KYORITSU AIR TECH INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥8.45B
• Operating Income: ¥321M
• Net Income: ¥313M
• EPS: ¥53.71

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

Kyoryu (Kyoryu/Kyōritsu) Air Tech Co., Ltd. reported FY2025 Q3 consolidated results under JGAAP with modest top-line growth but notable margin compression. Revenue rose 2.8% YoY to ¥8.445bn, while operating income fell 24.5% to ¥321m, indicating rising costs and/or weaker pricing power. Gross profit was ¥2.069bn, translating to a gross margin of 24.5%, but the operating margin compressed to 3.8%. Ordinary income of ¥352m exceeded operating income by about ¥31m, implying positive net non-operating contributions (e.g., interest/dividend income or other income) offsetting modest finance costs. Net income declined 16.7% YoY to ¥258m, with a net margin of 3.06%. DuPont shows ROE of 2.73%, driven by a 3.06% net margin, asset turnover of 0.581x, and financial leverage of 1.54x. ROA is approximately 1.77%, underscoring low returns relative to asset base. Liquidity is solid with a current ratio of 173% and quick ratio of 162%, and working capital of ¥4.074bn. Solvency appears strong: total liabilities of ¥6.433bn versus equity of ¥9.461bn imply a conservative capital structure; by calculation, the equity ratio is roughly 65% (equity/total assets), despite the equity ratio line item showing 0% due to non-disclosure formatting. Interest expense is modest at ¥6.5m and interest coverage is a high 49.4x, reflecting limited financial risk. The effective tax rate calculated from disclosed amounts is about 35–36% (¥141.3m taxes on ~¥399m pre-tax income), notwithstanding the displayed 0% tax rate metric (a byproduct of incomplete fields). Cash flow statements were not disclosed for the period, so operating and free cash flow assessments cannot be made from the provided data. No dividend per share was disclosed; therefore payout and coverage metrics in the feed default to zero and should not be interpreted as actual values. Overall, the quarter portrays stable demand but weaker profitability, likely due to cost inflation, project mix, or reduced operating leverage. Balance sheet resilience and low interest burden provide a cushion, but improving margin execution is key to restoring ROE. Given data limitations (notably cash flows, DPS, and some per-share balances), conclusions focus on the available non-zero items and calculated ratios.

Profitability Analysis

ROE of 2.73% decomposes into net margin 3.06% x asset turnover 0.581x x financial leverage 1.54x. Operating margin is 3.8% (¥321m/¥8.445bn), down YoY against a +2.8% revenue print, signaling margin pressure. Ordinary margin is 4.17% (¥352m/¥8.445bn), supported by net non-operating income (~¥31m) despite ¥6.5m of interest expense. Gross margin stands at 24.5%, leaving an operating spread of roughly 20.7pp consumed by SG&A and other operating items; this compression versus revenue growth suggests SG&A inflation or project cost overruns. Net margin at 3.06% remains modest for the sector, consistent with engineering/installation/project-based earnings profiles. Interest coverage is strong at 49.4x (operating income/interest), indicating profitability is not constrained by financing costs. The calculated effective tax rate is ~35.4% (¥141.25m tax on ~¥399.25m pre-tax), which is broadly in line with domestic statutory norms. EBITDA is not available due to undisclosed depreciation and amortization; reported EBITDA metrics showing zero should be treated as missing, not indicative of no non-cash charges. Overall, profitability softness is primarily operational (cost/mix), not financial. Operating leverage appears unfavorable this quarter: small revenue growth paired with a large decline in operating income implies fixed cost absorption and/or weaker pricing power.

Growth Assessment

Revenue growth of +2.8% YoY to ¥8.445bn indicates stable demand through Q3. However, operating income fell 24.5% YoY to ¥321m, suggesting growth was not profitable, likely due to cost inflation, less favorable project mix, or timing of higher-cost installations. Ordinary income at ¥352m implies some non-operating support, but not enough to offset weaker core margins. Net income declined 16.7% to ¥258m; the smaller drop versus operating income reflects non-operating tailwinds and possibly lower-than-usual extraordinary charges. Asset turnover of 0.581x is moderate; absent stronger margins, this turnover level constrains ROE. Sustainability of revenue growth will depend on backlog quality, order intake cadence in HVAC/air systems markets, and construction/industrial activity. Profit quality is mixed: gross profit is healthy in absolute terms, but conversion to operating profit weakened materially. With cash flows not disclosed, we cannot corroborate earnings with cash generation for this period. Outlook hinges on cost pass-through, procurement efficiency, and execution discipline on projects; any recovery in operating margin toward historical levels would materially improve earnings. Near-term, management focus should be on SG&A control, pricing, and project selection to enhance margin resilience.

