EM SYSTEMS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥18.11B
• Operating Income: ¥3.36B
• Net Income: ¥1.53B
• EPS: ¥34.72

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

EM Systems (48200) reported FY2025 Q3 consolidated results under JGAAP showing steady topline growth and stronger profitability. Revenue rose 2.0% YoY to ¥18.1bn, while operating income increased 5.0% YoY to ¥3.36bn, indicating some operating leverage. Net income expanded sharply by 59.0% YoY to ¥2.40bn, helped by limited non-operating burden and a normalized tax expense level. Gross margin remained high at 52.3%, underpinning an operating margin of 18.6% and an ordinary margin of 21.1%. The DuPont decomposition yields an ROE of 11.89%, driven predominantly by a robust net margin of 13.26%, moderate asset turnover of 0.63x, and modest financial leverage of 1.42x. The balance sheet is conservative: total liabilities of ¥11.1bn against equity of ¥20.2bn imply low leverage (L/E ~0.55x) and a recomputed equity ratio of roughly 70%, despite the disclosed equity ratio field showing 0% (unreported). Liquidity is strong, with a current ratio of 202% and a quick ratio of 193%, supported by sizable current assets and low inventories (¥0.89bn). Interest expense is negligible (¥6mn), yielding an interest coverage of ~560x, underscoring ample debt-servicing capacity. The effective tax rate implied by the non-zero data is approximately 24.8% (¥793mn tax on ~¥3.20bn pre-tax), notwithstanding a reported 0.0% figure in the calculated metrics that reflects missing data rather than reality. Cash flow figures are unreported (shown as zero) and therefore cannot be assessed; EBITDA is also not available due to unreported D&A. Dividend information (DPS and payout) is likewise unreported, so dividend sustainability cannot be conclusively evaluated. Overall, the company exhibits high margins, healthy ROE, and a strong balance sheet, albeit with modest revenue growth. The quality of earnings at the operating level appears solid, but the absence of operating cash flow data limits judgment on cash conversion and free cash flow. Given EM Systems’ exposure to Japan’s healthcare IT demand cycles and policy environment, near-term outlook likely hinges on renewal momentum, cloud transition economics, and backlog visibility. Data limitations are material for cash flow and capital allocation analysis; conclusions below draw only on disclosed non-zero figures.

Profitability Analysis

ROE_decomposition: ROE 11.89% = Net margin 13.26% × Asset turnover 0.63× × Financial leverage 1.42×. The ROE is margin-led, with moderate capital efficiency and conservative leverage. margin_quality: Gross margin 52.3% (¥9.47bn GP on ¥18.11bn revenue) supports an operating margin of 18.6% (¥3.36bn). Ordinary margin is 21.1% (¥3.82bn), indicating positive non-operating contribution. Net margin is 13.26% (¥2.40bn). The implied tax rate (~24.8%) appears normal. High gross and operating margins suggest pricing power and/or favorable mix in software/maintenance. operating_leverage: Revenue +2.0% YoY vs operating income +5.0% YoY implies modest operating leverage, likely from cost discipline and scale benefits. With inventories small (¥0.89bn) and a largely software-driven model, fixed cost absorption likely aided margin expansion.

Growth Assessment

revenue_sustainability: Topline growth at +2.0% YoY is modest. Given the company’s domain (healthcare IT), recurring maintenance and subscription revenues likely anchor stability, but acceleration would depend on new installations, cloud upgrades, and cross-sell. profit_quality: Operating income growth (+5.0% YoY) outpaced revenue, reflecting improved mix and/or operating efficiency. Net income growth (+59.0% YoY) significantly exceeds operating growth, aided by a light non-operating burden and normalized taxes. Interest expense is minimal, so financing costs are not a headwind. outlook: With high margins and low leverage, the company is well positioned to invest in product and cloud transition. Near-term growth hinges on order intake from pharmacies/clinics, regulatory-driven system updates, and retention of the installed base. Sustained margin performance is achievable if recurring revenue mix increases; visibility would be improved with backlog/ARR disclosure (not provided).

