SEMBA CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥22.56B
• Operating Income: ¥1.40B
• Net Income: ¥933M
• EPS: ¥87.39

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 top-line and operating profit growth with stable operating margin, but net income was flat due to below-the-line and tax headwinds. Revenue rose 16.7% YoY to 225.59, supported by broad execution and healthy order conversion. Operating income increased 18.2% YoY to 14.03, outpacing sales growth modestly. Ordinary income was 13.64 (+10.0% YoY), indicating some drag from non-operating items versus operating performance. Net income was 9.31, essentially flat (-0.1% YoY), translating to an EPS of 87.39 yen. Gross margin stood at 16.5%, consistent with a value-added interior/fit-out model. Operating margin was 6.2% this quarter versus an estimated 6.1% in the prior-year period, an expansion of roughly 8 bps. Net margin compressed from an estimated 4.8% in the prior-year period to 4.1% (-69 bps), as tax burden (31.5% effective rate) and non-operating factors offset operating gains. The balance sheet remains robust with cash and deposits of 87.15 and working capital of 116.54, underpinning liquidity. Current ratio of 318.7% and quick ratio of 292.0% indicate ample short-term coverage with low refinancing risk. Leverage is conservative (Total liabilities/equity ~0.40x; assets/equity 1.40x). ROE is 6.7% via 4.1% net margin × 1.159x asset turnover × 1.40x leverage, and ROIC is a strong 18.6%. Earnings quality cannot be verified due to unreported cash flow data; OCF/NI and FCF are N/A. The reported payout ratio of 80.8% is elevated relative to a 60% sustainability benchmark, warranting monitoring if growth moderates or cash conversion weakens. Forward-looking, healthy order execution and conservative balance sheet position the company to sustain operating performance, but maintaining net margin will depend on controlling non-operating impacts and the effective tax rate. Watch working capital seasonality and billing milestones typical of project-based businesses for cash flow volatility. Overall, operational momentum is intact; the key is translating operating gains into bottom-line and cash outcomes.

Profitability Analysis

ROE decomposition: 6.7% = 4.1% Net Profit Margin × 1.159 Asset Turnover × 1.40x Financial Leverage. The component that changed the most YoY is the net profit margin: operating margin slightly expanded (~+8 bps), yet net margin compressed by ~69 bps due to a higher effective tax rate (31.5%) and adverse non-operating items relative to operating profit. Business drivers: strong revenue growth and stable gross spread supported operating income, but ordinary and net income were held back by below-the-line items and taxes. Asset turnover appears healthy at 1.159, likely modestly better YoY given sales growth outpacing balance sheet expansion (exact YoY assets not disclosed). Financial leverage is conservative and stable at ~1.40x, contributing little volatility to ROE. Sustainability: operating margin resilience seems sustainable given scale benefits and disciplined SG&A (11.25% of sales), but net margin may remain sensitive to non-operating factors and tax. Concerning trends: net income lagging operating income growth, and the gap between operating and ordinary income suggests non-operating drags; SG&A growth vs revenue growth cannot be precisely assessed due to lacking YoY breakdown, but current ratio of SG&A to sales is reasonable for the business model.

Growth Assessment

Top-line growth was strong at +16.7% YoY to 225.59, indicating robust market demand and project execution. Operating income grew +18.2% to 14.03, slightly leveraging revenue growth. Ordinary income (+10.0%) and net income (-0.1%) lagged, implying rising tax/non-operating headwinds. Gross profit of 37.25 and a 16.5% gross margin are consistent with design/fit-out service economics; maintaining this spread will be key as input costs and subcontracting rates fluctuate. With asset turnover at 1.159, the company is deploying its asset base efficiently, supportive of ROE despite modest leverage. Outlook: continued revenue momentum appears feasible if order intake/backlog remain healthy (not disclosed), but net profit growth will depend on stabilizing non-operating items and tax. Near-term catalysts include mix improvements toward higher-margin projects and tighter SG&A control; risks include cost inflation and project timing. Given ROIC at 18.6%, incremental growth that preserves spread should be value accretive.

