Lion Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥304.94B
• Operating Income: ¥27.83B
• Net Income: ¥23.21B
• EPS: ¥75.25

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

Verdict: FY2025 Q3 was a strong profitability recovery quarter for Lion, with significant margin expansion driving a sharp rebound in operating and net income. Revenue grew modestly to 3,049.45 (+1.3% YoY), but operating income surged 62.7% YoY to 278.29 and net income rose 64.3% YoY to 208.13, underscoring powerful operating leverage. The operating margin improved to roughly 9.1% (278.29/3,049.45), implying an estimated ~345 bps expansion versus an implied prior-year margin of ~5.7%. Net margin rose to 6.8%, up an estimated ~262 bps from ~4.2% a year ago, reflecting better cost pass-through, mix, and lower tax burden (effective tax rate 16.8%). Gross margin stands at 45.1%, and SG&A ratio is about 39.0%, with an implied positive contribution from other operating income of roughly 92.0 (about 300 bps of sales), helping bridge gross-to-operating profit. Equity-method income was modest at 21.92, and contributed only a small portion of overall profit, indicating the rebound is largely operating in nature. ROE printed at 6.3% (DuPont: NPM 6.8% × AT 0.635 × leverage 1.46x), up primarily on margin improvement; ROIC was 7.0%, in line with typical target ranges. Cash flow quality lagged earnings: operating cash flow was 157.01, or 0.75x net income, triggering a quality caution flag. Free cash flow on a total investing CF basis was 93.51, covering dividends (72.98) by 1.24x, but OCF minus capex was only ~9.5, suggesting heavier reinvestment muted underlying discretionary FCF. The balance sheet remains conservative with an equity ratio of 63.7% and D/E of 0.46x; liquidity looks adequate but some items are unreported, limiting precision on short-term risk. Working capital intensity remains notable (AR 718.48 and inventories 578.50 against AP 945.15), but the cash conversion mechanics are not fully discernible from disclosed data. Strategic implications: margin recovery appears driven by pricing/mix and cost normalization, which, if sustained, supports ROE accretion and dividend capacity. However, the OCF/NI gap suggests near-term cash conversion risk, potentially from working capital. Forward focus should be on sustaining gross margin, controlling SG&A, and stabilizing cash conversion to support both capex and shareholder returns. Net-net, the quarter shows credible earnings momentum with healthy solvency, tempered by cash flow quality and the need to maintain pricing power amid competitive consumer markets.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.3% = Net Profit Margin 6.8% × Asset Turnover 0.635 × Financial Leverage 1.46x. The largest driver of change YoY appears to be Net Profit Margin: operating income rose 62.7% on only 1.3% revenue growth, with estimated operating margin expanding ~345 bps to ~9.1%, and net margin rising ~262 bps to 6.8%. Business reasons: input cost normalization and pricing/mix likely lifted gross margin, while SG&A discipline and approximately 92.0 of other operating income (implied) added support; a lower effective tax rate (16.8%) further aided net margin. Asset turnover at 0.635 reflects modest top-line growth against a sizable asset base; no clear evidence of acceleration in capital efficiency this quarter. Leverage at 1.46x remains conservative and relatively stable, offering limited ROE amplification. Sustainability: gross margin gains from pricing and cost normalization can persist if competitive intensity and input costs remain favorable; the implied contribution from other operating income may be more volatile or one-time-like and should not be fully annualized. Watch for SG&A growth relative to revenue; current SG&A ratio is ~39.0%, and if SG&A re-accelerates ahead of sales, operating leverage could reverse. Overall, ROE improvement is quality-positive but contingent on sustaining margins and improving cash conversion.

Growth Assessment

Revenue growth of 1.3% YoY is modest, suggesting price/mix rather than volume was the key growth lever. Profit growth was much stronger: operating income +62.7% and net income +64.3%, highlighting substantial operating leverage and cost normalization. Equity-method income (21.92) played a minor role, so the improvement is primarily from core operations. The implied other operating income (~92.0) contributed to operating profit; its repeatability is uncertain and represents a watch item for run-rate profit. With ROIC at 7.0%, the company meets typical consumer staples hurdle rates, though further improvement likely requires sustained gross margin and capital efficiency gains. Outlook considerations: pricing power stickiness, raw material trends (e.g., surfactants/palm oil), and FX (yen) will drive gross margin trajectory. International businesses and premiumization could support mid-single-digit revenue growth, but a weak consumer environment or heightened promotion could pressure margins. Near-term visibility is good for profitability vs last year, but cash conversion needs to improve to fully back capex and shareholder returns without balance sheet draw.

