Hybrid Technologies Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥3.02B
• Operating Income: ¥29M
• Net Income: ¥55M
• EPS: ¥1.64

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: FY2025 Q4 results were weak, with sharp profit compression despite only modest revenue decline. Revenue fell 3.5% YoY to 30.25, while operating income collapsed 73.3% YoY to 0.29, implying substantial margin pressure. Gross profit was 10.19, yielding a gross margin of 33.7%, but operating margin deteriorated to approximately 1.0%. Based on the YoY decline rate, prior-year operating margin was around 3.5%, indicating about 250 basis points of operating margin compression. Ordinary income was negative at -0.30, and profit before tax was -0.15, highlighting heavier non-operating drags versus operating results. Net income remained positive at 0.19 (-64.7% YoY), but total comprehensive income was negative at -1.08, suggesting valuation losses or OCI items (likely from securities). Earnings quality is a concern: operating cash flow was 0.12 versus net income of 0.19, OCF/NI of 0.63x (<0.8 threshold). Free cash flow was deeply negative at -5.28, driven by heavy investing cash outflows (-5.40), while capex was light (-0.08), pointing to M&A/financial investments as the main use of cash. The balance sheet is moderately leveraged (D/E 0.79x) with an equity ratio of 54.8%, but goodwill is high at 11.13, elevating future impairment risk if performance lags. ROE was low at 0.9% and ROIC at 0.5%, well below a typical cost of capital, signaling weak capital efficiency. Liquidity specifics are limited due to unreported current liability details, but cash and equivalents of 9.17 and receivables of 2.86 provide some cushion against short-term loans of 1.30. Effective tax rate printed as an extreme 462.5%, implying unusual tax effects or classification nuances; profitability at PBT versus NI shows inconsistencies typical of one-off tax items. Forward-looking, profitability must recover through cost control and operating leverage, and cash discipline is needed to fund investments without over-reliance on debt. Integration of acquired assets (given goodwill) and stabilization of non-operating items will be key to restoring margins and earnings quality.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 0.6% × 0.777 × 1.79x ≈ 0.9%. The biggest drag versus a healthy profile is the Net Profit Margin at 0.6%, reflecting sharp operating margin compression and non-operating/OCI headwinds. Asset turnover at 0.777 is also soft for a services/IT context, likely due to balance-sheet expansion (goodwill/intangibles) outpacing revenue. Financial leverage at 1.79x is moderate and not the primary driver of variability. Business reasons: revenue declined 3.5% while SG&A held near flat at 10.02 (vs. gross profit 10.19), leaving little operating room; non-operating items turned the ordinary income negative, and comprehensive losses suggest mark-to-market declines on securities. Sustainability: margin weakness appears cyclical/operational rather than structural in cost base (no spike in capex; D&A 1.97 suggests ongoing amortization burden), but without SG&A detail we cannot confirm if wage inflation or investment spending is temporary. Risks: SG&A growth relative to revenue likely exceeded revenue growth (revenue -3.5% vs. operating income -73.3%), signaling adverse operating leverage. Watch for recurring negative ordinary income and elevated OCI losses as warning signs that could persist if market conditions and investments remain weak.

Growth Assessment

Top line contracted 3.5% YoY to 30.25, indicating softer demand or project timing slippage. Operating income declined disproportionately (-73.3%), evidencing negative operating leverage. EBITDA was 2.26 (margin 7.5%), providing a modest cash earnings base, but D&A of 1.97 and non-operating items eroded bottom line. The negative total comprehensive income (-1.08) points to market-related valuation losses that can swing year to year, adding volatility to reported growth. Investing CF of -5.40 alongside high goodwill (11.13) suggests growth via acquisitions or strategic investments rather than organic expansion in FY2025. Near-term outlook hinges on integrating acquired assets to rebuild utilization and margins, rationalizing SG&A, and stabilizing non-operating impacts. Revenue sustainability will depend on order backlog and client retention in core services; however, lack of segment detail limits precision. Given ROIC of 0.5%, incremental investment must be matched with clear profitability improvements to be accretive. Overall, trajectory is subdued until evidence of margin normalization and improved cash conversion appears.