Financial Health

Total assets are ¥14.538bn against total liabilities of ¥6.433bn and equity of ¥9.461bn. Calculated equity ratio is approximately 65.1% (¥9.461bn/¥14.538bn), reflecting a conservative balance sheet. Debt-to-equity (using total liabilities as a proxy) is 0.68x, indicating modest leverage overall. Current assets are ¥9.650bn versus current liabilities of ¥5.576bn, providing a current ratio of 1.73x and a quick ratio of 1.62x (excluding ¥621m inventories), both solid. Working capital is ¥4.074bn, offering ample short-term liquidity to manage project-based cash swings. Interest expense is low at ¥6.5m, and interest coverage is very strong at 49.4x, suggesting limited refinancing or interest rate risk. Inventory is a small share of current assets (~6%), consistent with a made-to-order/project delivery model where receivables typically dominate; while receivables aren’t disclosed here, liquidity metrics suggest adequate coverage. Overall solvency and liquidity are robust, providing resilience despite weaker operating margins.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed for the period; reported zeros represent non-disclosure rather than actual zero cash flows. As such, we cannot compute OCF/NI or free cash flow, and any OCF/NI ratio shown as 0.00 should not be interpreted as weak cash conversion. Earnings quality therefore cannot be cross-validated with cash data this quarter. Working capital stands at ¥4.074bn, and with inventories of ¥621m being a small component of current assets, cash conversion likely hinges on receivables collection and project milestone billing. Absent cash data, we infer from strong liquidity ratios and modest interest burden that near-term cash strain is unlikely, but this remains an assumption pending disclosure.

Dividend Sustainability

No annual DPS was disclosed for the period; reported payout ratio and FCF coverage values of 0 are placeholders due to non-disclosure. EPS is ¥53.71 for the nine-month period, but without DPS or cash flow, we cannot evaluate payout ratio, cash coverage, or alignment with a dividend policy. Balance sheet strength (calculated equity ratio ~65% and low interest expense) suggests capacity to sustain a modest dividend if one exists, but margin compression argues for prudent capital allocation. Dividend outlook will depend on full-year profitability, cash generation at year-end, and management’s capital policy, which is not provided here.

Risk Assessment

Business Risks:

• Cost inflation in materials and subcontracting pressuring gross and operating margins
• Project execution risk and unfavorable mix affecting profitability despite revenue growth
• Timing risk in order intake and backlog conversion in HVAC/air systems-related markets
• Competitive pricing pressure in construction and industrial installation markets
• Customer concentration and project delay/cancellation risks typical of B2B project businesses

Financial Risks:

• Working capital intensity and receivables collection timing (cash flow not disclosed)
• Potential for fixed-cost under-absorption if volumes soften further
• Exposure to interest rate changes is limited currently but could rise with higher borrowings
• Tax rate variability; calculated ETR ~35% can swing with geographic/project mix and items below ordinary income

Key Concerns:

• Operating income down 24.5% YoY despite +2.8% revenue growth, highlighting margin compression
• Inability to assess cash flow conversion due to non-disclosed cash flow statements
• Low ROE (2.73%) and ROA (~1.77%) relative to capital base, requiring margin or turnover improvement

Investment Implications

Key Takeaways:

• Top-line growth (+2.8% YoY) failed to translate into profits; operating margin compressed to 3.8%
• ROE of 2.73% driven by modest net margin (3.06%) and moderate asset turnover (0.581x); leverage is low (1.54x)
• Balance sheet is strong with a calculated equity ratio ~65% and interest coverage ~49x
• Non-operating income provided a small buffer (ordinary income > operating income by ~¥31m)
• Cash flow and dividend disclosures are absent; conclusions rely on income statement and balance sheet data

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Order intake and backlog to gauge revenue visibility and mix
• Gross margin versus input cost trends (materials, subcontracting)
• Receivables days and operating cash flow once disclosed
• Return on capital metrics (ROE/ROA) and asset turnover improvements

Relative Positioning: Within Japan’s HVAC/air systems and project-based equipment peers, the company shows resilient liquidity and low financial risk but currently trails on profitability and ROE due to margin compression; restoring operating efficiency and pricing/mix discipline is key to closing the gap.

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