KEIWA Incorporated FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥15.06B
• Operating Income: ¥3.28B
• Net Income: ¥1.16B
• EPS: ¥82.25

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

Verdict: Solid Q3 under JGAAP with higher operating efficiency and a sharp rebound in bottom-line profitability, albeit with an unusual gap between ordinary income and profit before tax that tempers the quality read-through. Revenue rose 1.4% YoY to 150.61, with operating income up 6.6% YoY to 32.83, showing good cost control and mix. Net income surged 31.7% YoY to 15.31, lifting the net margin to 10.2%. Gross margin printed at 45.0%, and operating margin reached 21.8%. Based on disclosed YoY growth rates, operating margin expanded by roughly 105 bps YoY (from ~20.7% to ~21.8%). Net margin expanded by about 235 bps YoY (from ~7.8% to ~10.2%), indicating strong operating leverage and/or favorable below-the-line items versus last year. In contrast, ordinary margin compressed by ~67 bps (from ~21.3% to ~20.6%), signaling softer non-operating contribution this period. Ordinary income declined 1.8% YoY to 30.99 despite higher operating income, as non-operating swings and extraordinary items weighed. The large gap between ordinary income (30.99) and profit before tax (18.93) implies significant extraordinary losses of roughly 12.1, which complicates earnings quality assessment. The effective tax rate was elevated at 38.6%, also dampening PBT-to-NI conversion. Liquidity remains very strong with a 321.5% current ratio, 292.6% quick ratio, and cash of 80.00 versus current liabilities of 51.55. Leverage is modest with D/E at 0.31x and asset/equity leverage of 1.31x, supporting a conservative balance sheet posture. ROE stands at 6.7% via DuPont (10.2% margin × 0.504 turnover × 1.31x leverage), with clear room for improvement if asset turnover can be lifted. ROIC is 12.4%, well above typical 7–8% targets, indicating solid capital efficiency in the core business. We cannot assess operating cash conversion due to unreported cash flows, so sustainability of the margin uplift requires caution. Forward-looking, execution on mix/pricing and cost discipline seem to be supporting margins, but the extraordinary loss suggests potential one-off headwinds that need clarification.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 10.2% × 0.504 × 1.31 ≈ 6.7%. The biggest driver of ROE improvement this quarter versus last year appears to be margin expansion, as operating income grew faster than revenue (+6.6% vs +1.4%), implying ~105 bps operating margin expansion; net margin expanded by ~235 bps. Asset turnover is 0.504, which is relatively modest and likely little changed given revenue grew only slightly and assets remain substantial. Financial leverage is conservative at 1.31x (Assets 299.01 / Equity 227.96), so leverage did not materially drive ROE. Business rationale: improved product mix, pricing, and/or lower input costs likely supported gross-to-operating flow-through; SG&A intensity is 24.5% of sales, consistent with operating discipline. Sustainability: margin gains look operational rather than purely non-operating, but the gap between ordinary income and PBT suggests some one-off extraordinary losses this quarter; conversely, the large YoY NI jump may reflect a one-off comparison effect last year. Concerning trends: none evident on SG&A versus revenue due to lack of YoY SG&A data; ordinary income down YoY despite higher operating income signals volatility in non-operating and/or extraordinary items that could reoccur.

Growth Assessment

Top-line growth was modest at +1.4% YoY to 150.61, but operating profit grew +6.6% to 32.83, indicating positive operating leverage. Net income rose +31.7% to 15.31, significantly outpacing revenue, driven by margin improvement and likely below-the-line dynamics versus a weaker prior-year comparison. Gross margin at 45.0% and operating margin at 21.8% suggest favorable mix/pricing or input cost tailwinds. Ordinary income declined 1.8% YoY, showing that non-operating contributions did not support growth; non-operating net was small (income 1.17 vs expenses 0.41). The step-down from ordinary income (30.99) to PBT (18.93) indicates large extraordinary items in the period, complicating clean growth assessment. Revenue sustainability appears tied to end-market demand in electronics-related applications; with only +1.4% growth, volume/mix improvements rather than strong volume growth likely drove earnings. Outlook hinges on maintaining gross margin discipline and managing non-operating/extraordinary volatility; absent cash flow data, we cannot validate durability via cash conversion.