Financial Health

liquidity: Current ratio 202.3% and quick ratio 192.5% indicate strong short-term coverage. Working capital is ¥9.28bn, with inventories low at ¥0.89bn, consistent with a software-heavy model. solvency: Total liabilities ¥11.05bn vs equity ¥20.20bn yield a liabilities-to-equity ratio of ~0.55x. Interest coverage is ~560x, pointing to negligible solvency risk under current earnings power. capital_structure: Assets ¥28.77bn and equity ¥20.20bn imply financial leverage of ~1.42x and an equity ratio near 70% (recomputed), highlighting a conservative balance sheet with capacity for investment.

Cash Flow Quality

earnings_quality: Operating-level profitability is strong (18.6% OPM), but absence of OCF and D&A data prevents cross-checking accrual intensity and cash conversion. FCF_analysis: Free cash flow cannot be determined due to unreported OCF and capex proxies (no D&A). As such, FCF coverage of dividends or reinvestment capacity cannot be quantified. working_capital: Working capital is ample. Inventories are small relative to sales, suggesting limited inventory risk; receivables and payables dynamics are not disclosed, so collection and payment terms cannot be assessed.

Dividend Sustainability

payout_ratio_assessment: EPS is ¥34.72, but DPS and payout details are unreported (zeros are placeholders). A payout ratio cannot be reliably assessed. FCF_coverage: Unavailable due to unreported OCF/FCF. No conclusion on dividend coverage can be drawn. policy_outlook: Dividend policy signals are not disclosed for the period. With strong margins and low leverage, capacity exists, but actual distribution stance is unknown absent DPS/board guidance.

Risk Assessment

Business Risks:

• Exposure to Japan’s healthcare policy and NHI reimbursement revisions affecting pharmacy/clinic investment cycles
• Competition in pharmacy/medical IT solutions, including cloud-based entrants
• Customer churn risk on maintenance/subscription renewals and migration to new platforms
• Cybersecurity, data privacy, and system reliability risks in healthcare IT
• Project implementation and upgrade timing risk impacting quarterly revenue recognition
• Vendor concentration and hardware procurement risks for bundled solutions

Financial Risks:

• Cash flow visibility is limited due to unreported OCF; working capital swings could impact cash generation
• Potential increase in capitalized development and future amortization (D&A unreported this period)
• Concentration of revenue in domestic market increases exposure to domestic economic/policy shifts
• Limited interest rate sensitivity today, but future borrowings could expose the firm to rate risk

Key Concerns:

• Modest revenue growth (+2.0% YoY) relative to high margin base; need for clearer growth drivers
• Lack of disclosure on OCF/FCF and DPS constrains assessment of cash conversion and capital returns
• Dependence on healthcare IT spending cadence and regulatory-driven upgrade cycles

Investment Implications

Key Takeaways:

• High gross (52.3%) and operating (18.6%) margins indicate strong unit economics
• ROE 11.89% is margin-led with conservative leverage (1.42x) and moderate asset turnover (0.63x)
• Net income growth (+59% YoY) outpaced operating growth, aided by non-operating/tax factors
• Balance sheet strength: current ratio 202%, equity ratio ~70% (recomputed), minimal interest burden
• Revenue growth is modest; sustainability depends on renewals, upgrades, and new deployments
• Cash flow and dividend metrics are unreported; monitoring future disclosures is essential

Metrics to Watch:

• Order backlog and ARR/MRR to gauge recurring revenue durability
• Operating cash flow, FCF, and working capital movements (DSO/DPO)
• Capex and R&D/capitalized development trends; future D&A trajectory
• Gross margin on cloud/hosted offerings and maintenance renewal rates
• Ordinary income drivers (non-operating income/expenses) and effective tax rate stability
• Customer churn, net retention, and new site additions in pharmacy/clinic segments

Relative Positioning: Within TSE software/healthcare IT peers, EM Systems exhibits above-average margins and conservative leverage, but growth is currently at the lower end; clarity on recurring revenue scale, cash conversion, and cloud transition economics will determine competitive standing.

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