Value HR Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥7.23B
• Operating Income: ¥438M
• Net Income: ¥481M
• EPS: ¥8.45

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: FY2025 Q3 was a mixed quarter with strong top-line growth but sharp margin compression leading to significantly lower profits and subdued ROE/ROIC. Revenue grew 18.9% YoY to 72.33, demonstrating solid demand and/or expanded platform adoption. Gross profit reached 21.29, implying a gross margin of 29.4%. Operating income fell 41.9% YoY to 4.38, pulling the operating margin down to 6.1%. Ordinary income declined 36.9% YoY to 4.67, while profit before tax printed at 7.42, indicating the presence of non-recurring/extraordinary gains not detailed in the disclosure. Net income dropped 53.0% YoY to 2.25, with a net margin of 3.1%. Based on the YoY rates, prior-year revenue was approximately 60.82 and prior operating income approximately 7.54, implying operating margin compression of about 635 bps (from ~12.4% to ~6.1%). Net margin compressed by roughly 477 bps YoY (from ~7.9% to 3.1%). The effective tax rate was 35.2%, consistent with a normal range but high enough to weigh on after-tax earnings. Non-operating items netted a loss of 0.14 (income 0.43 vs expenses 0.57), and interest expense was 0.28; interest coverage remained strong at ~15.8x. Liquidity tightened: the current ratio is 0.98 and working capital is negative (-1.20), despite a sizable cash balance of 43.40. Capital efficiency weakened, with ROE at 3.5% (DuPont: 3.1% NPM × 0.419x asset turnover × 2.70x leverage) and ROIC at 3.9%, both below desirable thresholds. Cash flow disclosure is unavailable, limiting assessment of earnings quality versus cash conversion this quarter. The calculated payout ratio of 304.4% suggests dividends exceed current earnings capacity, raising sustainability concerns absent stronger cash generation. Looking ahead, restoring operating leverage and margin discipline, while maintaining liquidity safety buffers, will be critical to re-accelerate ROE/ROIC.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin (3.1%) × Asset Turnover (0.419x) × Financial Leverage (2.70x) = 3.5%. The most significant change YoY is the collapse in profitability (net and operating margins), as revenue grew 18.9% but operating income fell 41.9%. Business drivers likely include higher cost of services and elevated SG&A intensity (SG&A of 13.74 vs operating income of 4.38), diluting operating leverage despite revenue growth; non-operating expenses (0.57) and interest (0.28) further pressured profit. The ~635 bps operating margin compression (from ~12.4% to ~6.1%) indicates either mix shift to lower-margin lines, increased delivery costs, or step-up in growth investments. Sustainability: margin pressure could be partially cyclical or investment-driven; without disclosure of segment/SG&A detail, we treat a portion as controllable (cost discipline) and a portion as structural (mix) pending subsequent quarters. Concerning trends: profit growth lagged revenue growth materially; ordinary income and net income both declined despite strong sales, and ROIC at 3.9% is below the 5% warning threshold, suggesting under-earning on invested capital.

Growth Assessment

Top-line growth was robust at +18.9% YoY to 72.33, signaling healthy demand. However, profit growth was negative across operating income (-41.9%), ordinary income (-36.9%), and net income (-53.0%). Operating margin fell to 6.1% and net margin to 3.1%, undermining operating leverage. Non-operating line was a modest net negative (-0.14), and profit before tax was supported by undisclosed extraordinary gains (PBT 7.42 vs ordinary income 4.67). Given the scale of margin compression, the sustainability of revenue growth translating into profits will depend on cost control and mix normalization. Near term, the focus should be on restoring unit economics and SG&A efficiency to convert growth into earnings. Outlook hinges on whether the company can reverse cost inflation or lap one-off costs in coming quarters; absent that, ROE and ROIC are likely to remain subdued.

Financial Health

Liquidity is tight: current ratio 0.98 (<1.0 warning) and quick ratio 0.98. Working capital is -1.20, reflecting current liabilities (58.94) slightly exceeding current assets (57.73). Cash is sizable at 43.40, but when compared to current liabilities (58.94), there is limited cushion without continued cash inflow; accounts receivable are 7.76, and short-term loans are 3.66. Solvency: total equity is 64.12 vs total liabilities 108.71, implying a debt-to-equity ratio of 1.70x (above the 1.5x conservative benchmark but below the 2.0x explicit red-flag threshold). Long-term loans are significant at 47.50, indicating reliance on debt financing. Maturity mismatch: short-term obligations (58.94 current liabilities) marginally exceed near-term liquid assets (cash 43.40 + AR 7.76 ≈ 51.16), suggesting potential refinancing/rollover or working capital management needs. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so we cannot compute OCF/Net Income or free cash flow. Consequently, we cannot confirm whether the earnings decline reflects accruals or underlying cash weakness. Given negative working capital and a moderate interest burden (0.28), cash conversion will be a key watch item. No clear signs of working-capital manipulation can be identified from limited disclosures; inventories and detailed payables/receivables movements are not provided. FCF sustainability for dividend and capex cannot be assessed this quarter due to missing OCF and capex data.

Dividend Sustainability

The calculated payout ratio is 304.4%, implying dividends exceed current earnings capacity by a wide margin. With OCF and FCF unreported, coverage from cash generation cannot be verified. Balance sheet liquidity is tight (current ratio 0.98), and leverage is moderate-high (D/E 1.70x), leaving limited buffer if earnings remain weak. Unless profitability and cash conversion improve, the current dividend level appears stretched relative to earnings; policy clarity and guidance will be important to gauge sustainability.

Risk Assessment

Business Risks:

• Margin compression risk: operating margin fell ~635 bps YoY to 6.1%.
• Cost inflation and/or mix shift risk reducing unit economics.
• Execution risk on scaling the platform while controlling SG&A.
• Dependence on potential extraordinary gains to support PBT (PBT > ordinary income).

Financial Risks:

• Liquidity risk: current ratio 0.98 and negative working capital (-1.20).
• Refinancing risk: short-term liabilities (58.94) exceed immediate liquid assets (≈51.16).
• Leverage risk: D/E 1.70x and long-term loans 47.50 increase fixed obligations.
• Dividend coverage risk: payout ratio 304.4% with unreported OCF/FCF.

Key Concerns:

• ROIC at 3.9% (<5% warning) and ROE at 3.5% indicate under-earning on capital.
• Non-operating expenses (0.57) and interest (0.28) erode already thin margins.
• Data gaps (cash flow, SG&A detail, capex) constrain earnings quality assessment.

Investment Implications

Key Takeaways:

• Revenue growth strong (+18.9% YoY) but profitability sharply lower.
• Operating margin compressed ~635 bps YoY to 6.1%; net margin down ~477 bps to 3.1%.
• ROE 3.5% and ROIC 3.9% are below target levels, pointing to weak capital efficiency.
• Liquidity tight (current ratio 0.98); refinancing/working capital discipline needed.
• Dividend appears stretched versus earnings (payout ~304%).

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio in coming quarters.
• OCF, OCF/NI, and FCF once disclosed; working capital movements (AR/AP).
• Leverage trajectory (net debt, interest expense) and interest coverage.
• Any extraordinary items and their recurrence.
• ROIC progression versus internal targets.

Relative Positioning: Within Japan small/mid-cap health/benefits platform peers, the company shows above-peer revenue growth but inferior near-term margin resilience and capital efficiency, with tighter liquidity than ideal and a dividend profile that appears aggressive relative to current earnings power.

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