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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Kohoku Kogyo Co., Ltd. (65240) reported FY2025 Q3 consolidated results under JGAAP with modest top-line growth and resilient operating profitability, offset by weaker bottom-line performance. Revenue grew 2.8% YoY to ¥12.48bn, while operating income rose 0.8% to ¥3.20bn, indicating limited operating leverage in the period. Gross profit of ¥5.28bn implies a robust gross margin of 42.3%, and the operating margin remains strong at approximately 25.6%. Ordinary income of ¥2.83bn trails operating income, suggesting net non-operating expenses of roughly ¥0.37bn, including ¥0.08bn of interest expense and likely other losses (e.g., FX or valuation). Net income declined 21.1% YoY to ¥1.75bn, compressing net margin to 14.1% despite solid operating metrics. The YoY divergence between operating and net income points to adverse non-operating items and/or a higher effective tax burden. Using reported tax expense (¥1.10bn), the implied effective tax rate is around 38.6% (based on NI + tax), well above the “0.0%” shown in the derived metrics, which reflects data limitations rather than actual tax behavior. On the balance sheet, total assets are ¥25.77bn and equity is ¥21.67bn, implying a high equity ratio of about 84.1% and low financial leverage (assets/equity ~1.19), consistent with the DuPont inputs provided. Liquidity is very strong with a current ratio of ~6.22x and working capital of ~¥15.39bn, suggesting ample headroom to absorb short-term shocks. The interest coverage ratio is a comfortable ~38x, reflecting low financial risk. ROE is calculated at 8.09%, driven by a 14.1% net margin, asset turnover of 0.484x, and modest leverage of 1.19x. This ROE is respectable given the conservative balance sheet but could be pressured if non-operating headwinds persist. Cash flow statements, inventories, and share data are not disclosed in the XBRL (zeros indicate unreported), limiting assessment of earnings quality, FCF, and per-share metrics. Dividend data are also not available; the payout ratio shown as 0% likely reflects non-disclosure rather than an actual zero payout. Overall, the business demonstrates strong operating margins and a fortress balance sheet, but bottom-line volatility and limited operating leverage in this period temper the quality of earnings momentum.

From Earnings Presentation: For Kohoku Kogyo's Q3 FY2025 (9-month cumulative), revenue reached 12,480 million yen (+2.8%) and operating profit 3,198 million yen (+0.8%), achieving increased revenue and profit. However, due to foreign exchange losses of 413 million yen and other factors, net profit was 1,754 million yen (-21.1%), a significant decline. The lead terminal business continued profitability improvements despite gradual market recovery, with the operating profit margin rising to 8.7% (9-month cumulative). The optical components & devices business performed well with revenue of 6,120 million yen (+4.6%), but operating profit decreased to 2,642 million yen (-8.2%) due to product mix changes and foreign exchange impacts. Adjustments in Q1 ended and trends improved from Q2 onward, with Q3 standalone operating profit at a strong 1,385 million yen. Full-year forecasts are revenue of 17,360 million yen, operating profit of 4,644 million yen (+17.9%), and operating profit margin of 26.8%, a record high outlook. Tailwinds include generative AI/data center markets and submarine cable investments. Financial position is sound with low leverage maintained, and capital investment focuses on Faraday rotators and automation. Cash conversion cycle improvement initiatives are also underway.

Financial Analysis

Profitability

ROE decomposition (DuPont): Net margin ~14.05%, asset turnover ~0.484x, financial leverage ~1.19x, yielding ROE ~8.09% (reported). Gross margin is high at 42.3%, indicating favorable product mix and/or pricing power relative to cost base. Operating margin is also strong at ~25.6%, but operating income growth (+0.8% YoY) lagged revenue growth (+2.8% YoY), implying negative operating leverage in the quarter (higher operating costs, mix shift, or deliberate investments). Ordinary income margin (~22.6%) is below operating margin, reflecting net non-operating costs (about ¥0.37bn), likely from interest, FX, or other financial items. Net margin compressed to ~14.1% with a significant tax burden, implying an effective tax rate near ~38.6% (estimated from net income and tax expense). Interest coverage of ~38x underscores minimal financing drag on profitability. Overall profitability is solid at the gross and operating levels, but non-operating items and taxes materially dilute the conversion to net income.

Growth

Top-line growth of +2.8% YoY to ¥12.48bn is stable but not high, possibly reflecting mature end-markets or timing effects. Operating income growth of +0.8% YoY indicates limited operating leverage; costs likely rose in line with or slightly ahead of sales. Net income declined 21.1% YoY to ¥1.75bn, signaling weaker profit quality below the operating line, potentially due to non-operating losses and/or higher taxes. Margin sustainability appears better at the gross/operating level than at the net level this quarter. Without segment detail or backlog/order trends, it is difficult to judge the durability of revenue growth; however, the strong gross margin suggests underlying product economics remain favorable. The gap between operating and ordinary income points to earnings volatility from financial or currency items. Outlook hinges on normalization of non-operating items and tax rate, maintenance of pricing/disciplined costs, and demand conditions in core markets. With a low asset turnover (0.484x), growth may rely on utilization improvements, product mix upgrades, or expanding addressable markets rather than asset expansion alone.

