THK CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥268.23B
• Operating Income: ¥9.73B
• Net Income: ¥5.61B
• EPS: ¥46.38

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

THK Co., Ltd. (TSE: 6481) reported FY2025 Q3 consolidated IFRS results with revenue of 2,682.27 (100M JPY), up 1.2% YoY, indicating a stabilization in top line but limited growth momentum. Despite the modest revenue uptick, operating income declined 24.7% YoY to 97.28, reflecting margin pressure and negative operating leverage. Gross profit was 604.99 with a gross margin of 22.6%, while SG&A of 482.79 equated to 18.0% of sales, squeezing operating margin to approximately 3.6%. Net income fell sharply by 42.8% to 52.54, as an elevated effective tax rate of 42.6% weighed on earnings alongside weaker operating performance. EBITDA was 275.84, implying an EBITDA margin of 10.3%, supported by depreciation and amortization of 178.56. DuPont analysis shows a net margin of about 2.0%, asset turnover of 0.511, and financial leverage of 1.64x, yielding a subdued ROE of 1.6%. Total comprehensive income turned negative at -17.15, likely due to unfavorable other comprehensive income items such as FX translation or fair value changes, which also dampen equity despite positive net income. Cash generation remained resilient with operating cash flow of 203.17, equal to 3.87x net income, highlighting strong cash conversion aided by non-cash charges and probable working capital tailwinds. However, free cash flow was negative at -46.18, as investing cash outflows of -249.35 (including capex of -206.31) outpaced OCF, indicating continued strategic investment through the cycle. The balance sheet is robust with total assets of 5,250.86 and equity of 3,205.56 (equity ratio 60.3%), and reported debt-to-equity of 0.55x based on total liabilities, suggesting low leverage. Liquidity ratios cannot be computed due to unreported current liabilities, but cash and equivalents stand at 1,382.93, providing a sizeable buffer. Dividend outflows were 41.95, yet with negative FCF the FCF coverage ratio was -0.26x, and the provided payout ratio of 332.1% signals pressure on dividend sustainability if earnings remain subdued. Working capital items show accounts receivable of 814.74 and inventories of 916.60, reasonable in the context of revenue but warranting close monitoring given the cyclical end markets. Overall, the quarter shows resilient revenue but pronounced earnings compression, strong OCF quality, elevated tax burden, and disciplined balance sheet strength. Outlook hinges on demand recovery and margin normalization, while comprehensive income volatility and continued investment temper near-term equity accretion.

Profitability Analysis

ROE_decomposition: DuPont: Net margin ~2.0% x Asset turnover 0.511 x Financial leverage 1.64x = ~1.6% ROE (in line with reported 1.6%). The principal drag is the low net margin; leverage is modest and asset turnover is middling for a capital goods name. margin_quality: Gross margin 22.6% and SG&A ratio 18.0% yielded an operating margin of ~3.6%, down YoY alongside a 24.7% operating profit decline despite +1.2% revenue growth, implying price/mix pressure and under-absorption. EBITDA margin is 10.3%, supported by sizable D&A (178.56), but net margin compressed to ~2.0% due to a high effective tax rate (42.6%). operating_leverage: Negative operating leverage evident: small revenue growth did not cover fixed cost base, compressing operating income by ~25%. SG&A appears relatively sticky versus sales, and gross margin softening suggests weaker utilization and/or pricing. Further revenue improvement could restore margins, but near-term sensitivity remains high.

Growth Assessment

revenue_sustainability: Top line grew 1.2% YoY to 2,682.27, suggesting stabilization but not a decisive upturn. End-market cyclicality (industrial automation, machine tools, semiconductor, and auto-related) likely caps short-term growth visibility. profit_quality: EBITDA of 275.84 vs operating income of 97.28 underscores meaningful non-cash charges; however, high tax rate (42.6%) and negative comprehensive income point to below-the-line headwinds. OCF/NI of 3.87x indicates underlying cash earnings are healthier than accounting profit this quarter. outlook: Earnings recovery depends on demand normalization and gross margin improvement via utilization and mix. Investment spending (capex 206.31) positions the company for the next cycle, but near-term EPS recovery is constrained by operating leverage, tax rate normalization uncertainty, and comprehensive income volatility.

