SM ENTERTAINMENT JAPAN Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥7.46B
• Operating Income: ¥225M
• Net Income: ¥305M
• EPS: ¥3.98

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

For FY2025 Q3, SM ENTERTAINMENT JAPAN reported revenue of ¥7,463 million, declining 0.8% YoY, indicating a broadly flat top line amid a likely uneven event and release schedule. Gross profit was ¥1,616.7 million, translating to a gross margin of 21.7%, which suggests modest value-add after production and direct costs typical of content/event-heavy models. Operating income fell sharply to ¥225 million (-38.1% YoY), compressing the operating margin to 3.0% and highlighting negative operating leverage as small revenue softness translated into disproportionately lower profits. Ordinary income was ¥236 million, only slightly above operating income, implying limited net non-operating contributions in the period. However, net income rose 49.8% YoY to ¥460 million, significantly exceeding ordinary income, indicating material below-the-line positives (e.g., extraordinary gains or tax-related items) that lifted the bottom line under JGAAP. The DuPont profile shows a net margin of 6.16%, asset turnover of 0.511x, and financial leverage of 1.81x, yielding ROE of 5.69%—a modest return chiefly constrained by low margins and moderate asset turns. Liquidity appears strong with a current ratio of 206.4% and working capital of ¥6,588.8 million, suggesting ample near-term coverage of obligations. The balance sheet is conservatively positioned with total liabilities of ¥6,622.3 million against equity of ¥8,091 million (implied liabilities-to-equity of 0.82x). While the reported equity ratio shows 0.0% due to disclosure limitations, the implied equity ratio is approximately 55.4% (equity/total assets). Interest expense is negligible at ¥0.048 million, yielding an interest coverage of about 4,688x, indicating very low financial risk from debt service. Cash flow statements were unreported (zeros), so operating cash flow and free cash flow cannot be assessed; the OCF/NI and FCF figures shown as zero reflect non-disclosure rather than economic reality. Depreciation and amortization were also unreported, so EBITDA metrics are not meaningful despite the table showing zeros. Dividend per share and payout are zero, consistent with retention, but share-based indicators (shares outstanding, BVPS) are unreported and cannot be used. Overall, profitability quality is mixed: operating fundamentals softened, but bottom-line strength was buoyed by non-recurring items. The company’s liquidity and solvency are solid, providing financial flexibility to navigate demand variability and content cycles. Given significant data gaps (cash flows, D&A, share base), conclusions rely primarily on the income statement and balance sheet provided, and results may be skewed by extraordinary items.

Profitability Analysis

ROE_decomposition: ROE 5.69% = Net margin 6.16% × Asset turnover 0.511 × Financial leverage 1.81. The modest ROE is mainly constrained by low operating margin and relatively slow asset turns; leverage contribution is moderate. margin_quality: Gross margin is 21.7% (¥1,616.7m/¥7,463.0m), indicating limited pricing power after direct costs. Operating margin is 3.0% (¥225.0m/¥7,463.0m), down YoY alongside a 38.1% decline in operating income—evidence of cost pressure or unfavorable mix. Net margin of 6.16% exceeds operating margin materially due to below-the-line positives (extraordinary gains or tax effects), suggesting lower recurring earnings quality at the bottom line. operating_leverage: With revenue down 0.8% YoY and operating income down 38.1% YoY, the period shows pronounced negative operating leverage. This indicates a relatively high fixed-cost base and/or elevated promotional/production spend that did not scale with revenue.

Growth Assessment

revenue_sustainability: Top line was essentially flat (-0.8% YoY), consistent with timing effects in concerts, merchandise, and licensing. Sustainability hinges on event calendars, artist activity, and release timing; no multi-quarter trend can be inferred from a single period. profit_quality: Net income growth (+49.8% YoY to ¥460m) is not aligned with operating income (-38.1% YoY) and ordinary income (¥236m), implying non-recurring items influenced the bottom line. Core profit generation is better represented by operating income. outlook: Absent guidance and with cash flows unreported, a cautious operational outlook is warranted: stabilizing revenue with pressure on operating margins until cost discipline and mix improve. Upcoming event slates, ticketing momentum, and content pipeline will be key to near-term growth.