Financial Health

Liquidity is very strong with current assets of ¥18.33bn versus current liabilities of ¥2.95bn, yielding a current ratio of ~622% and working capital of ~¥15.39bn. The quick ratio calculation equals the current ratio in the dataset due to undisclosed inventories; true quick liquidity is likely lower but still ample given the large surplus of current assets. Solvency is conservative: total liabilities are ¥5.25bn against equity of ¥21.67bn, implying a liabilities-to-equity ratio of ~0.24x and an equity ratio of ~84.1%. Financial leverage is low (assets/equity ~1.19x), contributing to resilience and high interest coverage (~38x). The balance sheet supports ongoing operations and potential investment needs without immediate reliance on external funding. Absence of detailed debt composition and maturity profile limits granular solvency analysis.

Cash Flow

Operating, investing, and financing cash flows are not disclosed (zeros indicate unreported), preventing a direct assessment of earnings-to-cash conversion. Consequently, OCF/Net Income and FCF metrics shown as 0.00 should not be interpreted as actual values. With strong working capital and profitability, cash generation is likely positive, but we cannot validate the timing or magnitude. Key unknowns include working capital movements (receivables, payables, and inventories), capex intensity, and any one-off cash items. Depreciation and amortization are also undisclosed, limiting the ability to infer EBITDA or maintenance capex needs. Overall earnings quality cannot be confirmed without OCF and capex data; monitoring subsequent disclosures is essential.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0.00/0.0% due to non-disclosure; actual dividend policy and payments are unknown from this dataset. Without OCF and capex, FCF coverage cannot be assessed. On fundamentals alone, the company’s strong balance sheet (high equity ratio, low leverage) and net income of ¥1.75bn would, in principle, support ordinary distributions if policy permits. However, bottom-line volatility from non-operating items and a potentially elevated effective tax rate introduce uncertainty. Until cash flow and policy disclosures are available, dividend sustainability and trajectory remain indeterminate.

Business Outlook

Full-year plan maintains revenue of 17,360 million yen (+9.0%), operating profit of 4,644 million yen (+17.9%, margin 26.8%), and net profit of 2,538 million yen (-22.0%). Q4 is also expected to progress steadily. Lead terminals anticipate continued gradual recovery in automotive markets, with increasing inquiries for high-function capacitor lead terminals for generative AI and data centers. Optical components & devices expect submarine cable investment to continue beyond 2028 with expanding revenue trend. Progress exceeds August projections in response to additional orders from some customers. Foreign exchange assumption is 150 yen/USD (9-month actual 148.09 yen), with non-operating income/expenses expected to improve if Q4 yen depreciation is more moderate than assumed. Mid-term targets include upward revision of lead terminal operating profit margin target in 2027 and value-added improvement through modularization and composite products in optical components.

Management Guidance

Management emphasizes the core business trend of increased revenue and profit, positioning foreign exchange losses as a temporary factor. Lead terminals aim to achieve 10% operating profit margin by end of 2025, continuing Dongguan factory expansion and yield improvement. Optical components will respond to revenue growth through small isolator production capacity expansion and Sri Lanka factory personnel reinforcement. R&D focuses on optical modules for submarine cables, next-generation Faraday rotators, and devices for low earth orbit (LEO) satellite communications. Life test samples are being shipped toward 2027 mass production. ROIC improvement initiatives are progressing as planned, with optimization of accounts receivable and inventory management scheduled for completion in 2025. No dividend policy continues, prioritizing growth investment and financial soundness.

Strategic Initiatives

• Lead terminal business: Increase Dongguan factory production ratio to 50% by end of 2025 (KECD 50%, KECS 30%, KEM 20%), continuing profitability improvement measures including 50% yield reduction, 3pt OEE improvement, and 4pt manufacturing cost reduction
• Optical components & devices business: Significantly expand Faraday rotator production capacity (addressing through capital investment and yield improvement), commence expansion of sintering furnace installation area at head office factory, preparing for demand expansion from 2026 onward
• High value-added product expansion: Increase sales ratio of burr-free, leakage current reduction/low ESR lead terminals to 30% by 2027 (9-month actual 19.9%), responding to increasing inquiries for hybrid capacitor lead terminals
• Next-generation technology development: Life testing underway for submarine cable composite/module products, mass production scheduled to start in 2027. Also promoting optical device development supporting multi-core, multi-core fiber, and wideband applications
• ROIC improvement: Complete in 2025 accounts receivable days reduction (Japan 120 to 60 days, some overseas 90 to 60 days), payment term extension (some suppliers 30 to 60 days), inventory reduction (products 1.3 to 1.0 months, materials 0.9 to 0.6 months)
• Global sales strengthening: Strengthen coordination between headquarters and overseas bases, expand customer support and marketing for high value-added products in global markets, expand sales of satellite communication devices through participation in overseas exhibitions

