Miyoshi Oil & Fat Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥43.76B
• Operating Income: ¥1.15B
• Net Income: ¥2.77B
• EPS: ¥897.75

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

Verdict: Headline net income surged due to one-off/extraordinary factors, while core operations weakened markedly. Revenue grew 3.8% YoY to 437.6, but operating income fell 60.9% YoY to 11.5, indicating sharp deterioration in underlying profitability. Gross profit was 90.56 with a gross margin of 20.7%, while the operating margin contracted to 2.6%. Ordinary income was 11.29 (-62.4% YoY), underscoring broad-based margin compression beyond one-time items. Net income, however, jumped to 91.52 (+228.8% YoY), well above profit before tax of 38.09 and despite income tax expense of 10.34, implying sizable extraordinary gains below ordinary income. Non-operating income (2.76) was modest and mostly dividend income (1.77), so the net income surge is not explained by non-operating items but rather by extraordinary income not disclosed in the provided breakdown. The gap between operating/ordinary profits and net income points to significant non-recurring gains, which boost EPS (897.75 JPY) and ROE (22.6%) temporarily. Operating leverage turned negative as SG&A of 61.11 (13.96% of sales) did not right-size to the weaker operating profit base. Interest coverage remains adequate at 6.97x, supported more by historically low interest burden than by strong operating earnings. Liquidity is healthy with a current ratio of 155% and quick ratio of 141%, while the D/E of 1.01x sits within conservative bounds. ROIC is low at 2.3%, signaling weak capital efficiency relative to investor expectations and well below the 7–8% benchmark. Cash flow disclosures are unavailable, preventing validation of earnings quality via OCF; this is a key caveat given the large gap between NI and operating/ordinary profits. Dividend payout appears low (calculated payout ratio 6.8%), but this likely reflects inflated net income from one-off gains rather than structurally low shareholder returns. Forward-looking, the company must restore core margin and improve ROIC to sustain value creation once extraordinary gains normalize. The quarter therefore reads as a mixed print: clean balance sheet and strong headline EPS, but underlying earnings power is under pressure and capital efficiency is subpar.

Profitability Analysis

ROE decomposition (DuPont): ROE 22.6% = Net Profit Margin 20.9% × Asset Turnover 0.537 × Financial Leverage 2.01x. The biggest swing vs. the operating line is the net margin, which is artificially high due to extraordinary gains; core operating margin is only 2.6%. Asset turnover at 0.537 indicates a relatively asset-heavy profile for the level of revenue, and leverage at 2.01x is moderate. Business driver: margin compression at the operating level (OI -60.9% YoY) likely reflects narrower spreads (raw material costs vs. selling prices) and limited SG&A flexibility, while the ROE boost stems from non-recurring below-the-line gains. Sustainability: the margin-driven ROE spike is unlikely to persist once extraordinary income fades; without improvements in operating margin and asset turnover, ROE will trend materially lower. Concerning trends: operating margin compressed from roughly 7.0% in the prior year (back-solved) to 2.6% this year, a ~434 bps contraction; SG&A ratio at ~14% suggests limited operating leverage, and the decline in operating profit outpaced revenue growth—an unfavorable sign for cost control and pricing power.

Growth Assessment

Revenue grew 3.8% YoY to 437.6, a modest expansion that likely reflects price/mix adjustments rather than strong volume growth. Operating income fell 60.9% YoY to 11.5, signaling that revenue growth did not translate into earnings due to input cost pressure, pricing lag, or unfavorable mix. Ordinary income declined 62.4% YoY, reinforcing that core profitability weakened beyond one-time items. Net income surged to 91.52 (+228.8% YoY), driven by extraordinary factors not detailed here, rather than recurring operating strength. Non-operating income (2.76) was not the main driver, as dividend income was 1.77 and interest income 0.01. The non-operating income ratio is 3.0%, consistent with a modest contribution; thus, growth in reported earnings is not structurally repeatable without core recovery. Outlook hinges on restoring operating margin, improving pass-through of raw material costs, and enhancing utilization/mix. With ROIC at 2.3%, incremental growth must be higher-return to create value. Near term, we expect normalization of net income toward ordinary income absent new one-offs, keeping growth subdued unless cost/pricing dynamics improve.