Financial Health

Liquidity is strong: current ratio 318.7%, quick ratio 292.0%, and cash/deposits of 87.15 provide ample buffer. No warning on current ratio (<1.0) or D/E (>2.0); reported liabilities/equity is 0.40x, and assets/equity is 1.40x, indicating conservative leverage. Maturity mismatch risk appears low: current assets 169.84 far exceed current liabilities 53.30, and accounts receivable (50.72) plus cash more than cover accounts payable (27.07). Interest-bearing debt details are unreported; however, the low liability base and strong cash position suggest minimal solvency risk. Noncurrent liabilities are small at 2.33, further limiting refinancing pressures. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow and free cash flow are unreported; thus OCF/Net Income and FCF coverage cannot be assessed. We cannot flag OCF/NI < 0.8, but this is a key data limitation for earnings quality. Working capital composition (AR 50.72, inventory 14.23, AP 27.07) is typical for project-based billing and milestone collections; cash conversion may be volatile intra-year. With cash of 87.15 and strong working capital, the company appears able to fund operations and routine capex, but sustainability of FCF for dividends cannot be confirmed without OCF data. No explicit signs of working capital manipulation can be inferred from the static snapshot; trend data would be required.

Dividend Sustainability

The reported payout ratio is 80.8%, which is high versus a <60% sustainability benchmark. DPS is unreported, and FCF coverage is N/A, preventing a definitive assessment of cash-funded dividends. Balance sheet capacity is strong (cash 87.15; low leverage), providing near-term flexibility to support dividends even if cash conversion softens temporarily. However, given net income was flat YoY while payout is elevated, maintaining this level would likely require stable-to-improving OCF and disciplined capex. Policy outlook cannot be inferred from disclosures; monitor full-year guidance and capital allocation commentary.

Risk Assessment

Business Risks:

• Project execution and timing risk impacting revenue recognition and margins
• Input cost inflation (materials/subcontracting) compressing gross margins
• Client capex cycles, especially in retail/commercial interiors
• Competitive pricing pressure in fit-out/design markets
• Labor availability and wage inflation affecting SG&A and project delivery

Financial Risks:

• Net margin sensitivity to non-operating items and effective tax rate
• Potential cash flow volatility from milestone billing and receivable collections
• Concentration risk if reliant on large customers or sectors (not disclosed)
• Limited visibility on interest-bearing debt due to unreported breakdown

Key Concerns:

• Net income flat YoY despite +18.2% operating income growth
• High payout ratio of 80.8% absent FCF disclosure
• Inconsistency between operating, non-operating, and ordinary income suggests additional unreported non-operating items
• Earnings quality cannot be validated due to missing OCF and FCF data

Investment Implications

Key Takeaways:

• Revenue and operating profit growth are solid with slight operating margin expansion (~+8 bps YoY).
• Net margin compressed (~-69 bps YoY) due to non-operating/tax headwinds, keeping net income flat.
• Balance sheet strength (current ratio ~3.2x; cash 87.15) underpins resilience and flexibility.
• ROE of 6.7% with strong ROIC of 18.6% indicates efficient capital deployment at the project level.
• High payout ratio (80.8%) elevates dependence on robust cash conversion.

Metrics to Watch:

• Operating cash flow, FCF, and OCF/NI ratio (target >1.0)
• Gross and operating margin trends by project mix and input costs
• Ordinary income vs operating income gap (nature of non-operating items and tax rate movements)
• Working capital metrics (AR days, inventory turns, AP days) and seasonality
• Order intake/backlog and sector exposure mix
• Capital allocation: DPS policy, buybacks, and capex plans

Relative Positioning: Within Japan’s interior/fit-out peers, the company exhibits a stronger-than-average liquidity profile and conservative leverage, with operating margin around 6% that is competitive and ROIC at 18.6% that is notably strong. The primary relative watchpoint is earnings translation to net income and cash, given the elevated payout ratio and sensitivity to non-operating items.

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