APPLIED TECHNOLOGY CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.50B
• Operating Income: ¥977M
• Net Income: ¥708M
• EPS: ¥124.17

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

Applied Technology Co., Ltd. (TSE: 4356, single-entity, JGAAP) delivered a mixed FY2025 Q3 (cumulative) result: topline contracted while profitability expanded meaningfully. Revenue declined 5.2% YoY to ¥5,497 million, but operating income rose 41.1% YoY to ¥977 million, underscoring strong cost discipline and/or a favorable sales mix. Gross profit was ¥1,494 million, yielding a 27.2% gross margin; the operating margin reached 17.8%, indicating solid conversion of gross profit to operating profit. Ordinary income was ¥1,017 million, with non-operating items contributing a modest net positive of about ¥40 million. Net income increased 40.6% YoY to ¥708 million, translating into a net margin of 12.9% and EPS of ¥124.17. The DuPont-calculated ROE is 11.71%, driven by a 12.88% net margin, 0.701x asset turnover, and 1.30x financial leverage. Liquidity is very strong: current assets of ¥6,546 million versus current liabilities of ¥1,526 million yield a current ratio of 428.9% and working capital of ¥5,020 million. The balance sheet is conservative, with total liabilities of ¥1,617 million and equity of ¥6,046 million (implying an equity ratio of roughly 77% based on available balances, despite the equity ratio being shown as 0.0% in the data feed). ROA is approximately 9.0%, consistent with the company’s high-margin, asset-light profile. Effective tax rate is approximately 24% (¥224 million tax over roughly ¥932 million pre-tax income), despite the data feed indicating 0.0%, which appears to be an unreported placeholder. Cash flow items (OCF, FCF, cash balance) are not disclosed in this dataset, so cash conversion cannot be evaluated here. SG&A is estimated at ¥517 million (about 9.4% of sales), highlighting a lean operating structure. Revenue softness juxtaposed with margin expansion suggests pricing, mix shift to higher-value services, utilization improvements, and tight SG&A controls. While the non-consolidated basis limits group-wide visibility, the company’s financial flexibility appears ample, supporting strategic investments and shareholder returns subject to actual cash generation and board policy. Overall, the quarter reflects resilient profitability, robust balance sheet strength, and disciplined execution against a softer revenue backdrop, with data limitations primarily around cash flows and dividends.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 12.88%
• asset_turnover: 0.701x
• financial_leverage: 1.30x (Assets/Equity ≈ 7,841/6,046)
• calculated_ROE: 11.71%
• ROA: ≈9.03% (708/7,841) margin_quality:
• gross_margin: 27.2% (1,494/5,497)
• operating_margin: 17.8% (977/5,497)
• ordinary_income_margin: 18.5% (1,017/5,497)
• net_margin: 12.9% (708/5,497)
• SGA_ratio: ≈9.4% (517/5,497), with SG&A ≈ ¥517 million
• non_operating_result: ≈+¥40 million (ordinary – operating), modest and likely sustainable operating_leverage: Revenue decreased 5.2% YoY while operating income increased 41.1% YoY, indicating positive operating leverage driven by cost discipline, mix shift toward higher-margin work, and improved utilization. Conversion from gross to operating profit is strong (operating/gross ≈ 65%), suggesting well-managed overhead.

Growth Assessment

revenue_sustainability: Topline declined 5.2% YoY to ¥5,497 million (9M basis), pointing to demand softness or project timing effects. Absence of order/backlog data limits forward visibility. profit_quality: Profit growth outpaced sales due to margin expansion; limited reliance on non-operating gains (≈¥40 million) supports quality. Effective tax rate approximates 24%, consistent with normalized profitability. outlook: If the mix and utilization benefits persist, full-year profitability can remain resilient even with flat-to-soft revenue. However, sustaining growth likely hinges on pipeline conversion, pricing power in higher-value services, and timely project deliveries. Non-consolidated scope means group-level growth drivers (if any) are not captured here.

