MODEC,INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥498.77B
• Operating Income: ¥45.43B
• Net Income: ¥42.30B
• EPS: ¥534.74

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

三井海洋開発株式会社 (MODEC) single-entity IFRS FY2025 Q3 results show solid topline and earnings momentum with revenue at 4,987.67 and operating income at 454.29, up 16.6% and 24.5% YoY respectively. Net income of 365.36 grew 49.6% YoY, lifting the calculated net margin to 7.3% and underpinning a healthy DuPont ROE of 17.7%. Operating margin is approximately 9.1%, broadly aligned with the reported EBITDA margin of 9.1% given very low D&A in the period. Asset turnover of 0.744 and financial leverage of 3.26x combine with the margin to deliver an ROE that appears robust for a capital-intensive engineering and offshore services business. The effective tax rate is exceptionally low at roughly 0.1%, materially enhancing bottom-line performance this period. Operating cash flow was slightly negative (-0.23) despite strong EBITDA, indicating working capital outflows or project timing effects typical of long-term contract accounting. Free cash flow came in at -1.48, with investing outflows (-1.25) and modest financing outflows (-1.36), including dividends of -0.22. The balance sheet data disclosed is partial; reported total equity is 2,060.61 with an equity ratio of 29.7%, while liabilities disclosed sum to only 32.98, indicating significant items are not reported in the dataset. Reported debt-to-equity is a very low 0.02x, but interest-bearing debt is unreported, so gearing may be understated. Working capital is shown as 24.11; however, current liabilities are unreported, so liquidity interpretation should be cautious. Gross profit and cost of sales figures appear anomalously low relative to revenue (gross margin 0.1%), suggesting classification or disclosure differences under single-entity reporting; operating profit is a more reliable indicator in this release. Dividend payout is cited at 15.0%, implying room for distributions given earnings, but negative FCF (-0.03x FCF coverage) highlights cash timing constraints. Overall, profitability and ROE are strong on the reported metrics, supported by operating leverage and very low tax, while cash conversion lags due to project and working capital dynamics. Key uncertainties stem from unreported or partial balance sheet and cash flow detail, limiting precise assessment of leverage, liquidity buffers, and interest coverage. The outlook hinges on sustaining execution efficiency and margin discipline on ongoing projects, while normalizing cash conversion as milestones and collections catch up.

Profitability Analysis

ROE_decomposition: DuPont ROE 17.7% = Net margin 7.3% x Asset turnover 0.744 x Financial leverage 3.26x. Implied ROA ~5.4%. margin_quality: Operating margin ~9.1% (454.29 / 4,987.67). EBITDA margin 9.1%, consistent with minimal D&A (0.27). Reported gross margin 0.1% appears inconsistent with the scale of revenue, likely due to account classification under single-entity reporting; operating profit is the cleaner profitability gauge here. operating_leverage: Operating income grew 24.5% YoY versus revenue +16.6% YoY, indicating positive operating leverage and improved cost discipline/project mix. Extremely low effective tax (0.1%) further boosts net margin, though this is unlikely to be structurally repeatable.

Growth Assessment

revenue_sustainability: Revenue up 16.6% YoY to 4,987.67 suggests strong execution and backlog conversion in the period. Sustainability depends on continued milestone recognition on existing contracts; visibility beyond disclosed data is limited. profit_quality: OP growth outpaced sales, indicating margin expansion or favorable project mix. However, the gross profit line is not reliable; reliance on operating profit and EBITDA is advised. One-off tax benefits or deferred tax recognition likely inflated net income growth (+49.6% YoY). outlook: Assuming steady project execution, revenue and operating profit can remain resilient near term. Net profit growth may normalize if the tax rate reverts toward historical ranges. Watch for milestone timing, claims/variation orders, and cost containment to maintain margins.

Financial Health

liquidity: Operating CF was -0.23 and cash & equivalents 12.53. Current assets disclosed at 24.11 vs. accounts payable 13.27 suggest positive coverage of near-term payables, but current liabilities total are unreported; true current ratio is not determinable. solvency: Equity ratio 29.7% and assets/equity leverage 3.26x indicate moderate balance-sheet leverage typical for the sector. Debt-to-equity is reported at 0.02x, but interest-bearing debt is unreported, so solvency assessment remains incomplete. capital_structure: Total equity 2,060.61 vs total assets 6,708.12 implies leverage inherent to the business model. Limited detail on loans and interest-bearing debt constrains precision; nevertheless, disclosed metrics point to manageable structural leverage.

Cash Flow Quality

earnings_quality: EBITDA 454.56 contrasts with OCF of -0.23, implying significant working capital absorption and/or contract asset growth. The gap suggests earnings rely on accruals and milestone recognition this quarter. FCF_analysis: Free cash flow -1.48 reflects modest investing outflows (-1.25) on top of negative OCF. Financing outflow -1.36 includes dividends (-0.22), with remaining likely debt movements not disclosed. working_capital: Accounts receivable 7.52 and accounts payable 13.27 indicate active project billing and procurement flows. The negative OCF points to timing mismatches in collections or inventory/progress costs; cash conversion should improve as milestones are billed and collected.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is 15.0% (per provided metric), low relative to EPS of 534.74 JPY and net income of 365.36, suggesting room for distributions from an earnings perspective. FCF_coverage: FCF coverage is -0.03x, indicating dividends are not covered by free cash flow this period due to timing of OCF. Given project-based volatility, single-quarter FCF may not reflect full-year capacity. policy_outlook: With strong ROE (17.7%) and low payout, there is flexibility to maintain dividends if cash conversion normalizes. However, absence of DPS guidance and partial cash/debt disclosure warrant a conservative interpretation.

Risk Assessment

Business Risks:

• Project execution risk on large, multi-year offshore contracts impacting margins and milestones
• Revenue recognition timing under IFRS leading to earnings volatility
• Cost inflation in materials and offshore services affecting project profitability
• Client concentration risk typical in offshore energy projects
• Regulatory, environmental, and HSE risks inherent to offshore operations

Financial Risks:

• Working capital swings driving negative OCF despite strong EBITDA
• Potential underestimation of leverage due to unreported interest-bearing debt details
• Very low effective tax rate may normalize, compressing net margins
• Liquidity visibility limited with partial current liability and cash disclosures

Key Concerns:

• Large discrepancy between EBITDA and OCF in the quarter
• Inconsistent gross profit metrics; reliance on operating profit needed
• Partial balance sheet data limits assessment of true gearing and interest coverage

Investment Implications

Key Takeaways:

• Strong topline (+16.6% YoY) and operating profit growth (+24.5% YoY) demonstrate positive operating leverage
• ROE at 17.7% supported by 7.3% net margin, 0.744x asset turnover, and 3.26x leverage
• Cash conversion weak this quarter (OCF -0.23; FCF -1.48), likely due to project timing
• Equity ratio 29.7% suggests a moderate capital structure, but debt details are incomplete
• Dividend payout appears conservative (~15%), though FCF coverage is negative this period

Metrics to Watch:

• Operating cash flow and contract asset/liability movements
• Order backlog and milestone billings to gauge revenue sustainability
• Operating margin stability and cost performance on key projects
• Effective tax rate normalization trajectory
• Updated disclosure on interest-bearing debt and interest expense for coverage analysis

Relative Positioning: Within capital-intensive offshore engineering peers, the company exhibits competitive operating margins and strong ROE, offset by higher cash flow volatility tied to milestone timing; the partial disclosures warrant caution when comparing leverage and liquidity.

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