Rococo Co.Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.55B
• Operating Income: ¥406M
• Net Income: ¥157M
• EPS: ¥77.30

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: A solid FY2025 Q3 with double-digit top-line growth and pronounced operating leverage, resulting in materially higher profitability and ROE around 10%. Revenue rose 14.8% YoY to 65.53, while operating income surged 72.4% YoY to 4.06, demonstrating strong earnings momentum. Ordinary income increased 68.7% YoY to 4.23, and net income grew 83.9% YoY to 2.87, lifting the net margin to 4.4%. Operating margin improved to 6.2%, expanding by roughly 208 bps YoY (from about 4.1% a year ago), indicating cost discipline and scale benefits. Net margin expanded by about 165 bps YoY (to 4.4% from roughly 2.7%), further evidencing improved mix and operating efficiency. Gross profit was 20.41, and SG&A was 18.05, with the gap implying incremental operating leverage and likely contributions from other operating income not itemized in the SG&A breakdown. Non-operating income was modest at 0.31 (non-operating income ratio 11%), suggesting the earnings profile is primarily operational rather than financial. Liquidity is robust with current assets of 36.35 versus current liabilities of 15.42, driving a current ratio of 235.8% and substantial working capital of 20.93. The balance sheet remains conservative with debt-to-equity at 0.65x and cash and deposits of 18.23 against long-term loans of 1.53, implying a net cash position. ROE is calculated at 9.8% via DuPont (NPM 4.4% × asset turnover 1.362 × leverage 1.65x), a healthy level for this stage of growth. ROIC is cited at 20.5%, well above the 8% excellence benchmark, indicating attractive returns on invested capital. Earnings quality cannot be fully assessed because operating cash flow was not disclosed; the OCF/NI ratio is unavailable. The effective tax rate shown (about 37%) looks elevated, but the mapping of profit before tax (2.48) to net income (2.87) suggests classification nuances or special items; interpret bottom-line comparatives with caution. With a calculated payout ratio of 39%, dividends appear within a conservative range, though FCF coverage cannot be verified due to unreported cash flows. Overall, the quarter reflects accelerating profit growth and improved margins with ample liquidity, while the main watchpoint is the lack of cash flow disclosure and some line-item classification gaps.

Profitability Analysis

ROE decomposition (DuPont): ROE 9.8% = Net Profit Margin 4.4% × Asset Turnover 1.362 × Financial Leverage 1.65x. The most significant YoY change appears to be net margin expansion, supported by a 72.4% increase in operating income against 14.8% revenue growth, which implies stronger operating leverage. Business drivers likely include scale benefits, improved project pricing/mix, and disciplined SG&A growth relative to gross profit, alongside modest non-operating tailwinds (non-operating income ratio 11%). The sustainability of higher margins looks reasonable if demand and utilization stay firm, but absent cash flow confirmation and with limited SG&A detail, we treat part of the uplift as cyclical/operating leverage-driven. Watch for SG&A growth potentially re-accelerating if hiring or wage inflation picks up; at present, there is no indication SG&A grew faster than revenue given the margin expansion.

Growth Assessment

Top-line growth of 14.8% YoY to 65.53 indicates healthy demand. Operating profit growth of 72.4% YoY far outpaced revenue, pointing to maturing scale effects and better cost absorption. Net income growth of 83.9% YoY reflects both operating leverage and a slightly supportive non-operating contribution (0.31). The operating margin uplift to 6.2% (+~208 bps YoY) suggests improved execution and pricing/mix. Recurrence quality: Non-operating income is relatively small (11% of operating income scale), so growth appears mainly core-operating. Outlook: If revenue growth moderates to mid-teens with stable cost discipline, operating margins could hold in the mid-6% range; sustainability hinges on maintaining utilization and controlling wage inflation. ROIC at 20.5% signals efficient deployment; maintaining this level will depend on reinvestment returns and project execution.

Financial Health

Liquidity is strong: current assets 36.35 vs current liabilities 15.42 yields a current ratio of 235.8% (well above the >150% benchmark). Quick ratio is equivalent at 235.8% given limited inventories reported, and cash of 18.23 provides a substantial buffer. Solvency appears conservative with debt-to-equity at 0.65x and long-term loans at 1.53; interest-bearing debt overall is not fully disclosed, but net cash is likely. No warnings triggered: Current Ratio > 1.0 and D/E < 2.0. Maturity mismatch risk is low as near-term obligations are well covered by liquid assets. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow was not reported, so we cannot compute OCF/Net Income or free cash flow. Consequently, we cannot verify conversion of earnings to cash or assess working capital dynamics (receivables, inventories unreported). With revenue up 14.8% and margins expanding, positive OCF would be typical unless working capital absorbed cash (e.g., receivables growth). No evidence of working capital manipulation can be inferred due to missing line items. Dividend and capex coverage by FCF cannot be assessed.

Dividend Sustainability

The calculated payout ratio is 39%, comfortably below the 60% sustainability threshold. Balance sheet strength (net cash implied) supports dividend capacity in the near term. However, absent OCF/FCF disclosure, coverage from free cash flow cannot be confirmed. Policy signals were not provided; given ROE of 9.8% and ROIC of 20.5%, retention for growth remains attractive while maintaining a moderate payout seems feasible.

Risk Assessment

Business Risks:

• Execution risk on fixed-price or milestone-based projects leading to margin volatility
• Wage inflation and talent retention pressures impacting SG&A and delivery margins
• Demand cyclicality in core client industries potentially slowing revenue growth
• Project concentration or client concentration risks (not disclosed but common in IT/services)

Financial Risks:

• Cash flow visibility risk due to unreported OCF and working capital details
• Potential P/L classification discrepancies (PBT vs NI) complicating comparability
• Interest rate risk on any floating-rate borrowings (total interest-bearing debt unreported)

Key Concerns:

• Limited disclosure of SG&A breakdown and depreciation/amortization hinders margin quality assessment
• Inability to confirm FCF coverage of dividends and reinvestment
• Sensitivity to utilization rates; a utilization dip would compress margins given operating leverage

Investment Implications

Key Takeaways:

• Revenue growth of 14.8% YoY with outsized 72.4% operating profit growth signals strong operating leverage
• Operating margin expanded to 6.2% (+208 bps YoY); net margin to 4.4% (+165 bps YoY)
• ROE at 9.8% and ROIC at 20.5% indicate attractive returns profile
• Balance sheet is liquid and conservative (current ratio 236%, D/E 0.65x; cash 18.23 vs LT loans 1.53)
• Non-operating contribution is modest (0.31), suggesting profit growth is primarily operational
• Cash flow disclosure is insufficient to validate earnings quality and dividend coverage
• Some line-item mapping inconsistencies (GP/SG&A vs OI; PBT vs NI) warrant cautious interpretation

Metrics to Watch:

• Operating cash flow and free cash flow conversion vs net income
• Receivables and days sales outstanding once disclosed
• SG&A growth vs revenue and headcount/wage trends
• Order backlog and book-to-bill (if disclosed) to gauge revenue sustainability
• ROIC by business line and capital deployment efficiency
• Non-operating items and any one-off gains/losses affecting bottom line

Relative Positioning: Within Japan small/mid-cap IT/services peers, the company demonstrates above-peer ROIC and improving operating margins with a conservative balance sheet; the main relative gap is lower disclosure depth on cash flows and cost structure granularity.

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