Risk Assessment

Business Risks:

• Demand cyclicality in end-markets affecting revenue visibility and operating leverage
• Potential pricing pressure or input cost inflation impacting gross margins
• Product mix shifts that could reduce high-margin contributions
• Supply chain constraints or lead-time volatility
• Customer concentration risk (not disclosed but common in specialized industrials)
• FX exposure if export sales or foreign sourcing are material (non-operating volatility suggests possible FX impacts)

Financial Risks:

• Non-operating income volatility (FX, valuation, equity-method) pressuring ordinary and net income
• Potentially elevated effective tax rate reducing net profitability
• Working capital swings not visible without cash flow details
• Limited transparency on debt structure, maturities, and covenants (though overall leverage is low)

Key Concerns:

• Net income down 21.1% YoY despite stable operating performance
• Ordinary income below operating income, indicating recurring non-operating headwinds
• Absence of cash flow and inventory disclosures constrains assessment of earnings quality and FCF
• Low asset turnover (0.484x) may cap ROE without mix or efficiency gains

Risk Factors from Presentation:

• Foreign exchange fluctuation risk: Foreign exchange losses of 413 million yen in 9-month cumulative pressed net profit, with high foreign exchange sensitivity of 80 million yen/yen for revenue and 30 million yen/yen for operating profit
• Non-ferrous metal price (copper, tin, aluminum) increase risk: Potential profitability pressure from time lag as price pass-through occurs in principle 3 months later, signs of recent increases
• Weak recovery in aluminum electrolytic capacitor market: Sluggish demand recovery due to stagnant consumer equipment market, Chinese economic slowdown, and intensifying competition in European automotive market (stalled EV adoption)
• Increases in material costs, labor costs, and expenses: Material cost increases of 374 million yen (lead terminals) and labor cost increases of 64 million yen in 9-month cumulative pressed operating profit, risk of continued cost inflation
• Inventory adjustments at some customers: Adjustments for some items in lead terminals occurred in Q3 (recovery expected in Q4), also adjustments due to individual factors in optical components in Q1
• US trade policy uncertainty: Concerns about impact on automotive-related markets, risk of global supply chain review

Investment Implications

Key Takeaways:

• Solid operating profitability (OPM ~25.6%) and high gross margin (42.3%) underpin core earnings power
• ROE at ~8.1% is reasonable given conservative leverage but sensitive to non-operating factors
• Bottom-line volatility (–21% YoY NI) driven by non-operating items and a high implied tax rate
• Balance sheet strength (equity ratio ~84%) and liquidity (current ratio ~6.2x) reduce financial risk
• Data gaps (cash flows, inventories, dividends) limit visibility on cash conversion and capital returns

Metrics to Watch:

• Ordinary income vs. operating income gap (drivers: FX, valuation losses, equity-method)
• Effective tax rate normalization and drivers of tax expense
• Operating cash flow, capex, and free cash flow once disclosed
• Working capital trends (receivables, inventories, payables turnover)
• Asset turnover improvement and utilization rates
• Order backlog/book-to-bill or demand indicators by end-market (if disclosed)
• Dividend policy announcements and payout trajectory

Relative Positioning: Financially conservative balance sheet with strong operating margins but modest ROE and low asset turnover; relative advantage in resilience and margin profile, offset by lower visibility on cash conversion and higher sensitivity of net income to non-operating items.

Supplementary Insights (Key Highlights)

• Foreign exchange losses of 413 million yen were the main factor in net profit decline, while the core business maintained its trend of increased revenue and profit
• Lead terminal business is increasing Dongguan factory production ratio to 50% by year-end (over 40% as of September), strengthening profitability through yield improvement and OEE enhancement
• Optical components & devices business saw Faraday rotator sales for 9-month cumulative increase approximately 3x year-over-year, with small isolator sales ratio rising above 50%
• Submarine cable projects are progressing smoothly, with mass production of next-generation technologies such as multi-core and multi-core fiber scheduled to start in 2027
• ROIC improvement initiatives including cash conversion cycle improvement (accounts receivable reduction, payment term extension) and inventory reduction scheduled for completion in 2025
• High value-added product (burr-free, leakage current reduction lead terminals) sales ratio rose to 19.9% (9-month cumulative), progressing steadily toward mid-term target of 30%
• No dividend continuation (0% payout ratio) prioritizing internal reserves, financial leverage at low 1.19x with room for capital efficiency improvement

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