ABIST Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥10.63B
• Operating Income: ¥963M
• Net Income: ¥649M
• Earnings per Unit (EPU): ¥163.24

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 quarter with steady top-line growth, modest margin improvement, and disciplined cost control, offset by weaker cash conversion and heavy dividend cash demand. Revenue rose 6.2% YoY to 106.27, driven by stable demand and likely sound utilization in core engineering/design services. Gross profit reached 27.45, translating to a gross margin of 25.8%. Operating income grew 6.7% YoY to 9.63, implying an operating margin of 9.1%. Ordinary income increased 7.9% to 9.77, supported by minimal non-operating items (non-operating income 0.03, expenses effectively nil). Net income advanced 6.3% YoY to 6.49, with an effective tax rate of 34.6%. Operating margin expanded by approximately 4 basis points YoY (from about 9.02% to 9.06%), while net margin was essentially flat at roughly 6.1% given similar growth rates in revenue and net income. SG&A was 18.41 (notably salaries 5.02 and directors’ compensation 1.37), and operating leverage was modestly positive as operating income outpaced SG&A growth implied by revenue gains. ROE printed 8.8% via Net Margin 6.1% × Asset Turnover 1.088 × Financial Leverage 1.32x, reflecting a low-leverage, asset-light model. Cash conversion was weaker: operating cash flow was 4.45 versus net income of 6.49 (OCF/NI 0.69), flagging some earnings quality pressure likely from working capital. Free cash flow was positive at 1.02, but FCF coverage of dividends is just 0.25x, indicating a shortfall funded by cash on hand. The balance sheet remains a strength with a current ratio of 359% and net cash position (cash 44.89 against short-term loans 0.50). Interest coverage is extremely high at 3199x, underscoring minimal financial risk. With a calculated payout ratio of 62.6%, distributions are on the upper end of sustainability given current FCF dynamics. Forward-looking, the company appears well-positioned to sustain mid-single-digit earnings growth if utilization and pricing hold, though cash conversion must improve to comfortably fund dividends and capex. Overall, performance is resilient, capital structure is conservative, and the near-term watchpoint is working capital and OCF normalization.

Profitability Analysis

ROE decomposition: 8.8% = Net Profit Margin 6.1% × Asset Turnover 1.088 × Financial Leverage 1.32x. The primary driver of ROE is operational efficiency (asset turnover >1) combined with moderate margins; leverage contribution is intentionally low. Versus last year, operating margin shows a marginal expansion (~+4 bps), while net margin is effectively flat; without prior balance sheet averages, asset turnover change cannot be precisely quantified, but revenue growth outpacing balance sheet growth likely supported turnover. Business drivers: steady utilization in engineering/design services and stable pricing helped sustain gross margin at 25.8%, while SG&A discipline maintained operating leverage. Non-operating items were negligible, keeping earnings quality focused on core operations. Sustainability: margin levels appear structurally supported by the asset-light model and recurring client work; however, wage inflation and recruitment costs could pressure SG&A. Watchpoints: SG&A growth should not outpace revenue growth; directors’ compensation (1.37) should be monitored relative to topline and operating income. Overall, profitability quality is good, with ROIC reported at 21.2% indicating strong efficiency on invested capital.

Growth Assessment

Revenue grew 6.2% YoY to 106.27, a healthy pace in the current environment for engineering/design services. Operating income rose 6.7% and net income 6.3%, broadly in line with sales growth, indicating stable operating leverage. Gross margin held at 25.8%, and operating margin improved slightly to 9.1%, suggesting cost discipline. Non-operating impact is minimal (non-operating income ratio 0.4%), pointing to predominantly recurring operating earnings. The growth mix appears organic and sustainable if utilization and order intake remain steady; client capex cycles, particularly in autos/industrial, remain the key swing factor. Near-term outlook hinges on headcount productivity and rate realization to offset wage inflation. With low leverage and ample cash, the company can invest selectively in capacity/training without straining the balance sheet. Overall, mid-single-digit growth trajectory appears intact, subject to macro/sector demand.