Financial Health

liquidity:

• current_ratio: 428.9%
• quick_ratio: 428.9% (no inventories disclosed)
• working_capital: ¥5,020 million
• commentary: Substantial liquidity headroom; receivables quality and collection cycles (not disclosed) are the main uncertainties. solvency:
• debt_to_equity: 0.27x (1,617/6,046)
• equity_ratio: ≈77% (computed from balances; reported 0.0% appears undisclosed)
• interest_coverage: Not assessable (interest expense undisclosed), but low leverage implies ample coverage in practice. capital_structure: Conservative balance sheet dominated by equity; low reliance on interest-bearing debt supports resilience in downturns and investment capacity.

Cash Flow Quality

earnings_quality: With OCF unreported, we cannot cross-check accrual intensity. The combination of strong margins and conservative leverage suggests healthy earnings quality, but cash conversion remains unverified. FCF_analysis: Free cash flow is not disclosed in this dataset. Capex and D&A are also not provided, preventing assessment of maintenance vs. growth investment needs. working_capital: Working capital is sizable at ¥5,020 million (≈0.91x 9M sales), indicating material funds tied up in receivables/unbilled items typical of project businesses; turnover metrics are not available to validate efficiency.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are not disclosed here (zeros indicate unreported). Based on EPS of ¥124.17 and strong net income, the company appears to have capacity for dividends, subject to actual cash generation and policy. FCF_coverage: Not assessable due to missing OCF/FCF data. policy_outlook: With an estimated equity ratio around 77% and low leverage, the balance sheet can support shareholder returns; however, without cash flow disclosure and explicit guidance, dividend trajectory cannot be inferred. Historical policy (not provided here) would be the key reference.

Risk Assessment

Business Risks:

• Project timing and acceptance risk causing revenue volatility and quarter-to-quarter swings.
• Dependence on large clients or public-sector contracts (common in engineering/IT services), leading to concentration risk.
• Pricing and competitive pressure in higher-value solutions, potentially eroding margins.
• Labor market tightness and wage inflation impacting utilization and delivery margins.
• Execution risk on fixed-price projects (scope creep, penalties) affecting profitability.
• Technology transition risk (tools/platforms) requiring ongoing investment to maintain differentiation.

Financial Risks:

• Working capital intensity (large receivables/unbilled) could pressure operating cash flow if collections slow.
• Potential mismatch between accounting profit and cash conversion (OCF not disclosed).
• Limited visibility due to non-consolidated reporting; off-balance exposures at group level (if any) not captured.
• Interest rate changes have limited direct impact given low leverage, but could affect client capex cycles.

Key Concerns:

• Topline contraction (-5.2% YoY) despite strong margins; sustainability of growth is unclear.
• Lack of disclosed cash flow data prevents validation of earnings quality and dividend capacity.
• High working capital relative to sales suggests sensitivity to billing and collection timing.

Investment Implications

Key Takeaways:

• Margin expansion drove a 41% YoY increase in operating income despite a 5% YoY sales decline.
• ROE of 11.7% reflects strong profitability with modest leverage (Assets/Equity ≈ 1.30x).
• Balance sheet is robust with an estimated ~77% equity ratio and current ratio of ~4.3x.
• Cash flow data are not disclosed; confirm OCF and FCF before drawing conclusions on payout capacity.
• Operating efficiency is high (SG&A ≈ 9.4% of sales), indicating disciplined cost control.

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue trajectory.
• Gross margin and operating margin to confirm sustainability of mix/pricing and utilization.
• Receivables days and unbilled WIP to assess cash conversion and working capital discipline.
• Headcount, utilization rate, and wage inflation trends impacting delivery margins.
• ROE bridge (margin vs. turnover) and asset turnover improvements.
• Any guidance on DPS/payout and capital allocation (capex, buybacks).

Relative Positioning: Within Japan’s IT/engineering services cohort, the company appears asset-light with above-average margins and conservative leverage, but near-term revenue softness tempers growth visibility; balance sheet strength provides flexibility versus peers.

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