sustaining margin gains with SG&A tight versus gross profit
• Visibility on dividend cash requirements is limited due to unreported DPS
• Potential FX exposure on imported materials/products not disclosed

Investment Implications

Key Takeaways:

• Solid YoY growth with modest operating and net margin expansion
• ROE 7.5% and ROIC 11.6% indicate healthy capital efficiency
• Balance sheet liquidity is strong; leverage is moderate and interest burden is minimal
• Cash conversion is the key weakness this quarter; FCF negative
• Non-operating items are limited; results largely reflect core operations

Metrics to Watch:

• OCF/Net Income ratio (target >1.0)
• Inventory and receivables turnover metrics
• Gross and operating margin trajectory (bps changes)
• Capex levels versus operating cash flow
• Actual dividend declarations and cash coverage
• Effective tax rate stability and non-operating income/expense

Relative Positioning: Within Japan’s office supplies/furnishings peer set, the company shows better-than-average liquidity and solid ROIC, with moderate leverage and strong interest coverage; however, it trails best-in-class peers on cash conversion this quarter, making working capital normalization a key differentiator for near-term positioning.

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
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