CONVUM Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.46B
• Operating Income: ¥239M
• Net Income: ¥177M
• EPS: ¥118.54

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

Convum (6265) delivered a modestly positive FY2025 Q3, with steady top-line growth but mild margin compression and flattish bottom-line performance. Revenue rose 5.6% YoY to 14.56 billion yen-equivalent (in 100 million yen units), while operating income increased 2.0% YoY to 2.39, and ordinary income was nearly flat at 2.60 (+0.2% YoY). Net income slipped slightly by 0.3% YoY to 1.82, reflecting a softer conversion from sales to earnings versus the prior year. Gross margin stands at 48.6%, operating margin at 16.4%, ordinary margin at 17.9%, and net margin at 12.5%. Based on reported growth rates, operating margin likely compressed by roughly 60 bps YoY and net margin by about 70 bps, as operating profit and net profit grew slower than revenue. Non-operating income of 0.36 (dividends 0.11 and interest 0.06) contributed meaningfully, with a non-operating income ratio of 19.8%, indicating roughly one-fifth of bottom-line support stems from non-operating items. Earnings quality cannot be fully assessed due to unreported cash flow statements; OCF vs NI comparison is unavailable. The balance sheet is exceptionally conservative: cash and deposits of 28.83 against total liabilities of 3.68 and current liabilities of 2.35 imply substantial liquidity buffers. Current ratio is 1,595% and D/E is 0.06x, underscoring very low financial risk. ROE is modest at 3.1% from DuPont (12.5% net margin × 0.230 asset turnover × 1.06x leverage), constrained by low asset turnover and minimal leverage. ROIC at 5.2% sits below the common 7–8% target range, pointing to middling capital efficiency despite solid margins. The slight YoY decline in net profit alongside reliance on non-operating income suggests operating leverage was muted this quarter. Dividend sustainability appears reasonable with a calculated payout ratio of 45.5%, but the absence of OCF/FCF data tempers confidence; the large net cash position is a backstop. Forward-looking, maintaining gross margin discipline and improving asset turnover (e.g., working capital velocity) are key to lifting ROE/ROIC. Overall, the quarter demonstrates resilient core profitability with conservative financial posture, but points to efficiency and margin headwinds that need monitoring.

Profitability Analysis

ROE decomposition: 3.1% = 12.5% Net Profit Margin × 0.230 Asset Turnover × 1.06x Financial Leverage. The dominant drag on ROE is low asset turnover (0.230), followed by intentionally low leverage (1.06x), while net margin is comparatively healthy at 12.5%. The component that changed most YoY appears to be margin (operating and net), inferred from revenue growth (+5.6%) outpacing operating income growth (+2.0%) and net income (−0.3%), implying ~60–70 bps compression. Likely drivers include higher SG&A intensity and/or mix (e.g., product/geography) and a greater reliance on non-operating income to hold ordinary income flat. Given limited disclosure, these seem partly cyclical (demand mix, pricing) rather than one-time. Sustainability: gross margin at 48.6% remains strong, so if SG&A normalization or pricing/mix improves, margin pressure could ease; however, recurring non-operating contributions (dividend/interest income) may continue to support the bottom line. Watch for concerning trends where expense growth outpaces revenue; this quarter’s slower OP growth versus sales suggests operating leverage was negative or muted.

Growth Assessment

Top-line growth was solid at +5.6% YoY to 14.56, but profit growth lagged: OP +2.0%, OI +0.2%, NP −0.3%. This implies mild margin pressure and/or a less favorable mix. Gross margin of 48.6% indicates pricing and cost control remain structurally healthy, but SG&A absorption likely weighed on operating leverage. Non-operating income (0.36) provided a cushion, with dividends (0.11) and interest (0.06) highlighting portfolio/cash-income support to earnings. Revenue sustainability will hinge on demand in factory automation/vacuum components end markets and export dynamics; no forward guidance is provided here. Profit quality is mixed: operating profit grew, but dependence on non-operating items increased. Outlook: modest growth with focus on cost discipline and working-capital efficiency to lift asset turnover and ROIC. Absence of capex/R&D data limits assessment of medium-term growth investments.