Financial Health

Liquidity: Current ratio is not disclosed; thus, no explicit warning, but we cannot validate short-term coverage. Current assets total 2,202.74; accounts receivable 718.48 and inventories 578.50 are sizable. Maturity mismatch: accounts payable of 945.15 is broadly supported by receivables plus inventories (1,296.98), suggesting manageable working capital coverage. Solvency: equity ratio 63.7% and D/E 0.46x indicate a conservative capital structure with ample loss-absorption capacity. Interest-bearing debt specifics and interest coverage are not disclosed, limiting precision on covenant or refinancing risk; however, overall leverage appears low. No off-balance sheet obligations are reported in the provided data. Overall, financial health is strong on solvency; liquidity appears adequate but not fully verifiable due to missing current liability details.

Cash Flow Quality

OCF was 157.01 vs net income of 208.13, yielding OCF/NI of 0.75x, below the 0.8x threshold and signaling a near-term earnings quality caution. Free cash flow defined as OCF + total investing CF was 93.51, adequate to cover dividends (72.98) and partially offset buybacks (100.01). However, OCF minus capex was only ~9.47, indicating that growth/replacement capex (147.54) absorbed most operating cash and left limited discretionary FCF; this raises the bar for sustaining simultaneous capex and buybacks. Working capital movements likely weighed on OCF (given the OCF/NI gap), but the breakdown is not disclosed; monitor receivables and inventory turns. No clear signs of aggressive working capital management are visible, but the cash conversion shortfall warrants continued monitoring. Sustainability: if margins hold and working capital normalizes, OCF/NI should approach >1.0x; otherwise, shareholder returns may need to be paced with internal cash generation.

Dividend Sustainability

Payout ratio is 36.3%, comfortably below the <60% benchmark and consistent with sustainable distributions. On the provided FCF definition (OCF + investing CF), coverage is 1.24x for dividends, supportive of current payouts. On an OCF–capex basis, coverage is only ~0.13x, implying that heavier capex temporarily compresses underlying free cash; this underscores the importance of OCF recovery and/or capex phasing. Balance sheet strength (equity ratio 63.7%, D/E 0.46x) provides flexibility, but reliance on balance sheet or incremental leverage to fund both dividends and buybacks would be suboptimal if OCF/NI remains <1.0x. Policy outlook: absent a deterioration in margins or a sustained cash conversion shortfall, the dividend appears maintainable; the buyback cadence may remain more tactical and cycle-sensitive.

Risk Assessment

Business Risks:

• Input cost volatility (e.g., surfactants, palm oil, petrochemical derivatives) affecting gross margin
• Competitive pricing and promotion pressure in home/personal care impacting price/mix gains
• Demand softness in certain geographies or channels leading to slower volume recovery
• Potential non-recurring nature of other operating income (~92.0) reducing run-rate EBIT
• Execution risk on capex and innovation ROI given tight OCF–capex coverage

Financial Risks:

• Cash conversion risk: OCF/NI at 0.75x below quality threshold
• Working capital intensity (high AR and inventories) could weigh on OCF if not optimized
• Buybacks (100.01) alongside capex (147.54) may pressure cash if OCF does not improve
• Limited visibility on interest-bearing debt composition and maturities due to unreported items

Key Concerns:

• Sustainability of margin gains if raw materials or FX move unfavorably
• Dependence on pricing/mix vs volume for growth in a competitive market
• Potential normalization of other operating income reducing EBIT margin by ~300 bps

Investment Implications

Key Takeaways:

• Strong margin-led earnings recovery with OP +62.7% YoY on +1.3% revenue
• Operating margin expanded by an estimated ~345 bps to ~9.1%; net margin to 6.8% (+~262 bps)
• ROE 6.3% and ROIC 7.0% indicate improving returns, driven mainly by margin
• Cash flow quality lagging (OCF/NI 0.75x); OCF–capex near breakeven (~9.5)
• Balance sheet solid (equity ratio 63.7%, D/E 0.46x), supporting resilience and dividends
• Other operating income (~92.0) provided a meaningful (and potentially non-recurring) EBIT tailwind

Metrics to Watch:

• Gross margin trajectory and input cost indices (palm oil, petrochemicals)
• SG&A ratio vs revenue growth (operating leverage sustainability)
• OCF/Net income and working capital turns (AR and inventory days)
• Capex-to-sales and ROI on growth investments
• Net buyback pace relative to FCF generation
• Effective tax rate stability and any one-off gains in other operating income

Relative Positioning: Within Japan home/personal care peers, Lion is demonstrating a faster earnings rebound via margin recovery, underpinned by conservative leverage; however, cash conversion trails best-in-class operators, implying a need for continued working capital discipline to close the quality gap.

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