Shinhokoku Material Corp. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥4.36B
• Operating Income: ¥417M
• Net Income: ¥361M
• EPS: ¥54.18

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

Shinpokoku Material Co., Ltd. (TSE:5542) reported FY2025 Q3 (non-consolidated, JGAAP) results showing resilient profitability despite a modest top-line decline. Revenue was ¥4,363m, down 3.4% YoY, while operating income was ¥417m, down a smaller 3.1% YoY, indicating decent cost discipline and operating leverage control. Ordinary income of ¥488m exceeded operating income by ¥71m, suggesting positive non-operating contributions (e.g., FX gains, interest/dividend income, or subsidies). Net income rose 9.1% YoY to ¥361m, implying improved net margin and/or favorable non-operating/tax effects versus last year. Gross profit was ¥1,030.7m with a gross margin of 23.6%, providing a solid value-add over cost of sales for a specialty materials producer. Operating margin was approximately 9.6% (¥417m/¥4,363m), and ordinary margin around 11.2%, reflecting healthy core and financial/other income support. DuPont analysis shows ROE at 6.26%, driven by an 8.27% net margin, asset turnover of 0.557x, and modest financial leverage of 1.36x; the ROE is respectable but not high for the materials sector. Balance sheet strength is notable: total assets were ¥7,832m and equity ¥5,766m, implying an equity-to-asset ratio around 73.6% (despite a reported 0.0% placeholder), and liabilities of ¥2,185m (debt-to-equity 0.38x). Liquidity appears very strong with current assets of ¥6,323m versus current liabilities of ¥693m, yielding a current ratio of ~9.1x and working capital of ¥5,630m. Interest expense was ¥5.27m, putting interest coverage at 79.1x based on operating income, indicating very low financial risk from leverage. The effective tax rate shown as 0.0% in the calculated metrics is a placeholder; using disclosed income tax of ¥109.4m and ordinary income of ¥488m implies an effective tax rate about 22%. Cash flow statements, D&A, cash balances, and dividends were not disclosed in XBRL (zeros indicate unreported), limiting assessment of earnings quality and shareholder returns. Given end-market exposure typical for this company (high-performance alloys/specialty materials), pricing/mix and input cost pass-through likely drove the YoY profit resilience amid softer sales. Overall, the company exhibits solid margins, strong liquidity, low leverage, and modest ROE, with non-operating gains and taxes aiding bottom-line growth. Data limitations around cash flows, capex, and dividends constrain full evaluation of cash conversion and capital allocation. The outlook hinges on demand normalization in key customer industries, cost pass-through, and sustaining ordinary income contributions. Monitoring the trajectory of orders and any emerging capex cycle in semiconductors/aerospace/precision machinery end-markets will be important for revenue recovery.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 8.27% (¥361m / ¥4,363m)
• asset_turnover: 0.557x (¥4,363m / ¥7,832m)
• financial_leverage: 1.36x (¥7,832m / ¥5,766m)
• calculated_ROE: 6.26% (matches reported) margin_quality:
• gross_margin: 23.6% (gross profit ¥1,030.7m)
• operating_margin: ≈9.6% (¥417m / ¥4,363m)
• ordinary_margin: ≈11.2% (¥488m / ¥4,363m)
• net_margin: 8.27% (¥361m / ¥4,363m)
• commentary: Margins are healthy for a specialty materials company. Net income grew 9.1% YoY despite -3.4% revenue, indicating improved mix/cost control and/or supportive non-operating items. Ordinary income exceeding operating income by ¥71m suggests positive financial/other income contributions. operating_leverage: Operating income decline (-3.1% YoY) was slightly better than sales (-3.4% YoY), implying manageable operating leverage and cost flexibility. Gross margin at 23.6% supports stable contribution despite top-line softness.

