MEC COMPANY LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥14.99B
• Operating Income: ¥4.25B
• Net Income: ¥2.63B
• EPS: ¥179.53

Income Statement

Balance Sheet

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

For FY2025 Q3, メック株式会社 delivered solid top- and bottom-line growth, with revenue of ¥14,987 million (+9.5% YoY) and net income of ¥3,329 million (+26.7% YoY). Profitability expanded meaningfully: operating income rose to ¥4,247 million (+16.4% YoY), implying positive operating leverage as profit growth outpaced sales growth. Gross profit of ¥8,397 million translates to a robust gross margin of 56.0%, highlighting strong pricing power and/or favorable product mix. Operating margin was approximately 28.3%, and ordinary income margin about 29.1%, reflecting limited non-operating drag and negligible interest burden. The DuPont decomposition indicates ROE of 11.76% driven primarily by a high net profit margin of 22.21%, with moderate asset turnover (0.437x) and low financial leverage (1.21x). On balance sheet strength, the company maintains low liabilities (¥6,142 million) against sizable equity (¥28,312 million), implying an equity ratio of roughly 82.6% based on reported totals. Liquidity appears strong with a current ratio of 440.9% and quick ratio of 424.0%, aided by modest inventories of ¥756 million. Interest expense remains de minimis at ¥0.809 million, yielding an interest coverage ratio in excess of 5,000x. The effective tax burden can be approximated at about 24–25% using reported income taxes (¥1,068 million) and ordinary income (¥4,361 million). Cash flow statements were not disclosed in the provided data (zeros indicate not reported), so operating cash flow and free cash flow cannot be assessed here. Dividend information is also not disclosed; the displayed DPS and payout ratio of zero likely reflect reporting limitations rather than an actual absence of dividends. Overall earnings quality looks strong from an income statement and balance sheet perspective, but confirmation via cash flow conversion would be valuable once available. The company’s financial position appears conservative, providing resilience through cycles and capacity to invest. Key watch points include demand trends in end-markets, sustainability of the elevated margins, and working capital dynamics as growth resumes. Given the limited disclosure of cash flow and dividend data, conclusions on cash generation and capital returns must remain tentative. The outlook hinges on the durability of momentum in core products and the external demand environment.

Profitability Analysis

ROE of 11.76% is decomposed into a net profit margin of 22.21%, asset turnover of 0.437x, and financial leverage of 1.21x, indicating that return generation is margin-led rather than leverage- or turnover-driven. Gross margin stands at 56.0% (¥8,397m/¥14,987m), supporting a high operating margin of approximately 28.3% (¥4,247m/¥14,987m) and an ordinary margin of about 29.1% (¥4,361m/¥14,987m). Net margin at 22.21% underscores tight cost control and favorable mix/pricing in the period. Operating leverage is positive: revenue grew 9.5% YoY while operating income rose 16.4% YoY, implying incremental margins comfortably above the average. Non-operating items netted slightly positive, as ordinary income exceeded operating income by roughly ¥114m, and interest expense was minimal at ¥0.809m, yielding interest coverage above 5,000x. The approximate effective tax rate is around 24.5% (¥1,068m/¥4,361m), consistent with a normalized rate in Japan. EBITDA is not assessable given unreported depreciation/amortization; therefore, commentary focuses on EBIT-level profitability. Overall, profitability quality appears strong with high gross value-add, disciplined opex, and little reliance on financial leverage.

Growth Assessment

Top-line growth of 9.5% YoY to ¥14,987m indicates steady demand recovery or share gains. Operating profit growth of 16.4% YoY and net profit growth of 26.7% YoY reflect improving operating efficiency and scale benefits. Margin expansion at both the operating and net levels suggests healthy pricing/mix and cost discipline, supporting the sustainability of earnings if volumes hold. The net profit margin at 22.21% is high for specialty materials/chemicals peers, but sustainability will depend on end-market conditions and competitive responses. Ordinary income outpaced operating income slightly, indicating non-operating items were net-positive; sustainability of this contribution should not be assumed. With asset turnover at 0.437x, additional growth may require careful asset utilization or targeted capex; absent D&A and capex data, we cannot opine on capital intensity trends. Without cash flow disclosure, we cannot validate cash conversion of the earnings growth; watch for OCF growth in line with or above net income to confirm quality. Near-term outlook hinges on downstream electronics demand, product qualification cycles, and pricing discipline. Overall, the growth profile appears solid and margin-accretive, but confirmation via cash flows and backlog/order visibility would strengthen the case.

