Sodick Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥56.35B
• Operating Income: ¥3.02B
• Net Income: ¥395M
• EPS: ¥42.89

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 recovery quarter with sharply higher profitability, but capital efficiency remains low and earnings quality cannot be validated due to missing cash flow data. Revenue rose 10.5% YoY to 563.46, lifting gross profit to 166.07 and operating income to 30.18 (+260% YoY). Operating margin improved to 5.4%, an estimated expansion of roughly 370–380 bps YoY based on last year's implied margin of about 1.6–1.7%. Gross margin printed at 29.5%, indicating pricing and mix held up despite cost pressures. SG&A was 157.68, implying an SG&A ratio of about 28.0% of sales; however, the bridge from gross profit to operating income suggests other operating items supported profits. Ordinary income reached 29.20 (+133.5% YoY), and interest coverage strengthened to 10.1x, reflecting improved earnings against modest interest costs (2.98). Net income was 21.70 (+439.5% YoY), implying a 3.9% net margin, though the reported effective tax rate (64.1%) and the relationship between ordinary income, profit before tax (11.00), and net income indicate classification/one-off effects that complicate comparability. ROE is still low at 2.6% despite the profit rebound, constrained by low asset turnover (0.385) and moderate leverage (1.74x). Liquidity is very strong with a current ratio of 301.5% and cash and deposits of 456.15 versus current liabilities of 332.85. Balance sheet leverage appears conservative (reported D/E 0.74x), and long-term loans of 187.22 are comfortably supported by equity of 841.93. ROIC is only 2.5%, below a 5% warning threshold, highlighting ongoing capital efficiency challenges. Cash flow data were not disclosed, so operating cash flow conversion and free cash flow coverage of dividends/capex cannot be assessed. The calculated payout ratio is high at 73.2%, which could be a stretch if free cash flow is weak. Forward-looking, the sharp operating margin recovery is encouraging and suggests cost normalization and better pricing, but sustaining it will require continued demand in core machine tool/EDM markets and disciplined SG&A control. With ample liquidity, the company can weather demand volatility, but the low ROIC and uncertain cash conversion temper the quality of the recovery.

Profitability Analysis

ROE (2.6%) decomposition: Net Profit Margin (3.9%) × Asset Turnover (0.385) × Financial Leverage (1.74x). The largest drag on ROE remains low asset turnover, while the quarter's biggest positive delta came from net margin expansion (operating income +260% YoY on +10.5% sales). Operating margin improved to 5.4% from an implied ~1.6–1.7% a year ago (an estimated +370–380 bps), driven by a stronger revenue base, better utilization, and improved cost absorption/pricing. Financial leverage is moderate and relatively stable; it did not drive the improvement. The ordinary income line rose 133.5% YoY, but below operating income due to non-operating mix and special items, implying that core operations, not leverage, powered the rebound. Sustainability: the margin recovery appears partly cyclical (demand and utilization) and partly execution-driven (cost control), thus partly sustainable if end-market demand holds; however, the low ROIC (2.5%) signals that structural capital efficiency is still weak. Flags: SG&A growth vs revenue cannot be precisely measured due to lack of prior-period SG&A, but the current SG&A ratio of ~28% remains high for the margin level, so any SG&A acceleration above revenue would compress operating leverage.

Growth Assessment

Top-line growth of 10.5% YoY indicates improved demand across core products, with better throughput reflected in higher operating income. Profit growth outpaced revenue (OI +260% YoY), confirming positive operating leverage as fixed costs were spread over a larger base. Gross margin at 29.5% suggests pricing/mix or cost normalization helped; however, the bridge from gross to operating income implies meaningful other operating income or classification effects. Non-operating items were net positive (income 10.50 vs expenses 6.38), but ordinary income was reported below operating income, indicating other adjustments or one-offs below the line; this clouds pure run-rate comparability. Net margin improved to 3.9%, but the reported effective tax rate (64.1%) and the mismatch between ordinary income, profit before tax, and net income imply non-recurring or classification impacts. Outlook: if order momentum and utilization persist, operating margins could hold above 5% near term; sustaining mid-single digit margins will hinge on SG&A discipline and stable component/input costs. With ROIC at 2.5%, further capital productivity gains (inventory turns, asset deployment) are needed to translate profit recovery into improved returns.

