artience Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥258.43B
• Operating Income: ¥14.88B
• Net Income: ¥12.80B
• EPS: ¥194.92

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: A mildly soft quarter with margin compression and a sharp drop in net profit despite stable top-line, while balance sheet liquidity remains strong but capital efficiency is below target. Revenue was 2,584.34 (100M JPY), down 0.7% YoY, indicating flat-to-slightly weaker demand conditions. Operating income declined 5.8% YoY to 148.78, implying weaker operating leverage. Ordinary income fell 3.4% YoY to 144.54 as non-operating expenses exceeded non-operating income (net -8.33). Net income dropped 23.4% YoY to 96.65, highlighting below-the-line pressures and/or non-operating headwinds. Gross profit margin printed at 21.6%, broadly stable in absolute terms. Operating margin compressed to 5.76% versus an estimated 6.07% a year ago, a 31 bps compression, underscoring SG&A rigidity against a flat revenue base. Ordinary margin was 5.59% vs. ~5.74% last year, a 15 bps compression, with interest expense (19.64) a notable drag. Net margin fell to 3.74% vs. ~4.85% last year, a significant compression of about 111 bps. Earnings quality is uncertain because operating cash flow was not disclosed; we cannot corroborate accrual earnings with cash conversion. The interest coverage ratio of 7.58x remains solid, mitigating immediate solvency concerns. Liquidity is robust with a current ratio of 210% and quick ratio of 172%, and working capital of 1,136.63. However, ROE of 3.6% and ROIC of 4.2% are below common cost-of-capital hurdles, indicating underwhelming capital efficiency. Total comprehensive income (45.44) was materially below net income (96.65), implying sizable negative OCI impacts, likely from investment securities or FX valuation. Dividend payout is estimated at 52%, within a sustainable range if cash flows are supportive, but FCF coverage is unassessable due to unreported cash flow data. Forward-looking, the company needs to improve price/mix and cost discipline to restore operating margin and raise ROIC above the 7–8% benchmark.

Profitability Analysis

ROE decomposition: ROE (3.6%) = Net Profit Margin (3.7%) × Asset Turnover (0.580x) × Financial Leverage (1.67x). The largest change YoY is in net profit margin, which compressed by roughly 111 bps (from ~4.85% to 3.74%) versus modest deterioration in operating/ordinary margins. Business drivers include weaker operating leverage (revenue -0.7% vs. operating income -5.8%), and higher non-operating drag: non-operating expenses (37.84) exceeded income (29.51), and interest expense (19.64) weighed on ordinary income. The margin pressure appears partly cyclical (raw material/energy cost pass-through lags, product mix) and partly financial (higher interest burden), suggesting partial reversibility if pricing and cost actions catch up; however, structural improvement requires sustained cost control and mix upgrade. Asset turnover at 0.58x is subdued for a chemicals/materials business and likely reflects elevated receivables (1,041.81) and inventories (392.23) relative to sales; improvement here could lift ROE without added leverage. Financial leverage at 1.67x is conservative, so ROE upside will chiefly depend on better margins and turnover rather than gearing. A concerning trend is operating deleverage: SG&A (400.77) appears sticky, resulting in operating income falling faster than sales; we cannot confirm YoY SG&A growth due to lack of prior-year SG&A, but the pattern is consistent with fixed-cost absorption pressure.

Growth Assessment

Top-line declined slightly (-0.7% YoY), pointing to flattish demand and/or price/mix softness. Gross profit of 558.74 implies a gross margin of 21.6%, which looks stable but insufficient to offset opex rigidity. Operating income fell 5.8% YoY to 148.78, reflecting negative operating leverage. Net income dropped 23.4% YoY to 96.65, indicating additional below-the-line headwinds (net non-operating loss and higher interest burden). Ordinary margin compression (approx. -15 bps YoY) suggests limited pricing power or lagged cost pass-through. Profit sustainability hinges on price adjustments, procurement/energy cost trends, and product mix upgrades (e.g., higher-value additives, functional materials). We note total comprehensive income (45.44) far below net income (96.65), so equity market and FX volatility on investment securities could continue to obscure bottom-line trajectory. Near term, modest recovery is plausible if input costs ease and pricing actions hold; however, with ROIC at 4.2% (<5% threshold), medium-term growth must come with disciplined capital allocation and better working capital turns.