Growth Assessment

revenue_sustainability: Revenue of ¥4,363m fell 3.4% YoY, likely reflecting softer demand or product mix shifts. Sustainability depends on end-market recovery (e.g., electronics/semiconductor, precision components, automotive) and pricing discipline. profit_quality: Net income rose 9.1% YoY to ¥361m despite lower sales, supported by stable operating margin and non-operating gains. Ordinary income being above operating income indicates reliance on non-core items to some extent. outlook: Near-term growth hinges on order trends and capex cycles in downstream industries. If demand stabilizes and cost pass-through remains effective, margins can be maintained; a rebound in cyclical end-markets would improve asset turnover and ROE.

Financial Health

liquidity: Current assets ¥6,323m vs current liabilities ¥693m; current ratio ~9.12x and working capital ¥5,630m indicate very strong near-term liquidity. Quick ratio appears identical due to undisclosed inventories; interpret with caution. solvency: Total liabilities ¥2,185m vs equity ¥5,766m yields debt-to-equity ~0.38x. Interest expense is low (¥5.27m) with 79.1x coverage, signaling minimal financial risk. capital_structure: Equity-to-asset ratio is approximately 73.6% (computed), despite a reported 0.0% placeholder. Balance sheet is equity-heavy, constraining ROE but supporting resilience.

Cash Flow Quality

earnings_quality: Cash flow data (OCF/ICF/FCF) not disclosed; zeros are placeholders. Therefore, cash conversion and accrual quality cannot be assessed this quarter. FCF_analysis: Free cash flow cannot be computed without OCF and capex/D&A. EBITDA is not available due to undisclosed D&A under XBRL. working_capital: Large working capital (¥5,630m) supports operations, but without inventory/receivables/payables details, we cannot evaluate cycle efficiency or potential cash release requirements.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are undisclosed (zeros are placeholders). EPS is ¥54.18, but without DPS we cannot compute payout. FCF_coverage: Not assessable as OCF and capex are undisclosed; FCF coverage ratio is not meaningful this period. policy_outlook: With a strong balance sheet and low leverage, the company has capacity for shareholder returns in principle, but specific policy and sustainability cannot be evaluated without dividend and cash flow disclosures.

Risk Assessment

Business Risks:

• Cyclical demand in end-markets (semiconductor, precision components, automotive/aerospace) impacting volumes and mix.
• Raw material price volatility (e.g., copper/nickel/beryllium alloys) affecting gross margins and pricing power.
• Customer concentration and order timing risk typical in specialty materials.
• FX fluctuations influencing non-operating income and export competitiveness.
• Technology/product substitution risk in high-performance materials.

Financial Risks:

• Limited visibility on cash generation due to undisclosed OCF and capex this period.
• Potential working capital swings if demand normalizes abruptly.
• Non-operating income dependence (ordinary > operating) introducing earnings volatility.

Key Concerns:

• Revenue contraction (-3.4% YoY) amid uncertain end-market recovery.
• Lack of disclosed cash flow and D&A data, constraining assessment of earnings quality and reinvestment needs.
• Ordinary income contribution suggests some reliance on non-core items to achieve net income growth.

Investment Implications

Key Takeaways:

• Margins are resilient: gross margin 23.6%, operating margin ~9.6%, net margin 8.27%.
• ROE at 6.26% is modest, constrained by low leverage despite solid margins.
• Balance sheet strength: equity ratio ~73.6% (computed), current ratio ~9.1x, interest coverage 79.1x.
• Non-operating gains supported earnings (ordinary income ¥488m > operating income ¥417m).
• Data gaps (cash flow, D&A, dividend) limit visibility on cash conversion and capital allocation.

Metrics to Watch:

• Order backlog and book-to-bill trends by end-market.
• Operating cash flow and capex (to assess FCF and cash conversion).
• D&A and EBITDA (for operating leverage and maintenance vs growth capex needs).
• Gross and operating margins versus raw material indices (pass-through effectiveness).
• Non-operating income components and FX sensitivity.
• Inventory/receivables/payables turns once disclosed (working capital efficiency).

Relative Positioning: Within Japanese specialty metals/materials peers, profitability is solid but ROE is below higher-return peers; financial risk is low given the equity-heavy balance sheet, positioning the company defensively pending demand recovery.

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