IC CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥10.14B
• Operating Income: ¥516M
• Net Income: ¥535M
• EPS: ¥65.31

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 results for IC (4769) were solid on the P&L with double‑digit profit growth and modest margin expansion, but cash conversion was weak, resulting in slightly negative free cash flow. Revenue rose 9.1% YoY to 101.36, with operating income up 16.5% YoY to 5.16 and net income up 26.4% YoY to 4.85. Gross margin printed at 21.3%, operating margin at roughly 5.1%, and net margin at 4.8%, indicating improved cost discipline and/or better mix. Using the YoY growth rates, operating margin expanded by about 32 bps (from ~4.77% to ~5.09%). Net margin expanded by roughly 66 bps (from ~4.13% to ~4.79%), helped by non‑operating income and a gap between ordinary income and profit before tax. Ordinary income increased 9.7% YoY to 6.05 and non‑operating income totaled 0.92, with dividend income of 0.63 a notable contributor. ROE was 7.5% via DuPont (NPM 4.8% × asset turnover 1.165 × leverage 1.35x), and ROIC was 11.4%, above typical 7–8% targets. Balance sheet strength is a highlight: current ratio 289%, net cash evident from high cash and deposits (37.43) versus modest liabilities, and interest coverage is extremely high (1,583x). Earnings quality is the key concern: operating cash flow was only 1.44 versus net income of 4.85 (OCF/NI 0.30x), and free cash flow was slightly negative at -0.21 despite low capex. Financing cash outflows of -3.03 included share repurchases of -1.76 and likely dividends, funded effectively by existing cash. Effective tax rate was elevated at 40.6%, possibly containing some non‑recurring items. There appears to be a gap between ordinary income (6.05) and profit before tax (8.17) not fully explained by reported non‑operating items, implying potential unreported special gains; disclosure is limited. Reported XBRL ratios (e.g., operating margin 0.1%) differ from straightforward calculations, suggesting tagging inconsistencies; we rely on calculated metrics. Forward‑looking, revenue growth and operating leverage appear intact, but management needs to improve cash conversion and scrutinize working capital. The strong net cash position provides flexibility to sustain shareholder returns while investing prudently. If cash conversion normalizes, dividend sustainability strengthens; if not, capital returns may need to be paced to internally generated cash. Overall, the quarter supports a constructive operational narrative, tempered by cash flow quality and reliance on non‑operating income.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.5% = Net Profit Margin 4.8% × Asset Turnover 1.165 × Financial Leverage 1.35x. The largest positive driver this year appears to be net profit margin, which expanded approximately 66 bps YoY (from ~4.13% to ~4.79%), outpacing the roughly 32 bps operating margin expansion (from ~4.77% to ~5.09%). Asset turnover at 1.165 indicates efficient utilization of the asset base given revenue of 101.36 against assets of 86.97; with revenue up 9.1% YoY and no prior asset figure disclosed, turnover likely improved modestly as scale benefits kicked in. Financial leverage is low at 1.35x (Assets/Equity), reflecting a conservative capital structure that caps ROE upside but reduces risk. Business drivers for the margin improvement likely include mix/price discipline (gross margin 21.3%) and tight SG&A control (SG&A 16.44 vs GP 21.61), plus a meaningful non‑operating contribution (0.92, mainly dividends). Sustainability: operating margin gains look repeatable if growth continues and SG&A is contained; however, the net margin benefit from non‑operating income (dividends and other) is less controllable and could vary with market conditions. Watch for SG&A growth versus revenue in coming periods (not all SG&A line items were disclosed); any SG&A growth meaningfully above revenue would erode operating leverage.

Growth Assessment

Top-line growth of 9.1% YoY to 101.36 suggests healthy demand. Operating income grew faster at 16.5%, signaling positive operating leverage. Ordinary income growth of 9.7% and net income growth of 26.4% were aided by non‑operating income and possibly special factors (PBT of 8.17 exceeds ordinary income by a notable margin). EBITDA was 5.54, implying an EBITDA margin of ~5.5%, consistent with the operating margin trend given low D&A (0.38). Revenue sustainability appears reasonable near term given the balance of operating leverage and a solid cash buffer to support sales efforts; however, the dependence on non‑operating dividend income (0.63) introduces some variability. Profit quality is mixed: accounting profits grew well, but OCF lagged significantly, pointing to working capital drag or timing effects. Outlook hinges on normalizing cash conversion and maintaining gross margin; if both hold, double‑digit profit growth is achievable off this base.