Financial Health

Liquidity is strong: current ratio 210% and quick ratio 172.1% comfortably exceed benchmarks, with working capital of 1,136.63. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); reported D/E is 0.67x, indicating moderate leverage. Short-term loans are 138.00 against cash of 408.96 and substantial receivables (1,041.81), suggesting low near-term refinancing/maturity mismatch risk. Long-term loans of 342.99 are manageable relative to total equity of 2,659.58. Interest coverage at 7.58x is solid, indicating adequate buffer against rate increases. Investment securities of 566.17 are sizable; while they bolster liquidity, they introduce market valuation risk that can affect OCI and capital. No explicit off-balance sheet obligations were reported; data limitations prevent assessment of guarantees or leases beyond what is included in liabilities.

Cash Flow Quality

Operating cash flow (OCF) was not disclosed; therefore, OCF/Net Income and FCF cannot be calculated, and earnings quality cannot be validated from cash conversion. Given the drop in net income and margin compression, cash generation may have been pressured if working capital did not release; however, we cannot confirm. Potential working capital risks include elevated receivables (1,041.81) relative to sales that could delay cash inflows, and inventories (392.23) that may reflect demand softness; again, trends are unreported. Without OCF, we cannot assess FCF coverage of dividends or capex. No clear signs of working capital manipulation can be identified from the limited data provided.

Dividend Sustainability

The calculated payout ratio is 52.0%, within the <60% benchmark for sustainability. However, OCF and FCF are unreported, so coverage cannot be validated. Balance sheet strength (current ratio 210%, quick ratio 172%, and moderate leverage) provides some buffer to support dividends through cycles. Total comprehensive income significantly below net income in this period implies equity may be more volatile than earnings suggest, which can indirectly influence future payout decisions. Policy trajectory will depend on restoring ROIC toward management targets (industry benchmark 7–8%); at the current 4.2%, incremental distributions should be balanced against reinvestment needs.

Risk Assessment

Business Risks:

• Input cost volatility for petrochemical feedstocks and energy impacting gross margins
• Demand softness in printing/packaging and industrial end-markets reflected in -0.7% revenue
• Product mix shifts that may dilute margins if higher-value lines underperform
• Execution risk in price pass-through and cost control amid competitive pressures
• Potential FX exposure affecting revenues/costs and valuation of overseas assets

Financial Risks:

• Capital efficiency risk: ROIC at 4.2% below the 5% warning threshold
• Non-operating drag: interest expense (19.64) and net non-operating loss (-8.33) pressure ordinary income
• Market valuation risk from investment securities (566.17) contributing to negative OCI (total comprehensive income 45.44 < net income 96.65)
• Refinancing risk is low near term but interest rate increases could erode coverage from the current 7.58x

Key Concerns:

• Net margin compression (~111 bps YoY) and steep net income decline (-23.4% YoY)
• Inability to assess cash conversion due to unreported OCF and FCF
• Working capital intensity (receivables and inventories) potentially weighing on asset turnover (0.58x) and ROE (3.6%)
• Sustained sub-target ROIC may constrain long-term value creation if not improved

Investment Implications

Key Takeaways:

• Stable revenue with meaningful margin compression and non-operating headwinds drove a 23% YoY decline in net profit
• Operating margin down ~31 bps YoY to 5.76% on SG&A rigidity and weaker operating leverage
• Strong liquidity (current ratio 210%, quick ratio 172%) and solid interest coverage (7.58x)
• Capital efficiency is weak: ROE 3.6%, ROIC 4.2% below benchmark
• Negative OCI likely tied to investment securities/FX reduced comprehensive income well below net income

Metrics to Watch:

• OCF/Net income and FCF once disclosed (target >1.0 OCF/NI)
• Operating margin trajectory and price pass-through vs. input costs
• Asset turnover improvements via receivables and inventory management
• ROIC progression toward 7–8%
• Non-operating items: interest expense trend and valuation impacts on securities/OCI
• Net margin recovery toward prior-year ~4.8%+

Relative Positioning: Within Japanese chemicals/materials peers, artience shows healthy liquidity and moderate leverage but lags on capital efficiency and margin resilience; near-term positioning is defensive balance sheet strength offset by subdued ROIC and sensitivity to non-operating/market valuation effects.

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