NETSTARS Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.37B
• Operating Income: ¥180M
• Net Income: ¥-152M
• EPS: ¥13.16

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

Netstars (5590) reported FY2025 Q3 consolidated results under JGAAP showing solid top-line growth but muted earnings progression. Revenue reached 3,367 million yen, up 23.6% YoY, indicating continued expansion in cashless payment-related services and merchant activity. Gross profit was 2,093 million yen, implying a robust gross margin of 62.2%, consistent with a software/platform-heavy model and scale benefits in acquiring/processing. Operating income was 180 million yen, flat YoY, signaling negative operating leverage in the period as SG&A outpaced gross profit growth. Ordinary income of 306 million yen exceeded operating income, suggesting a positive non-operating contribution (e.g., interest income, subsidies, or other financial gains). Net income was 219 million yen with a net margin of 6.5%, broadly modest for a payments platform in investment mode. DuPont analysis indicates ROE of 2.99% driven by low asset turnover (0.089) and moderate leverage (financial leverage 5.16), with profitability the main constraint. ROA stands at approximately 0.58%, reflecting the balance-sheet-intensive nature of settlement-related assets and payables typical to payment processors. Liquidity appears adequate with a current ratio of about 1.21x and working capital of roughly 5.97 billion yen, though current liabilities dominate the structure—likely settlement payables—which is common for the industry. The balance sheet shows total assets of 37.8 billion yen and total equity of 7.32 billion yen, implying an equity ratio around 19–20% by calculation; the presented equity ratio of 0.0% is treated as undisclosed rather than zero. Cash flow items (OCF/FCF/DCF) are shown as zero and should be viewed as not reported; thus, cash flow quality and FCF coverage cannot be reliably assessed this quarter. With annual DPS disclosed as zero, the company retains earnings—reasonable given growth investments, working capital needs, and modest ROE. Key watchpoints include SG&A discipline, path to operating leverage, and stabilization of ordinary-to-operating profit mix. Given competitive dynamics in QR code and digital payments in Japan, revenue momentum is encouraging but must translate into margin expansion to improve returns. Overall, the period highlights strong gross economics but an earnings profile still in transition, constrained by cost intensity and low asset turnover.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 0.065
• asset_turnover: 0.089
• financial_leverage: 5.16
• calculated_ROE: 0.0299
• ROA: 0.0058 margin_quality:
• gross_margin: 0.622
• operating_margin: 0.0534
• ordinary_margin: 0.0909
• net_margin: 0.065
• commentary: Gross margin is strong, reflecting scale and a software/service mix. The gap between ordinary and operating income suggests non-operating tailwinds. Flat YoY operating income despite 23.6% revenue growth indicates SG&A pressure and limited operating leverage in the quarter. operating_leverage: Negative in this period: revenue +23.6% YoY vs operating income +0% YoY implies cost growth (likely SG&A and customer acquisition/product investments) absorbed gross profit gains. Focus should be on SG&A productivity, unit economics per merchant, and transaction volume vs fixed-cost base.

Growth Assessment

revenue_sustainability: Top-line growth of 23.6% YoY indicates healthy transaction growth and/or merchant acquisition. As a payments platform, growth durability depends on cashless adoption, partner/channel expansion, and retention. No signs of deceleration are disclosed this quarter. profit_quality: Ordinary income outpaced operating income, pointing to non-operating contributions. Sustainable profit quality will require operating margin expansion; current earnings quality assessment is limited by missing cash flow data and minimal tax expense disclosure. outlook: If SG&A intensity normalizes and scale benefits emerge, operating margins can improve from the current 5–6% level. Competitive pricing and incentive costs could remain a headwind. Expect continued revenue growth from cashless penetration, offset by near-term investment in product and compliance.

Financial Health

liquidity:

• current_assets: 34606786000
• current_liabilities: 28632837000
• current_ratio: 1.209
• quick_ratio: 1.209
• working_capital: 5973949000
• commentary: Liquidity is adequate (>1.2x). The dominance of current liabilities likely reflects settlement payables common in payment processing; cash balance not disclosed this quarter. solvency_and_capital_structure:
• total_assets: 37826000000
• total_liabilities: 28632837000
• total_equity: 7324000000
• debt_to_equity: 3.91
• calculated_equity_ratio: 0.194
• commentary: Moderate capitalization with liabilities/equity at ~3.9x. Calculated equity ratio ~19–20% indicates leverage typical for settlement-heavy models; disclosed equity ratio of 0.0% should be treated as undisclosed.

Cash Flow Quality

earnings_quality: Not assessable from reported OCF (undisclosed). The low effective tax line vs profit implies either timing differences, valuation allowances, or presentation effects; therefore cash tax quality is unclear. free_cash_flow:

• operating_cf: None
• investing_cf: None
• free_cash_flow: None
• commentary: OCF/FCF not disclosed; cannot gauge conversion or reinvestment intensity. Given business model, working capital swings (settlement receivables/payables) can be material and volatile. working_capital_dynamics: No inventories and large current liabilities are consistent with a payments intermediary. Monitor receivables turnover, settlement cycles, and payable terms, which can materially affect quarter-to-quarter OCF.

Dividend Sustainability

payout_ratio_assessment: DPS is zero and payout ratio is 0%. With ROE at ~3% and a growth/scale phase evident, retention appears prudent. FCF_coverage: Not assessable due to undisclosed OCF/FCF. Dividend burden is currently nil. policy_outlook: Expect a conservative stance prioritizing reinvestment, liquidity, and compliance investments until margins and ROE improve. Future initiation would hinge on clearer OCF generation and sustained profitability.

Risk Assessment

Business Risks:

• Intense competition in Japanese QR/code and digital payments (PayPay, Rakuten Pay, LINE Pay, card networks) pressuring take rates and incentives.
• Merchant acquisition and retention costs limiting operating leverage.
• Regulatory changes under the Payment Services Act and AML/CFT requirements raising compliance costs.
• Dependence on payment volumes and consumer spending cycles; macro sensitivity.
• Technology and cybersecurity risks affecting platform reliability and trust.

Financial Risks:

• Low asset turnover and modest ROE constrain capital efficiency.
• Large settlement-related current liabilities expose the company to working capital timing swings.
• Limited visibility on cash flow given undisclosed OCF/FCF, complicating liquidity assessment.
• Potential non-operating income reliance creating volatility between operating and ordinary profit.

Key Concerns:

• Operating leverage not yet evident despite strong revenue growth.
• Undisclosed cash flow metrics limit earnings quality evaluation.
• Equity base supports operations, but returns remain low; need for margin expansion to lift ROE.

Investment Implications

Key Takeaways:

• Strong top-line momentum (+23.6% YoY) with high gross margin (62.2%).
• Operating profit flat YoY indicates investment/SG&A pressure; negative operating leverage this quarter.
• ROE at ~3% driven by low asset turnover and modest margins.
• Liquidity adequate (current ratio ~1.21x), with settlement-driven current liabilities.
• Cash flow not disclosed; FCF conversion and sustainability cannot be assessed.
• Dividend on hold (DPS=0), consistent with growth and low-ROE profile.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio.
• OCF and FCF when disclosed; OCF/NI conversion.
• Take rate and gross profit per transaction/merchant.
• Ordinary-to-operating income gap (non-operating income reliance).
• Equity ratio and liabilities/equity to monitor solvency buffer.
• Effective tax rate normalization and cash taxes.

Relative Positioning: The company exhibits solid revenue growth and strong gross economics versus many payment facilitators, but trails best-in-class peers on operating leverage and ROE, with limited current visibility on cash flow conversion.

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