Financial Health

Liquidity is robust: Current Ratio 321.5% and Quick Ratio 292.6% comfortably exceed benchmarks; no warnings (both >1.0). Working capital stands at 114.20, with cash and deposits of 80.00 exceeding current liabilities of 51.55, minimizing near-term refinancing risk. Solvency is conservative: Debt-to-Equity is 0.31x; Asset/Equity leverage is 1.31x; no D/E warning (well below 2.0). Long-term loans are 14.72; short-term loans not disclosed, but overall liabilities are modest relative to cash and receivables (37.58). Maturity mismatch risk appears low given cash + receivables (117.58) far exceed current liabilities (51.55). Interest coverage is very strong at 151.4x, indicating ample headroom against rate or earnings shocks. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were unreported, so we cannot compute OCF/Net Income or FCF coverage—this is a key limitation. Absent OCF, earnings quality cannot be confirmed; we cannot flag OCF/NI < 0.8. Balance sheet signals are supportive: rising retained earnings (153.71) and high cash (80.00) versus low leverage suggest historically adequate cash generation. Working capital appears well-managed given inventories (14.89) and payables (13.01) are modest; however, without period-over-period WC movement we cannot assess potential working capital release/consumption or manipulation. Capex and dividends are unreported, preventing FCF sustainability analysis.

Dividend Sustainability

The calculated payout ratio is 44.1%, which is comfortably below the 60% benchmark and suggests room to sustain distributions if earnings hold. However, DPS, total dividends paid, and FCF are unreported; thus, we cannot test dividend coverage by free cash flow. With strong liquidity (cash 80.00) and low leverage (D/E 0.31x), near-term dividend capacity appears supported by the balance sheet. Policy outlook is unclear without management guidance; stability will depend on maintaining current margins and avoiding repeat extraordinary losses.

Risk Assessment

Business Risks:

• End-market demand volatility in display/electronics applications affecting volumes and mix
• Input cost fluctuations (e.g., petrochemical film substrates, energy) impacting gross margin
• Customer concentration risk with major panel/smartphone OEMs
• Product substitution/technology shifts (LCD to OLED to next-gen displays) altering demand

Financial Risks:

• Extraordinary loss exposure evidenced by the ~12.1 gap between ordinary income and PBT
• Potential FX fluctuations affecting imports/exports and translation (not disclosed here)
• Limited visibility on cash flow conversion due to unreported OCF/FCF
• Tax rate volatility (effective tax 38.6%) impacting net profitability

Key Concerns:

• Ordinary income decline (-1.8% YoY) despite operating income growth suggests non-operating drag
• Large extraordinary items reduced PBT to 18.93 from ordinary income of 30.99, clouding earnings quality
• Asset turnover is modest at 0.504, constraining ROE despite high margins
• Dependence on maintaining 45.0% gross margin; any input cost reversal could pressure operating margin

Investment Implications

Key Takeaways:

• Margin-led earnings outperformance with operating margin at 21.8% and net margin at 10.2%
• Operating margin expanded by ~105 bps YoY; net margin by ~235 bps despite only +1.4% revenue growth
• Ordinary income softness (-1.8% YoY) and large extraordinary losses introduce quality noise
• ROE at 6.7% remains moderate; ROIC at 12.4% indicates strong core capital efficiency
• Balance sheet is very strong with 321.5% current ratio and D/E of 0.31x

Metrics to Watch:

• Gross and operating margin trajectory (bps changes) and SG&A ratio versus revenue
• Extraordinary gains/losses bridge from ordinary income to PBT
• Operating cash flow and free cash flow once disclosed; OCF/NI target >1.0
• Asset turnover improvement and working capital turns
• Effective tax rate normalization and its impact on NI

Relative Positioning: Within materials/components peers, Keiwa exhibits superior liquidity and conservative leverage with above-average margins and ROIC, but ROE trails higher-turnover peers; earnings quality is temporarily clouded by extraordinary losses.

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