AsiaQuest Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.67B
• Operating Income: ¥321M
• Net Income: ¥231M
• EPS: ¥139.41

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: Strong top-line growth but margin compression led to lower profits, indicating negative operating leverage in FY2025 Q3. Revenue rose 27.5% YoY to 36.69 (100M JPY), while operating income declined 8.2% YoY to 3.21, and net income fell 11.0% YoY to 2.05. Gross profit is reported at 13.89 with a gross margin of 37.9%, though the disclosed cost of sales (14.90) does not reconcile with revenue and gross profit; we rely on the reported gross margin for analysis. Operating margin is approximately 8.8% (3.21/36.69), down from an estimated 12.1% a year ago, implying margin compression of roughly 339 basis points. Ordinary income of 3.19 and profit before tax of 3.59 suggest some non-recurring or below-operating-line items, with an effective tax rate of 35.7%. ROE is 10.9% (DuPont: net margin 5.6% × asset turnover 1.296 × leverage 1.50x), and ROIC is notably high at 27.6%, implying attractive returns on invested capital. Liquidity is robust: current ratio 280.9%, quick ratio 280.9%, working capital 14.79, and equity ratio approximately 66.7% (equity 18.88 over assets 28.32). Interest coverage is very strong at 161.5x, and cash and deposits (12.51) exceed reported long-term loans (1.11), indicating conservative leverage. Earnings quality cannot be assessed due to unreported cash flows; OCF/NI and FCF are N/A. The divergence between rapid revenue growth and declining operating profit points to higher SG&A intensity or cost pressure (e.g., personnel investments) during the period. With strong balance sheet capacity and high ROIC, the company appears positioned to invest for growth, but margin restoration is key to re-accelerating profit growth. Near-term, focus should be on SG&A discipline, pricing/mix improvement, and utilization rates to stabilize operating margin. Tax rate at 35.7% is within a normal Japanese range, providing limited EPS relief from tax optimization. Dividend data are unreported; payout capacity exists given low leverage and cash reserves, but sustainability depends on FCF, which is not disclosed. Forward-looking, if growth is sustained and margins normalize toward prior-year levels, profitability can recover; otherwise, negative operating leverage could continue to weigh on earnings.

Profitability Analysis

ROE decomposition (DuPont): ROE 10.9% = Net Profit Margin 5.6% × Asset Turnover 1.296 × Financial Leverage 1.50x. The largest change component appears to be net profit margin, given revenue +27.5% YoY contrasted with operating income -8.2% YoY. Business driver: SG&A intensity was elevated relative to gross profit growth, compressing operating margin to ~8.8% from an estimated ~12.1% YoY; likely factors include hiring, wage inflation, and upfront growth investments common in IT/DX services. Sustainability: Some cost pressure may normalize as utilization improves and pricing catches up, but if headcount growth outpaces billable hours or pricing, margin could remain under pressure. Operating leverage was negative this quarter (SG&A growth > revenue growth implied), a concern if it persists. Monitor: gross-to-operating spread, personnel-related SG&A, and revenue per head to assess whether margin compression is transitory or structural.

Growth Assessment

Revenue growth of +27.5% YoY indicates healthy demand, likely from DX/IT services expansion and new client wins. However, operating income declined 8.2% YoY, signaling growth was not accretive to margins due to higher operating costs. Non-operating items were modest (income 0.11, expense 0.02), so the profit shortfall is chiefly operational. Net margin at 5.6% is moderate for a services model and below prior-year levels, constraining EPS leverage despite revenue expansion. Reported ROIC of 27.6% suggests strong project returns and efficient capital deployment, supporting the growth strategy if margins stabilize. Outlook hinges on cost control and utilization; if SG&A normalizes and pricing power strengthens, revenue growth should translate to profit growth. With limited data on backlog and segment mix, revenue sustainability cannot be fully assessed; still, balance sheet strength provides capacity to support ongoing growth initiatives.

Financial Health

Liquidity is strong: current ratio 280.9% (22.96 current assets vs 8.17 current liabilities) and quick ratio 280.9%. No warning triggers (Current Ratio well above 1.0; D/E 0.50x below 2.0). Solvency is solid with total liabilities 9.44 vs equity 18.88 (equity ratio ~66.7%). Long-term loans are 1.11; short-term loans are unreported, but cash and deposits of 12.51 exceed long-term loans by 11.40, implying net cash relative to reported debt. Maturity mismatch risk appears low given current assets comfortably exceed current liabilities. Interest coverage is very strong at 161.5x, indicating minimal refinancing stress. No off-balance sheet obligations are disclosed in the provided data. Overall capital structure is conservative, providing resilience and investment capacity.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be assessed. Without OCF, earnings quality cannot be validated; we cannot confirm cash conversion, working capital movements, or the sustainability of investments. Given strong cash and low reported debt, near-term liquidity risk from cash flow volatility is limited. No signs of working capital manipulation can be identified due to missing disclosures; monitor DSO/DPO/DIO and OCF margin when available. Dividend and capex cash requirements are unknown; therefore, FCF coverage cannot be evaluated.

Dividend Sustainability

Dividend data (DPS, payout, total dividends) are unreported, so policy and sustainability cannot be directly assessed. Capacity indicators are favorable: net income 2.05, cash 12.51, low reported debt (1.11 long-term) and strong liquidity. In absence of OCF/FCF, we cannot comment on coverage; prudent assumption is that a modest payout would be supportable given the balance sheet, but sustainability depends on cash conversion and capex needs. Monitor: announced dividend policy, targeted payout ratio, OCF/NI, and capex trajectory.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A (personnel costs, hiring ahead of demand) reducing operating leverage.
• Utilization risk in project-based services; underutilization can quickly compress margins.
• Pricing pressure and contract mix shifts affecting gross-to-operating spread.
• Execution risk on rapid growth (+27.5% YoY) potentially outpacing internal controls and delivery capacity.

Financial Risks:

• Cash flow visibility is limited due to unreported OCF and FCF, obscuring earnings quality.
• Potential hidden short-term borrowings (short-term loans unreported) though cash levels mitigate near-term risk.
• Tax rate volatility (current effective tax 35.7%) could impact net margins.

Key Concerns:

• Negative operating leverage this quarter (operating income down despite strong revenue growth).
• Data inconsistencies between cost of sales and gross profit figures; reliance on reported margins is necessary.
• Ordinary income below profit before tax suggests potential non-recurring items; clarity on below-the-line impacts is limited.
• High dependency on human capital may sustain cost inflation pressures if wage growth continues.

Investment Implications

Key Takeaways:

• Top-line growth is strong, but profitability lagged due to margin compression (~-339 bps YoY in operating margin).
• ROE 10.9% and ROIC 27.6% indicate attractive returns if margins can be stabilized.
• Balance sheet strength (equity ratio ~66.7%, current ratio ~2.8x, interest coverage ~161x) provides resilience and investment capacity.
• Earnings quality and FCF remain unknown; cash conversion is the pivotal missing piece.
• Near-term focus should be on SG&A discipline, utilization, and pricing to restore positive operating leverage.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio.
• OCF/Net Income and FCF once disclosed.
• Headcount growth vs. revenue per employee and utilization rate.
• Effective tax rate stability and any non-recurring below-the-line items.
• Backlog/order intake and pricing/mix trends.

Relative Positioning: Within Japanese mid-cap IT/DX services, AsiaQuest exhibits above-average growth and strong ROIC with conservative leverage, but currently trails peers on margin momentum due to elevated operating costs; improvement in utilization and cost discipline would enhance its competitive standing.

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