Financial Health

Liquidity is very strong: current ratio 359% and quick ratio 359%, with cash and deposits of 44.89 far exceeding current liabilities of 17.09. No warning on current ratio (<1.0) or leverage (D/E is 0.34x, well below 2.0). Interest-bearing debt is minimal (short-term loans 0.50; long-term unreported), and interest expense is effectively zero, yielding interest coverage of 3199x. Working capital is ample at 44.29, and accounts receivable are 14.40 versus negligible accounts payable (0.04), consistent with a service model. Maturity mismatch risk is low given the net cash position and small short-term borrowings relative to cash. Off-balance sheet obligations are not reported in the data provided.

Cash Flow Quality

OCF/Net Income is 0.69 (<0.8), indicating weaker cash conversion this period, likely from working capital uses (receivable growth or timing effects). Operating CF of 4.45 versus net income of 6.49 shows a gap that should normalize in subsequent periods if driven by timing. Capex was modest at 0.32, producing positive FCF of 1.02. However, FCF coverage of dividends is 0.25x, implying distributions exceed internally generated free cash and are presently supported by the large cash balance. No clear signs of deliberate working capital manipulation are evident, but receivables should be watched given low payables and service model dynamics. Sustainability improves if OCF reverts closer to net income (>1.0x).

Dividend Sustainability

The calculated payout ratio is 62.6%, slightly above the sub-60% comfort threshold, while the reported DOE is 0.1%. With FCF of 1.02 and FCF coverage of dividends at 0.25x, current dividends appear to rely on cash reserves rather than current-period free cash flow. Balance sheet strength (cash 44.89 and retained earnings 44.43) provides cushion, but sustained OCF improvement is needed to maintain payouts without balance-sheet drawdown. Policy signals are not provided; absent guidance, a stable-to-cautious stance is prudent until cash conversion improves. Monitoring OCF trajectory and any announced dividend policy targets will be key.

Risk Assessment

Business Risks:

• Demand cyclicality in core client industries (auto/industrial) affecting utilization and pricing
• Wage inflation and recruitment/training cost pressure on SG&A and margins
• Client concentration risk typical in engineering/design outsourcing
• Project timing and receivable collection risk impacting cash conversion
• Regulatory/labor environment changes (e.g., overtime/workstyle reforms) affecting staffing flexibility

Financial Risks:

• OCF shortfall versus net income (OCF/NI 0.69) if persistent
• Dividend cash demand exceeding FCF (coverage 0.25x), potentially drawing down cash
• Market valuation risk of investment securities (7.39) impacting capital and OCI if revalued
• Limited information on long-term debt terms (unreported), though leverage appears low

Key Concerns:

• Earnings quality flagged by weak cash conversion this period
• Potential SG&A creep (including directors’ compensation) if revenue growth slows
• Sensitivity to capex cycles of key customers impacting order flow and utilization

Investment Implications

Key Takeaways:

• Steady growth with slight operating margin expansion; core profitability intact
• ROE at 8.8% with strong ROIC (21.2%) highlights efficient, asset-light operations
• Balance sheet is very conservative with sizable net cash and negligible debt service risk
• Earnings quality is the main watchpoint given OCF/NI at 0.69 and weak FCF coverage of dividends
• Dividend sustainability hinges on OCF normalization given current payout and FCF gap

Metrics to Watch:

• OCF/Net Income ratio (target >1.0 over time)
• Receivables turnover and DSO trends
• Utilization rates and billing rates to sustain margins
• SG&A growth versus revenue growth
• Dividend policy updates and cash deployment (capex, buybacks)

Relative Positioning: Within Japanese engineering/design services peers, Abist shows conservative leverage, strong liquidity, and efficient capital use (high ROIC), with ROE in the high single digits. Profitability and balance sheet quality are competitive, while cash conversion and dividend coverage lag best-in-class peers that consistently post OCF ≥ NI.

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