NS Group,Inc. FY2025 FY Earnings Report

Financial Highlights

• Net Sales: ¥29.83B
• Operating Income: ¥9.87B
• Net Income: ¥6.33B
• EPS: ¥121.27

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

---

AI Financial Analysis

Executive Summary

Verdict: NSグループ delivered a solid FY2025 operating performance with double-digit top-line and bottom-line growth while generating strong operating cash flow, but the balance sheet shows concentration in goodwill and stretched receivable dynamics that warrant close monitoring. Revenue rose 13.2% YoY to ¥29,826M (298.26 in 100M JPY), and operating income increased 12.0% YoY to ¥9,873M, producing an operating margin consistent with a high-margin service business. Profit before tax reached ¥9,365M and net income climbed 11.3% YoY to ¥6,325M, while basic EPS improved to ¥121.27. Operating cash flow was robust at ¥8,283M, materially exceeding net income (OCF/Net Income = 1.31x), and free cash flow was positive at ¥7,809M — supporting cash returns to shareholders and debt servicing. Management returned cash to shareholders: cash dividends and distributions totaled a material amount (dividends paid ¥6,000M), but the calculated payout ratio based on disclosed dividend entries appears extremely high (218.6%) driven by an unusually large interim/Q2 per-share figure; reported payout metrics diverge. Total assets increased modestly to ¥76,141M and total equity to ¥28,884M, giving an equity ratio of 37.9%. Financing cash flow was negative ¥7,192M, largely reflecting dividend distributions and some long-term debt repayment (repayments ¥864M). Goodwill is very large at ¥36,039M (≈47.3% of total assets) and exceeds equity on a per-item basis (Goodwill/Equity ≈ 124.8%), creating potential impairment risk. Receivables increased to ¥11,782M and the company displays high receivable days (quality alert DSO ~144 days), which concentrates working capital risk. Interest-bearing debt stands at ¥25,868M (long-term loans ¥24,907M; short-term ¥961M) and debt-to-equity is 1.64x (Debt/Capital 47.2%), reflecting moderate leverage for a non-financial services company but higher than conservative benchmarks. Liquidity metrics show cash of ¥15,983M vs short-term debt ¥961M, yet an internal quality alert flags Cash/Short-term debt as stressed due to reporting mechanics; operating cash coverage is strong but payables and taxes payable levels require monitoring. Tax burden (NI/EBT) at 0.675 and effective tax rate ~32.5% are within reason for the sector. The DuPont decomposition (Net margin 21.2% × Asset turnover 0.392 × leverage 2.64 = calculated ROE ~21.9%) suggests high profitability and leverage, but an XBRL/reported ROE figure diverges, indicating potential reporting or ratio-definition differences that need reconciliation. Forward view: management forecasts further growth in FY2026 (Net sales guidance ¥33,069M, +10.9%; operating income ¥11,898M, +20.5%; net income ¥7,900M, +24.9%) and a year-end DPS guidance of ¥38, implying continued shareholder returns; however, monitoring of receivable collection, goodwill impairment risk, and dividend sustainability versus free cash flow will be pivotal for the investment case.

Profitability Analysis

dupont_3_factor:

• net_profit_margin: 21.2% (Net income ¥6,325M / Revenue ¥29,826M)
• asset_turnover: 0.392 (Revenue ¥29,826M / Total assets ¥76,141M)
• financial_leverage: 2.64x (Total assets ¥76,141M / Total equity ¥28,884M)
• calculated_ROE: 21.9% (product of components) components_movement_and_drivers: The dominant contributor to calculated ROE is an exceptionally high net profit margin (21.2%), followed by elevated financial leverage (2.64x). Asset turnover is modest (0.392) reflecting the business model (service/guarantee business with substantial intangible/goodwill balance). The margin expansion appears to be business-driven (higher revenues from rent guarantee and rent collection outsourcing: revenue from rent guarantee increased from ¥23,625M to ¥26,213M; rent collection outsourcing increased as well), rather than one-off items shown in the P&L. Operating income growth (12.0% YoY) roughly tracks revenue growth (13.2% YoY), indicating stable operating leverage and no outsized SG&A deterioration in reported metrics. sustainability_assessment: High net margin is supportable given the business model and recurring fee nature of rent guarantee services, but its sustainability is contingent on credit performance (delinquencies) and collection efficiency. The high leverage amplifies ROE but raises solvency sensitivity if operating cash flows deteriorate. The large goodwill balance suggests past M&A has driven growth; goodwill-related shocks would compress margins and ROE if impairments occur. No SG&A line items were available, so potential concerning trends (e.g., SG&A growth outpacing revenue) cannot be evaluated and are omitted per data rules.

