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

artience Co., Ltd. (4634) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥258.4bn, down 0.7% YoY, indicating broadly flat top-line performance amid a soft demand environment. Gross profit was ¥55.9bn, implying a gross margin of 21.6%, which remains solid but leaves limited buffer if input costs rise. Operating income declined 5.8% YoY to ¥14.9bn, compressing operating margin to 5.8%, signaling modest negative operating leverage as a slight revenue dip translated into a larger operating profit decline. Ordinary income of ¥14.5bn reflects net non-operating costs, with interest expense of ¥2.0bn weighing on profitability and underscoring the cost of debt. Net income fell 23.4% YoY to ¥9.7bn, a sharper decline than operating profit, likely reflecting higher non-operating and/or extraordinary costs and a normalized tax burden. DuPont metrics show net margin at 3.74%, asset turnover at 0.58x, and financial leverage at 1.67x, yielding ROE of 3.63%, which is modest for the sector and below typical mid-single to high-single digit targets for Japanese chemical/materials peers. The balance sheet appears conservative: total assets are ¥445.2bn, equity is ¥266.0bn, implying an equity ratio of about 59.7% and liabilities-to-equity of 0.75x, providing ample solvency capacity. Liquidity is strong with a current ratio of 176% and a quick ratio of 148%, supported by working capital of ¥105.8bn; inventories stand at ¥39.0bn, a manageable 16% of current assets. Interest coverage of roughly 7.6x (operating income/interest expense) is adequate but should be monitored if rates rise or earnings soften further. The effective tax rate, inferred from taxes and net income, is approximately 28–29%, consistent with Japan’s statutory range, though the auto-calculated figure shown as 0.0% reflects unreported items rather than actual zero. Cash flow details (OCF/FCF) and depreciation were not disclosed in this dataset, limiting visibility on earnings quality, capex intensity, and cash conversion. Dividend data also show zero, which likely represents non-disclosure rather than a true suspension; EPS is ¥194.92, but lack of DPS/FCF disclosure constrains payout assessment. Operationally, the small revenue decline coupled with a larger net income contraction suggests margin pressure and non-operating headwinds (notably interest cost), highlighting the importance of cost pass-through and mix improvement in the core businesses. Overall, artience retains a solid financial position with healthy liquidity and moderate leverage, but profitability softness and incomplete cash flow disclosures temper confidence in near-term earnings quality. Key watchpoints include gross/operating margin resilience, interest burden, and the trajectory of asset turnover as demand normalizes.

Profitability Analysis

ROE of 3.63% decomposes into net profit margin 3.74% × asset turnover 0.58x × financial leverage 1.67x. The primary constraint is margin, with gross margin at 21.6% and operating margin at 5.8%, indicating limited pricing power or incomplete cost pass-through in the period. Operating income declined 5.8% YoY versus a 0.7% revenue decline, implying negative operating leverage as fixed costs weighed on profitability. Ordinary income (¥14.5bn) sits below operating income due to net non-operating costs; interest expense of ¥2.0bn is material at ~13% of operating income, dragging ordinary margin. Net income fell 23.4% YoY, a steeper contraction than operating income, suggesting additional non-operating/extraordinary factors and a normalized tax charge. Interest coverage is about 7.6x, adequate but indicating sensitivity to earnings volatility. Effective tax rate estimated at roughly 28–29% (based on reported income taxes of ¥3.85bn and implied pre-tax income), consistent with norms. EBITDA was not disclosed due to missing D&A, limiting assessment of cash earnings and non-cash burden. Overall margin quality appears pressured, and improving gross-to-operating spread via cost control and mix uplift will be key to enhancing ROE.

Growth Assessment

Revenue contracted slightly by 0.7% YoY to ¥258.4bn, indicating stable but not expanding demand across key end markets. Operating income fell 5.8% YoY, pointing to margin compression and negative operating leverage; management’s ability to execute pricing and procurement initiatives will determine medium-term recovery. Net income decreased 23.4% YoY, reflecting non-operating drag (notably interest costs) and likely extraordinary/tax effects, dampening bottom-line momentum. Asset turnover of 0.58x suggests moderate efficiency; improving turnover via inventory optimization and working capital discipline could support earnings in a flat growth environment. With limited disclosure on cash flow and capex, visibility on investment for growth (e.g., high-value functional materials, packaging, electronics) is constrained in this dataset. Near-term outlook hinges on raw material cost trends (petrochemical feedstocks), FX (yen), and demand in packaging and electronics; stabilizing inputs could aid margin recovery while weak macro would cap top-line growth. Overall growth trajectory appears muted near term, with focus shifting to margin repair and efficiency gains.

