CHOFU SEISAKUSHO CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥32.05B
• Operating Income: ¥416M
• Net Income: ¥1.85B
• EPS: ¥24.69

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

Chofu Seisakusho (TSE:59460) reported FY2025 Q3 (cumulative) revenue of ¥32,053 million, up 1.0% YoY, indicating broadly stable topline amid a challenging operating backdrop. Gross profit was ¥6,895 million, yielding a gross margin of 21.5%, which appears compressed given the modest revenue growth and suggests input cost pressures or unfavorable product mix. Operating income declined 22.6% YoY to ¥416 million, implying an operating margin of 1.3% and signaling notable pressure from SG&A or limited pricing power. Ordinary income was ¥2,523 million, well above operating income, indicating sizable non-operating gains (e.g., interest/dividend income or investment-related gains) that cushioned operating weakness. Net income fell 54.6% YoY to ¥839 million, implying the presence of material extraordinary losses (approximately ¥0.9 billion inferred) between ordinary income and pre-tax profit. The derived effective tax rate is approximately 47.6% (¥764 million tax on ~¥1,603 million pre-tax), much higher than the reported metric of 0.0% and indicative of one-offs or tax mix effects. DuPont shows net margin of 2.62%, asset turnover of 0.223x, and low financial leverage of 1.07x, producing a low ROE of 0.62% for the period. The balance sheet is exceptionally strong with total assets of ¥143,780 million and equity of ¥134,948 million, implying an equity ratio of ~93.9% (despite the reported 0.0% figure). Liquidity appears ample with a current ratio of 506.9% and quick ratio of 435.9%, and working capital of ¥26,362 million. Interest burden is minimal (¥5 million expense) and interest coverage is very high at 83.2x, reflecting de facto debt-free status. Cash flow statement items are unreported (shown as zero), limiting assessment of cash conversion and free cash flow; similarly, depreciation and EBITDA are unreported, restricting operating cash proxy analysis. Dividend details are also unreported (DPS and payout show as zero), so distribution policy cannot be inferred from this filing. Overall, the quarter reflects resilient sales but weak operating profitability, heavy reliance on non-operating income, and a sizable extraordinary loss that compressed bottom-line and ROE; financial health is very strong, but earnings quality is mixed and visibility into cash generation is limited by disclosure gaps.

Profitability Analysis

ROE decomposition: net margin 2.62% × asset turnover 0.223 × financial leverage 1.07 = ~0.62% ROE, corroborating the reported figure. Operating margin is 1.30% (¥416m/¥32,053m), indicating low operating profitability versus the 21.5% gross margin, implying elevated SG&A/overheads or pricing pressure. Ordinary margin is 7.87% (¥2,523m/¥32,053m), reflecting material non-operating gains that bridge the gap from operating income, which raises quality-of-earnings questions. The net margin of 2.62% is depressed by an inferred ~¥0.92bn extraordinary loss between ordinary income (¥2,523m) and pre-tax (≈¥1,603m). Operating leverage appears unfavorable this period: a modest +1.0% revenue growth coincided with a -22.6% drop in operating income, implying fixed cost absorption issues and/or negative mix. Margin quality: gross margin softness suggests raw material cost pressures (e.g., steel, copper) and potentially promotional activity; limited visibility on depreciation (unreported) prevents clean assessment of EBITDA margins and fixed-cost structure. Interest expense is negligible (¥5m), so financial leverage is not a margin driver.

Growth Assessment

Revenue grew 1.0% YoY to ¥32.1bn, suggesting stable demand in core categories but lack of strong growth catalysts. Operating income contracted 22.6% YoY to ¥0.42bn, indicating deterioration in core earnings power despite stable sales; likely drivers include cost inflation, product mix skew, or higher logistics and SG&A. Net income declined 54.6% YoY to ¥0.84bn, with bottom-line dragged by extraordinary items and a high effective tax rate (~47.6%). Ordinary income (¥2.52bn) outpacing operating income suggests reliance on non-operating contributions (e.g., financial income), which may not be sustainable as a structural earnings driver. With asset turnover at 0.223x and low leverage, growth in ROE will depend on improving operating margin and asset efficiency rather than balance-sheet gearing. Near-term outlook hinges on cost pass-through, stabilization of raw material/input costs, and product mix improvements (e.g., higher-share of premium or energy-efficient models). Given the modest topline growth and compressed operating margin, sustained profit recovery likely requires better pricing discipline and operating cost control. Absence of capex and cash flow disclosures limits assessment of capacity-driven growth and reinvestment momentum.

