Power Solutions,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.04B
• Operating Income: ¥598M
• Net Income: ¥205M
• Earnings per Unit (EPU): ¥105.72

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Strong Q3 performance with robust top-line growth translating into disproportionately higher operating profit and improved returns. Revenue rose 23.7% YoY to 60.42, while operating income surged 69.5% YoY to 5.98 and ordinary income climbed 78.3% YoY to 5.87. Net income increased 56.4% YoY to 3.19, with EPS at 105.72 JPY and diluted EPS at 102.18 JPY. Gross margin stood at 26.7% (gross profit 16.16), and operating margin improved to 9.9% (operating income 5.98). Based on the growth rates, operating margin likely expanded by approximately 268 bps YoY (from about 7.2% to 9.9%), while net margin improved roughly 110 bps (from about 4.2% to 5.3%). The bridge from gross profit (16.16) and SG&A (12.63) to operating income (5.98) implies roughly 2.45 of net other operating income, suggesting a tailwind from operating-level non-core items this quarter. Ordinary income was slightly below operating income due to net non-operating expense of 0.24 (non-op income 0.05 minus non-op expense 0.29). Profit before tax dropped to 3.29, implying an extraordinary loss of about 2.58 below the ordinary line; despite this, bottom-line growth remained solid. The effective tax rate was elevated at 37.8%, which dampened net income conversion. Liquidity remains strong with a current ratio of 213.2% and a quick ratio of 212.5%, and the balance sheet is conservative with D/E at 0.62x and net cash of roughly 14.05 (cash 17.11 minus long-term loans 3.06). ROE is 8.8% via DuPont (NPM 5.3% × AT 1.028 × leverage 1.62x), supported by healthy asset turnover and moderate leverage. ROIC is reported at 16.7%, well above typical 7–8% targets, indicating efficient capital deployment. Earnings quality assessment is constrained by unreported cash flows; OCF/NI and FCF are not available, so cash conversion cannot be verified. The payout ratio is a conservative 32.1%, implying a likely DPS in the low-30 JPY range if annualized, but FCF coverage cannot be assessed without cash flow data. Forward-looking, operating leverage appears favorable if revenue momentum continues and extraordinary losses prove one-off, but the reliance on other operating income this quarter and a high tax rate temper the quality of the earnings beat. Overall, Q3 demonstrates healthy growth, improving profitability, and solid financial health, with watchpoints around below-the-line volatility and cash flow visibility.

Profitability Analysis

ROE 8.8% = 5.3% Net Profit Margin × 1.028 Asset Turnover × 1.62x Financial Leverage. Margin expansion is the primary driver given OI growth (+69.5%) far outpaced sales growth (+23.7%). The improvement likely reflects operating leverage (better utilization/mix) plus an estimated ~2.45 contribution from other operating income. Sustainability: operating leverage can persist with growth; other operating income is less predictable and likely one-off in nature. Non-operating items were a small drag (−0.24), and extraordinary losses were material, limiting net margin gains. No red flag that SG&A grew faster than revenue based on implied operating leverage, but the SG&A breakdown is unreported, so confirmation is pending.

Growth Assessment

Revenue growth of 23.7% YoY indicates strong demand momentum, likely driven by project wins and/or expansion in solution delivery. Operating income growth of 69.5% YoY shows significant operating leverage, implying improved project mix or utilization. Net income growth of 56.4% YoY remains strong despite headwinds from non-operating expenses and an apparent extraordinary loss (~2.58 impact inferred from ordinary income to PBT). Margin quality: operating margin expanded to 9.9% (estimated +268 bps YoY); net margin improved to 5.3% (estimated +110 bps YoY). Contribution mix: operating-level ‘other’ items (~2.45) helped bridge from gross profit minus SG&A to operating income, suggesting some non-core support to profitability this quarter. Non-operating items were a small net drag (−0.24), and extraordinary items were a material drag. Outlook: if revenue growth sustains and extraordinary losses do not recur, profitability can further normalize upward; however, absent cash flow disclosure, it is unclear how growth is converting to cash. Near-term growth sustainability will hinge on order backlog, headcount capacity, pricing, and project execution quality.

