Universal Entertainment Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥92.57B
• Operating Income: ¥-280M
• Net Income: ¥-19.46B
• EPS: ¥-137.42

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

Universal Entertainment (6425) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥92.6bn, essentially flat year over year (+0.2%). Gross profit was a solid ¥53.9bn, translating to a high gross margin of 58.2%, indicating robust unit economics in core operations. Despite this, operating income was a slight loss at ¥0.28bn, implying substantial SG&A and/or other operating costs that offset healthy gross profitability. Ordinary income deteriorated sharply to a ¥17.1bn loss, driven largely by non-operating items, including ¥4.08bn in interest expense and likely additional non-operating losses. Net income was a ¥10.65bn loss (EPS -¥137.42), resulting in a net margin of -11.5%. DuPont analysis shows ROE of -3.05%, composed of a net margin of -11.5%, low asset turnover of 0.157x, and financial leverage of 1.69x. The operating loss is small relative to revenue, but the swing to a large ordinary loss highlights heavy non-operating burdens that overshadow core performance. The balance sheet appears comparatively strong: total assets ¥590.4bn, equity ¥348.7bn (equity-to-asset roughly 59.1%), and liabilities ¥263.1bn, with a current ratio of 181.9% and working capital of ¥35.5bn. Interest coverage based on EBIT is negative (~-0.1x), underscoring earnings vulnerability to financing costs. Reported cash flow items are undisclosed (zeros), limiting assessment of cash conversion and free cash flow. Dividend remains suspended (DPS ¥0), consistent with the current loss and need to preserve liquidity. The revenue stability and strong gross margin suggest resilient demand/price mix, but weak operating leverage and significant non-operating losses constrain profitability. Key watchpoints are SG&A discipline, normalization of non-operating losses (FX/valuation/other), and interest burden management. Given undisclosed cash flow data and share count metrics, conclusions rely on the reported income statement and balance sheet figures and provided calculated ratios. Overall, the quarter reflects robust top-line economics but insufficient absorption of overhead and significant financial costs, resulting in negative ROE and pressured coverage metrics.

Profitability Analysis

ROE of -3.05% decomposes into: net margin -11.5%, asset turnover 0.157x, and financial leverage 1.69x. The primary drag is profitability, not leverage; leverage is moderate. Gross margin is high at 58.2% (gross profit ¥53.9bn on revenue ¥92.6bn), indicating solid contribution margins from core operations. Operating margin is approximately -0.3% (operating loss ¥0.28bn), implying SG&A and other operating costs nearly consumed gross profit. The step-down from operating loss (-¥0.28bn) to ordinary loss (-¥17.13bn) of about -¥16.85bn signals heavy non-operating losses; of this, ¥4.08bn relates to interest expense, with the remainder likely FX, valuation, or other non-operating items. Net margin at -11.5% reflects these non-operating pressures despite resilient gross profitability. Operating leverage appears unfavorable this period: flat revenue did not translate into positive operating income, suggesting limited fixed-cost absorption and/or elevated operating expenses. Interest coverage is approximately -0.1x (EBIT/interest), underscoring sensitivity to financing costs. EBITDA cannot be reliably assessed because depreciation and amortization are undisclosed (reported as 0); thus, provided EBITDA metrics are not meaningful.

Growth Assessment

Revenue grew 0.2% YoY to ¥92.6bn, suggesting stability but no meaningful acceleration. Gross profit of ¥53.9bn with a 58.2% margin supports the view that core product/service economics remain intact. However, the inability to convert gross profit into operating profit (operating loss of ¥0.28bn) points to cost pressure and weak operating leverage, limiting profit growth quality. The large ordinary loss (-¥17.1bn) implies that non-operating items, including interest and potentially FX/valuation swings, are the principal headwind to bottom-line growth. With net income at -¥10.65bn, profit growth is negative despite stable revenues, indicating that earnings are currently non-sustainable without cost and financing improvements. Given reported figures, near-term outlook depends on: 1) SG&A containment, 2) normalization of non-operating items, and 3) reduction in interest burden. Absent cash flow data, visibility on reinvestment capacity and growth funding is limited, constraining assessment of sustainability beyond the reported quarter.

