ELAN Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥40.74B
• Operating Income: ¥3.04B
• Net Income: ¥1.83B
• Earnings per Unit (EPU): ¥33.45

Income Statement

Balance Sheet

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: Solid topline-driven quarter with resilient profitability, slight margin compression, and a healthy balance sheet. Revenue grew 16.9% YoY to 407.39, underpinned by continued expansion of the core healthcare support services footprint. Operating income increased 11.4% YoY to 30.42, while net income rose 10.4% to 20.22, demonstrating continued earnings scalability. Operating margin stood at 7.47%, implying a 36 bps compression versus our implied prior-year margin of 7.83% (derived from disclosed YoY growth rates). Net margin was 4.96% versus an implied 5.25% last year, a 29 bps compression. Gross margin printed 19.6%, and we infer approximately 3.10 of net other operating income within operating results (as OP exceeds GP minus SG&A), providing a modest lift to EBIT. Non-operating items were a small net negative (income 0.36 vs expenses 0.70), and interest burden remains de minimis with interest coverage of ~94x. The effective tax rate was 32.1%, broadly in line with domestic norms, exerting a predictable drag from ordinary income to net. Balance sheet quality is strong: current ratio is 170.5%, total equity is 137.35, and we estimate net cash of ~43.97 (cash 51.35 less short/long-term loans 7.38). Financial leverage is conservative (assets/equity 1.74x) supporting a calculated ROE of 14.7% via DuPont. While operating leverage moderated (SG&A intensity at 12.9%), revenue growth more than offset to sustain double-digit profit growth. Earnings quality cannot be fully assessed as cash flow statements were not disclosed this quarter; we flag the absence of OCF visibility as a limitation. Dividend affordability appears comfortable with a calculated payout ratio of ~39%, though FCF coverage cannot be verified without OCF/capex disclosure. Forward-looking, sustaining mid-teens revenue growth with stable SG&A discipline should keep ROE in the mid-teens; key sensitivities include wage inflation, hospital utilization trends, and any healthcare policy shifts. Overall, the quarter reinforces the company’s defensive growth profile with limited financial risk and manageable margin pressures.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) × Asset Turnover (AT) × Financial Leverage (FL) = ROE. NPM: 5.0% (Net income 20.22 / Revenue 407.39). AT: 1.703 (Revenue 407.39 / Total assets 239.19). FL: 1.74x (Total assets 239.19 / Total equity 137.35). Calculated ROE: ~14.7% (matches reported 14.7%). Component changes versus implied prior year: NPM compressed by ~29 bps (current 4.96% vs implied prior ~5.25%); AT improved on strong top-line growth relative to balance sheet size; FL was stable and conservative. Primary driver of ROE this quarter was asset turnover improvement from robust revenue growth, partially offset by lower margins. Business reason for NPM compression: a modest step-up in operating costs (SG&A ratio 12.9%) and slightly higher non-operating expenses relative to income, with tax rate steady at 32.1%. Sustainability: AT strength is sustainable if contract wins and facility penetration continue; NPM should remain resilient but may face near-term pressure from wage inflation and service expansion costs. Quality/operating leverage: Operating margin is 7.47% (down ~36 bps YoY implied); we infer positive other operating income of ~3.10 supporting EBIT. Watch for SG&A growth outpacing revenue—this quarter, revenue growth (+16.9%) exceeded OP growth (+11.4%), indicating some operating deleverage.

Growth Assessment

Revenue growth of +16.9% YoY to 407.39 indicates continued expansion in core service adoption and site roll-outs. Operating income growth of +11.4% lagged revenue, signaling some near-term cost pressure or mix effects. Net income grew +10.4%, broadly tracking operating income despite slightly negative net non-operating items. Gross profit of 79.91 supports a 19.6% gross margin; incremental other operating income (~3.10) cushioned EBIT. Growth quality is primarily organic/recurring from service operations; one-off gains are not a driver this quarter. The implied margin compression suggests reinvestment (people/systems) and scale-up effects, which can normalize as cohorts mature. Outlook: if the company sustains double-digit revenue expansion and tempers SG&A intensity, profit growth should re-accelerate toward or above topline growth. Key forward drivers: hospital/long-term care facility penetration, bed utilization trends, retention/churn of installed base, and pricing discipline. Policy backdrop (medical fee revisions) and wage inflation will influence margin trajectory. With ROE at 14.7% and reported ROIC of 22.1%, returns remain comfortably above typical cost of capital, supporting continued growth investment.