Financial Health

Liquidity: Current ratio 155.4% and quick ratio 140.9% indicate a healthy liquidity buffer; no warning (both > benchmarks). Working capital stands at 133.6. Cash and deposits of 123.34 comfortably cover short-term loans of 48.35 and a sizable portion of current liabilities. Solvency: Debt-to-equity 1.01x is conservative (<1.5x threshold); interest coverage at 6.97x is solid (>5x). Capital structure: Long-term loans are 33.00 and noncurrent liabilities total 167.53, with no explicit red flags on maturity mismatch given current assets of 374.72 exceed current liabilities of 241.12. Equity is 405.53 (owners’ equity 405.10), supporting balance sheet resilience. No off-balance sheet obligations are reported in the provided data. Overall financial health is sound, enabling the company to navigate operating volatility.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be calculated; this is a key limitation given the outsized net income vs. operating profit. The divergence between operating/ordinary income (11.5/11.29) and net income (91.52) raises quality concerns, as earnings are likely boosted by non-recurring items rather than cash-generating operations. Free cash flow and capex are unreported; therefore, sustainability of FCF coverage for dividends and potential growth capex cannot be assessed. Working capital signals: inventories (34.89) appear modest relative to revenue, and receivables (131.49) vs. payables (110.85) look balanced, but without OCF we cannot validate cash conversion. No clear signs of working-capital-driven earnings management can be identified from the limited data.

Dividend Sustainability

The calculated payout ratio is 6.8%, but dividend amounts are unreported, and the low ratio likely reflects inflated net income due to one-off gains. Without OCF and capex data, we cannot confirm FCF coverage of dividends. Balance sheet strength (cash 123.34, low net leverage) suggests short-term capacity to maintain dividends, but long-term sustainability depends on restoring recurring operating cash flow. If net income normalizes closer to ordinary income, the payout ratio will mechanically rise; policy clarity is needed. No share repurchases or changes in DPS are disclosed in the data provided.

Risk Assessment

Business Risks:

• Raw material price volatility (e.g., palm oil, tallow) compressing spreads and margins
• Pricing lag in passing through cost increases to customers
• Demand fluctuations in foodservice and B2B industrial customers
• Product mix and utilization risk affecting gross margin
• Dependence on non-recurring gains to support bottom line in the period

Financial Risks:

• Earnings quality risk: net income dominated by extraordinary gains vs. core earnings
• Potential normalization of NI leading to lower ROE and payout flexibility
• Interest rate risk on floating-rate debt, though current interest burden is low
• FX exposure on imported raw materials affecting COGS

Key Concerns:

• ROIC at 2.3% is well below the 7–8% benchmark, indicating weak capital efficiency
• Operating margin contracted to 2.6% from roughly 7.0% last year (≈434 bps compression)
• Lack of OCF and capex disclosure impedes assessment of cash generation and investment needs
• Large gap between ordinary income (11.29) and net income (91.52) suggests one-time drivers

Investment Implications

Key Takeaways:

• Core profitability weakened materially despite modest revenue growth
• Headline NI and ROE are inflated by extraordinary items and are unlikely to be repeatable
• Liquidity and solvency are solid, providing a cushion during earnings normalization
• Capital efficiency is low (ROIC 2.3%), requiring margin and asset turn improvements
• Monitoring cost pass-through and raw material trends is critical for margin recovery

Metrics to Watch:

• Disclosure of extraordinary income details and recurrence
• Operating cash flow and free cash flow trends
• Operating margin vs. raw material price indices (palm oil, tallow) and energy costs
• SG&A growth relative to revenue and productivity initiatives
• Inventory turns and receivables days (cash conversion)
• ROIC progression and capex discipline

Relative Positioning: Within Japanese fats and oils/ingredients peers, the company currently exhibits weaker core operating momentum and capital efficiency but maintains a comparatively strong balance sheet; near-term reported profitability appears better than peers only due to one-time gains, not underlying competitiveness.

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