Growth Assessment

revenue_sustainability: Revenue growth of 13.2% YoY to ¥29,826M was broad-based across disclosed service lines: rent guarantee service revenue rose from ¥23,625M to ¥26,213M and rent collection outsourcing rose from ¥2,501M to ¥2,986M. Management guidance forecasts continued growth (FY2026 NetSales guidance ¥33,069M, +10.9%). Growth drivers appear to be continued expansion of guarantee contracts and increased usage of collection/delegated services. profit_quality_and_outlook: Profit growth is supported by strong operating cash flow (OCF ¥8,283M > Net income ¥6,325M), indicating earnings are largely cash-backed (OCF/Net Income = 1.31x). Free cash flow of ¥7,809M is positive and exceeds dividends paid of ¥6,000M in the year, but the reported payout ratio calculation shows large divergence (see dividend section). Outlook risks include higher credit losses, slower collection (already indicated by high DSO), and potential goodwill impairments which would materially reduce reported profits despite operational health. visibility: Management issued a full-year forecast with material upside in operating income and net income; visibility is reasonable given single-segment business and domestic-only revenue base, but credit and operational metrics (delinquency, DSO) will determine realized performance.

Financial Health

liquidity: Cash & equivalents ¥15,983M vs short-term loans ¥961M and working capital (current assets ¥29,498M) indicates an apparent liquidity buffer. However, a provided Quality Alert (LIQUIDITY_STRESS: Cash/Short-term debt 0.00x) must be interpreted: root cause is reporting metric mechanics rather than absolute absence of cash. The company has positive net cash flow from operations and net increase in cash of ¥616M. solvency: Interest-bearing debt ¥25,868M vs equity ¥28,884M gives D/E ≈1.64x and debt/capital 47.2% — elevated versus conservative thresholds (<1.0x) but not extreme versus industry norms for acquisitive service companies. Finance costs were disclosed at ¥523M; interest burden (EBT/EBIT) 0.949 indicates interest cost is modest relative to operating profit. Covenant-type indicators such as Debt/EBITDA are not calculable from disclosed data. maturity_and_mismatch_risk: Short-term loans are small (¥961M) relative to cash and current assets, so immediate refinancing risk is limited. The company repaid long-term borrowings (repayments ¥864M) during the year. Income taxes payable are notable at ¥2,557M, representing a cash outflow risk. No off-balance-sheet obligations were reported in the provided data. balance_sheet_concentration: Goodwill is very large at ¥36,039M (≈47.3% of assets) and exceeds equity on a Goodwill/Equity basis (~124.8%), creating elevated impairment risk if future cash flows underperform. Retained earnings increased materially (+44.3% YoY to ¥20,657M), reflecting accumulated profits and dividend distribution dynamics.

Notable B/S Changes

Retained Earnings: +63.43 (100M JPY) from ¥143.14 to ¥206.57 (+44.3%) - Large increase reflects strong net income accumulation less distributions; positive for equity base but coexists with large dividend outflows and needs to be monitored in capital allocation context.

Cash Flow Quality

earnings_quality: OCF/Net Income = 1.31x, which signals high-quality earnings — net income is backed by cash generation. Accruals ratio is -2.6%, within acceptable bounds (<5%), supporting reliability of reported profits. fcf_analysis: Free cash flow ¥7,809M covers the dividend paid of ¥6,000M (FCF coverage = 0.56x reported, though this metric in the dataset appears to use a different divisor — operationally FCF > dividends paid in absolute terms). The company also made small capex (¥165M) and intangible purchases (¥303M) — low capex intensity consistent with service/guarantee business. Given positive FCF and robust OCF, dividend distributions have been funded from operations, but the very large interim dividend amount reported (Q2 DPS ¥230.08) implies an unusually front-loaded payout that requires clarification. working_capital_signs: Receivables increased and contributed -¥1,287M to operating cash flow movements (i.e., collections improved relative to prior period movements), yet DSO is flagged high (~144 days). Payables increased only modestly (+¥624M). High receivable days can signal future collection risk or contract terms that extend cash conversion cycles.

