Altech Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥38.19B
• Operating Income: ¥3.92B
• Net Income: ¥2.37B
• EPS: ¥136.62

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 solid Q3 with double-digit profit growth, modest margin expansion, and very strong balance sheet liquidity, albeit with limited cash flow disclosure that tempers earnings quality visibility. Revenue rose 6.2% YoY to 381.9, led by resilient demand in core staffing/engineering solutions. Operating income increased 9.4% YoY to 39.24, outpacing revenue and implying positive operating leverage. Net income grew 13.6% YoY to 26.83, aided by small non-operating gains (1.51) and low interest burden (interest expense 0.02). Gross margin is reported at 21.7%, and the implied operating margin is approximately 10.3% (OP 39.24/Revenue 381.9). Based on YoY growth rates, operating margin appears to have expanded by roughly 30 bps (from about 10.0% to 10.3%). The effective tax rate is relatively high at 35.8%, which partially offsets operating gains. Non-operating items are minor (non-operating income equals ~3.8% of OP), indicating earnings are primarily driven by core operations. DuPont indicates ROE of 14.1% (NPM 7.0% × AT 1.332 × leverage 1.51x), a healthy level for a low-leverage services business. Balance sheet quality is strong with cash and deposits of 130.2 and a current ratio of 233%, providing ample liquidity. Leverage is conservative (total liabilities/equity ~0.51x; interest-bearing debt is de minimis), supporting resilience. Dividend payout is estimated at 71.9% of earnings, above the 60% benchmark, implying attractive shareholder returns but a need to confirm FCF coverage. Cash flow data (OCF/FCF) are unreported, so we cannot confirm the conversion of earnings into cash or the sustainability of the payout from internal generation. Forward-looking, a tight engineering labor market, billing rate discipline, and utilization stability will be key to sustaining margin gains. With robust liquidity and low debt, the company has capacity for investment and shareholder returns, but the elevated payout ratio and absent cash flow disclosure warrant monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 14.1% = Net Profit Margin 7.0% × Asset Turnover 1.332 × Financial Leverage 1.51x. Change drivers: Profit grew faster than sales (+13.6% vs +6.2%), indicating margin improvement was the largest contributor among the components. Business rationale: Positive operating leverage from a higher revenue base and cost discipline (SG&A growth implied below revenue growth) lifted operating income by 9.4%, while negligible interest expense preserved ordinary income. Sustainability: Operating leverage from utilization and rate discipline can persist if demand holds; however, wage inflation and hiring/training costs could compress spread if not passed through. Margin quality: Non-operating items are small (1.51), so core profitability is the main engine. Flags: Effective tax rate at 35.8% constrains NPM; if normalized lower, NPM could improve. Watch for SG&A growth; while detailed SG&A breakdown is unreported, the YoY pattern suggests SG&A did not outpace revenue this quarter.

Growth Assessment

Top line grew 6.2% YoY to 381.9, consistent with stable demand in engineering staffing and solutions. Operating income rose 9.4%, indicating modest operating leverage, likely from higher utilization and/or improved billing mix. Net income rose 13.6%, benefiting from stronger operations and minimal financing costs. Revenue sustainability will hinge on headcount growth, utilization rates, and billing rate increases relative to wage inflation. Profit growth quality is decent given limited reliance on non-operating items; however, absence of cash flow data prevents validation of cash conversion. Outlook: With a strong order environment typical for late fiscal periods and ample liquidity for recruitment/training, incremental growth appears achievable, but macro cyclicality in manufacturing/engineering demand remains a headwind to forward visibility.

Financial Health

Liquidity is very strong: current ratio 232.8% and quick ratio 232.7%, with cash and deposits of 130.2 against current liabilities of 92.63. No warning on current ratio (<1.0) or leverage; both are comfortably healthy. Solvency: Total liabilities/equity ~0.51x, and interest coverage is extraordinarily high at 2,517x, reflecting de minimis interest expense (0.02). Maturity profile: Short-term loans are 2.09 against current assets of 215.65, indicating negligible maturity mismatch risk. Off-balance sheet obligations: Not disclosed; no data provided on leases or guarantees.

Cash Flow Quality

Operating cash flow data are unreported, so OCF/Net Income cannot be assessed and we cannot validate earnings-to-cash conversion. Free cash flow is also unreported; therefore, FCF coverage of dividends and capex cannot be evaluated. Working capital indicators suggest low inventory exposure and a receivables-heavy model (AR 70.71) typical of staffing, but without cash flow we cannot infer collection trends or DSO changes. No signs of working capital manipulation can be assessed from the provided data.

Dividend Sustainability

The calculated payout ratio is 71.9%, above the 60% benchmark for long-term comfort, implying a generous distribution policy. With robust net cash and minimal debt, near-term payout is supported by balance sheet strength. However, without OCF/FCF, medium-term sustainability depends on stable cash generation and capex needs for growth (training/recruiting investments). Policy outlook likely prioritizes stable to progressive dividends, but verification of FCF coverage is required once cash flow data are available.

Risk Assessment

Business Risks:

• Labor market tightness and wage inflation potentially compressing spread if billing rates lag.
• Utilization variability due to client project timing and macro slowdown in manufacturing/engineering end-markets.
• Client concentration risk typical in staffing models (not disclosed here).
• Regulatory/compliance risk related to labor dispatch laws and working time regulations.
• Tax rate volatility given a relatively high effective tax rate this quarter (35.8%).

Financial Risks:

• Cash flow visibility is limited (OCF/FCF unreported), creating uncertainty on dividend coverage.
• Receivables concentration and collection risk inherent to B2B staffing; AR stands at 70.71 with low payables offset.
• Potential need to front-load hiring/training costs could pressure short-term cash conversion.

Key Concerns:

• Payout ratio at 71.9% exceeds the 60% benchmark; sustainability contingent on cash conversion.
• Margin sensitivity to wage inflation and pricing power.
• Data gaps: no cash flow, capex, or detailed SG&A breakdown reported, constraining depth of analysis.

Investment Implications

Key Takeaways:

• Healthy topline growth (+6.2% YoY) with stronger profit growth (+9.4% OP, +13.6% NI) implies modest operating leverage.
• Core profitability drives results; non-operating items are small and financing costs negligible.
• ROE at 14.1% is robust for a low-leverage services company; ROIC appears strong versus common benchmarks.
• Balance sheet is very liquid and conservatively levered, supporting resilience and optionality.
• Dividend payout is elevated at 71.9%; confirm sustainability once OCF/FCF are disclosed.

Metrics to Watch:

• OCF/Net Income and FCF once available (target >1.0x and positive FCF after dividends).
• Utilization rate, engineer headcount growth, and average billing rate vs wage inflation.
• SG&A growth versus revenue and implied operating margin trajectory.
• Receivables days/collection trend and any changes in client concentration.
• Effective tax rate normalization and any policy guidance on dividends.

Relative Positioning: Within Japan-focused engineering staffing peers, the company exhibits above-average liquidity, low financial risk, and competitive ROE, with profitability dependent on maintaining utilization and pricing power in a tight labor market.

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