Financial Health

Liquidity: Current ratio not calculable due to missing current liabilities; no explicit red flag can be issued, but cash and equivalents of 9.17 and receivables of 2.86 provide coverage against short-term loans of 1.30 and payables of 2.03. Solvency: D/E is 0.79x (conservative to moderate), and equity ratio is 54.8%, indicating reasonable balance sheet strength. No warning thresholds breached (Current Ratio unknown; D/E well below 2.0). Maturity mismatch risk: limited near-term given cash-on-hand versus short-term borrowings, though visibility on other current liabilities is lacking. Long-term debt of 4.18 is manageable versus total equity of 21.72, but weak cash generation elevates refinancing risk if performance does not improve. Asset quality: goodwill of 11.13 and intangible assets of 2.33 are material; impairment risk is non-trivial if acquired units underperform. Off-balance sheet obligations: none reported in the provided data.

Cash Flow Quality

OCF/Net Income is 0.63x, below the 0.8 threshold, flagging weaker earnings quality and/or working capital drag. Free cash flow was -5.28, driven by heavy investing outflows (-5.40); with capex only -0.08, the delta likely reflects acquisitions or financial investments. Operating cash flow of 0.12 is thin relative to EBITDA (2.26), implying working capital outflows or non-cash earnings components. Dividend capacity and discretionary investments are not covered by internally generated cash this period, necessitating financing CF of 0.93 (likely debt draw). No obvious signs of deliberate working capital manipulation can be concluded from the limited breakdown, but cash conversion is weak and needs monitoring. Sustainability: absent a rebound in OCF, continued investment will pressure leverage or cash reserves.

Dividend Sustainability

Dividend data are unreported; payout ratio and DPS cannot be calculated. On fundamentals, negative FCF (-5.28) and low OCF vs NI suggest limited capacity to fund cash dividends without external financing. With D/E at 0.79x and cash 9.17, the balance sheet can absorb modest distributions, but prudence would favor reinvestment and deleveraging until OCF improves. Policy outlook cannot be inferred without management guidance; monitor future disclosures for dividend intent and capital allocation priorities.

Risk Assessment

Business Risks:

• Operating margin compression with revenue down 3.5% but operating income down 73.3%
• Integration and execution risk tied to acquisitions (high goodwill 11.13)
• Client concentration and pricing pressure risk typical for IT/services (not disclosed but industry-standard concern)
• Project timing and utilization volatility affecting revenue recognition and margins
• Human capital cost inflation (wages) potentially outpacing pricing power

Financial Risks:

• Earnings quality risk: OCF/NI at 0.63x
• Capital efficiency risk: ROIC at 0.5% below cost of capital
• Potential goodwill impairment if acquired performance underwhelms
• Negative free cash flow requiring financing inflows (0.93) to bridge
• Valuation/OCI volatility: total comprehensive income negative (-1.08)

Key Concerns:

• Sustained negative ordinary income and unusual effective tax rate (462.5%) introduce earnings volatility
• Limited disclosure on current liabilities impedes liquidity assessment
• Non-operating headwinds materially affecting PBT despite positive operating income
• Balance sheet increasingly intangibles-heavy, heightening downside in downturn scenarios

Investment Implications

Key Takeaways:

• Profitability under pressure: operating margin ~1.0% vs ~3.5% a year ago (~250 bps compression)
• Earnings quality weak with OCF/NI at 0.63x and FCF deeply negative (-5.28)
• Capital efficiency low: ROE 0.9%, ROIC 0.5%
• Balance sheet acceptable (D/E 0.79x, equity ratio 54.8%) but with high goodwill exposure
• Non-operating and OCI items materially detracted from ordinary income and comprehensive income

Metrics to Watch:

• Order backlog and revenue growth reacceleration
• Operating margin and SG&A ratio trends
• OCF/NI ratio and working capital movements (receivables, payables)
• ROIC progression versus 7–8% target benchmark
• Goodwill impairment tests and acquisition integration KPIs
• Ordinary income stability and composition of non-operating items

Relative Positioning: Within Japan small/mid-cap IT/services peers, the company currently screens weaker on profitability (low operating margin, low ROIC) and cash conversion, with a moderate balance sheet offset by elevated intangibles; recovery depends on improving utilization, cost discipline, and stabilizing non-operating impacts.

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