Financial Health

Liquidity: Current ratio 170.5% and quick ratio 170.5% indicate strong short-term solvency; no warning thresholds breached. Working capital is 67.45, and cash/deposits stand at 51.35. Maturity profile: short-term loans 3.23 vs cash 51.35 suggests no near-term refinancing stress; current liabilities 95.70 are largely trade payables (76.11), which are matched by strong current assets (163.15). Leverage: Debt-to-equity 0.74x (total liabilities/equity), with interest-bearing debt totaling ~7.38 (short 3.23 + long 4.15); balance sheet is effectively net cash (~43.97). Equity ratio (calculated) ~57.4% (137.35 / 239.19). Interest coverage is robust at ~94x, well above cautionary levels. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Cash flows (OCF, investing, financing) were not disclosed, preventing direct validation of earnings-to-cash conversion. As a result, OCF/Net Income and FCF cannot be assessed and should be treated as a key data gap. Indirect quality indicators are supportive: minimal reliance on non-operating income (net non-operating: −0.34), low interest burden, and consistent tax rate. Working capital movements cannot be evaluated due to missing AR/inventory/OCF data; no signs of working capital manipulation can be inferred from the limited dataset. Conclusion: Earnings quality appears reasonable, but confirmation awaits OCF disclosure.

Dividend Sustainability

Calculated payout ratio is ~39.0%, which is comfortably below the 60% benchmark and appears sustainable given current earnings. FCF coverage cannot be verified due to missing OCF and capex data; therefore, dividend sustainability should be reassessed upon cash flow release. Balance sheet strength (net cash position, high equity ratio) provides additional buffer for distributions. Policy visibility is limited in the absence of DPS and dividend policy disclosures this quarter.

Risk Assessment

Business Risks:

• Healthcare policy and fee schedule revisions that could pressure pricing and reimbursement cascades to partner institutions.
• Hospital/long-term care utilization volatility (e.g., infectious disease cycles, regional demand shifts) impacting service volumes.
• Wage inflation and staffing constraints increasing SG&A and service delivery costs.
• Execution risk from continued site roll-outs and integration of new facilities.
• Goodwill and intangible asset risk (Goodwill 12.15; Intangibles 18.32) including potential impairment if acquired businesses underperform.

Financial Risks:

• Limited visibility on OCF and capex due to unreported cash flow statements this period.
• Exposure to trade payable cycles (Accounts payable 76.11) with limited disclosure on receivables and DSO.
• Tax rate variability (currently 32.1%) could affect net margins.
• Market value risk on investment securities (27.09) due to potential valuation volatility.

Key Concerns:

• Modest margin compression (operating −36 bps, net −29 bps YoY implied) despite strong revenue growth.
• Absence of OCF/FCF data, limiting assessment of dividend coverage and reinvestment capacity.
• Dependence on hospital ecosystem health and regulatory stability for sustained growth.

Investment Implications

Key Takeaways:

• Topline strength (+16.9% YoY) remains the primary driver; profitability is resilient albeit with slight compression.
• ROE of 14.7% and reported ROIC of 22.1% signal strong capital efficiency versus domestic benchmarks.
• Balance sheet sits in a net cash position with very high interest coverage, reducing financial risk.
• Non-operating contributions are minimal; earnings are predominantly operational in nature.
• Dividend capacity appears adequate at a ~39% payout, pending FCF confirmation.

Metrics to Watch:

• Operating margin trajectory and SG&A ratio versus revenue growth.
• OCF/Net income and FCF once cash flow statements are disclosed.
• Bed utilization/adoption rates at contracted facilities and churn/retention within the installed base.
• Tax rate stability and any announced healthcare policy revisions.
• Goodwill/intangible impairment testing signals and investment securities valuation movements.

Relative Positioning: Within Japan’s healthcare service providers, the company exhibits above-average ROE and ROIC, strong liquidity (net cash), and dependable revenue growth; near-term margins are slightly pressured but remain healthy relative to peers with similar service models.

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