Financial Health

Total assets are ¥34,292m against total equity of ¥28,312m and liabilities of ¥6,142m, implying an equity ratio of approximately 82.6% and financial leverage of 1.21x. The debt-to-equity ratio is 0.22x (using total liabilities/equity), indicating a conservative capital structure. Liquidity is strong: current assets of ¥19,659m and current liabilities of ¥4,458m yield a current ratio of 441% and quick ratio of 424%, with inventories modest at ¥756m. Working capital is sizable at ¥15,201m, providing ample buffer for operations and growth. Interest burden is negligible (¥0.809m), and interest coverage is extremely high, mitigating near-term solvency risk. Cash and equivalents were not disclosed in the provided cash flow section; however, the strength of current assets and low liabilities indicate robust short-term solvency. Overall balance sheet health is strong, with substantial equity cushion and limited reliance on debt.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow were not disclosed in the provided data (zeros indicate unreported). As a result, OCF-to-net income, free cash flow, and capex intensity cannot be evaluated here. Earnings quality from the income statement appears strong given high gross and operating margins and minimal interest costs, but cash conversion cannot be confirmed. Working capital appears healthy with low inventories (¥756m) relative to current assets and a high quick ratio, which is supportive but not a substitute for OCF data. Depreciation and amortization were not disclosed; thus, EBITDA and non-cash components of earnings cannot be assessed. Once cash flow statements are available, key checks include OCF/net income >1.0 over time, stability of receivables and inventories relative to sales, and consistency of capex with growth needs.

Dividend Sustainability

Dividend data (DPS and payout ratio) were not disclosed; the displayed zeros should not be interpreted as no dividends. With net income of ¥3,329m and a strong equity base, capacity for dividends appears supported by earnings; however, sustainability depends on actual cash generation and capital allocation priorities. Free cash flow was not reported, so FCF coverage of dividends cannot be assessed. Balance sheet conservatism (equity ratio ~82.6%, low leverage) suggests flexibility to maintain or adjust shareholder returns in line with performance. Policy outlook should be guided by management’s stated payout or total return policy, which is not included in the provided data. Until OCF and capex are disclosed, conclusions on dividend coverage remain provisional.

Risk Assessment

Business Risks:

• Cyclical demand in end-markets (e.g., electronics/semiconductors/PCBs) affecting volumes and pricing
• Competitive pressure from domestic and overseas specialty chemical/materials suppliers
• Customer concentration and qualification risk in key products and applications
• Raw material price volatility and supply chain constraints impacting gross margins
• Product mix shifts that could pressure high-margin lines
• Regulatory and environmental compliance requirements for chemical processes
• FX fluctuations (e.g., JPY strength/weakness) influencing export competitiveness and input costs

Financial Risks:

• Potential working capital swings as growth resumes or inventory builds
• Capex requirements for capacity/technology upgrades not visible without investing cash flow disclosure
• Tax rate variability relative to the approximated 24–25% effective rate
• Limited visibility on cash balances and liquidity composition due to unreported cash flow statements

Key Concerns:

• Lack of disclosed operating, investing, and financing cash flows limits assessment of cash conversion
• Unreported depreciation/amortization obscures capital intensity and EBITDA
• Dividend data not disclosed, preventing payout and coverage analysis
• Sustainability of elevated margins amid potential normalization of end-market conditions

Investment Implications

Key Takeaways:

• Strong earnings momentum with revenue +9.5% YoY and net income +26.7% YoY
• High profitability: gross margin 56.0%, operating margin ~28.3%, net margin 22.21%
• ROE of 11.76% driven primarily by superior margins rather than leverage
• Conservative balance sheet with equity ratio ~82.6% and debt-to-equity 0.22x
• Positive operating leverage evident as operating profit growth outpaced sales
• Non-operating items slightly positive; interest burden negligible
• Cash flow and dividend data not disclosed, requiring caution in assessing cash-based sustainability

Metrics to Watch:

• Operating cash flow and free cash flow conversion versus net income
• Gross and operating margin trajectory as demand and input costs evolve
• Working capital efficiency (receivables, inventories) relative to sales
• Capex levels and D&A once disclosed, to gauge capital intensity and future capacity
• Order trends and end-market indicators in electronics/PCB-related demand
• FX impacts on margins and competitiveness
• Tax rate normalization versus the ~24–25% approximation

Relative Positioning: Within Japanese specialty chemicals/electronic materials peers, the company exhibits above-average margins, double-digit ROE with low leverage, and very strong liquidity, albeit with cash flow and dividend visibility currently limited by disclosure in this dataset.

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