ES NETWORKS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.50B
• Operating Income: ¥217M
• Net Income: ¥176M
• EPS: ¥53.49

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 top-line growth with mixed profitability and a slight margin squeeze; balance sheet remains very strong, but earnings quality cannot be validated due to missing cash flow data. Revenue grew 13.9% YoY to 25.02, supported by a gross profit of 9.83 and operating income of 2.17 (+0.9% YoY). Ordinary income increased more materially by 19.8% YoY to 2.52, implying favorable non-operating dynamics beyond the partial non-operating breakdown disclosed. Net income declined 8.6% YoY to 1.61, with an effective tax rate of 32.4% (0.84 tax on 2.60 PBT). Operating margin is 8.7% (2.17/25.02), down roughly 111 bps YoY from an estimated 9.8%, indicating operating leverage did not fully materialize against SG&A. Gross margin printed at 39.3%; YoY change cannot be derived from available data. ROE calculated at 10.0% (Net margin 6.4% × Asset turnover 1.150 × Financial leverage 1.35x) is respectable for a consulting/solutions business of this size. Liquidity is a standout with a current ratio of 376% and cash and deposits of 11.91 versus current liabilities of 4.67, supporting flexibility for investment and shareholder returns. Leverage is conservative with D/E at 0.35x and interest coverage at 100.7x, leaving low financial risk. Earnings quality cannot be assessed because operating cash flow is unreported; OCF/NI and FCF coverage of dividends remain unknown. The calculated payout ratio of 85.2% appears elevated relative to typical sustainability thresholds, though ample cash reduces near-term risk. Ordinary income outpaced operating income growth, suggesting non-operating tailwinds or other gains partially offset softer operating margin; durability is uncertain without detailed non-operating breakdown. Working capital looks conservative given the cash position and modest receivables (3.18). With ROE at 10% and strong liquidity, the company is positioned to fund growth or maintain dividends, but confirmation hinges on future cash flow disclosure. Forward-looking, maintaining revenue momentum while defending operating margin will be key, alongside careful calibration of payout given earnings volatility. Overall, a decent quarter on growth and capital strength, with watchpoints on margin discipline, cash conversion, and dividend sustainability.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 6.4% × Asset Turnover (AT) 1.150 × Financial Leverage (FL) 1.35x = ROE 10.0%. The component that changed most appears to be NPM given revenue +13.9% YoY versus operating income +0.9%, implying margin compression; AT likely improved modestly on higher revenue against a relatively stable asset base; FL is low and appears stable. Business drivers: higher SG&A absorption and possibly wage/retention costs or project mix restrained operating leverage, while non-operating items boosted ordinary income versus operating income. Sustainability: the lower operating margin trend is a risk if cost inflation persists; non-operating tailwinds are inherently less stable than core margin improvements. Concerning trends: operating margin compressed about 111 bps YoY (from ~9.8% to 8.7%), and SG&A growth likely exceeded operating income growth (actual SG&A YoY not disclosed), signaling tighter cost control is needed to translate top-line gains into earnings.

Growth Assessment

Revenue expanded 13.9% YoY to 25.02, indicating healthy demand for services. Operating income rose only 0.9% YoY to 2.17, lagging revenue and pointing to weaker incremental margins. Ordinary income grew 19.8% YoY to 2.52, suggesting favorable non-operating contributions or other gains not fully broken out. Net income fell 8.6% YoY to 1.61, reflecting tax burden and margin compression. Growth sustainability hinges on utilization rates, pricing power, and project mix; without backlog or bookings data, durability of the double-digit revenue growth is uncertain. The company’s strong cash balances provide capacity to invest in talent and solutions that could support growth. Near term, priority should be maintaining gross margin and curbing SG&A creep to restore operating leverage. Outlook: steady growth is plausible if client demand holds, but earnings growth will require margin defense and cost discipline; watch for commentary on pipeline, hiring, and pricing.

Financial Health

Liquidity is very strong: Current assets 17.57 versus current liabilities 4.67 yields a current ratio of 376.4% (warning threshold < 1.0 not breached). Quick ratio is also 376.4% given the predominance of cash (11.91), indicating ample short-term coverage. Solvency: Total liabilities 5.59 vs equity 16.17 implies D/E at 0.35x, comfortably conservative; no warning for D/E > 2.0. Interest-bearing debt detail is incomplete, but long-term loans are 0.93 and interest expense is minimal (0.02), with interest coverage 100.7x. Maturity mismatch risk appears low: cash and receivables (15.09) comfortably exceed current liabilities (4.67). No off-balance sheet obligations are reported; absence of disclosure does not confirm absence. Equity base of 16.17 provides buffer, and financial leverage (assets/equity) at 1.35x is prudent.

Cash Flow Quality

Operating cash flow and free cash flow are unreported, preventing direct assessment of earnings quality. OCF/Net Income cannot be calculated; we cannot confirm whether earnings are cash-backed. Working capital quality looks sound on balance sheet snapshot (cash-rich, moderate receivables), but without period cash flow we cannot exclude timing effects. Dividend and capex coverage by FCF is unknown; until OCF is disclosed, sustainability assessments rely on balance sheet capacity rather than recurring cash generation. No clear signs of working capital manipulation can be identified from available data.

Dividend Sustainability

Calculated payout ratio is 85.2%, above the typical sustainable range (<60%), implying heightened sensitivity to earnings volatility. With cash and deposits of 11.91 and modest debt, near-term capacity to fund dividends is strong even if earnings dip. However, absent OCF/FCF disclosure, recurring coverage is unverified. If operating margin remains compressed, payout at this level could constrain reinvestment unless cash reserves are drawn down. Policy outlook: management may need to balance shareholder returns with growth investments; future guidance on DPS and payout policy will be important, especially alongside visibility on cash conversion.

Risk Assessment

Business Risks:

• Margin pressure from rising personnel costs and utilization variability
• Project mix shifts reducing gross margin and operating leverage
• Demand cyclicality in corporate consulting/solutions tied to macro conditions
• Client concentration risk (not disclosed but common in small-cap services)
• Execution risk in hiring/retention amid tight labor market

Financial Risks:

• High payout ratio (85.2%) increasing sensitivity to profit volatility
• Non-operating income contribution to ordinary profit could be non-recurring
• Cash flow visibility risk due to unreported OCF/FCF
• Potential tax rate volatility impacting bottom-line (32.4% this period)

Key Concerns:

• Operating margin compressed ~111 bps YoY despite double-digit revenue growth
• Net income declined 8.6% YoY; need clarity on drivers and normalization
• Limited disclosure on non-operating items while ordinary income rose strongly
• Dividend sustainability relies on cash reserves without FCF confirmation

Investment Implications

Key Takeaways:

• Top-line growth robust (+13.9% YoY) but operating leverage weak
• ROE at 10% is solid given conservative leverage
• Ordinary income growth outpaced operating profit, implying non-operating tailwinds
• Balance sheet strength (current ratio 376%, D/E 0.35x) reduces financial risk
• High payout ratio poses medium-term sustainability questions absent OCF support

Metrics to Watch:

• Operating margin trajectory and SG&A growth versus revenue
• OCF/Net Income and FCF once disclosed
• Project pipeline, utilization, and pricing indicators
• Non-operating income composition and recurrence
• Tax rate guidance and any policy changes affecting net profit

Relative Positioning: Within small-cap professional services/consulting peers, the company exhibits superior liquidity and conservative leverage, competitive ROE, but weaker conversion of revenue growth into operating profit this quarter; dividend policy is on the aggressive side relative to earnings volatility.

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