Financial Health

Liquidity is extremely strong: current assets 37.48 vs current liabilities 2.35 yield a current ratio of 1,595%, and cash alone (28.83) covers all liabilities (3.68) multiple times. Quick ratio equals the current ratio in the dataset due to unreported inventories; actual quick ratio is likely lower but still very strong given the cash position. Solvency is conservative with total liabilities 3.68 and equity 59.55 (D/E 0.06x). There is no warning on Current Ratio (<1.0) or D/E (>2.0). Maturity mismatch risk is negligible: cash and deposits 28.83 far exceed current liabilities 2.35. Interest-bearing debt is unreported; however, the low D/E suggests minimal debt load. No off-balance sheet obligations are disclosed in the provided data. Overall capital structure is cash-rich and low-risk.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be calculated. We therefore cannot confirm earnings conversion to cash; OCF/NI may be above or below the 0.8 threshold—data not available. With cash and deposits of 28.83 and low liabilities, near-term liquidity is ample even if cash conversion were soft. Without working capital details (inventory, payables dynamics) and capex, we cannot assess potential working capital maneuvers or FCF sustainability. Conclusion: earnings quality is indeterminate from cash flow data, but the balance sheet provides a buffer.

Dividend Sustainability

The calculated payout ratio is 45.5%, within the <60% benchmark for sustainability. DPS and total dividends are unreported, and FCF coverage cannot be assessed due to missing cash flow and capex data. On an earnings basis, dividends appear covered, and the large net cash position (cash 28.83 vs liabilities 3.68) provides additional flexibility for stable distributions. Policy outlook cannot be inferred from the dataset; monitoring guidance and shareholder return policies is recommended.

Risk Assessment

Business Risks:

• Margin pressure evidenced by OP growth (+2.0%) lagging sales growth (+5.6%), implying negative operating leverage.
• Product and geographic mix risks that can affect gross margin and SG&A intensity.
• Demand cyclicality in factory automation/industrial end-markets impacting orders and utilization.
• Pricing pressure and input cost variability affecting gross margin (48.6%).
• Reliance on non-operating income (~20% of bottom line) to support net profit.

Financial Risks:

• Low ROE (3.1%) and ROIC (5.2%) indicate capital efficiency risk and potential return-on-capital constraints.
• Potential cash drag from large cash holdings reducing asset turnover (0.230) and overall returns.
• Cash flow visibility risk due to unreported OCF/FCF; dividend coverage by cash flows cannot be confirmed.

Key Concerns:

• Mild margin compression (~60–70 bps) alongside flattish NP (−0.3% YoY).
• Non-operating income dependency for earnings stability.
• Data gaps (cash flow, capex, inventory) limiting assessment of cash conversion and operating efficiency.

Investment Implications

Key Takeaways:

• Steady revenue growth (+5.6%) but softer operating leverage (OP +2.0%, NP −0.3%).
• Healthy gross margin (48.6%) offset by higher SG&A intensity or mix effects.
• ROE constrained by low asset turnover (0.230) and minimal leverage (1.06x).
• Exceptionally strong balance sheet: cash 28.83 vs liabilities 3.68; D/E 0.06x.
• ROIC at 5.2% below typical 7–8% target range, signaling efficiency improvement potential.
• Non-operating income contributes meaningfully (~20% of NI), supporting but also masking core trends.

Metrics to Watch:

• Operating margin trend (currently ~16.4%) and SG&A-to-sales ratio.
• Asset turnover improvement via working-capital velocity (AR, inventory turnover) and sales growth.
• OCF/Net income and FCF once disclosed; capex requirements.
• Composition of non-operating income (dividends, interest, other) and its persistence.
• ROIC progression relative to 7–8% benchmark.
• Order backlog and book-to-bill (if disclosed) for demand visibility.

Relative Positioning: Within Japanese small-cap industrial components, Convum exhibits above-average liquidity and a conservative balance sheet but below-peer capital efficiency and modest operating leverage; improving turnover and expense discipline would be pivotal to close the ROIC/ROE gap.

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