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

Value HR (6078) reported FY2025 Q3 consolidated results under JGAAP with solid top-line growth but sharp profit compression. Revenue rose 18.9% YoY to ¥7,233 million, while operating income fell 41.9% YoY to ¥438 million, indicating significant negative operating leverage during the period. Gross profit was ¥2,129 million, translating to a gross margin of 29.4%, but the operating margin contracted to roughly 6.1%, implying elevated SG&A or mix-related pressure. Ordinary income of ¥467 million exceeded operating income, suggesting positive non-operating contributions that more than offset interest expense of ¥27.8 million. Net income declined 53.0% YoY to ¥225 million, with a reported net margin of 3.11%. DuPont metrics indicate a calculated ROE of 3.51%, driven by a net margin of 3.11%, asset turnover of 0.419x, and financial leverage of 2.70x. Balance sheet shows total assets of ¥17,283 million and total equity of ¥6,412 million, implying a liabilities-to-equity ratio near 1.74x; the reported equity ratio of 0.0% is not usable and should be treated as undisclosed. Liquidity is modest with a current ratio of 118.3% and working capital of ¥1,078 million, adequate but leaving limited cushion for shocks. Interest coverage remains healthy at 15.8x (operating income/interest expense), indicating manageable near-term financial risk. Cash flow statements and depreciation are unreported in the provided XBRL, so EBITDA and OCF-based quality checks cannot be assessed and the EBITDA margin shown as 0.0% is not meaningful. The effective tax rate shown as 0.0% is also not usable; based on ordinary income of ¥467 million and income tax of ¥261 million, the implied effective tax rate appears high, roughly in the mid-50% range, contributing to net profit compression. Dividend data are not disclosed for the period (DPS shown as 0.00), and payout metrics are therefore not indicative. Overall, revenue momentum is intact, but margin deterioration and a likely high effective tax burden are weighing on earnings and ROE. Without operating cash flow disclosure, earnings quality and free cash flow coverage cannot be validated. Key monitoring points include SG&A trends, platform-related cost investments, client acquisition costs versus retention, and the sustainability of non-operating income. Data limitations (notably cash flows, depreciation, and shares outstanding) constrain precision on multiple ratios and dividend sustainability.

Profitability Analysis

ROE decomposition: Net margin 3.11% × Asset turnover 0.419 × Financial leverage 2.70 = ROE ~3.51%, consistent with the reported figure. The 29.4% gross margin indicates adequate value capture at the gross level, but a sharp drop to a 6.1% operating margin underscores heavier SG&A or one-off operating costs. Operating income declined 41.9% YoY against an 18.9% revenue increase, evidencing negative operating leverage during FY2025 Q3 YTD. Ordinary income (¥467m) exceeding operating income (¥438m) suggests non-operating gains or financial income helped offset interest expense (¥27.8m), partially cushioning profit pressure. Net margin at 3.11% is modest and below what would be expected for a scalable platform model, pointing to cost intensity and potentially elevated tax burden. Effective tax rate indicated in the dataset (0.0%) is not meaningful; using income tax of ¥261m against ordinary income suggests an implied tax rate in the mid-50% range, a headwind to net profitability. Interest coverage at 15.8x confirms low financing drag on profitability. EBITDA and D&A are undisclosed, so assessment of underlying operating cash profitability (EBITDA margin, D&A mix) is not possible. Overall, the profitability profile reveals good gross economics but weak operating leverage and elevated below-OP line headwinds driving low ROE.

Growth Assessment

Revenue growth of 18.9% YoY to ¥7,233 million is strong, implying healthy client demand or expansion of service adoption. However, operating income declined 41.9% YoY, which suggests growth was accompanied by higher cost intensity—likely from SG&A, service delivery, or platform upgrades, reducing operating leverage. The gap between operating and ordinary income indicates some support from non-operating items; reliance on these is typically not a sustainable growth driver. Net income down 53.0% YoY demonstrates that cost and tax pressures more than offset top-line gains. With gross margin at 29.4%, revenue quality appears acceptable, but operating margin compression raises questions about the sustainability of growth at acceptable returns. Absent cash flow disclosure, we cannot confirm whether growth is self-funded or consuming working capital. Outlook hinges on management’s ability to curb SG&A growth, improve unit economics per client, and normalize the effective tax burden; if achieved, earnings elasticity to revenue could improve materially. Near-term, we expect continued top-line resilience but with subdued profit conversion until cost discipline and mix shift take effect.

