KURAMOTO CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.76B
• Operating Income: ¥-289M
• Net Income: ¥-375M
• EPS: ¥-7.81

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: FY2025 Q3 was weak operationally despite strong topline growth, with losses at operating and net levels and negative ROIC. Revenue rose 40.4% YoY to 17.58, but cost discipline lagged, resulting in an operating loss of -2.89 and a net loss of -3.74. Gross profit was 5.57, implying a gross margin of 31.7%, but SG&A of 8.46 (48.1% of sales) more than absorbed gross profits. Non-operating items were a net expense of -0.31 (income 0.26 vs expenses 0.57), pushing ordinary income to -3.20. The effective tax expense of 0.54 despite losses drove the net loss deeper, translating to EPS of -7.81. Asset intensity remains high with total assets of 43.66 and an asset turnover of only 0.403, depressing ROE to -10.9% despite low leverage (1.27x). The operating margin was approximately -16.4% and net margin -21.3%; YoY margin expansion/compression cannot be quantified due to lack of prior-year margin disclosures. Interest coverage was deeply negative at -28.6x, indicating weak debt-servicing capacity from current operations. Liquidity is adequate on paper (current ratio 121%, quick ratio 105%), with positive working capital of 1.08, but the coverage of interest and the sustained operating loss flag near-term pressure if losses persist. Balance sheet quality is a concern: goodwill and other intangibles total 33.38 (77% of equity), elevating impairment risk and lowering tangible backing. Leverage is modest (D/E 0.27x; loans 4.06 vs cash 2.08), but negative ROIC (-7.9%) indicates the asset base is not earning its cost of capital. Earnings quality and cash conversion cannot be assessed because cash flow statements were not disclosed, a key limitation for judging sustainability. With strong revenue growth but insufficient operating leverage and heavy SG&A burden, the immediate focus must be on cost actions and mix/pricing to restore operating profitability. Forward-looking, the company needs to stabilize gross margin and cut SG&A to move toward breakeven and protect liquidity, while monitoring potential intangible impairments. Absent improvement in operating income and cash generation, dividend capacity appears constrained.

Profitability Analysis

ROE decomposition: ROE (-10.9%) = Net Profit Margin (-21.3%) × Asset Turnover (0.403) × Financial Leverage (1.27x). The dominant drag is the net margin at -21.3%, reflecting an operating margin of roughly -16.4% and additional non-operating/tax headwinds. Asset turnover at 0.403 is also low, indicating a large asset base relative to sales, which limits ROE even if margins improve. Leverage is modest at 1.27x assets/equity, providing little amplification (positive or negative) to returns. The biggest change driver in the period is margin deterioration (driven by SG&A at 48.1% of sales and insufficient gross margin to cover it), not leverage or turnover. Business reasons likely include elevated fixed costs and mix/pricing that capped gross margin at 31.7% while scaling costs with revenue growth. Sustainability: the current loss profile is not sustainable; turnaround depends on cost control (SG&A normalization) and gross margin recovery. Concerning trends include SG&A intensity (48.1% of sales), which is likely outpacing revenue growth in absolute terms and must be reduced to approach breakeven; also, non-operating costs (0.57) and tax expense (0.54) despite losses further strain net profitability.

Growth Assessment

Revenue growth was strong at +40.4% YoY to 17.58, indicating demand recovery or successful business development. However, the quality of growth is weak given the operating loss (-2.89) and net loss (-3.74); growth did not translate into operating leverage. Gross margin sits at 31.7%, insufficient against SG&A at 48.1% of sales; without margin lift or SG&A cuts, incremental revenue may continue to dilute earnings. Non-operating balance (-0.31) and tax burden (0.54) offset any potential improvements below operating line. Outlook hinges on raising contribution margin (pricing/mix and cost of sales control) and reducing fixed costs; otherwise, scaling may continue to be loss-making. Given low asset turnover (0.403), capital efficiency is a headwind; redeploying or rationalizing under-earning assets could aid ROIC. Data limitations (no segment detail or cash flows) prevent assessing sustainability by product/segment, so near-term visibility remains low.