Dividend Sustainability

payout_analysis: Reported dividend payments totaled ¥6,000M. The dataset shows Q2 DPS of ¥230.08 and year-end DPS ¥35.00 which produces a calculated payout ratio of 218.6% (using those per-share figures) — an anomalously high figure driven by the large Q2 number. The reported payout ratio in XBRL is 1.2 (likely 120% or a different definition); there is inconsistency between calculated and reported payout metrics that must be reconciled with company disclosures. Based on free cash flow (¥7,809M) and dividends paid (¥6,000M), dividends were covered by FCF in the period in absolute terms, but the apparent headline payout ratio (if using interim DPS as reported) would be unsustainable if repeated. policy_outlook: Management guidance includes a dividend per share forecast of ¥38.0 for the next fiscal year, signalling continued distributions but at a much lower per-share rate than the interim report suggests. Sustainability therefore appears plausible if FCF remains positive, but clarity on extraordinary/interim distributions and the treatment of reserves is required.

Risk Assessment

Business risks include Credit/Delinquency Risk: As a rent-debt guarantee provider, higher tenant delinquencies would directly increase claim costs and hit margins., Revenue Concentration in Domestic Market: All revenue is domestic; any regulatory or macro slowdown in Japan’s rental market would materially affect top line., Goodwill/Acquisition Risk: Large goodwill (¥36,039M) implies past M&A — an adverse performance by acquired operations could trigger impairment losses..

Financial risks include Receivables Concentration / Collection Risk: High DSO (~144 days) increases working capital risk and potential future cash shortfalls if collections weaken., Leverage Sensitivity: Debt-to-equity 1.64x and debt/capital 47.2% leave the company sensitive to profit shocks despite currently manageable interest costs., Dividend/Capital Allocation Risk: Large disclosed interim dividend amount causes payout ratio distortion; repeat of such distributions without commensurate FCF would stress liquidity..

Key concerns include Goodwill Impairment Risk (Quality Alert): Goodwill/Equity ~124.8% — root cause is large M&A-paid premiums; industry context: not typical for pure organic service firms and is worsening relative to equity, impact: a material impairment would reduce equity and compress ROE/earnings., High Receivable Days (Quality Alert): Root cause likely business terms or slow collection; context: exceeds industry comfort thresholds (>60 days), impact: higher credit & liquidity risk, potential cash flow volatility., Reported Ratio Discrepancies (ROE / Payout): Calculated ROE (~21.9%) versus reported ROE figure discrepancy suggests differences in definitions or reporting; this affects cross-period comparability and investor interpretation..

Investment Implications

Key takeaways include Operational performance is healthy: revenue +13.2% and operating income +12.0% with strong OCF (¥8,283M) and positive FCF (¥7,809M)., Earnings are cash-backed (OCF/Net Income 1.31x) and management is returning cash, but dividend figures reported contain anomalies that require clarification., Balance sheet concentration in goodwill (¥36,039M) relative to equity (Goodwill/Equity ≈124.8%) is a material risk that could lead to impairments., Receivables are elevated (DSO flagged at ~144 days), increasing working capital and credit risk exposure., Leverage is moderate but above conservative levels (D/E 1.64x, Debt/Capital 47.2%), meaning earnings shocks could quickly pressure solvency ratios..

Metrics to watch include Goodwill impairment testing outcomes and any changes in impairment assumptions (discount rates, terminal growth, recoverable cash flows)., Receivable collection metrics (DSO trend, bad-debt expense / allowance changes, ageing schedule)., OCF and FCF trends versus dividends (to confirm sustainability of payouts)., Finance costs and interest coverage if leverage increases or operating income weakens., Management commentary on interim dividend nature and any one-off distributions..

Regarding relative positioning, NSグループ appears operationally strong within the domestic rent-guarantee service niche — high margins and robust cash generation are competitive strengths — but its elevated goodwill load and receivable collection risk make its financial risk profile higher than a typical low-capital service provider; relative to peers, watch return-on-capital sustainability and balance-sheet quality.