HENNGE K.K. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥10.92B
• Operating Income: ¥1.79B
• Net Income: ¥1.42B
• EPS: ¥42.40

Income Statement

Balance Sheet

Cash Flow Statement

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

FY2025 Q4 was a strong quarter for HENNGE, with double-digit top-line growth translating into outsized profit expansion and robust cash generation. Revenue rose 30.6% YoY to 109.24, while operating income increased 76.7% YoY to 17.93, and net income climbed 64.2% YoY to 13.58. Gross profit reached 94.45, implying an 86.5% gross margin, consistent with a high-margin SaaS security model. Using implied prior-year figures, operating margin improved from roughly 12.1% to about 16.4%, indicating an estimated 420–430 bps expansion driven by operating leverage. Net margin also improved from roughly 9.9% to 12.4%, an estimated expansion of approximately 250 bps. Ordinary income grew 85.4% YoY to 18.54, with non-operating contributions modest at 0.84 (interest income 0.19), underscoring earnings primarily driven by core operations. Earnings quality was high: operating cash flow of 27.26 was about 2.0x net income, and free cash flow was positive at 13.92 despite investment activity. The balance sheet is cash-rich (cash and deposits 73.19), current assets of 81.05 comfortably exceed current liabilities of 65.36, and interest burden is negligible (interest expense 0.03, coverage 616x). Total liabilities are 68.98 against equity of 38.44 (headline D/E 1.79x), but the absence of reported interest-bearing debt suggests much of the liability is operating (likely deferred revenue), typical for subscription businesses. DuPont decomposition yields a high ROE of 35.3% (margin 12.4% × asset turnover 1.017 × leverage 2.79x), with margin expansion the main contributor. Reported operating margin and ROA metrics from XBRL appear inconsistent with line-item calculations, so we rely on calculated margins. A ROIC of -36.2% is flagged by the data provider; however, this appears at odds with positive operating income and may reflect a methodology or denominator choice (e.g., large cash/investments or period averaging) rather than true value destruction. Capital allocation was active with share repurchases of 4.69 and moderate capex of 0.31, while investing CF (-13.34) likely reflects securities-related activity (investment securities on the balance sheet are 13.57). Dividend payout remains minimal (payout ratio 7.2% calculated, DOE 0.0), consistent with reinvestment plus buybacks. Forward-looking, the combination of strong gross margins, improving operating leverage, and cash generation supports ongoing growth investments, though sustaining 30%+ revenue growth may require continued ARR expansion and controlled customer acquisition costs. Overall, the quarter signals healthy scaling dynamics, strong cash conversion, and prudent balance sheet management, with the main watchpoints being growth durability, cost discipline, and the nature of investment cash outflows.

Profitability Analysis

ROE decomposition: 35.3% = 12.4% net profit margin × 1.017 asset turnover × 2.79x financial leverage. The largest YoY driver was margin expansion: operating income grew 76.7% vs revenue 30.6%, implying meaningful operating leverage and SG&A efficiency. Estimated operating margin rose from ~12.1% (prior period, back-solved) to 16.4% currently (+428 bps), and net margin from 9.9% to 12.4% (+250 bps). Business drivers likely include scale benefits in sales and marketing and stable COGS consistent with a high-margin SaaS security offering (current gross margin 86.5%). Non-operating items were modest (interest income 0.19), so profit growth was predominantly operational rather than financial. The improvement appears structurally supported by scale, but some elements could be one-time or timing-related (e.g., lower discretionary spend, hiring cadence). No explicit red flags of negative operating leverage; however, continued monitoring is needed to ensure SG&A growth does not re-accelerate above revenue as hiring or marketing ramps. In summary, ROE strength is primarily margin-driven, with stable asset turnover and moderately high leverage (largely operating liabilities) amplifying equity returns.

Growth Assessment

Revenue growth of +30.6% YoY (to 109.24) indicates strong demand momentum, consistent with expanding subscription ARR for enterprise access/security solutions. Operating income growth of +76.7% and ordinary income +85.4% demonstrate operating leverage and disciplined cost control. Net income grew +64.2%, with a tax rate near 29.8% and minimal financing drag. Gross margin remains high at 86.5%, supporting reinvestment capacity while preserving profitability. The sustainability of 30%+ growth will depend on new customer wins, upsell to existing accounts, and churn retention in a competitive SaaS security market. Non-operating income is small (0.84, mostly interest), suggesting limited reliance on financial gains. Investing CF (-13.34) and increased investment securities (13.57 on balance sheet) point to treasury/investment positioning rather than heavy capex (capex only 0.31). Outlook: continued revenue growth with incremental margin expansion is plausible if sales efficiency holds and churn remains low; key risks include macro IT budget sensitivity and competitive pricing pressure.

