KOHOKU KOGYO CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥12.48B
• Operating Income: ¥3.20B
• Net Income: ¥2.22B
• EPS: ¥67.12

Income Statement

Balance Sheet

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

Verdict: Solid topline and operating performance with margin resilience, but earnings down at the ordinary and bottom-line levels due to non-operating and below-the-line pressures. Revenue rose 2.8% YoY to 124.8, while operating income inched up 0.8% YoY to 31.98, showing stable core profitability. Gross profit reached 52.81, yielding a healthy gross margin of 42.3%. SG&A was 21.07, supporting an operating margin of 25.6% (31.98/124.8). Ordinary income fell 15.0% YoY to 28.27, indicating a deterioration in non-operating balance versus last year. Profit before tax was 33.26, and net income declined 21.1% YoY to 17.54, with an effective tax rate of 33.1%. We estimate operating margin compressed by about 48 bps YoY (to 25.6% from ~26.1% based on growth differentials). Net margin compressed by roughly 420 bps YoY (to 14.1% from ~18.3%). Interest coverage remains strong at 38.1x (31.98/0.84), implying ample buffer against interest costs. Balance sheet strength is notable: current ratio 788.6% and liabilities-to-equity (proxy D/E) 0.19x, supported by cash and deposits of 72.71. ROE is 8.1% via DuPont (margin 14.1% × turnover 0.484 × leverage 1.19x), and ROIC is strong at 14.9% versus a 7–8% benchmark. Cash flow disclosure is limited this quarter (OCF/NI not available), so earnings quality cannot be fully validated. Dividend payout ratio is a moderate 44.5%, appearing manageable given cash balances, though FCF coverage cannot be assessed. Forward-looking, maintaining operating discipline while normalizing the non-operating line and below-the-line items will be key to stabilizing ordinary and net income. High liquidity and low leverage create flexibility to navigate volatility. Monitoring tax rate normalization and any extraordinary or minority-interest impacts will be important for bottom-line predictability.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.1% = Net Profit Margin 14.1% × Asset Turnover 0.484 × Financial Leverage 1.19x. The largest negative change appears in the margin layer (net margin down ~420 bps YoY), while asset turnover (0.484) and leverage (1.19x) look stable given modest revenue growth and a largely unchanged capital structure. Business drivers: operating profit grew slower than revenue (+0.8% vs +2.8%), implying mild operating margin compression (~48 bps), but the sharper decline in ordinary and net income points to adverse non-operating/below-the-line items this year (e.g., higher non-operating expenses, lower gains, extraordinary effects, or minority interests). Sustainability: operating profitability appears resilient given a 25.6% OPM and a 42.3% GPM; the recent pressure below operating income looks more cyclical or item-specific rather than structural, but needs confirmation in subsequent quarters. Watchpoints: ordinary income decline (-15.0% YoY) vs revenue growth suggests deleveraging below the operating line; ensure SG&A growth does not outpace sales (full SG&A breakdown unreported). Asset turnover is moderate for a component manufacturer and could improve with higher capacity utilization. Overall, ROE at 8.1% is supported by solid core margins and conservative leverage; further ROE gains will require margin recovery at the ordinary/net level and/or improved turnover.

Growth Assessment

Revenue growth of 2.8% YoY to 124.8 indicates steady demand. Operating income rose 0.8% YoY to 31.98, suggesting modest growth with some cost pressure. Ordinary income fell 15.0% YoY to 28.27 and net income decreased 21.1% to 17.54, signaling a headwind from non-operating and below-the-line items. Estimated operating margin compressed ~48 bps YoY to 25.6%; net margin compressed ~420 bps to 14.1%. The company maintained a high gross margin (42.3%), indicating stable pricing/product mix or cost pass-through. ROIC at 14.9% is well above the 7–8% benchmark, implying strong value creation on invested capital despite the net income decline. With liquidity ample and leverage low, the firm can support selective growth investments; however, the ordinary income downtrend tempers near-term earnings momentum. Outlook hinges on stabilizing non-operating items, maintaining cost control, and sustaining demand; if ordinary line normalizes, earnings growth could re-accelerate given robust core margins.