Financial Health

Liquidity: current ratio 121% and quick ratio 105% indicate adequate near-term coverage; no explicit warning trigger (<1.0) is breached. Working capital is positive at 1.08 (current assets 6.22 vs current liabilities 5.14), with cash 2.08 and receivables 1.05 versus payables 1.03. Solvency: D/E is conservative at 0.27x; loans total 4.06 (ST 0.50, LT 3.56), implying net debt of roughly 1.98 after cash. However, interest coverage is deeply negative (-28.6x) due to operating losses, posing ongoing debt-service risk if losses persist. Maturity mismatch risk appears contained in the short term given liquidity metrics, but sustained negative EBIT would erode cushions. Balance sheet quality risk is high: goodwill 16.23 and intangibles 17.15 equal 33.38 (≈97% of current equity’s retained earnings deficit plus paid-in capital), raising impairment risk that could reduce equity materially. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow data are unreported, so OCF/Net Income and free cash flow cannot be assessed. Consequently, earnings quality via cash conversion cannot be validated; this is a key limitation. Given the operating loss and negative interest coverage, internal cash generation is likely weak near term. Without capex and working capital details, FCF sustainability for any dividend or debt repayment cannot be determined. No clear signs of working capital manipulation can be inferred from the limited snapshot, but inventory (0.83) and receivables (1.05) appear modest relative to sales; turnover metrics are not derivable without period flows.

Dividend Sustainability

Dividend-related items are unreported. With net loss (-3.74), negative ROE (-10.9%), and no OCF/FCF disclosure, coverage capacity cannot be demonstrated. Prudently, dividend sustainability appears weak until operating profitability and cash generation improve. Policy outlook cannot be inferred from the data; investors should monitor guidance, payout policy statements, and cash flow disclosure in the full-year report.

Risk Assessment

Business Risks:

• Margin risk: SG&A at 48.1% of sales overwhelms 31.7% gross margin, sustaining operating losses.
• Execution risk: inability to translate +40.4% revenue growth into positive operating income.
• Impairment risk: large goodwill and intangibles (33.38) elevate the chance of impairment charges.
• Demand and pricing volatility in core end-markets (manufacturing/electronics materials) impacting utilization and margins.
• Product mix risk: unfavorable mix could cap gross margin below required levels.

Financial Risks:

• Debt service risk: interest coverage -28.6x; financing costs not covered by operations.
• Liquidity erosion risk if losses persist despite current ratio 1.21x and quick ratio 1.05x.
• Potential covenant pressure if debt agreements include profitability or net worth tests.
• Tax cash outflow despite losses (tax expense 0.54) constrains cash in the near term.

Key Concerns:

• Negative ROIC (-7.9%) indicates value destruction and insufficient returns on the asset base.
• Low asset turnover (0.403) suggests underutilized assets or revenue scale below breakeven.
• Non-operating expense burden (0.57) and lack of equity-method or other recurring income support.
• Data gaps (no cash flow, segment, or R&D disclosure) limit visibility on turnaround path.

Investment Implications

Key Takeaways:

• Topline rebounded (+40.4% YoY) but operating leverage was negative; operating margin about -16.4%.
• SG&A intensity (48.1% of sales) is the primary profitability bottleneck.
• Interest coverage is deeply negative, elevating ongoing financing risk absent a profit turnaround.
• Balance sheet leverage is modest (D/E 0.27x), but asset quality risk is high due to heavy intangibles.
• ROE (-10.9%) and ROIC (-7.9%) underline poor capital efficiency requiring structural actions.

Metrics to Watch:

• Operating income trend and operating margin improvement toward breakeven.
• Gross margin trajectory (pricing/mix and cost-of-sales control).
• SG&A run-rate and cost-reduction execution.
• OCF and FCF disclosure in the full-year report; OCF/NI ratio.
• Potential impairment testing outcomes for goodwill and intangibles.
• Interest coverage and any covenant disclosures or refinancing plans.

Relative Positioning: Within small-cap industrial/material peers, the company shows stronger near-term revenue growth but materially weaker profitability and returns due to high SG&A and low asset turnover; leverage is conservative, yet earnings quality and asset quality (intangibles) lag peers.

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