Financial Health

liquidity: Current ratio 206.4% and working capital ¥6,588.8m (CA ¥12,778.5m vs. CL ¥6,189.8m) indicate robust short-term liquidity. Quick ratio equals current ratio due to unreported inventories. solvency: Total liabilities ¥6,622.3m vs. equity ¥8,091.0m implies liabilities-to-equity of 0.82x and an implied equity ratio of ~55.4%. Interest coverage is exceptionally strong at ~4,688x, reflecting minimal interest burden. capital_structure: Financial leverage (assets/equity) at 1.81x is moderate, providing balance-sheet flexibility. No changes in debt mix can be inferred due to lack of cash flow and financing detail.

Cash Flow Quality

earnings_quality: OCF was unreported (shown as zero), preventing assessment of earnings-to-cash conversion. The divergence between operating income and net income suggests that reported earnings include non-operating/extraordinary effects. FCF_analysis: Free cash flow was unreported. Without OCF and capex/D&A, FCF level and sustainability cannot be evaluated. working_capital: Current assets are high relative to current liabilities, but the composition (e.g., receivables, advances, deferred revenue) and changes are undisclosed, limiting assessment of cash conversion and seasonality.

Dividend Sustainability

payout_ratio_assessment: DPS is reported as ¥0.00 and payout as 0.0%; with EPS of ¥3.98 (shares unreported), the company is effectively retaining earnings. Given the mismatch between operating and net income, a conservative payout stance appears consistent with maintaining flexibility. FCF_coverage: FCF is unreported; hence dividend coverage cannot be evaluated via cash flows. policy_outlook: Without a disclosed dividend policy or cash flow data, any trajectory for distributions is uncertain. Sustainable dividends would require stabilization in operating margin and demonstrable OCF generation.

Risk Assessment

Business Risks:

• Event and release timing risk affecting quarterly revenue volatility
• Artist roster concentration and IP performance dependency
• Ticketing and live-event execution risks (cancellations, postponements)
• Merchandise demand variability and potential inventory obsolescence (inventory data unreported)
• Content production cost inflation pressuring margins
• Regulatory and venue constraints impacting live entertainment
• FX exposure on cross-border royalties/settlements within the SM ecosystem

Financial Risks:

• Earnings quality risk due to reliance on non-operating/extraordinary gains in the period
• Limited visibility on cash generation given unreported OCF/FCF
• Potential working-capital swings (advances, deferred revenue, receivables) not disclosed in detail
• Concentration of revenue streams may elevate volatility in cash inflows

Key Concerns:

• Sharp YoY decline in operating income despite stable revenue, indicating negative operating leverage
• Net income materially above ordinary/operating income, suggesting non-recurring support to the bottom line
• Absence of cash flow disclosures, hindering assessment of sustainability and dividend capacity

Investment Implications

Key Takeaways:

• Revenue stable (-0.8% YoY) but operating income down 38.1% YoY; operating margin compressed to 3.0%
• Net margin of 6.16% and ROE of 5.69% aided by below-the-line items; recurring profitability likely lower
• Strong liquidity (current ratio 206%) and moderate leverage (liabilities/equity 0.82x) provide flexibility
• Interest burden is minimal (coverage ~4,688x), lowering financial risk
• Material data gaps (OCF, FCF, D&A, share base) limit full quality-of-earnings and valuation analysis

Metrics to Watch:

• Operating margin and SG&A-to-sales trajectory
• Ordinary income vs. net income gap to track extraordinary/non-operating influences
• OCF/Net income conversion and FCF once disclosed
• Event pipeline indicators (ticket pre-sales, venue utilization) and deferred revenue movements
• Asset turnover and working-capital efficiency (receivables days, advances)
• Gross margin mix shifts between concerts, merchandise, and licensing

Relative Positioning: Within Japan-listed entertainment and live-event peers, SM ENTERTAINMENT JAPAN exhibits strong liquidity and low interest burden but comparatively thin operating margins and sensitivity to event timing; bottom-line elevation in the quarter appears less recurring than operational peers with steadier ordinary income contributions.

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