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 Co., Ltd. (TSE: 6265) reported FY2025 Q3 consolidated results under JGAAP with steady top-line growth and resilient margins, albeit with modest profit growth and a subdued ROE profile. Revenue reached ¥1,456 million (+5.6% YoY), indicating stable demand across its vacuum and pneumatic components portfolio despite a mixed macro environment in factory automation and electronics-related end markets. Gross profit was ¥708 million, translating to a robust gross margin of 48.6%, underscoring solid pricing discipline and product mix. Operating income was ¥239 million (+2.0% YoY), yielding an operating margin of 16.4%, which points to slightly negative operating leverage in the quarter as operating expenses grew faster than revenue. Ordinary income of ¥260 million exceeded operating income, suggesting a net positive contribution from non-operating items. Net income was ¥182 million (-0.3% YoY), bringing net margin to 12.5%, broadly consistent with historical profitability levels. DuPont metrics indicate ROE of 3.06%, driven by a low asset turnover of 0.230 and very low financial leverage (assets/equity 1.06x), reflecting a conservative balance sheet. The balance sheet is strong: total assets were ¥6,324 million with total liabilities of only ¥391 million, implying a debt-to-equity ratio of 0.07x and an implied equity ratio of roughly 94% based on non-zero figures. Liquidity appears ample with current assets of ¥3,657 million versus current liabilities of ¥234 million, resulting in a current ratio of about 15.6x. Several line items are undisclosed in XBRL (e.g., depreciation, cash flow statements, cash balance, inventories), so zeros do not indicate true zeros; analysis focuses on the disclosed non-zero items. Cash flow quality cannot be assessed this quarter due to unreported OCF and FCF, although earnings quality at the income-statement level looks reasonable given gross and operating margins. The effective tax rate, estimated from disclosed income tax and pre-tax proxies, appears in the low-30% range despite a reported 0.0% placeholder. EPS was ¥118.54, but shares outstanding and DPS were not disclosed, limiting dividend analysis. Overall, the company demonstrates healthy margins and a fortress balance sheet, but low asset turnover and excess capital depress ROE. Near-term profitability will hinge on maintaining gross margins and improving operating leverage as revenue grows. Medium-term value creation likely requires either higher asset efficiency, incremental growth, or capital policy optimization to lift ROE.

Profitability Analysis

ROE decomposition (DuPont): Net margin 12.5% × Asset turnover 0.230 × Financial leverage 1.06 = ROE ~3.06% (matches reported). Margin quality: Gross margin 48.6% and operating margin 16.4% indicate a differentiated product mix and decent pricing power; the spread between gross and operating margins (approx. 32ppts) reflects the SG&A burden and R&D/overheads typical of component manufacturers. Ordinary income exceeding operating income (¥260m vs ¥239m) signals positive non-operating items (e.g., financial income or FX gains), cushioning bottom-line performance. Operating leverage: Revenue grew +5.6% YoY while operating income grew +2.0% YoY, suggesting negative operating leverage this quarter due to higher operating expenses or mix effects. Tax: Using income tax of ¥85.1m and a pre-tax proxy around ¥267m (net income + tax) implies an effective tax rate near 32%, consistent with Japan statutory norms. Efficiency: Asset turnover of 0.230 is modest, implying sizable idle assets or cash holdings; low leverage (1.06x) limits ROE magnification despite solid margins. Overall, profitability is healthy at the margin level but translates into a low single-digit ROE because of balance sheet conservatism and low asset utilization.

Growth Assessment

Revenue growth of +5.6% YoY reflects steady demand, likely from factory automation and electronics/semiconductor adjacent customers, albeit below high-growth peers in cyclical upswings. Operating income growth of +2.0% YoY trails sales, indicating cost inflation, reinvestment, or a less favorable product/geographic mix. Net income declined slightly (-0.3% YoY), pointing to profit normalization and the impact of non-operating/tax items. Sustainability: The high gross margin suggests pricing power and a value-add niche, which supports durability of revenue; however, low asset turnover indicates either cautious deployment or demand variability that limits throughput. Profit quality: Ordinary income above operating income implies reliance on non-operating gains in the period; core earnings remain solid but incremental growth likely depends on capturing volume while holding SG&A growth below sales. Outlook (near term): Assuming stable FX and gradual CAPEX recovery in automation, mid-single-digit sales growth is plausible, but margin expansion requires expense discipline to restore positive operating leverage. Medium term: ROE uplift will depend on accelerating asset efficiency (inventory/receivables turns) and potentially optimizing capital structure or shareholder returns, subject to management policy. Data limitations (no orders/backlog provided) constrain visibility on sustainability beyond the quarter.