Financial Health

Liquidity is adequate: current ratio 1.24x and quick ratio 1.24x exceed 1.0 but are below the 1.5x comfort benchmark; high cash (73.19) materially mitigates risk. No explicit short- or long-term interest-bearing debt was reported; interest expense is de minimis (0.03), and interest coverage is very strong (616x). Debt-to-equity is shown as 1.79x, but this likely reflects total liabilities including deferred revenue rather than financial debt; for SaaS, such operating liabilities are less concerning from a solvency perspective. Maturity mismatch risk appears manageable: current assets 81.05 vs current liabilities 65.36 provide a buffer of 15.69 in working capital. Noncurrent liabilities are small (3.62). Off-balance sheet obligations were not reported; none can be assessed from available data. Equity stands at 38.44 with retained earnings of 35.66, indicating accumulated profitability and balance sheet resilience.

Cash Flow Quality

Earnings quality is high with OCF/Net Income at 2.01x (27.26 vs 13.58), suggesting strong cash conversion likely aided by upfront billings/subscription collections. Free cash flow is positive at 13.92 despite active investment and buybacks; note that a simple OCF minus capex calculation would imply higher FCF (~26.95), so the provided FCF likely includes other investing items (e.g., securities purchases). Capex is modest (0.31), consistent with an asset-light model. Investing CF (-13.34) seems driven by financial investments (investment securities at 13.57) rather than heavy internal capex, implying flexibility to adjust if needed. Financing CF (-4.17) reflects share repurchases of 4.69; dividends were unreported but payout ratios suggest minimal cash dividends. No signs of working capital manipulation are evident from the high cash conversion; however, reliance on deferred revenue can introduce period-to-period cash flow variability. Overall, cash generation comfortably covers organic needs and shareholder returns as currently sized.

Dividend Sustainability

Dividend data are unreported; the calculated payout ratio of 7.2% implies a low cash commitment if any dividend is paid. With FCF of 13.92, FCF coverage of potential dividends is ample (FCF coverage 14.28x). The company appears to prioritize buybacks (4.69) over cash dividends (DOE 0.0), aligning with growth-stage capital allocation. Given strong OCF and minimal capex, sustaining a modest dividend policy, if pursued, would be readily affordable; flexibility remains high to tilt between reinvestment, buybacks, and potential future dividends depending on growth opportunities.

Risk Assessment

Business Risks:

• Growth durability risk: sustaining 30%+ revenue growth requires continued new logo wins and upsell while maintaining low churn.
• Competitive pressure in SaaS security/access management could drive pricing compression and higher customer acquisition costs.
• Product/technology risk: security vulnerabilities or service outages could impact reputation and churn.
• Customer concentration risk if top accounts represent outsized ARR (not disclosed).
• Macroeconomic IT budget sensitivity could elongate sales cycles.

Financial Risks:

• Headline D/E of 1.79x may be misinterpreted; if any hidden debt exists (unreported), leverage risk could be understated.
• Liquidity cushion is adequate but not abundant (current ratio 1.24x); a sharp increase in current liabilities could pressure near-term liquidity.
• Investment securities exposure (13.57) introduces market/valuation risk to non-operating results and cash.
• Cash flow timing risk from deferred revenue billing cycles may introduce OCF volatility.

Key Concerns:

• Data-provider ROIC flagged at -36.2% is inconsistent with profitability; methodology differences could mask true capital efficiency.
• XBRL-reported operating margin (0.2%) and ROA appear inconsistent with calculated margins, creating reporting noise.
• Limited disclosure on SG&A breakdown and R&D spend reduces visibility into cost drivers and future operating leverage.

Investment Implications

Key Takeaways:

• Strong quarter with 30.6% revenue growth and 76.7% operating profit growth indicates effective operating leverage.
• High gross margin (86.5%) and OCF/NI of 2.01x underscore high-quality earnings.
• ROE of 35.3% driven mainly by margin gains; leverage effect largely from operating liabilities rather than debt.
• Cash-rich balance sheet (cash 73.19) and minimal capex (0.31) support ongoing reinvestment and buybacks.
• Headline D/E and ROIC signals require careful interpretation given SaaS accounting and data-methodology effects.

Metrics to Watch:

• ARR growth, net revenue retention, and churn (not disclosed here).
• Sales efficiency (LTV/CAC, payback) and SG&A growth vs revenue.
• Operating and net margin trends for sustained leverage.
• OCF conversion and deferred revenue movements.
• Investment securities balance and realized/unrealized gains/losses.
• Customer concentration and large-deal pipeline.

Relative Positioning: Within Japanese SaaS/security peers, HENNGE demonstrates healthy scale economics with superior cash conversion and improving operating margins, backed by a strong cash position; key differentiators will be sustained ARR growth and disciplined customer acquisition compared to peers facing similar competitive and budgetary headwinds.

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