BROAD ENTERPRISE CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥4.71B
• Operating Income: ¥650M
• Net Income: ¥289M
• EPS: ¥47.28

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: Solid top-line-driven quarter with healthy profitability, but slight margin compression and elevated leverage temper the quality. Revenue rose 50.0% YoY to 47.15, driving operating income up 46.1% YoY to 6.50 and net income up 38.7% YoY to 2.89. Operating margin printed at 13.8%, ordinary margin at 10.0%, and net margin at 6.1%. Using the YoY growth math, operating margin compressed by about 37 bps (from ~14.2% to 13.8%), ordinary margin compressed by ~25 bps (from ~10.2% to ~10.0%), and net margin compressed by ~49 bps (from ~6.6% to 6.1%). Gross margin stands at 30.3%, indicating a decent spread over cost of sales, while the SG&A ratio is 20.8%, implying some operating leverage but also cost pressure as scale increases. Non-operating expenses (1.29) meaningfully offset modest non-operating income (0.05), indicating headwinds below the operating line; interest expense was only 0.20, so other non-operating costs (1.09) were the main drag. The effective tax rate was 35.0%, which kept net margin modest despite strong operating results. ROE is robust at 19.3% via DuPont (NPM 6.1% × Asset Turnover 0.524 × Leverage 6.01x), supported by strong ROIC of 12.6%. Liquidity is adequate but not abundant (current ratio 1.27x), and leverage is high on a liabilities-to-equity basis (D/E 4.51x), though interest coverage is strong at 31.9x. Cash and deposits (10.41) are below short-term loans (17.19), but receivables are large (41.11), mitigating near-term refinancing stress if collections hold. Earnings quality cannot be validated due to unreported cash flows; receivables concentration may imply working capital risk. With margins slightly compressing and non-operating costs elevated, sustaining profit growth will likely require continued revenue scale and cost discipline. Forward-looking, the company’s strong ROIC suggests value creation capacity, but managing leverage, receivable collections, and non-operating drags will be key. Absence of dividend and cash flow disclosure limits assessment of shareholder returns and capital allocation. Overall, execution remains solid, but balance sheet conservatism and cash conversion are the watch items.

Profitability Analysis

DuPont decomposition: ROE 19.3% = Net Profit Margin 6.1% × Asset Turnover 0.524 × Financial Leverage 6.01x. The component that changed the most YoY appears to be net profit margin, which compressed by ~49 bps (from ~6.6% to 6.1%) based on revenue and income growth rates; asset turnover and leverage cannot be reliably trended with the disclosed single-period balance sheet. Operating margin compressed by ~37 bps YoY (14.2% → 13.8%), reflecting SG&A scaling (SG&A ratio 20.8%) and higher non-operating drag flowing through to ordinary income (ordinary margin -25 bps). Business drivers: rapid top-line growth (50% YoY) suggests successful sales execution/new installs, but slightly slower operating income growth (46%) signals incremental costs to support growth and/or mix effects in gross profit not fully offset by scale. The non-operating headwind (net -1.24) largely from items other than interest (0.20) pressured ordinary profit. Sustainability: modest operating margin compression could be reversible with cost discipline and mix improvement; however, recurring non-operating expenses may continue to cap ordinary and net margins near term. Concerning trends to flag include margin compression despite strong growth and lack of detail on SG&A sub-lines; we cannot confirm whether SG&A grew faster than revenue due to data limitations, but the ratio indicates limited incremental operating leverage this quarter.

Growth Assessment

Revenue growth of 50.0% YoY to 47.15 indicates strong demand and/or expansion wins, with operating income up 46.1% and ordinary income up 46.4%. Net income growth of 38.7% lagged top-line growth due to non-operating expenses and a 35% tax rate. Operating margin dipped ~37 bps YoY, implying growth was partially investment-led or mix-dilutive. Gross margin at 30.3% shows solid unit economics; however, non-operating expense intensity (1.29) held back bottom-line conversion. The growth looks principally organic/recurring rather than one-off (no disclosed extraordinary gains), which supports sustainability, but reliance on receivables growth suggests elevated working capital needs. Outlook hinges on maintaining install velocity and improving operating leverage; stabilizing non-operating costs and sustaining ROIC > WACC (ROIC 12.6%) would support continued value creation.