Financial Health

Liquidity is strong: current assets 57.52 vs current liabilities 19.87 yield a current ratio of 289.5% and a quick ratio equal to that, with cash and deposits of 37.43 providing ample buffer. Solvency is conservative: debt-to-equity 0.35x and interest coverage 1,582x; no explicit interest-bearing debt was disclosed, and noncurrent liabilities are only 2.83. No warning on current ratio (<1.0) or D/E (>2.0); both are well within healthy ranges. Maturity mismatch risk appears low given substantial cash and receivables (16.53) against modest accounts payable (2.86). Off-balance sheet obligations were not disclosed; absence of data prevents further assessment. Equity is 64.28 (owners’ equity all of total equity), implying a sturdy capital base.

Cash Flow Quality

OCF/Net Income is 0.30x, below the 0.8 threshold and flagged as an earnings quality issue. Operating CF of 1.44 versus NI of 4.85 indicates significant working capital outflow and/or accruals; specific drivers are not disclosed. Free cash flow was slightly negative at -0.21, despite modest capex of -0.04, suggesting working capital was the primary headwind. Investing CF of -1.65 exceeds capex, consistent with financial investments (e.g., investment securities at 22.65) or intangibles; details are unreported. Financing CF of -3.03 reflects shareholder returns including share repurchases of -1.76 and likely dividends. No obvious signs of deliberate working capital manipulation can be asserted from available point-in-time data, but the divergence between OCF and NI warrants monitoring. Sustainability will improve if receivables collections normalize and inventory (not disclosed) is managed tightly.

Dividend Sustainability

Calculated payout ratio is 55.8%, within the <60% benchmark, though reported payout ratio (0.7%) appears tag-inconsistent with other data. FCF coverage is -0.08x this period, indicating dividends were not covered by free cash flow in FY2025; coverage relied on the net cash balance. With strong liquidity and low leverage, near-term dividend capacity is supported, but sustained payouts at current or higher levels require improved OCF. Buybacks of -1.76 further consumed cash; pacing future buybacks to internal cash generation would enhance sustainability. DPS and total dividends were unreported, limiting precision.

Risk Assessment

Business Risks:

• Execution risk in sustaining gross margin (21.3%) while growing revenue.
• Dependence on non-operating income (0.92, including 0.63 dividends) to support net margin.
• Potential timing volatility in project delivery or billing affecting cash conversion (OCF/NI 0.30x).
• Talent cost inflation risk pressuring SG&A given labor-centric operations.

Financial Risks:

• Earnings quality risk from weak cash conversion and negative FCF (-0.21).
• Market price risk on investment securities (22.65) that could impact OCI and non-operating income.
• Tax rate volatility (effective tax rate 40.6%) potentially depressing net margins.
• Concentration risk in receivables (16.53) if top customers represent a large share (not disclosed).

Key Concerns:

• Low OCF/NI (0.30x) materially below quality threshold.
• Gap between ordinary income (6.05) and profit before tax (8.17) suggests undisclosed special items.
• Reliance on non-operating dividend income to lift bottom line (non-operating income ratio 18.9%).
• Data limitations in SG&A breakdown and equity-method income obscure drivers of profitability.

Investment Implications

Key Takeaways:

• Solid revenue growth (+9.1%) with operating income up +16.5% and margin expansion (~32 bps).
• Net margin expansion (~66 bps) supported by non-operating income; watch sustainability.
• ROE 7.5% and ROIC 11.4% indicate respectable capital efficiency with conservative leverage (1.35x).
• Balance sheet strength (current ratio 289%, large cash) provides flexibility for returns and investment.
• Earnings quality is the primary weak point: OCF/NI 0.30x and FCF slightly negative.

Metrics to Watch:

• OCF/Net Income ratio (target >1.0) and working capital turns (AR days, AP days).
• Gross and operating margin trajectory versus SG&A growth.
• Non-operating income composition (dividend income sensitivity, any special gains).
• Effective tax rate normalization and its impact on net margin.
• Capital allocation pace (buybacks/dividends) relative to FCF.

Relative Positioning: Versus domestic mid-cap IT/services peers, IC shows above-peer balance sheet strength and competitive ROIC, with ROE around sector median but held back by low leverage; however, cash flow conversion trails best-in-class peers, making execution on working capital the key differentiator going forward.

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