Financial Health

Liquidity: Current assets ¥3,657m vs current liabilities ¥234m yield a current ratio ~15.6x and implied quick ratio similar given undisclosed inventories; working capital is ¥3,423m, indicating very strong short-term solvency. Cash and equivalents are undisclosed; however, the magnitude of current assets relative to liabilities suggests ample liquidity. Solvency: Total liabilities ¥391m against total equity ¥5,955m equate to a debt-to-equity ratio of ~0.07x and an implied equity ratio near 94% based on non-zero items, indicating very low leverage. Interest expense is undisclosed (reported as 0), but given low liabilities, interest burden is likely minimal. Capital structure: Financial leverage of 1.06x (assets/equity) is conservative, providing resilience but limiting ROE amplification. Overall, the balance sheet is robust with significant capacity to weather cyclicality and to fund organic initiatives without external financing.

Cash Flow Quality

Cash flow statements (OCF/FCF) are not disclosed this quarter; zeros reflect non-disclosure, not actual values. As such, OCF/Net Income and FCF coverage cannot be determined. Earnings quality at the accrual level appears reasonable given the high gross margin and stable operating margin, but without working capital and capex detail, the conversion of earnings to cash is unassessed. Key areas to monitor once disclosed: receivables and inventory movements relative to sales (to gauge working capital intensity), and capex versus depreciation (to assess maintenance spending and investment needs). Given low leverage and large working capital, liquidity risk from cash flow volatility appears limited in the near term.

Dividend Sustainability

Dividend data (DPS, payout ratio, FCF coverage) are not disclosed; zeros are placeholders. Capacity perspective: With net income of ¥182m and minimal leverage, the company appears to have room for shareholder returns; however, sustainability should be judged against undisclosed OCF and capex needs. Without OCF and FCF, we cannot verify cash coverage. Policy outlook depends on management’s capital allocation stance: current low ROE (3.06%) and excess equity suggest scope for higher distributions or reinvestment in efficiency to lift returns. Until cash flows and guidance are disclosed, a definitive assessment of dividend sustainability is not possible.

Risk Assessment

Business Risks:

• End-market cyclicality in factory automation, automotive, and electronics/semiconductors affecting order intake and utilization
• Pricing pressure from global component peers and customer consolidation
• Supply chain disruptions and lead-time variability impacting deliveries and costs
• Raw material and component cost inflation compressing gross margins
• FX volatility (JPY) influencing export competitiveness and translation effects
• Product concentration and technological shifts in automation solutions

Financial Risks:

• Limited visibility on cash generation due to undisclosed OCF/FCF
• Potential working capital swings (receivables/inventories) given low asset turnover
• Non-operating income dependence in some periods to bridge from operating to ordinary income
• Reinvestment needs (capex/R&D) not visible without depreciation/capex disclosure

Key Concerns:

• Low ROE (3.06%) driven by low asset turnover and excess equity despite healthy margins
• Negative operating leverage this quarter (OI +2.0% vs Sales +5.6%)
• Lack of cash flow disclosure hinders assessment of earnings-to-cash conversion and dividend capacity

Investment Implications

Key Takeaways:

• Solid gross (48.6%) and operating (16.4%) margins demonstrate pricing power and cost control
• Revenue growth of +5.6% YoY is steady but operating leverage was negative in the quarter
• ROE at 3.06% is constrained by low asset turnover (0.230) and minimal leverage (1.06x)
• Balance sheet is exceptionally strong (D/E ~0.07x; implied equity ratio ~94%)
• Ordinary income exceeded operating income, indicating supportive non-operating items
• Cash flow metrics are undisclosed, limiting visibility on FCF and dividend coverage

Metrics to Watch:

• Order intake, backlog, and book-to-bill ratio
• Gross margin trajectory and operating expense growth vs sales
• Asset turnover drivers: receivables and inventory turns
• Operating cash flow and FCF conversion once disclosed
• Capex vs depreciation to gauge reinvestment intensity
• FX rates (USD/JPY, CNY/JPY) and export mix

Relative Positioning: Compared to domestic FA/component peers, Convum exhibits higher gross margins and a far more conservative balance sheet, but lags on ROE due to low asset turnover and excess capital; growth is steady rather than high-beta, and financial risk is notably lower than the sector average.

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