Financial Health

Liquidity is exceptionally strong: current assets 153.15 vs current liabilities 19.42 imply a current ratio of 788.6% and quick ratio of 788.6% (inventories unreported). Cash and deposits of 72.71 comfortably exceed accounts payable of 8.98, minimizing near-term liquidity risk. Solvency is conservative: total liabilities 40.92 vs equity 216.72 (proxy D/E 0.19x). Interest-bearing debt is unreported, but interest expense is modest at 0.84 and interest coverage is 38.1x, indicating ample debt service capacity. No explicit off-balance sheet obligations are disclosed in the data. Maturity mismatch risk appears low given large cash and current asset buffers relative to short-term liabilities. No warnings triggered (Current Ratio >> 1.0; D/E well below 2.0).

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed and earnings quality cannot be validated via cash conversion. Free cash flow and capex are also unreported, preventing an evaluation of reinvestment intensity and FCF sustainability. Working capital signals are limited due to partial disclosure (inventories unreported), but high cash and stable receivables (37.34) relative to payables (8.98) suggest no obvious signs of aggressive working capital management this period. Given limited CF data, defer final judgment on cash earnings quality until OCF is disclosed; use NI as a proxy with caution.

Dividend Sustainability

The calculated payout ratio is 44.5%, which is within a generally sustainable range (<60%) for manufacturers assuming stable earnings. FCF coverage cannot be evaluated due to unreported OCF and capex. However, the strong cash position (72.71) and low leverage provide a buffer to maintain dividends through near-term earnings volatility. Without visibility on investment requirements and FCF, any increase in payout should be approached conservatively. Dividend policy outlook likely remains stable pending recovery in ordinary/net income and confirmation of cash generation.

Risk Assessment

Business Risks:

• Margin compression risk if input costs rise faster than pricing (gross margin at 42.3% is a strength but could be tested).
• Demand cyclicality in end-markets could limit revenue growth (revenue +2.8% YoY indicates moderate momentum).
• Execution risk on cost control given slight operating margin compression (~48 bps YoY).
• Potential extraordinary or affiliate-related impacts affecting below-the-line results (gap between PBT and NI).

Financial Risks:

• Non-operating volatility: ordinary income down 15% YoY despite stable operating profit.
• Tax-rate variability (effective tax rate 33.1%) affecting net income predictability.
• Data opacity on interest-bearing debt and cash flows limits early detection of leverage/CF pressures.

Key Concerns:

• Net income decline of 21.1% YoY despite stable operating income highlights below-the-line headwinds.
• Inability to verify cash conversion (OCF unreported) constrains earnings quality assessment.
• Possible classification differences in non-operating items versus ordinary income, implying item-level volatility.

Investment Implications

Key Takeaways:

• Core operations resilient: operating income +0.8% YoY and operating margin ~25.6%.
• Earnings pressure below the operating line: ordinary income -15% YoY and NI -21.1% YoY.
• Balance sheet strength: current ratio ~7.9x, proxy D/E ~0.19x, interest coverage ~38x.
• ROE 8.1% and ROIC 14.9% indicate value creation with conservative leverage.
• Cash flow disclosure is limited; confirm OCF and capex before extrapolating dividend capacity.

Metrics to Watch:

• Ordinary income trajectory and composition of non-operating gains/losses.
• Effective tax rate normalization and minority interest/extraordinary impacts on NI.
• Operating margin trend versus SG&A discipline.
• OCF/NI once disclosed; FCF versus dividend outlays and capex needs.
• Asset turnover improvements and ROIC sustainability.

Relative Positioning: Within Japanese industrial/component peers, the company exhibits above-average margins and ROIC with a very strong liquidity profile and low leverage; however, weaker ordinary and net income trends versus modest revenue growth place it mid-pack on earnings momentum until non-operating headwinds normalize.

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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