Financial Health

Liquidity is strong with current ratio 2.13x and quick ratio 2.13x (both >1.5 benchmarks). No warning on current ratio (<1.0) or excessive leverage (D/E 0.62x < 2.0). Cash and deposits of 17.11 comfortably cover most current liabilities (18.84), and total current assets (40.16) far exceed current liabilities, indicating low maturity mismatch risk. Long-term loans are modest at 3.06; net cash position is approximately 14.05, implying ample financial flexibility. Interest coverage is very strong at ~183x, reflecting low interest burden relative to operating earnings. Calculated equity ratio is about 61.7% (36.32/58.79), indicating a solid capital base. Off-balance sheet obligations are not disclosed; no explicit commitments reported in the provided data. Overall solvency and liquidity are healthy with conservative leverage.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so direct earnings quality tests cannot be performed. OCF/Net Income and FCF coverage of dividends/capex are not calculable. The absence of cash flow data limits assessment of working capital behavior (e.g., receivables, payables timing, DSO/DPO). The strong cash balance (17.11) and low debt suggest near-term liquidity is adequate even without OCF visibility. Watchpoints: verify that OCF/NI exceeds 0.8 over the fiscal year, and assess whether working capital investments are scaling with revenue growth. The presence of approximately 2.45 of net other operating income suggests part of the operating profit uplift may be non-recurring; cash conversion should be validated when full cash flow statements are available.

Dividend Sustainability

The calculated payout ratio is 32.1%, which is conservative relative to the <60% benchmark. Based on EPS of 105.72 JPY, this implies an annualized DPS in the low ~30 JPY range, though official DPS is unreported. FCF coverage cannot be assessed due to missing OCF and capex data. Balance sheet strength (net cash ~14.05 and strong liquidity) provides a buffer for dividends in the near term. Sustainability outlook: absent a structural increase in capex or working capital needs, a ~30% payout appears maintainable; however, confirmation requires full-year OCF and investment plans.

Risk Assessment

Business Risks:

• Project execution risk typical of IT/services businesses (fixed-price project overrun risk).
• Potential reliance on other operating income (~2.45 this quarter) that may not recur.
• Client concentration risk and pricing pressure (not disclosed but common to the industry).
• Talent acquisition/retention and wage inflation pressure on SG&A.

Financial Risks:

• Extraordinary loss (~2.58 inferred) created a meaningful gap from ordinary income to PBT, indicating below-the-line volatility.
• High effective tax rate (37.8%) reduces net margin and could fluctuate.
• Cash flow visibility is limited (OCF/FCF not disclosed), constraining assessment of cash conversion.
• Intangibles and goodwill totaling ~4.88 (about 8.3% of assets) carry potential impairment risk if performance weakens.

Key Concerns:

• Quality of earnings given reliance on other operating income in the quarter.
• Sustainability of margin expansion if revenue growth moderates.
• Verification of OCF/NI and FCF coverage for dividends and growth investments upon full disclosure.

Investment Implications

Key Takeaways:

• Strong revenue growth (+23.7% YoY) with outsized operating profit growth (+69.5% YoY) drove margin expansion.
• Operating margin improved to 9.9% (est. +268 bps YoY) and net margin to 5.3% (est. +110 bps YoY).
• ROE at 8.8% and ROIC at 16.7% indicate solid return metrics with moderate leverage (1.62x).
• Balance sheet is conservative with net cash of ~14.05 and interest coverage ~183x.
• Earnings quality requires validation due to unreported cash flows and the presence of extraordinary losses and other operating income.

Metrics to Watch:

• Order backlog and book-to-bill for revenue visibility.
• Operating cash flow and OCF/Net Income (>1.0 preferred).
• Operating margin and SG&A-to-sales ratio for operating leverage sustainability.
• Extraordinary items and effective tax rate normalization.
• DSO/working capital trends once receivables are disclosed.

Relative Positioning: Within Japan IT/services peers, the company exhibits above-peer operating leverage this quarter and robust ROIC with a conservative balance sheet; however, the quarter’s profit quality is somewhat clouded by other operating income and extraordinary losses, making sustained cash-backed margin expansion the key differentiator to confirm.

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