eWeLL Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.47B
• Operating Income: ¥1.20B
• Net Income: ¥832M
• EPS: ¥54.99

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: Strong FY2025 Q3 with accelerated profit growth and robust margins, albeit with limited cash flow disclosure and some classification nuances in the P/L. Revenue rose 33.0% YoY to 24.73, indicating healthy topline momentum. Operating income increased 45.2% YoY to 11.95, outpacing revenue and signaling operating leverage. Ordinary income grew 45.7% YoY to 12.02, with non-operating items small (net +0.02), confirming earnings are predominantly operational. Net income advanced 43.7% YoY to 8.32, lifting the net margin to 33.6%. Operating margin, based on reported operating income, is approximately 48.3% (11.95/24.73). Net margin expanded by roughly 250 bps YoY (from ~31.1% to 33.6%), while operating margin expanded by about 410 bps YoY (from ~44.2% to ~48.3%). Gross margin is high at 58.0%, underscoring a software-like model, but the reported gross profit (14.34) and SG&A (6.11) imply 8.23 of operating profit on a simple GP–SG&A basis; the difference to reported operating income (11.95) suggests ~3.7 of other operating income or classification effects under JGAAP. Liquidity is very strong: current ratio 452%, cash and deposits of 19.66 (over half of total assets), and negligible interest burden (interest expense 0.02; interest coverage 531x). Balance sheet leverage is conservative with D/E at 0.21x and financial leverage at 1.19x. ROE is a robust 26.8%, driven primarily by very high net profitability and decent asset turnover (0.668x). Effective tax rate stands at 29.8%. Cash flow from operations is unreported, preventing validation of earnings quality via OCF/NI; this is the main limitation to the quarter’s quality assessment. Despite limited CF disclosure, the cash-rich balance sheet and modest payout ratio (calculated 21.9%) provide comfort on capital returns. Forward-looking, the combination of topline growth, high gross margin, and operating leverage suggests continued earnings scalability, assuming customer acquisition and retention trends remain favorable and no adverse regulatory or reimbursement shocks in healthcare IT. Monitoring working capital trends (accounts receivable 5.07) and the sustainability of other operating income components will be important to gauge persistence of margins.

Profitability Analysis

ROE decomposition (DuPont): ROE 26.8% = Net Profit Margin 33.6% × Asset Turnover 0.668 × Financial Leverage 1.19x. The most impactful change appears to be margin expansion, as operating income (+45.2% YoY) outpaced revenue (+33.0% YoY), indicating positive operating leverage; net margin also improved by ~250 bps YoY. Business rationale: scaling effects on SG&A and possibly recurring revenue dynamics in a high-gross-margin model (58.0%) lifted operating margins; non-operating items were minor (net +0.02), so core operations drove gains. The GP–SG&A–OP mismatch implies ~3.7 of other operating income (e.g., subsidies, refunds, or reclassification under JGAAP), which may have boosted operating profit beyond core gross profit less SG&A; the sustainability of this component needs validation. Asset turnover at 0.668 reflects efficient utilization for a software-oriented business, aided by low working capital intensity (AR 5.07; AP 0.31) and large cash holdings. Financial leverage is modest (1.19x), so ROE is chiefly profitability-led, not leverage-driven. Sustainability: core margin expansion tied to scale and mix could persist if growth continues, but any normalization of other operating income would be a headwind to operating margin. Watch for SG&A growth relative to revenue; current data suggest positive operating leverage, but detailed SG&A breakdown is unreported, limiting granularity.

Growth Assessment

Revenue grew 33.0% YoY to 24.73, signaling strong demand, likely from user growth and upselling within a software/healthcare IT model. Operating income rose 45.2% YoY to 11.95, with operating margin up ~410 bps YoY to ~48.3%, indicating scale benefits. Net income increased 43.7% YoY to 8.32; net margin expanded ~250 bps to 33.6%. Back-solves imply prior-period revenue ~18.60 and operating income ~8.23, consistent with operating leverage this year. Non-operating contributions were minimal (0.04 income, 0.02 expenses), keeping profit quality anchored in operations. However, the difference between GP–SG&A and reported operating income suggests other operating income (~3.7) contributed meaningfully this period; absent details, this could be partially one-off. With high cash (19.66) and low liabilities, capacity exists to invest in growth without balance sheet strain. Outlook: If topline momentum persists and gross margin remains near 58%, further profit scaling is plausible; key sensitivities are client churn, pricing, and any healthcare regulatory changes. Lack of OCF disclosure obscures whether growth is cash-generative; watch AR trends (5.07) relative to sales to confirm healthy collections.

