Odawara Engineering Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥12.22B
• Operating Income: ¥1.88B
• Net Income: ¥456M
• EPS: ¥237.87

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: Strong Q3 with significant profit acceleration on healthy topline growth, albeit with unusual below-the-line volatility and limited cash flow disclosure. Revenue rose 22.9% YoY to 122.19, while operating income surged 141.0% YoY to 18.83, indicating strong operating leverage. Ordinary income climbed 128.1% YoY to 19.31, but profit before tax dropped to 8.47, implying sizable extraordinary losses between ordinary income and PBT. Net income nonetheless increased 198.2% YoY to 13.59, suggesting offsetting extraordinary gains or tax effects after PBT. Operating margin expanded meaningfully to about 15.4% from an estimated ~7.9% a year ago, a roughly 755 bps expansion. Net margin improved to 11.1% from an estimated ~4.6% a year ago, an expansion of roughly 650 bps. Gross margin is cited at 22.9%, but there are arithmetic inconsistencies among cost of sales, gross profit, SG&A, and operating income, so sub-total margin analysis should be treated cautiously. The balance sheet is robust: current ratio 221.8%, quick ratio 182.5%, and cash and deposits of 94.66 exceed current liabilities of 84.33, indicating strong liquidity. Leverage is conservative at a reported D/E of 0.50x with negligible interest expense and an extremely high interest coverage ratio of 4,279x. ROE is 7.8% (DuPont: 11.1% net margin × 0.466 asset turnover × 1.50x leverage), indicating improved profitability but still moderate relative to top-tier machinery peers; ROIC is strong at 12.6%. Earnings quality cannot be assessed due to unreported cash flows; OCF/Net Income and FCF are unavailable. The sharp divergence between ordinary income and PBT suggests non-recurring items materially affected bottom-line staging this quarter. Dividend affordability appears sound with a low calculated payout ratio of 23.5%, but cash coverage cannot be confirmed without OCF/FCF data. Forward-looking, sustained operating margin gains, order momentum, and working capital discipline will be the key swing factors for earnings durability. Overall, results indicate a step-change in profitability, but the quality and repeatability of bottom-line gains require validation once cash flow and extraordinary item details are disclosed.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.8% = Net Profit Margin 11.1% × Asset Turnover 0.466 × Financial Leverage 1.50x. The largest driver of YoY improvement is Net Profit Margin, reflecting strong operating income growth (+141% YoY) versus revenue growth (+22.9% YoY). Operating margin expanded to ~15.4% from an estimated ~7.9% a year ago (approximately +755 bps), signaling robust operating leverage from volume/mix and SG&A efficiency. Note: Subtotal inconsistencies (gross profit, SG&A, operating income) limit precise margin layer attribution; we rely on reported operating and net income. The sizeable gap between ordinary income (19.31) and profit before tax (8.47) indicates material extraordinary losses; however, net income still rose sharply (+198% YoY), suggesting offsetting items or tax effects—this inflates the net margin component in DuPont this quarter. Asset turnover at 0.466 reflects moderate capital intensity and a cash-rich balance sheet; changes versus prior year are not disclosed but appear stable. Financial leverage at 1.50x remains conservative and not the source of ROE improvement. Sustainability: operating margin gains could be partly structural (scale, mix) but the PBT/extraordinary swing appears non-recurring; we treat the net margin step-up as partially one-time until clarity emerges. Watch for cost discipline: while SG&A details are unreported, the outsized operating income growth relative to revenue implies positive operating leverage; monitor whether SG&A growth trails revenue in subsequent quarters.

Growth Assessment

Topline growth of 22.9% YoY (122.19) is solid, consistent with strong demand in core equipment lines. Operating income growth of 141% YoY (18.83) far outpaced revenue, indicating favorable mix and cost execution. Net income rose 198% YoY (13.59); given the PBT shortfall, this likely includes non-recurring or tax-related effects. Operating margin is ~15.4% versus an estimated ~7.9% a year ago; net margin is 11.1% versus ~4.6% previously—both imply material operating leverage. Non-operating income was modest (0.67), and interest expense was negligible, so core operations were the main driver at the ordinary income level. The unusual ordinary-to-PBT decline suggests extraordinary items; sustainability of net profit growth should be judged on operating/ordinary profit. Revenue sustainability will hinge on order backlog, book-to-bill, and end-market capex cycles (not disclosed). Outlook: If current margin levels persist and orders remain robust, FY profitability can exceed prior run-rate; key risks are demand normalization and any reversal of extraordinary effects.

