UNION TOOL CO. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥28.02B
• Operating Income: ¥6.61B
• Net Income: ¥3.56B
• EPS: ¥269.45

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

Union Tool (6278) delivered a strong FY2025 Q3 performance with clear operating leverage and robust profitability, while maintaining a very conservative balance sheet. Revenue rose 22.7% YoY to ¥28.0bn, reflecting solid demand recovery and/or stronger pricing/mix. Operating income increased 55.3% YoY to ¥6.61bn, outpacing sales growth and expanding the operating margin to ~23.6%, indicating tight SG&A control and favorable scale effects. Net income grew 30.7% YoY to ¥4.65bn, translating to a net margin of 16.6%, a high level for precision tooling. DuPont metrics indicate a calculated ROE of 6.12%, driven by a high net margin (16.6%), low asset turnover (0.339x), and very low leverage (assets/equity 1.09x). Gross margin stood at 31.1%, suggesting improved product mix and/or cost pass-through versus prior periods. Ordinary income of ¥6.29bn shows minimal non-operating drag, consistent with the low interest expense of only ¥9m. Liquidity is exceptionally strong: current ratio ~819% and quick ratio ~697% on working capital of ¥36.17bn. Based on the balance sheet totals (equity ¥76.04bn vs assets ¥82.72bn), the implied equity ratio is about 91.9% despite a reported figure of 0.0% (zeros indicate unreported), highlighting a net-cash, low-risk capital structure. Interest coverage is effectively unconstrained (~735x), underscoring minimal financial risk. Cash flow statements, depreciation/amortization, and EBITDA are not disclosed (zeros are placeholders), limiting cash conversion and capex visibility. Dividend information is not provided (DPS and payout ratio appear as zero placeholders), so distribution policy and sustainability cannot be directly assessed from this dataset. Despite these disclosure gaps, the income statement and balance sheet point to high-quality earnings and ample capacity to weather cyclicality. Overall, the company’s Q3 results suggest healthy end-market conditions (likely electronics/auto/industrial tooling) and disciplined cost execution, with the main analytical constraint being the absence of cash flow data.

Profitability Analysis

ROE decomposition via DuPont shows: Net Profit Margin 16.61% x Asset Turnover 0.339x x Financial Leverage 1.09x = ROE 6.12%. Net margin is the primary ROE driver given the very conservative leverage. Operating margin is ~23.6% (operating income ¥6,614m / revenue ¥28,015m), indicating strong operating efficiency and mix. Gross margin at 31.1% suggests effective cost control and pricing power, with a sizable spread between gross and operating margins implying lean SG&A. The 55.3% YoY growth in operating income versus 22.7% YoY revenue growth evidences operating leverage and likely improved utilization. Ordinary income trails operating income slightly, reflecting minimal non-operating costs; interest expense is negligible at ¥9m. Effective tax, inferred from income tax ¥1,284m and net income ¥4,654m (implying pre-tax ~¥5,938m), is approximately 21–22%, despite a reported 0.0% placeholder in the calculated metrics. Margin quality appears high given the consistency across gross, operating, and net layers and limited financial frictions. Low asset turnover (0.339x) is typical for capital-intensive precision tooling with high inventory and fixed assets; it caps ROE, but also reflects capacity readiness for demand upswings. Overall profitability profile is robust with limited sensitivity to financing costs and strong incremental margins.

Growth Assessment

Revenue grew 22.7% YoY to ¥28.0bn, indicating strong demand in core segments. Operating income rose 55.3% YoY, well ahead of sales, implying favorable mix/pricing and efficiency gains. Net income increased 30.7% YoY, moderated versus operating income by taxes and non-operating items but still solid. The scale of operating leverage suggests that fixed cost absorption improved meaningfully, possibly from higher factory utilization. Sustainability of growth will hinge on end-market cycles (e.g., electronics/automotive/industrial), order momentum, and currency. The high gross and operating margins point to resilient pricing; however, durability depends on competitive dynamics and raw material trends. With low leverage and ample working capital, the company is well-positioned to support growth without stressing the balance sheet. Lack of cash flow disclosure constrains visibility on reinvestment intensity and capex-driven capacity expansion. Outlook qualitatively remains positive given the margin trajectory, but we would watch for normalization risks if demand cools after a strong upswing. Absent backlog data or order intake, we assume revenue momentum is primarily demand-driven rather than one-off. In sum, near-term growth quality looks good with solid profitability, though medium-term sustainability will track macro/sector cycles.