Financial Health

Liquidity: Current ratio 1.27x and quick ratio 1.27x are above 1.0 but below the 1.5 comfort threshold; watch liquidity buffer as growth consumes working capital. Solvency: Reported Debt-to-Equity (Total Liabilities/Equity) is 4.51x (warning: >2.0). Interest-bearing debt totals ~29.00 (short-term 17.19, long-term 11.81) versus cash 10.41, implying net debt ~18.59 and net debt/equity ~1.24x; interest coverage is strong at 31.9x, mitigating near-term solvency concerns. Maturity mismatch: Short-term loans (17.19) are less than current assets (68.61), and current assets exceed current liabilities (53.91), reducing rollover risk assuming receivable collections remain timely. Asset quality: Accounts receivable are large at 41.11 (≈60% of current assets), concentrating liquidity in collections. Off-balance sheet obligations: None disclosed in the provided data. Warning flags: D/E > 2.0; monitor covenant headroom and refinancing conditions.

Cash Flow Quality

Earnings quality cannot be conclusively assessed due to unreported operating cash flow (OCF/NI ratio N/A). Free cash flow and capex are undisclosed, limiting visibility on self-funding capacity for growth and potential dividends. Potential working capital strain is implied by high receivables (41.11) relative to cash (10.41) and short-term loans (17.19); absent OCF data, the risk is delayed collections or revenue recognition ahead of cash conversion. Interest coverage (31.9x) suggests operating earnings can service interest, but cash flow validation is needed. No signs of intentional working capital manipulation can be inferred from disclosed data; however, the concentration in receivables warrants monitoring of DSO and bad debt trends once disclosed. Dividend and buyback coverage from FCF cannot be evaluated.

Dividend Sustainability

Dividend information is unreported, so payout ratio and FCF coverage are not calculable. Earnings capacity (EPS 47.28 JPY; ROE 19.3%; ROIC 12.6%) indicates room for shareholder returns in principle, but elevated leverage and unknown FCF constrain assessment. If dividends are contemplated, sustainability would hinge on cash conversion (OCF coverage) and maintaining growth capex without incremental leverage. Policy outlook remains opaque due to lack of disclosure on dividend policy and cash flows.

Risk Assessment

Business Risks:

• Margin pressure as scale-up costs and/or mix effects offset revenue growth (operating margin -37 bps YoY).
• High reliance on receivables for liquidity; potential delays in collections impacting cash conversion.
• Non-operating expense headwinds (1.29) excluding interest (0.20) dilute ordinary profit.
• Execution risk in sustaining 50% YoY revenue growth as the base scales.
• Industry-specific: exposure to housing/installation cycle and customer churn for connectivity/IT services (if tied to multi-dwelling installations), which can slow new wins and increase cancellations.

Financial Risks:

• High leverage on a liabilities-to-equity basis (D/E 4.51x; warning threshold >2.0).
• Liquidity buffer only moderate (current ratio 1.27x) with short-term loans (17.19) exceeding cash (10.41).
• Refinancing risk if credit conditions tighten given reliance on short-term debt.
• Potential receivable quality risk concentrated in 41.11 of current assets.

Key Concerns:

• Slight but broad-based margin compression from operating to net level (~25–49 bps).
• Lack of operating cash flow and capex disclosure prevents validation of earnings quality and FCF.
• Non-operating expenses other than interest significantly reduce ordinary income.
• Tax rate at 35% keeps net margin modest, limiting bottom-line scalability.

Investment Implications

Key Takeaways:

• Strong top-line growth (+50% YoY) with solid operating profitability (13.8% margin).
• Net margin compressed to 6.1% due to non-operating drag and taxes.
• ROE 19.3% and ROIC 12.6% indicate attractive returns despite leverage.
• Balance sheet leverage high (D/E 4.51x) but interest coverage robust (31.9x).
• Liquidity adequate but tight versus best-practice benchmarks; receivable collections are critical.

Metrics to Watch:

• Operating cash flow/Net income ratio (target >1.0).
• DSO and bad debt expense trends; accounts receivable turnover.
• Operating and net margin trajectories; SG&A ratio versus revenue growth.
• Non-operating expense breakdown and trajectory.
• Net debt and maturity profile; current ratio improvement toward >1.5x.
• ROIC sustainability relative to cost of capital.

Relative Positioning: Operationally strong growth and returns versus typical small-cap peers, but with higher balance sheet leverage and lower disclosed liquidity buffers; execution quality appears solid, yet cash conversion and non-operating cost control will determine relative resilience.

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