FULLCAST HOLDINGS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥53.48B
• Operating Income: ¥6.09B
• Net Income: ¥4.19B
• EPS: ¥116.38

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

Verdict: Solid topline and operating leverage drove strong operating and ordinary profit growth, but higher tax burden (and likely extraordinary-item normalization) compressed net profit, yielding a mixed bottom line for FY2025 Q3. Revenue rose 5.9% YoY to 534.8, while operating income increased 16.7% YoY to 60.9, evidencing efficient cost control and scale benefits. Gross profit reached 179.9 with a gross margin of 33.6%. Operating margin improved to 11.4% (60.9/534.8), indicating better mix and SG&A discipline. Ordinary income grew 16.2% YoY to 61.9, with ordinary margin at 11.6%. Profit before tax was 66.1, implying approximately 4.2 of net extraordinary gains vs ordinary income (data not disclosed). Net income declined 1.7% YoY to 40.7, placing net margin at 7.6%. Based on growth differentials, operating margin expanded roughly 104 bps YoY, while net margin likely compressed by about 59 bps due to a higher effective tax rate of 36.6%. Interest burden is de minimis (interest expense 0.09; interest coverage ~677x), so financing costs did not weigh on results. Balance sheet remains conservative: current ratio 195%, quick ratio 195%, D/E 0.55x, working capital 126.5, and cash/deposits 155.7. ROE is robust at 13.5% on ROIC of 18.1%, supported by asset turnover of 1.15x and moderate leverage (1.55x). Cash flow statements were not disclosed, limiting assessment of earnings quality and FCF coverage. The payout ratio of 53.6% appears sustainable against earnings and cash on hand, though FCF coverage cannot be confirmed. Forward-looking, the operating run-rate looks resilient, but elevated tax rate, potential wage inflation, and any normalization in extraordinary items may cap net profit growth near term.

Profitability Analysis

ROE decomposition (DuPont): ROE 13.5% = Net Profit Margin 7.6% × Asset Turnover 1.148 × Financial Leverage 1.55x. The largest quarter-on-quarter driver versus revenue growth is margin dynamics: operating profit grew 16.7% vs revenue 5.9%, implying operating margin expansion (estimated +104 bps YoY to 11.4%). However, net margin decreased to 7.6% (estimated ~-59 bps YoY), with the effective tax rate at 36.6% absorbing much of the operating improvement. Business reason: improved operating efficiency and SG&A control lifted operating margin, while a higher tax burden (and possible normalization of extraordinary gains/losses) reduced the conversion to net income. Sustainability: operating gains look more repeatable given low interest burden and scale benefits in a staffing model, but the tax rate at 36.6% may not ease quickly; thus net margin could remain constrained unless tax planning or credits improve. Flags: SG&A was 127.6 (23.9% of sales); while absolute SG&A increased, its ratio likely declined alongside operating leverage; no explicit SG&A YoY disclosed, so we infer no adverse cost growth relative to revenue.

Growth Assessment

Revenue rose 5.9% YoY to 534.8, consistent with steady demand in core staffing services. Operating income outpaced sales at +16.7% YoY to 60.9, reflecting operating leverage and likely favorable mix/pricing. Ordinary income +16.2% to 61.9 confirms underlying core profit strength with limited reliance on non-operating items (non-op income 1.48; non-op expenses 0.47). Net income declined 1.7% to 40.7 due to a high effective tax rate of 36.6% despite PBT of 66.1. Sustainability: near-term revenue growth appears resilient; the staffing model benefits from flexible labor demand, but macro sensitivity remains. Profit quality is supported by negligible interest costs and limited non-operating reliance; however, undisclosed cash flow data prevents validation of working capital intensity or FCF conversion. Outlook hinges on maintaining utilization and fee rates amid wage inflation and regulatory dynamics; continued SG&A discipline should support operating margins.

Financial Health

Liquidity is strong: current ratio 195.4% and quick ratio 195.4%, comfortably above benchmarks. Solvency is conservative: D/E 0.55x, interest coverage ~677x, and total liabilities 164.7 versus equity 301.3. Maturity profile: short-term loans 60.0 are well-covered by cash/deposits 155.7 and receivables 76.8, indicating low maturity mismatch risk. Long-term loans are modest at 7.6. No explicit off-balance sheet obligations were reported in the provided data. Goodwill 63.5 and intangible assets 84.8 are material (combined ~31.8% of total assets), implying some impairment risk if cash flows weaken. No warnings triggered for Current Ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

Operating cash flow and free cash flow were not disclosed, so OCF/Net Income and FCF coverage cannot be assessed. Given the staffing business model, working capital typically swings with receivables and payables; receivables are sizable at 76.8 versus payables 7.5, indicating reliance on collection efficiency. No signs of deliberate working capital manipulation can be inferred from the limited data, but absence of cash flow statements is a constraint. Large cash balance (155.7) offers cushion, but sustainability of dividends and capex funding from internal cash generation remains unverified without OCF data.

Dividend Sustainability

The calculated payout ratio is 53.6%, within the <60% benchmark, suggesting earnings-based coverage is adequate. With cash/deposits of 155.7 and low net debt, near-term dividend payments appear well-supported. However, FCF coverage is unreported; thus structural sustainability depends on ongoing OCF conversion and capex needs, both undisclosed. Policy outlook likely stable given consistent profitability and conservative leverage, but monitoring of tax rate and working capital is prudent to ensure cash distribution capacity.

Risk Assessment

Business Risks:

• Macroeconomic sensitivity of staffing demand leading to volume volatility
• Wage inflation and minimum wage hikes potentially compressing gross margin if not passed through
• Regulatory risk around Japan’s Worker Dispatch Law and compliance costs
• Client concentration or sector exposure risks (undisclosed) affecting revenue stability
• Seasonality and short-term contract churn impacting utilization

Financial Risks:

• Elevated effective tax rate (36.6%) depressing net margin and cash earnings
• Goodwill (63.5) and intangible assets (84.8) create impairment risk if performance weakens
• Receivables concentration and collection risk (AR 76.8 vs AP 7.5) typical of staffing models
• Short-term debt (60.0) exposure to refinancing/interest rate moves, albeit mitigated by cash 155.7

Key Concerns:

• Net income decline (-1.7% YoY) despite strong operating performance due to higher tax burden
• Possible normalization of extraordinary items implied by PBT exceeding ordinary income (data undisclosed)
• Absence of cash flow disclosure limits assessment of earnings quality and FCF coverage

Investment Implications

Key Takeaways:

• Healthy topline growth (+5.9% YoY) with stronger operating leverage (+16.7% YoY OP) and ~104 bps operating margin expansion
• Net margin compressed to 7.6% on a high 36.6% effective tax rate, resulting in -1.7% YoY NI
• Balance sheet strength (current ratio 195%, D/E 0.55x, cash 155.7) provides resilience
• ROE 13.5% and ROIC 18.1% indicate efficient capital use
• Dividend payout at 53.6% appears manageable, but FCF coverage unverified

Metrics to Watch:

• Effective tax rate trajectory and one-off tax items
• Operating margin and SG&A ratio trends
• Receivables days and cash conversion (OCF/NI when disclosed)
• Headcount utilization and billing rate pass-through vs wage inflation
• Goodwill/intangibles impairment indicators
• Short-term loan balance and interest rate sensitivity

Relative Positioning: Within Japanese staffing peers, the company shows above-average operating efficiency (OP margin ~11% vs mid-single-digit to low-teens peer range) and conservative leverage, with a robust ROE profile; key watchpoints are elevated tax burden and verification of cash flow conversion.

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