Financial Health

Liquidity is very strong: current assets ¥41.21bn vs current liabilities ¥5.03bn yields a current ratio ~819% and quick ratio ~697%, supporting working capital needs comfortably. Working capital stands at ¥36.17bn, providing a substantial buffer against volatility. Total liabilities are only ¥5.73bn against equity of ¥76.04bn, implying a liabilities-to-equity ratio of ~0.08x and an implied equity ratio of ~91.9% (reported 0.0% is unreported). Interest expense is minimal (¥9m), and interest coverage is ~735x on operating income, indicating de minimis solvency risk. The capital structure is effectively net-cash, enabling resilience through cycles and flexibility for investment. While cash & equivalents are unreported, the large current asset base and low current liabilities indicate ample short-term solvency. No evidence of covenant or refinancing risk given limited debt. Overall, financial health is exceptionally strong with conservative leverage and abundant liquidity.

Cash Flow Quality

Operating CF, investing CF, financing CF, and depreciation are not disclosed (zeros are placeholders), preventing direct assessment of cash conversion, capex intensity, or free cash flow. The reported OCF/Net Income ratio of 0.00x is not meaningful due to missing OCF. Given the high operating margin and modest non-operating items, underlying cash generation is likely solid, but this cannot be confirmed without working capital and capex flows. Inventory of ¥6.12bn within current assets suggests normal levels for a precision tooling business; however, we cannot evaluate inventory turns or DSO/Payables days without comparative data. Free cash flow cannot be derived, so FCF coverage and reinvestment rates are unknown. We therefore assess earnings quality as directionally strong based on margins and low financial friction, but cash flow quality remains unverified pending disclosure of OCF and capex.

Dividend Sustainability

Dividend per share and payout ratio are unreported (zeros are placeholders), so we cannot directly assess current payout or policy execution. With net income at ¥4.65bn and a very strong balance sheet (implied equity ratio ~91.9%, minimal interest expense), capacity to pay dividends appears ample in principle. However, without OCF and capex data, free cash flow coverage of dividends cannot be determined. Absent share count and DPS, per-share distribution trends are also not assessable. Policy outlook cannot be inferred from this dataset; we would look for management guidance, historical payout norms, and capital allocation priorities in full disclosures. In short, balance sheet strength suggests potential sustainability, but confirmation requires cash flow and policy details.

Risk Assessment

Business Risks:

• End-market cyclicality in electronics/automotive/industrial tooling impacting volume and mix
• Exposure to semiconductor/PCB-related investment cycles and potential order volatility
• Raw material cost fluctuations (e.g., tungsten carbide) affecting gross margins
• Competitive pricing pressure in cutting tools and precision tooling
• FX volatility (JPY vs USD/CNY/EUR) influencing export competitiveness and translation effects
• Geopolitical and supply chain risks affecting key customer regions and materials
• Customer concentration risk typical in specialized tooling
• Utilization risk given capital intensity and potential operating leverage in downturns

Financial Risks:

• Limited visibility on cash generation and capex due to unreported cash flow statements
• Potential working capital swings (inventory/receivables) not observable from current data
• Effective tax rate variability affecting net margins
• Unreported cash balance obscures immediate liquidity composition despite high current assets

Key Concerns:

• Absence of OCF/FCF and D&A data prevents validation of earnings-to-cash conversion
• Sustainability of elevated operating margins if demand normalizes
• Sensitivity to raw material costs and FX on gross margin

Investment Implications

Key Takeaways:

• Strong Q3 with 22.7% YoY revenue growth and 55.3% YoY operating income growth
• High profitability: gross margin 31.1%, operating margin ~23.6%, net margin 16.6%
• Calculated ROE 6.12% constrained by low leverage and modest asset turnover
• Exceptionally conservative balance sheet with implied equity ratio ~91.9% and minimal interest burden
• Operating leverage evident; incremental margins appear strong
• Cash flow disclosures missing, limiting assessment of FCF and reinvestment needs

Metrics to Watch:

• Order intake/book-to-bill and backlog (to gauge demand sustainability)
• Gross and operating margin trajectory vs raw material and FX movements
• Inventory levels and turns; receivables days (cash conversion)
• Capex and depreciation trends (capacity and maintenance vs growth spend)
• OCF/Net income ratio and FCF after capex
• FX rates (USD/JPY, CNY/JPY) and semiconductor/auto capex indicators

Relative Positioning: Within precision tooling peers, the company appears to be operating with above-average margins and a notably conservative balance sheet, implying lower financial risk and high resilience, though ROE is moderated by low leverage and capital intensity.

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