SOLXYZ Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥12.90B
• Operating Income: ¥1.07B
• Net Income: ¥362M
• EPS: ¥25.50

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Solxyz (4284) delivered a solid FY2025 Q3 performance with top-line growth translating into pronounced operating leverage. Revenue reached ¥12.901 billion, up 10.4% year on year, reflecting healthy demand and/or improved execution in its solutions and services mix typical of a system integration/software-oriented franchise. Gross profit of ¥2.649 billion implies a gross margin of 20.5%, providing adequate headroom to absorb labor and subcontracting costs in the IT services context. Operating income surged 91.2% YoY to ¥1.072 billion, expanding the operating margin to approximately 8.3% and evidencing effective cost discipline and utilization improvements. Ordinary income was ¥1.078 billion, broadly in line with operating income, indicating minimal non-operating drag, as also suggested by low interest expense of only ¥5.7 million and an interest coverage of ~187.5x. Net income came in at ¥583 million, up 76.4% YoY, with a net margin of 4.52%; the gap to operating profit reflects taxes and potential below-the-line items. Using income tax expense of ¥242 million and net income, an implied tax burden of roughly 29–30% emerges when approximated as tax/(tax + net income), although the bridge from ordinary income indicates additional non-operating or extraordinary elements not disclosed here. DuPont metrics point to a balanced ROE of 8.24%, combining a 4.52% net margin, an asset turnover of 1.049x, and financial leverage of 1.74x. The balance sheet is conservative: total assets are ¥12.301 billion against liabilities of ¥3.764 billion and equity of ¥7.073 billion, implying an equity ratio of roughly 57–58% based on the provided assets and equity. Liquidity appears strong with a current ratio of 268% and quick ratio of 261%, supported by ¥8.131 billion of current assets and modest inventories of ¥223 million. Working capital stands at ¥5.096 billion, indicating ample near-term funding for operations and project ramp-ups. Debt intensity is low, as inferred from the small interest burden and a liabilities-to-equity ratio of ~0.53x. Reported cash flow lines are not disclosed, which limits direct assessment of operating cash conversion and free cash flow. Dividend data are also not available in the period set, so payout stance cannot be evaluated from this dataset alone. Overall, the quarter underscores meaningful profitability gains and healthy balance sheet quality, while the lack of cash flow disclosure warrants monitoring to confirm earnings quality and sustainability.

Profitability Analysis

ROE decomposition suggests moderate profitability supported primarily by margin expansion and reasonable asset utilization. DuPont: Net margin 4.52% × Asset turnover 1.049 × Financial leverage 1.74 ≈ ROE 8.24%. Operating margin is approximately 8.31% (¥1.072b OI / ¥12.901b revenue), well above the net margin due to taxes and below-the-line items. Gross margin of 20.5% indicates adequate pricing and mix; the step-up in operating margin vs. revenue growth signals strong operating leverage this period. SG&A (implied) is approximately ¥1.577b (gross profit minus operating income), about 12.2% of revenue, pointing to good cost control. Ordinary margin is ~8.36% (¥1.078b/¥12.901b), with minimal non-operating friction, consistent with very low interest expense. The spread between operating and net margins reflects tax expense and possible extraordinary/minority impacts under JGAAP. Overall profitability quality looks improved on the back of utilization and cost discipline; sustaining this will depend on wage inflation containment and delivery mix.

Growth Assessment

Top-line grew 10.4% YoY to ¥12.901b, a solid print for an IT services-oriented company. The 91.2% YoY increase in operating income far outpaced sales growth, evidencing material margin expansion and operating leverage. Net income rose 76.4% to ¥583m despite tax and below-the-line effects, suggesting underlying operational momentum. The sustainability of revenue growth will hinge on project backlog, renewal rates, and client demand tied to digital transformation and financial/enterprise systems, which are not disclosed here. The quality of profit appears improved given the OI uplift and low interest burden, though confirmation via cash conversion is unavailable due to missing cash flow data. With inventories modest (¥223m) and current assets high, delivery capacity seems supported, but headcount availability and subcontracting dynamics remain key. Outlook-wise, continued margin gains may moderate as cost bases re-normalize; maintaining OPM near current levels will require disciplined pricing and utilization. Absent order and pipeline disclosure, we treat the growth trajectory as constructive but unverified from a cash lens.