Financial Health

Total assets ¥445.2bn, total equity ¥266.0bn, total liabilities ¥199.0bn. Implied equity ratio ~59.7% (equity/assets), indicating a strong capital base despite the reported equity ratio field showing 0.0% (undisclosed). Debt-to-equity of 0.75x (liabilities/equity) suggests moderate leverage typical for diversified materials. Liquidity is robust: current ratio 175.9%, quick ratio 147.9%, and working capital of ¥105.8bn provide ample coverage of short-term obligations. Inventories are ¥39.0bn (about 16% of current assets), a manageable level; inventory discipline remains important given the slight revenue contraction. Interest expense of ¥2.0bn versus operating income of ¥14.9bn yields interest coverage of ~7.6x, acceptable but not excessive; a further downturn in operating profit could pressure coverage. Overall solvency and liquidity are sound, giving the company capacity to navigate cyclical softness.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed in this dataset (displayed as zero), preventing direct assessment of cash conversion, capex intensity, and free cash flow. Consequently, the OCF/Net income ratio and FCF figures shown as 0.00 reflect non-disclosure rather than underlying weakness. Depreciation and amortization are also undisclosed, limiting the ability to bridge accounting earnings to cash earnings. Working capital visibility is partial; current assets/liabilities and inventories are available and indicate healthy liquidity, but period-over-period movements are not provided. Inference: with operating margin at 5.8% and moderate leverage, cash generation should be positive in a steady environment, but confirmation requires OCF and capex data. Key to earnings quality will be the degree of working capital investment (especially inventories and receivables) and the level of maintenance versus growth capex once disclosed.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero due to non-disclosure; therefore, dividend policy and sustainability cannot be assessed from this dataset. EPS is ¥194.92 for the period, which would typically support some level of payout under standard Japanese corporate policies if free cash flow permits. However, absent OCF/FCF and DPS, we cannot evaluate coverage ratios or adherence to any target payout. Balance sheet strength (implied equity ratio ~60% and strong liquidity) provides capacity, but sustainability hinges on actual free cash flow after capex and interest. Outlook on dividends remains indeterminate pending disclosure of cash flows and explicit policy guidance.

Risk Assessment

Business Risks:

• Raw material price volatility (petrochemical feedstocks, solvents, pigments) impacting gross margin and pricing pass-through.
• Demand softness in key end markets (packaging, printing, electronics) leading to negative operating leverage.
• Foreign exchange fluctuations (JPY volatility) affecting input costs and overseas earnings translation.
• Customer inventory adjustments and order timing, impacting volumes and working capital.
• Competitive pressures and substitution in printing inks and functional materials.
• Regulatory/environmental compliance costs (VOC, carbon, chemical regulations) affecting cost base.

Financial Risks:

• Interest expense of ¥2.0bn reduces earnings; higher interest rates or refinancing at higher spreads could pressure coverage.
• Potential working capital swings (receivables, inventories) could dampen operating cash flow in slower demand conditions.
• Exposure to extraordinary items or non-operating losses that can amplify net income volatility versus operating income.
• Currency risk on foreign subsidiaries and raw materials procurement.

Key Concerns:

• ROE at 3.63% is modest; margin improvement is needed to enhance shareholder returns.
• Operating margin compression (5.8%) despite near-flat revenue indicates cost pressures and negative operating leverage.
• Incomplete disclosure of cash flows and D&A obscures earnings quality and FCF strength.
• Interest burden is meaningful relative to operating income (~13%), limiting ordinary income upside.

Investment Implications

Key Takeaways:

• Top line is broadly stable (-0.7% YoY), but profitability is under pressure with operating income down 5.8% and net income down 23.4% YoY.
• ROE of 3.63% reflects thin net margins (3.74%) and moderate asset turnover (0.58x); margin repair is the main lever.
• Balance sheet and liquidity are strong (implied equity ratio ~60%, current ratio 176%), providing resilience.
• Interest cost is a notable headwind (coverage ~7.6x); reducing debt cost or improving OI would aid ordinary income.
• Cash flow, capex, and DPS are undisclosed; visibility on FCF and payout is limited and should be a monitoring priority.

Metrics to Watch:

• Gross and operating margin progression (price/mix versus input costs).
• Interest expense and interest coverage ratio.
• Asset turnover and inventory days (working capital efficiency).
• Operating cash flow, capex, and free cash flow once disclosed.
• Ordinary income versus operating income gap (non-operating drag).
• Effective tax rate normalization and extraordinary items.

Relative Positioning: Within Japanese chemicals/materials and printing-related peers, artience exhibits a solid balance sheet and liquidity but currently lower ROE driven by margin pressure and non-operating costs; improved cost pass-through, mix shift to higher-value materials, and tighter working capital could close the gap to sector medians once cash flow and capex discipline are evidenced.

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
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