Financial Health

Total assets are ¥590.4bn and equity is ¥348.7bn, implying an equity ratio around 59.1% (despite the reported equity ratio field being undisclosed). Total liabilities are ¥263.1bn, yielding a debt-to-equity ratio of 0.75x, which is moderate for the sector. Liquidity appears adequate with current assets of ¥78.9bn and current liabilities of ¥43.3bn, producing a current ratio of 181.9% and quick ratio of 176.3%; inventories are low at ¥2.45bn, supporting the quick ratio. Working capital stands at ¥35.5bn, providing a buffer for operations. However, interest expense of ¥4.08bn against negative EBIT results in weak coverage, highlighting pressure from financing costs. Without disclosed cash and equivalents or cash flow statements, assessment of near-term cash liquidity, debt maturity profile, and refinancing needs cannot be completed. Overall solvency appears acceptable based on balance sheet capital structure, but earnings-based coverage is currently strained.

Cash Flow Quality

Operating, investing, and financing cash flows, as well as cash and equivalents, were not disclosed (reported as zeros), so cash conversion cannot be evaluated. As a result, OCF/Net Income, FCF, and related quality-of-earnings diagnostics are not meaningful for this period. From the income statement alone, the divergence between high gross margin (58.2%) and operating loss suggests that operating costs are suppressing cash earnings potential absent one-offs. Working capital specifics beyond inventories are not available, but working capital totals ¥35.5bn, indicating room to support operations; however, we cannot assess period changes. Key limitation: without OCF and capex detail, we cannot judge free cash flow coverage of obligations or the persistence of earnings.

Dividend Sustainability

The company paid no dividend (DPS ¥0) and reports a payout ratio of 0.0%, which is consistent with a net loss of ¥10.65bn. With FCF unreported, coverage analysis cannot be performed, but the current loss and negative interest coverage argue for continued capital preservation. Balance sheet equity is substantial and liquidity ratios are comfortable, yet the lack of positive earnings and undisclosed cash flows limit scope for near-term distributions. Policy-wise, resumption would likely require 1) restoration of sustained positive operating income, 2) reduction of non-operating losses and interest burden, and 3) demonstrable free cash flow generation—none of which can be confirmed from the current disclosure.

Risk Assessment

Business Risks:

• Exposure to gaming and amusement cycles, including regulatory and demand volatility in core markets
• Potential regulatory and operational risks associated with integrated resort operations
• Execution risk in cost control given weak operating leverage despite high gross margins
• Foreign exchange and valuation impacts on non-operating items affecting ordinary income
• Competitive pressures in gaming machines and leisure/IR segments

Financial Risks:

• High sensitivity to financing costs with negative interest coverage (-0.1x)
• Refinancing and liquidity visibility risk due to undisclosed cash balances and cash flows
• Potential currency mismatch between revenue streams and debt servicing
• Risk of covenant pressure if losses persist and EBITDA remains weak/undisclosed

Key Concerns:

• Large ordinary loss (-¥17.1bn) versus small operating loss indicates material non-operating headwinds
• Interest expense of ¥4.08bn is heavy relative to operating earnings capacity
• Lack of cash flow disclosure constrains assessment of liquidity and FCF sustainability
• Flat revenue (+0.2% YoY) with negative operating income points to cost structure rigidity

Investment Implications

Key Takeaways:

• Revenue stable at ¥92.6bn with strong gross margin (58.2%), but operating loss of ¥0.28bn
• Ordinary loss of ¥17.1bn dominated by non-operating factors, including ¥4.08bn interest expense
• ROE -3.05% driven by negative net margin and low asset turnover despite moderate leverage (1.69x)
• Liquidity ratios are comfortable (current ratio 181.9%), but interest coverage is negative
• Cash flow data undisclosed, limiting visibility on FCF and debt-servicing capacity
• Dividend remains suspended (DPS ¥0) amid losses

Metrics to Watch:

• Operating income trajectory and SG&A ratio to sales
• Non-operating items (FX/valuation gains and losses) and interest expense trend
• Asset turnover improvement and segment mix
• Disclosure of cash and equivalents, OCF, capex, and FCF
• Debt maturity profile and refinancing activity
• Coverage metrics (EBIT/interest, once EBIT normalizes) and any EBITDA disclosure

Relative Positioning: Versus domestic gaming/amusement peers, the company demonstrates high gross margins and sizeable scale but exhibits weaker earnings resilience due to substantial non-operating losses and negative coverage; balance sheet capitalization is comparatively strong, yet lower asset turnover and heavy financing costs currently weigh on returns.

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