Financial Health

Liquidity is very strong: current assets ¥32,840m vs. current liabilities ¥6,478m yields a current ratio of 506.9% and quick ratio of 435.9%, indicating ample short-term coverage and low inventory dependency (inventories ¥4,603m). Working capital stands at ¥26,362m, providing operational flexibility. Solvency is robust: total liabilities are ¥8,009m vs. equity of ¥134,948m, implying an equity ratio of ~93.9% and debt-to-equity of ~0.06x (consistent with provided metric), reflecting an essentially unlevered balance sheet. Interest expense is minimal (¥5m) and coverage is 83.2x, indicating negligible refinancing risk. Asset base totals ¥143,780m; low leverage suggests high resilience to macro shocks but also limits financial ROE amplification. Overall capital structure is highly conservative, with capacity to absorb earnings volatility.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported in this period (shown as zero), so OCF/Net Income, FCF, and cash conversion cannot be evaluated from the provided data. Depreciation is also unreported, preventing construction of EBITDA or a non-cash earnings bridge. Given ordinary income materially exceeding operating income and the presence of significant extraordinary losses, underlying cash generation quality needs validation against actual OCF. Working capital snapshot appears healthy (high liquidity and low inventories relative to current assets), but without period flows we cannot assess inventory turns, receivable collections, or payables management. Until cash flow data are available, conclusions on earnings quality and FCF sustainability remain tentative.

Dividend Sustainability

Dividend indicators (DPS, payout ratio, and FCF coverage) are unreported in this dataset and appear as zero placeholders; therefore, we cannot infer the current distribution level or policy cadence from this filing. From a balance-sheet perspective, the company’s very strong equity base (~¥134.9bn) and negligible leverage imply capacity to sustain dividends through cycles. However, operating income softness, reliance on non-operating gains, and lack of OCF/FCF data limit visibility on near-term coverage from cash earnings. A prudent assessment would hinge on actual OCF relative to net income and medium-term operating margin recovery, neither of which is disclosed here.

Risk Assessment

Business Risks:

• Exposure to domestic housing starts and renovation cycles affecting demand for hot-water/heating equipment
• Raw material cost volatility (steel, copper, resins) pressuring gross margins
• Competitive pricing pressure from domestic peers (e.g., Rinnai, Noritz, Paloma) and imports
• Product mix shifts toward lower-margin SKUs reducing operating leverage
• Dependence on distribution channels and potential inventory adjustments at dealers
• Regulatory and energy policy changes impacting demand for energy-efficient equipment
• Supply chain and logistics costs affecting fulfillment and service levels

Financial Risks:

• Earnings quality risk from reliance on non-operating income to support ordinary profit
• Potential for extraordinary losses (e.g., impairments, valuation losses) to drive bottom-line volatility
• High effective tax rate in the period (~47.6%) reducing net profitability
• Limited visibility into cash generation due to unreported OCF/FCF and depreciation

Key Concerns:

• Operating margin compression despite stable revenue (+1.0% YoY)
• Large gap between operating and ordinary income, and between ordinary and pre-tax income
• Absence of cash flow disclosure, constraining assessment of earnings-to-cash conversion
• Low ROE (0.62%) driven by slim margins and low asset turnover

Investment Implications

Key Takeaways:

• Topline broadly stable but core operating profitability weakened materially
• Ordinary profit supported by non-operating gains; sustainability uncertain
• Bottom-line impacted by significant extraordinary losses and high tax rate
• Exceptional balance sheet strength with ~94% equity ratio and minimal debt
• Low ROE reflects margin pressure and modest asset efficiency
• Visibility limited by missing cash flow and depreciation disclosures

Metrics to Watch:

• Gross and operating margin trends and SG&A ratio
• Non-operating income components and extraordinary items
• Operating cash flow, free cash flow, and working capital turns
• Input cost indices (steel, copper) and pricing pass-through
• Order intake, backlog, and domestic housing start indicators
• FX exposure on imported components (USD/JPY) and hedging outcomes

Relative Positioning: Financially conservative with near debt-free balance sheet and strong liquidity relative to domestic peers, but currently weaker on core operating profitability and ROE; earnings mix includes sizable non-operating elements, diminishing quality versus peers with stronger operating margins.

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