BP Castrol K.K. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥10.67B
• Operating Income: ¥1.14B
• Net Income: ¥758M
• EPS: ¥33.05

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

Verdict: Solid Q3 with double-digit top-line growth and operating margin expansion, though net margin was broadly flat and dividend policy appears aggressive relative to earnings. Revenue rose 11.1% YoY to 106.7, supporting operating income growth of 17.7% YoY to 11.35. Gross profit reached 36.33 with a gross margin of 34.1%, indicating pricing and/or cost pass-through effectiveness. Operating margin was 10.6% this quarter, up roughly 60 bps from an estimated ~10.0% a year ago, reflecting positive operating leverage. Ordinary income increased 18.0% to 12.11, with margin expansion of roughly 66 bps YoY to 11.3%. Net income came in at 7.58 (+10.4% YoY), translating to a 7.1% net margin, essentially flat with an estimated ~4 bps compression YoY. Non-operating income was modest at 0.71 and primarily interest income (0.25), implying quality of earnings was largely operational. Balance sheet strength is notable: current ratio 365% and D/E of 0.35x, with substantial working capital of 86.19. Asset turnover of 0.819 and financial leverage of 1.33x yield ROE of 7.8%, in line with the calculated DuPont figure. ROIC is estimated at 7.9%, roughly at the typical target range for steady industrial businesses. Earnings quality cannot be fully assessed given unreported operating cash flow; this is a key limitation. The payout ratio is calculated at 127.3%, suggesting dividends exceed current-period earnings and are being supported by retained earnings/cash, which may not be sustainable if replicated. Inventory (11.54) and receivables (31.39) levels appear manageable versus payables (10.69), but low cash on hand (1.48) warrants monitoring of collections. Forward-looking, stable gross margin and operating leverage provide a constructive base if demand and pricing hold, but high payout and lack of OCF disclosure temper confidence on cash-backed returns. Key watch items include cost of base oils/additives, FX impacts on procurement, and working capital discipline.

Profitability Analysis

ROE (7.8%) = Net Profit Margin (7.1%) × Asset Turnover (0.819) × Financial Leverage (1.33x). The component with the clearest improvement YoY is operating efficiency, evidenced by operating margin expansion of ~60 bps and ordinary margin expansion of ~66 bps, implying better cost control and/or pricing power, which supports net margin stability. The business driver appears to be successful pass-through of input costs (base oils/additives) and SG&A efficiency at higher volumes, as revenue grew 11.1% while operating income grew 17.7%, indicating positive operating leverage. Sustainability: margin gains look operational rather than one-off, but they remain sensitive to commodity input costs and FX; absent hedging, gains could normalize. Net margin was flat to slightly lower in bps terms due to a normalized effective tax rate of 33.1% and limited non-operating support. Watch for potential pressure if SG&A growth re-accelerates ahead of revenue; while we lack SG&A YoY detail, SG&A at 25.0% of sales is a useful baseline.

Growth Assessment

Top-line growth of 11.1% YoY reflects resilient demand and likely improved pricing in lubricants. Operating income outpaced sales (+17.7% YoY), demonstrating operating leverage and disciplined cost control. Gross margin at 34.1% supports the quality of growth; the combination of revenue scale and cost pass-through seems effective. Non-operating income (0.71) is small relative to operating income, implying that the growth is predominantly core-operational rather than financial. With a 7.9% ROIC, returns are around management target norms for stable industrials; sustaining >8% will likely require continued mix/pricing improvements or efficiency gains. Outlook depends on input cost trends (base oil pricing), FX (USD/JPY), and automotive/industrial lubricant demand; current run-rate supports stable to slightly improving profitability if macro conditions stay favorable. Data gaps (no OCF, capex) limit visibility on investment-led growth and cash conversion.

Financial Health

Liquidity is strong: current ratio 365% and quick ratio 330% far exceed benchmarks, with current assets (118.71) comfortably covering current liabilities (32.52). Solvency appears conservative: D/E 0.35x and total equity of 97.83 against total assets of 130.24 (financial leverage 1.33x). No warnings triggered (Current Ratio ≥ 1.0; D/E well below 2.0). Maturity mismatch risk is low given the sizable working capital buffer (86.19); receivables (31.39) and inventories (11.54) exceed payables (10.69), though cash on hand is modest at 1.48, underscoring reliance on collections and short-term liquidity management. Interest-bearing debt is unreported; however, low non-operating expenses (0.09) suggest minimal financial burden. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; we cannot confirm cash conversion or working capital drag/benefit. With a calculated payout ratio at 127.3%, cash flow sufficiency for dividends is uncertain; reliance on retained earnings (67.68) or potential balance-sheet flexibility is implied. Free cash flow is unreported; thus, sustainability of both dividends and any growth investments cannot be evaluated from cash metrics. Working capital appears healthy in level terms, but without period-over-period movements we cannot rule out earnings timing benefits or manipulation. Given net income of 7.58 and modest non-operating items, earnings quality appears primarily operational, but confirmation requires OCF disclosure.

Dividend Sustainability

Calculated payout ratio of 127.3% exceeds the <60% benchmark, indicating dividends above current-period earnings. With EPS of 33.05 JPY and the implied DPS likely above EPS, the policy appears aggressive; absent special factors, this is not sustainable on a steady-state earnings base. FCF coverage is not calculable due to unreported OCF/capex, preventing a definitive assessment of cash-backed dividends. Balance-sheet capacity exists (retained earnings 67.68 and low leverage), enabling near-term support, but repeated payout above earnings would erode flexibility. Policy outlook should be monitored for normalization toward earnings or linkage to mid-term ROE/ROIC targets.

Risk Assessment

Business Risks:

• Commodity input price volatility (base oils and additives) affecting gross margin
• FX exposure (USD/JPY) impacting imported inputs and pricing competitiveness
• Demand cyclicality in automotive and industrial lubricants end markets
• Competitive pricing pressure from domestic and global lubricant brands
• Potential shift in lubricant demand with EV adoption (changes in product mix/volumes)

Financial Risks:

• High dividend payout ratio (127.3%) exceeding earnings, risking balance-sheet drawdown if sustained
• Low reported cash (1.48) relative to receivables (31.39), increasing dependence on timely collections
• Lack of OCF disclosure limits visibility on cash conversion and working capital risk
• Tax rate variability (33.1% effective) can pressure net margins

Key Concerns:

• Sustainability of dividends absent clear FCF support
• Potential margin headwinds if base oil prices rise or FX moves adversely
• Data gaps (OCF, capex, interest expense) hinder a full quality-of-earnings review

Investment Implications

Key Takeaways:

• Double-digit revenue growth and ~60 bps operating margin expansion drove 17.7% YoY operating profit growth.
• Net margin is stable at 7.1%; ordinary income margin also expanded, aided by operating leverage.
• Balance sheet is strong (current ratio 365%, D/E 0.35x), supporting resilience.
• ROE at 7.8% and ROIC at 7.9% are in the acceptable target range but leave room for improvement.
• Dividend payout (127.3%) exceeds earnings, implying potential normalization unless cash flow is robust.

Metrics to Watch:

• Operating cash flow and FCF (conversion vs net income)
• Gross and operating margin trajectory vs base oil price and FX
• Working capital turns (DSO, DIO, DPO) and cash balance trends
• Capex needs to sustain ROIC ≥ 8%
• Dividend policy guidance and payout alignment with earnings

Relative Positioning: Within Japan lubricant peers, the company exhibits healthy operating discipline and conservative leverage, with margin levels and ROIC around sector norms; the main differentiator is an above-earnings payout that could constrain future flexibility unless underpinned by strong cash generation.

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