Financial Health

Liquidity is robust: current ratio 301.5% and quick ratio 267.4%, with cash and deposits of 456.15 comfortably exceeding current liabilities of 332.85. No warning on current ratio (<1.0) or D/E (>2.0); reported D/E is 0.74x, indicating conservative leverage. Maturity profile appears manageable: short-term loans of 23.35 are small relative to cash on hand; long-term loans of 187.22 are well covered by equity (841.93). Working capital is ample at 670.83, supported by cash and receivables (146.94) against payables (59.14). No off-balance sheet obligations were disclosed in the provided data. Equity base is strong (owners' equity 841.01), providing flexibility to absorb cyclicality. Overall solvency and liquidity risks are low.

Cash Flow Quality

Operating cash flow and free cash flow were not disclosed, so we cannot compute OCF/Net Income or FCF coverage—earnings quality cannot be validated. Given the inventory balance (113.78) and receivables (146.94), working capital movements could materially swing OCF; absent data, we cannot confirm whether the profit rebound converted into cash. Interest coverage is healthy at 10.1x, indicating cash interest is likely manageable, but this does not substitute for OCF analysis. No signs of working capital manipulation can be inferred without period-over-period cash flow detail. Conclusion: cash flow quality is indeterminate; monitoring OCF/NI (>1.0 target) and FCF after capex is essential before judging sustainability.

Dividend Sustainability

The calculated payout ratio is 73.2%, above the <60% benchmark for comfort. DPS and total dividends paid were not disclosed, and FCF coverage is not calculable due to missing cash flow and capex data. Given low ROE (2.6%) and ROIC (2.5%), a high payout may constrain reinvestment unless OCF is robust; conversely, the strong cash position offers near-term flexibility. Without OCF and capex visibility, dividend sustainability cannot be confirmed; a payout policy aligned with FCF stability would be prudent.

Risk Assessment

Business Risks:

• Cyclical demand in machine tools/EDM affecting orders and utilization
• Pricing pressure from competition amid macro slowdown
• Supply chain and component cost volatility impacting gross margins
• Geographic exposure risk (e.g., China/Asia demand swings) impacting sales mix

Financial Risks:

• Low ROIC (2.5%) indicating weak capital efficiency
• Potential cash conversion risk given sizable working capital balances and absent OCF data
• Currency fluctuation risk affecting both revenue and costs
• Dependence on non-operating items/one-offs in reported lines (ordinary income vs operating income vs PBT mismatch)

Key Concerns:

• Inability to validate earnings quality due to unreported cash flows
• High payout ratio (73.2%) relative to uncertain FCF
• Margin sustainability if SG&A growth re-accelerates ahead of revenue
• Data inconsistencies between ordinary income, profit before tax, and net income that obscure underlying run-rate

Investment Implications

Key Takeaways:

• Clear operational recovery: operating margin up to ~5.4% with strong YoY leverage
• Balance sheet strength: cash-rich with low near-term refinancing needs
• Return metrics remain subdued: ROE 2.6%, ROIC 2.5% despite profit rebound
• Earnings quality unverified due to missing OCF/FCF data; sustainability uncertain
• Dividend affordability uncertain with a 73.2% payout and no FCF disclosure

Metrics to Watch:

• Order intake and backlog trends for core EDM/machine tool lines
• Operating cash flow and OCF/NI ratio (>1.0 target)
• Free cash flow after capex and dividend coverage
• SG&A trajectory versus revenue to preserve margin gains
• Inventory and receivables turns to lift asset turnover and ROIC
• Currency impacts on margins and demand (USD/JPY, CNY/JPY)

Relative Positioning: Compared to domestic precision machinery peers, the company shows a sharper short-term operating margin recovery and stronger liquidity, but lags on capital efficiency (low ROIC/ROE). Sustained improvement hinges on converting earnings to cash and improving asset turnover.

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