Financial Health

Liquidity is very strong: current ratio 452% and quick ratio 452% (no inventories reported), supported by cash and deposits of 19.66 against current liabilities of 5.59. Solvency is conservative: D/E 0.21x, financial leverage 1.19x, and interest coverage 531x. No explicit short-term or long-term borrowings are reported; interest-bearing debt is unreported, but the low interest expense suggests minimal debt service. Maturity mismatch risk is low given substantial cash and working capital (19.68). Total assets 37.03 and equity 31.07 indicate a solid equity cushion. No off-balance-sheet obligations are disclosed in the provided data; absence of disclosure is not confirmation of absence. Explicit warnings: none on liquidity (current ratio well above 1.0) and none on leverage (D/E well below 2.0).

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be assessed; this is the principal limitation in evaluating earnings quality. Free cash flow and capex are also unreported, preventing verification of cash coverage for growth investments and dividends. Earnings reliance on non-operating items appears low this quarter (net +0.02), but the implied presence of other operating income (~3.7) in operating results warrants scrutiny for recurrence. Working capital: accounts receivable of 5.07 versus accounts payable of 0.31 indicates limited supplier financing; rapid sales growth may increase receivables seasonally, so monitoring DSO is advisable. With cash at 19.66 and low leverage, near-term liquidity risk around cash conversion is limited, but confirmation via OCF would improve confidence.

Dividend Sustainability

The calculated payout ratio is 21.9%, implying a conservative distribution relative to earnings. DPS data are unreported, and FCF coverage cannot be calculated due to missing OCF and capex figures. Given high cash reserves (19.66), low leverage (D/E 0.21x), and strong profitability (NI 8.32), current dividends appear supportable from the balance sheet and earnings. Policy outlook cannot be inferred without management guidance; however, the low payout ratio suggests headroom for stable or progressive dividends if earnings growth persists. Key watchpoints: confirmation of positive OCF, capex needs for product development, and any shift in capital allocation priorities.

Risk Assessment

Business Risks:

• Customer concentration and churn risk in a niche healthcare IT market
• Pricing pressure from competitors or procurement entities in healthcare
• Regulatory/reimbursement changes affecting client economics and IT spending
• Execution risk in scaling sales while maintaining service quality

Financial Risks:

• Lack of OCF/FCF disclosure obscures cash conversion and dividend coverage
• Potential reliance on other operating income (~3.7) if non-recurring
• AR growth and collection risk amid rapid revenue expansion
• Small-cap equity liquidity risk impacting capital market access

Key Concerns:

• P/L classification nuance: reported operating income exceeds GP–SG&A by ~3.7, requiring clarity on recurring nature
• Inconsistencies between profit before tax (8.25), income tax (2.46), and net income (8.32) suggest special items or period classification effects that need reconciliation
• Absent cash flow data limits assessment of earnings quality and FCF sustainability

Investment Implications

Key Takeaways:

• Strong topline growth (+33% YoY) with outsized operating profit growth (+45%) points to operating leverage
• High profitability profile: gross margin 58%, operating margin ~48%, net margin 33.6%
• ROE of 26.8% is driven mainly by profitability, not leverage
• Balance sheet is cash-rich and conservatively levered (current ratio 452%, D/E 0.21x)
• Earnings quality cannot be validated via OCF due to unreported cash flows
• Other operating income likely contributed materially; sustainability needs confirmation

Metrics to Watch:

• OCF/Net income and FCF once disclosed
• AR levels and DSO relative to sales growth
• Breakdown of other operating income and any extraordinary items
• SG&A growth rate versus revenue to confirm ongoing operating leverage
• Customer metrics: churn, net retention, and new logo additions
• Regulatory changes impacting healthcare provider IT budgets

Relative Positioning: Within Japan's healthcare IT/SaaS cohort, eWeLL exhibits above-average margins and ROE with a conservative balance sheet; the primary differentiator to validate is cash conversion and the recurrence of operating income components beyond gross profit less SG&A.

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