Financial Health

Liquidity is strong: current ratio 221.8% and quick ratio 182.5%, with cash and deposits (94.66) exceeding current liabilities (84.33). No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); reported D/E is 0.50x and interest coverage is 4,279x. Working capital is ample at 102.74, supported by receivables 13.75 and inventories 33.15; maturity mismatch risk is low as liquid assets cover short-term obligations. Interest-bearing debt details are unreported, but negligible interest expense implies minimal debt burden. Noncurrent liabilities are small (2.71), further de-risking solvency. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be assessed. Therefore, we cannot confirm earnings quality via cash conversion; OCF/Net Income may be a watchpoint if it were to fall below 0.8. Inventory (33.15) and receivables (13.75) appear reasonable relative to revenue (122.19), not signaling aggressive working capital pull-forwards, but without cash flow statements, we cannot rule out timing effects. Dividend and capex coverage by FCF is unassessable; however, the large cash balance provides an interim buffer. No explicit signs of working capital manipulation are observable from the limited data.

Dividend Sustainability

Calculated payout ratio is 23.5%, indicating ample headroom relative to typical sustainability thresholds (<60%). FCF coverage is unreported; consequently, structural coverage cannot be confirmed. Balance sheet cash (94.66) and low leverage provide flexibility to fund dividends near term even if OCF timing is adverse. Policy outlook cannot be inferred from disclosures; stability will depend on maintaining operating margin gains and order visibility. Absent cash flow data, we view dividend capacity as supported by low payout and strong liquidity, but confirmation awaits OCF/FCF disclosure.

Risk Assessment

Business Risks:

• Demand cyclicality in capital goods/equipment leading to volatile orders and utilization
• Product mix shifts affecting margins given high operating leverage
• Supply chain and component cost variability impacting gross margins
• Export exposure and FX volatility affecting pricing and competitiveness
• Customer concentration risk typical for specialized equipment makers
• Execution risk on large projects impacting revenue recognition timing

Financial Risks:

• Lack of cash flow disclosure obscures earnings quality and FCF sustainability
• Significant gap between ordinary income and PBT points to extraordinary item volatility
• Potential working capital swings (inventory/receivables) affecting cash conversion
• Tax rate volatility (effective tax rate 46.2%) can materially swing NP
• Equity investments and securities exposure (6.04) may introduce valuation volatility

Key Concerns:

• Arithmetic inconsistencies among gross profit, SG&A, and operating income limit margin layer analysis
• Extraordinary items appear material; net income may include non-recurring effects
• Sustainability of operating margin step-up not yet proven over multiple quarters

Investment Implications

Key Takeaways:

• Strong operating profit growth with significant margin expansion suggests improved core execution
• Net profit benefited despite extraordinary-item volatility; quality requires confirmation
• Balance sheet strength (cash-rich, low leverage) reduces financial risk and supports capital returns
• ROE improved to 7.8% and ROIC is robust at 12.6%, signaling healthy capital efficiency
• Limited disclosure on cash flows is the main gap to fully underwrite earnings quality

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue durability
• Operating margin and gross margin trends for evidence of sustained structural improvement
• OCF/Net Income and FCF to validate earnings quality and dividend coverage
• Inventory turns and receivables days to monitor working capital discipline
• Extraordinary gains/losses bridging ordinary income to PBT and their recurrence
• FX rates vs sales mix, given likely export exposure

Relative Positioning: Versus domestic precision machinery/equipment peers, the company exhibits stronger-than-average liquidity, low financial leverage, improving profitability with a double-digit operating margin this quarter, and a solid ROIC (12.6%). ROE at 7.8% is mid-tier, with room to improve if margins hold and asset turnover rises. Disclosure on cash flows lags best-in-class peers, tempering confidence in the durability of earnings.

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