Solasto Corporation FY2025 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥70.03B
• Operating Income: ¥3.51B
• Net Income: ¥1.94B
• EPS: ¥25.60

Income Statement

Balance Sheet

Cash Flow Statement

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

For FY2025 Q2, Solasto Co., Ltd. delivered modest top-line growth with revenue of ¥70.0bn (+2.4% YoY), while profitability showed mixed dynamics as operating income declined 4.7% YoY to ¥3.51bn, pointing to negative operating leverage in the first half. Gross profit was ¥11.34bn, implying a gross margin of 16.2%, and operating margin settled at roughly 5.0%, indicating thin but stable service-industry margins. Ordinary income (¥3.52bn) closely tracked operating income, suggesting limited non-operating distortions; interest expense was contained at ¥147m. Net income increased 21.9% YoY to ¥2.36bn, lifting net margin to 3.37%, partly reflecting lower below-the-line drag relative to the prior period. DuPont decomposition indicates ROE of 9.87% driven by a 3.37% net margin, asset turnover of 1.02x, and financial leverage of 2.88x. Balance sheet strength appears adequate: total assets are ¥68.88bn and total equity ¥23.91bn, implying an equity ratio of approximately 34.7% (the reported equity ratio field is not disclosed). Liquidity is decent with a current ratio of 139%, supported by ¥8.80bn in working capital, although inventory data were not disclosed. Solvency metrics show moderate leverage with total liabilities to equity at 1.98x, while interest coverage by EBIT is a comfortable ~23.8x, indicating manageable financial risk. Cash conversion is weak this half: operating cash flow was only ¥381m versus net income of ¥2.36bn (OCF/NI ~0.16), likely reflecting working capital outflows or timing effects. Investing cash flows were not disclosed, limiting assessment of free cash flow; financing cash outflow of ¥3.91bn suggests debt repayment and/or shareholder returns, but dividend data for the period are not disclosed. EBITDA was ¥4.22bn (6.0% margin), implying limited cushion for cost shocks but sufficient to service interest obligations. Effective tax rate cannot be relied on from the reported metric; based on available figures, tax expense of ¥1.52bn against pre-tax income approximated by ordinary income suggests an ETR in the low-40% range. Overall, fundamentals show steady revenue and resilient bottom-line, offset by margin pressure at the operating level and soft cash conversion. Data gaps around cash balances, investing cash flows, and dividends temper confidence in near-term cash distribution analysis. The outlook hinges on normalization of working capital, cost control to restore operating leverage, and visibility on capital allocation through the rest of the fiscal year.

Profitability Analysis

ROE_decomposition: ROE 9.87% = Net margin 3.37% x Asset turnover 1.017x x Financial leverage 2.88x. The ROE level is supported primarily by leverage and steady asset turnover, with modest net margins typical for the company’s service mix. margin_quality: Gross margin 16.2% (¥11.34bn/¥70.03bn) and operating margin ~5.0% (¥3.51bn/¥70.03bn) indicate thin but consistent service margins. EBITDA margin is 6.0% (¥4.22bn), implying modest non-cash add-backs and limited operating cushion. operating_leverage: Revenue grew +2.4% YoY while operating income fell -4.7% YoY, indicating negative operating leverage in the period, likely due to wage inflation, onboarding/training costs, or client mix changes that pressured SG&A or cost of sales.

Growth Assessment

revenue_sustainability: Top-line growth at +2.4% YoY appears organic and steady, consistent with recurring service contracts; sustainability hinges on contract renewals and incremental volume in healthcare and care services. profit_quality: Ordinary income aligns closely with operating income, with interest expense (¥147m) modest, suggesting clean earnings. Net income growth (+21.9% YoY) outpaced revenue despite weaker operating profit, indicating favorable non-operating or tax/timing effects versus prior year. outlook: To sustain profit growth, the company needs to stabilize operating margins via pricing, productivity, and labor cost management. Absent stronger cost control, further revenue growth may not translate proportionally into operating profit.

Financial Health

liquidity: Current assets ¥31.17bn vs current liabilities ¥22.36bn yields a current ratio of 139% and working capital of ¥8.80bn; quick ratio is the same as inventories were not disclosed. Near-term liquidity appears adequate. solvency: Total liabilities ¥47.41bn vs equity ¥23.91bn implies D/E (total liabilities/equity) of 1.98x. Interest coverage by EBIT is ~23.8x (¥3.51bn/¥147m), indicating comfortable debt service capacity. capital_structure: Implied equity ratio is ~34.7% (¥23.91bn/¥68.88bn), a moderate capitalization level for a services company. Mix of interest-bearing vs. operating liabilities is not disclosed, limiting precision on net leverage.

Cash Flow Quality

earnings_quality: OCF of ¥381m versus net income of ¥2.36bn yields OCF/NI ~0.16, signaling weak conversion likely due to working capital consumption or timing effects in H1. FCF_analysis: Investing cash flow data were not disclosed, so free cash flow cannot be determined with confidence for the period. EBITDA (¥4.22bn) suggests internal capacity to fund maintenance capex, but visibility is limited. working_capital: With current assets exceeding current liabilities by ¥8.80bn, the balance sheet affords liquidity, yet the low OCF indicates a probable build in receivables or other current assets this half.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed for the period; the 0 figures should be treated as undisclosed, not zero payout. FCF_coverage: FCF coverage cannot be assessed due to the absence of investing cash flow disclosure; OCF alone was modest at ¥381m in H1. policy_outlook: Without disclosed dividends and with incomplete cash flow data, visibility on distribution capacity is limited; sustainability will depend on normalization of working capital and full-year cash generation.

Risk Assessment

Business Risks:

• Labor cost inflation and staffing shortages pressure margins in healthcare and care services
• Contract renewal risk and pricing pressure from key institutional clients
• Execution risk in ramping new contracts and managing training/productivity
• Regulatory and reimbursement changes affecting service demand and pricing
• Competition in BPO/outsourced services compressing margins

Financial Risks:

• Weak H1 cash conversion (OCF/NI ~0.16) heightens reliance on working capital normalization
• Moderate leverage (D/E ~1.98x) increases sensitivity to funding conditions
• Limited disclosure on cash balances and investing outflows constrains visibility on liquidity runway
• Potential refinancing risk if interest rates rise or credit conditions tighten

Key Concerns:

• Negative operating leverage despite revenue growth
• Low OCF relative to net income in the period
• Incomplete disclosure on investing cash flows and cash balances
• High implied effective tax rate reducing net profit cushion

Investment Implications

Key Takeaways:

• Modest revenue growth (+2.4% YoY) with operating profit decline (-4.7% YoY) indicates margin pressure
• ROE of 9.87% aided by leverage and asset turnover; net margin remains thin at 3.37%
• Liquidity adequate (current ratio 139%) and interest coverage strong (~23.8x)
• Cash conversion weak (OCF/NI ~0.16); FCF indeterminable due to missing investing CF
• Financing cash outflow of ¥3.91bn suggests deleveraging and/or shareholder returns, pending disclosure

Metrics to Watch:

• Operating margin trajectory and personnel cost ratio
• Working capital movements (receivables and payables days) and OCF/NI normalization toward >0.8x
• Investing cash flows (capex/M&A) to assess FCF and leverage path
• Contract wins/renewals and pricing to support revenue growth
• Interest-bearing debt levels and average interest rate

Relative Positioning: Within Japan’s outsourced services and healthcare administration space, Solasto exhibits typical low-to-mid single-digit margins with moderate leverage and solid interest coverage; current period underlines execution on cost control and working capital as key differentiators versus peers.

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
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