sinops Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.47B
• Operating Income: ¥207M
• Net Income: ¥127M
• EPS: ¥20.52

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: A strong profitability inflection in FY2025 Q3, with double-digit top-line growth and a step-change in operating leverage, albeit with notable disclosure gaps and an unusual PBT-to-NI bridge that tempers confidence in quality. Revenue rose 15.2% YoY to 14.68, while operating income surged 223% YoY to 2.07, indicating material margin expansion. Net income increased 204.5% YoY to 1.27, translating to a net margin of 8.7%. Operating margin is approximately 14.1% (2.07/14.68), versus an implied prior-period operating margin of roughly 5.0%, implying expansion of about 910 bps YoY. Gross margin is reported at 33.4%, consistent with software-like unit economics, though the reported cost of sales and SG&A figures do not reconcile cleanly to operating income. ROE is calculated at 7.0%, supported by a healthy asset turnover of 0.653 and modest financial leverage of 1.25x. ROIC is listed at 11.3%, above a typical 7–8% target range, signaling solid capital efficiency. Liquidity is robust with a current ratio of 246.9% and cash and deposits of 6.13 exceeding current liabilities of 3.95, and the equity ratio is approximately 80.3%. The effective tax rate is 34.9%, but the bridge from ordinary income (2.09) to profit before tax (0.65) to net income (1.27) suggests the presence of non-recurring or classification items not disclosed in detail. Cash flow data are unreported, limiting assessment of earnings quality and working-capital dynamics. The calculated payout ratio is high at 73.9%, implying a DPS in the mid-teens of yen per share, but coverage by free cash flow cannot be assessed. Overall, fundamentals improved markedly on the P&L, but the absence of cash flow disclosure and the non-standard PBT/NI bridge warrant caution. Forward-looking, sustaining the operating margin in the low-teens while growing revenue in the mid-teens could keep ROE trending upward. Key watchpoints are revenue mix durability, cost discipline, verification of ROIC sustainability, and clarification of the extraordinary/non-operating items affecting PBT and NI. Currency, customer concentration, and capitalized software/intangibles impairment also bear monitoring.

Profitability Analysis

Step 1 (ROE decomposition): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 8.7% × 0.653 × 1.25 ≈ 7.0%. Step 2 (Largest change driver): The most notable driver YoY is margin expansion (operating income +223% vs revenue +15.2%), indicating net profit margin improved most materially. Step 3 (Business reason): Likely operating leverage from higher software license/subscription/maintenance revenue and disciplined cost control; gross margin at 33.4% and implied operating margin lift suggest SG&A growth lagged revenue or included one-off cost normalization. Step 4 (Sustainability): Margin gains are partly sustainable if driven by recurring software revenue scaling and controlled hiring; however, inconsistency between gross profit, SG&A, and operating income figures and the unusual PBT-to-NI bridge raise the possibility of one-time or classification effects amplifying current-period profitability. Step 5 (Flags): Potential concern if SG&A growth re-accelerates ahead of revenue; current data show implied SG&A ratio of ~29.0% (4.26/14.68), but line-item reconciliation does not fully tie, so conclusions should be tentative. Monitor whether the operating margin can remain above 12% without non-recurring support.

Growth Assessment

Revenue grew 15.2% YoY to 14.68, a healthy pace consistent with scaling software businesses. Operating income outpaced revenue growth (+223% YoY), highlighting strong operating leverage. Net income increased +204.5% YoY, with net margin at 8.7%, up significantly from an implied low-single-digit level last year. Sustainability hinges on recurring revenue mix and churn/upsell dynamics; absent segment disclosure, we assume a greater contribution from subscriptions/maintenance. The reported ROIC of 11.3% indicates efficient deployment of capital; maintaining >8% would be a positive signal for durable growth. However, the lack of cash flow data limits validation of revenue quality (e.g., collections, deferred revenue trends) and whether working capital contributed to earnings. Continued mid-teens revenue growth with stable or improving margins could push ROE above the current 7% level. Management clarity on extraordinary items and non-operating effects will help assess the true underlying growth profile.