Financial Health

Total assets are ¥17,283 million against total liabilities of ¥11,175 million and equity of ¥6,412 million, implying a liabilities-to-equity ratio of ~1.74x. The current ratio is 118.3% with working capital of ¥1,078 million, indicating moderate short-term liquidity headroom. Inventories are undisclosed (0 indicates not reported), so the quick ratio equals the current ratio in the dataset; actual quick liquidity may differ. Interest coverage at 15.8x suggests ample buffer to meet interest obligations. The reported equity ratio of 0.0% is not usable; based on totals, the implied equity ratio by book should be approximately 37% (6,412/17,283), indicating a balanced capital structure. No cash and cash equivalents were disclosed, so absolute liquidity cannot be validated from the cash flow section. Overall solvency appears reasonable, but the absence of cash flow data prevents a robust assessment of funding flexibility.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed in the provided data; thus, the OCF/Net Income ratio shown as 0.00 and FCF of 0 should be treated as not meaningful. Without OCF, we cannot validate earnings quality, working capital consumption, or the degree of non-cash items within earnings. Depreciation and amortization are not reported; EBITDA metrics therefore cannot be interpreted. Working capital at period end is positive (¥1,078 million), but the trajectory (source or use of cash) is unknown. Given the fall in operating income despite revenue growth, there is a risk that OCF may lag earnings if receivables or accrued expenses expanded; however, this is speculative absent disclosures. We would prioritize management commentary on cash conversion cycle, client billing terms, and collection patterns to gauge cash flow quality.

Dividend Sustainability

Dividend data (DPS 0.00, payout ratio 0.0%) appear undisclosed for Q3 and are not indicative of actual distributions. Without OCF and FCF disclosure, we cannot assess free cash flow coverage of dividends. EPS is ¥8.45 for the period; absent DPS, payout cannot be computed, and any implied 0% should not be interpreted as a policy signal. Historically informed commentary is not used here; therefore, outlook on policy must rely on balance sheet and earnings: equity of ¥6,412 million and interest coverage of 15.8x suggest capacity, but profit compression and cash flow opacity argue for caution. We would look for full-year guidance on DPS and any stated payout ratio policy to reassess sustainability once cash flows are available.

Risk Assessment

Business Risks:

• Negative operating leverage amid growth, indicating rising cost intensity (SG&A, service delivery, or platform costs).
• Potentially elevated effective tax burden reducing net margin and ROE.
• Dependence on non-operating income to support ordinary income, which may be non-recurring.
• Revenue mix or client acquisition costs potentially diluting margin if growth is driven by lower-margin services or campaigns.
• Execution risk in scaling platform and controlling fixed costs to restore operating margin.

Financial Risks:

• Liquidity visibility is limited due to undisclosed cash and cash flow statements.
• Dividend capacity and FCF coverage cannot be verified without OCF/FCF data.
• Moderate leverage (liabilities/equity ~1.74x) could constrain flexibility if earnings pressure persists.
• Possible working capital build (unverified) that could suppress cash conversion despite reported profits.

Key Concerns:

• Operating income down 41.9% YoY despite 18.9% revenue growth.
• Net income down 53.0% YoY; implied high effective tax rate (~mid-50%).
• Absence of OCF/FCF and D&A disclosure limits assessment of earnings quality.
• Equity ratio reported as 0.0% in dataset is unusable; reliance on reconstructed ratios is necessary.

Investment Implications

Key Takeaways:

• Strong top-line growth (+18.9% YoY) but significant margin compression with OP margin around 6.1%.
• ROE is low at 3.5%, driven by modest net margin and limited asset turnover.
• Interest coverage is healthy at 15.8x, mitigating near-term financing risk.
• Liquidity is adequate (current ratio 118%), but cash position and cash generation are undisclosed.
• Earnings quality and dividend sustainability cannot be confirmed without OCF/FCF.

Metrics to Watch:

• SG&A-to-revenue ratio and operating margin trajectory by quarter.
• Effective tax rate drivers and any structural changes to tax burden.
• Ordinary vs. operating income gap and composition of non-operating gains/losses.
• Cash conversion (OCF/NI), receivables days, and contract billing cycles (once disclosed).
• Client growth, churn, and ARPU to assess unit economics and operating leverage.

Relative Positioning: Within Japanese listed healthcare/benefits platform and BPO peers, Value HR currently exhibits better-than-average revenue growth momentum but weaker profit conversion and ROE, with adequate solvency yet inferior visibility on cash generation due to unreported cash flow data.

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