Financial Health

liquidity: Cash and equivalents are 1,382.93, but current liabilities are unreported, preventing calculation of current and quick ratios. Operating CF of 203.17 supports near-term needs; receivables 814.74 and inventories 916.60 are material and should be watched for turnover risk. solvency: Equity ratio 60.3% and liabilities/equity (reported as debt-to-equity) at 0.55x indicate conservative leverage. Interest-bearing debt is unreported, and interest coverage cannot be computed; however, the capital structure appears sound given large equity and cash balances. capital_structure: Total assets 5,250.86 funded by equity 3,205.56 and liabilities 1,776.23 with financial leverage of 1.64x (Assets/Equity). Strong retained earnings (2,606.38) provide buffers for downturns and shareholder returns.

Cash Flow Quality

earnings_quality: OCF/Net income of 3.87x is strong, reflecting robust cash conversion aided by D&A (178.56) and likely working capital inflows. This suggests earnings quality is better than headline net income implies. FCF_analysis: OCF 203.17 less investing CF of -249.35 yields FCF of -46.18; core capex was -206.31, indicating that growth and/or maintenance investments are the main driver of negative FCF. Financing CF of -182.92 includes dividends of -41.95, with remaining outflows likely debt reduction or other financing activities (details unreported). working_capital: AR 814.74 and inventory 916.60 are sizeable; without prior-period data, changes cannot be quantified. The strong OCF suggests favorable working capital movement this period, but inventory normalization risk remains if demand softens.

Dividend Sustainability

payout_ratio_assessment: The provided payout ratio is 332.1%, which appears elevated relative to EPS and points to potential pressure if earnings remain weak. Note DPS is unreported; this ratio may reflect period-specific or trailing metrics. FCF_coverage: FCF coverage is -0.26x (negative FCF of -46.18 vs dividend cash outflow of 41.95), indicating dividends were not covered by FCF in the period due to high investment outlays. policy_outlook: With retained earnings of 2,606.38 and strong equity, the company has capacity to sustain dividends through cycles, but if earnings and FCF remain muted amid ongoing capex, payout policy could shift toward conservatism. Absent disclosed DPS guidance, assume a cautious stance until FCF turns sustainably positive.

Risk Assessment

Business Risks:

• End-market cyclicality in machine tools, industrial automation, and semiconductor equipment
• Demand weakness in China and broader overseas markets affecting linear motion components
• Pricing pressure and product mix shifts reducing gross margin
• Utilization under-absorption due to softer volumes, driving negative operating leverage
• Supply chain and lead-time normalization increasing competition and inventory risk
• FX volatility (USD/JPY, EUR/JPY, CNY/JPY) impacting both revenue and OCI

Financial Risks:

• Negative total comprehensive income (-17.15) reducing equity via OCI items
• High effective tax rate (42.6%) depressing net margins; potential volatility from deferred taxes
• Negative FCF in the period driven by elevated capex and investing outflows
• Liquidity metrics (current/quick ratios) not observable due to unreported current liabilities
• Interest-bearing debt level and interest coverage unreported, creating visibility gap

Key Concerns:

• Sustained margin compression with operating margin around 3.6%
• Dividend coverage strained with negative FCF and reported payout ratio at 332.1%
• Persistence of high tax rate and OCI losses prolonging low ROE (1.6%)

Investment Implications

Key Takeaways:

• Revenue stabilized (+1.2% YoY), but operating income fell sharply (-24.7%) reflecting negative operating leverage
• ROE is low at 1.6% due to slim net margins and only moderate asset turnover
• Cash conversion is strong (OCF/NI 3.87x), but heavy investment led to negative FCF (-46.18)
• Balance sheet is conservative (equity ratio 60.3%, liabilities/equity 0.55x) with ample cash (1,382.93)
• Dividend coverage is weak on FCF basis; payout sustainability hinges on earnings and capex cadence
• Negative comprehensive income indicates external market factors (FX/valuations) weighing on equity

Metrics to Watch:

• Order trends and backlog (not disclosed) to gauge near-term revenue trajectory
• Gross margin and SG&A ratio progression for signs of margin recovery
• Operating margin and EBITDA margin trajectory vs utilization levels
• Working capital turns: AR days and inventory days
• OCF and FCF trend relative to capex commitments
• Effective tax rate normalization and OCI components impacting equity
• FX sensitivity and geographic sales mix (if disclosed in later filings)

Relative Positioning: Within Japanese precision components/capital goods peers, THK exhibits a solid balance sheet and strong cash conversion but currently lags on profitability metrics (OPM ~3.6%, ROE 1.6%) due to cyclical headwinds and high taxes; investment-led FCF pressure contrasts with some peers preserving FCF via lower capex, suggesting more pronounced near-term earnings and dividend coverage risk without a demand upturn.

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
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