Financial Health

Liquidity is strong: current ratio 267.9%, quick ratio 260.6%, and working capital of ¥5.096b provide ample cushion for project execution and seasonality. Solvency is solid with liabilities of ¥3.764b versus equity of ¥7.073b; this implies an equity ratio near 57.5% (equity/total assets), indicating conservative leverage. Interest expense of ¥5.7m and interest coverage of ~187.5x reflect very low financial risk from debt service. Debt-to-equity of ~0.53x (total liabilities/equity) is moderate on this basis and largely non-interest-bearing liabilities are likely prominent for an SI business. Asset base of ¥12.301b against revenue of ¥12.901b (ATO ~1.05x) is efficient for the sector. Overall, balance sheet resilience is high with considerable headroom to absorb shocks or invest, though precise debt composition and cash balances are not disclosed in the provided cash flow section.

Cash Flow Quality

Operating cash flow, investing, financing, and cash balances are not disclosed in this dataset; thus, direct cash conversion analysis cannot be performed. The reported OCF/NI ratio and free cash flow figures are placeholders and should not be interpreted as actual values. Earnings quality must therefore be inferred indirectly: the sharp increase in operating profit alongside modest interest expense and healthy working capital suggests no immediate red flags. Working capital dynamics appear manageable given low inventories and strong liquidity; however, receivables and unbilled work are not disclosed and are critical for SI cash conversion. Depreciation and amortization are not disclosed, preventing EBITDA assessment and accruals analysis. Until cash data are available, we assume earnings quality is fair but unconfirmed; monitoring OCF relative to operating income, DSO trends, and subcontractor payables will be important.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed for this period, so we cannot assess current dividend sustainability. With net income of ¥583m and a strong balance sheet, capacity for distributions may exist, but confirmation requires cash flow and policy information. Free cash flow is not disclosed; therefore, FCF coverage of dividends cannot be evaluated. Historically for IT services peers, stable payouts are supported by recurring cash generation, but without OCF/FCF data we refrain from inferring coverage. Policy outlook remains unknown pending management guidance or historical payout trends.

Risk Assessment

Business Risks:

• Project execution risk and potential cost overruns impacting margins.
• Talent retention and wage inflation in a tight IT labor market.
• Client concentration risk and potential delays in large enterprise/financial projects.
• Pricing pressure from competitive SI landscape and subcontracting dependence.
• Technology transition risk (cloud, cybersecurity, AI) requiring ongoing investment.
• Macroeconomic slowdown reducing discretionary IT budgets.

Financial Risks:

• Cash conversion risk due to receivables and unbilled work typical in SI contracts.
• Potential increase in subcontractor costs compressing gross margins.
• Limited visibility on cash and debt composition due to undisclosed CF data.
• Exposure to tax and extraordinary items affecting net income volatility under JGAAP.
• Working capital swings tied to milestone billing and acceptance timing.

Key Concerns:

• Absence of cash flow disclosure prevents validation of earnings quality and FCF.
• Significant YoY OI jump raises the bar for sustaining margin gains into FY-end.
• Gap between ordinary income and net income suggests below-the-line items requiring monitoring.
• Wage inflation and competitive hiring could erode the improved operating margin.

Investment Implications

Key Takeaways:

• Revenue up 10.4% YoY to ¥12.901b with strong operating leverage; OI up 91.2% to ¥1.072b.
• Gross margin 20.5% and operating margin ~8.3% indicate improved cost discipline and mix.
• ROE 8.24% driven by 4.52% net margin, 1.049x asset turnover, and 1.74x leverage.
• Balance sheet conservative: equity ratio ~57–58% (derived), interest coverage ~188x.
• Liquidity robust with current ratio ~268% and working capital of ¥5.10b.
• Cash flow, D&A, and dividend details not disclosed; earnings quality and payout capacity unverified.

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue durability.
• Operating cash flow vs. operating income and DSO to confirm cash conversion.
• Utilization rates, wage inflation, and subcontracting ratio to assess margin sustainability.
• SG&A as a percentage of sales and pricing/mix to track operating leverage persistence.
• Extraordinary items and tax rate normalization to bridge ordinary to net income.
• Capital allocation: capex, M&A, and dividend policy disclosures.

Relative Positioning: Within Japanese SI/IT services peers, the company exhibits above-trend operating leverage this quarter and a conservatively capitalized balance sheet. Asset efficiency is sound and interest burden is negligible, placing it in a favorable financial risk bracket. Confirmation of cash conversion will be key to solidifying its standing relative to cash-generative incumbents.

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