Financial Health

Liquidity is strong: current ratio 246.9% and quick ratio 246.9%, with cash and deposits (6.13) comfortably covering current liabilities (3.95). No warning on current ratio (<1.0) or excessive leverage; D/E is a conservative 0.22x, and equity ratio is approximately 80.3% (18.05/22.48). Maturity mismatch risk appears low given the high cash balance versus modest current liabilities; interest-bearing debt details are unreported but total liabilities are small at 4.00. Noncurrent liabilities are negligible (0.05), suggesting minimal long-dated obligations. Off-balance sheet items are not disclosed; no information on leases or guarantees. Overall solvency and liquidity profiles are robust.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed, and we cannot confirm cash conversion quality. Free cash flow is also unreported, leaving dividend and capex coverage unknown. Working capital metrics are partially observable: accounts receivable (2.51) versus revenue (14.68) looks reasonable on a period basis, but without days sales outstanding or deferred revenue data, manipulation or timing effects cannot be ruled out. Given the unusual PBT-to-NI progression, visibility into tax effects and extraordinary items via the cash flow statement would be valuable. Until OCF is disclosed, earnings quality should be viewed as unverified.

Dividend Sustainability

The calculated payout ratio is 73.9%, implying a relatively high payout versus typical sustainability benchmarks (<60%). DPS is unreported; the implied annual DPS would be in the mid-teens of yen per share based on EPS of 20.52 JPY, but this cannot be confirmed. FCF coverage is not calculable due to missing OCF and capex data. With strong liquidity but unknown cash generation and reinvestment needs, the dividend appears serviceable near term from balance sheet strength, but medium-term sustainability depends on maintaining positive OCF after growth investments. A policy update or explicit payout target would aid assessment.

Risk Assessment

Business Risks:

• Revenue concentration risk with key customers typical for vertical software vendors (not disclosed).
• Churn and renewal risk impacting recurring revenue and operating leverage.
• Product roadmap and R&D execution risk amid competitive software markets.
• Intangible assets (3.57) may include capitalized software; impairment or amortization burden could affect future margins.

Financial Risks:

• Earnings quality uncertainty due to unreported cash flow statements.
• Unusual bridge between ordinary income (2.09), profit before tax (0.65), and net income (1.27) suggesting classification or extraordinary items.
• High payout ratio (73.9%) may limit balance sheet flexibility if OCF underperforms.
• Currency exposure if any overseas sales or costs exist (not disclosed).

Key Concerns:

• Disclosure gaps: OCF, capex, and detailed non-operating/extraordinary items are unreported.
• Line-item inconsistencies (COGS, gross profit, SG&A versus operating income) reduce reliability of margin analysis.
• Sustainability of recent margin step-up without visibility into one-offs.
• Potential impairment risk tied to intangibles if growth slows.

Investment Implications

Key Takeaways:

• Clear operating leverage: operating income +223% on +15.2% revenue growth.
• Operating margin improved to about 14.1%, an implied ~910 bps YoY expansion.
• ROE 7.0% with modest leverage (1.25x) and solid asset turnover (0.653).
• ROIC at 11.3% suggests efficient capital deployment above typical software thresholds.
• Balance sheet is strong with equity ratio ~80% and cash covering current liabilities.
• Earnings quality cannot be validated due to missing OCF; prioritize cash conversion review.
• High payout ratio (73.9%) warrants scrutiny of FCF coverage.

Metrics to Watch:

• Operating cash flow and OCF/NI once disclosed (>1.0 preferred).
• Deferred revenue and bookings growth as indicators of demand durability.
• SG&A growth versus revenue to confirm continued operating leverage.
• Gross margin stability and reconciliation of COGS/GP/SG&A to operating income.
• Extraordinary and non-operating items affecting PBT/NI.
• ROIC trend (target >8%) and ROE trajectory.
• Customer concentration and churn metrics.

Relative Positioning: Within Japanese small-cap software peers, the company exhibits stronger near-term operating leverage and ROIC, backed by a conservative balance sheet. However, disclosure quality lags best-in-class peers, particularly on cash flows and non-operating detail, which tempers relative quality assessment.

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