Fulltech Co.Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥9.91B
• Operating Income: ¥360M
• Net Income: ¥422M
• EPS: ¥50.86

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

FY2025 Q3 was a weaker quarter with a clear deterioration in profitability despite largely flat sales. Revenue was 99.13, down 0.9% YoY, while operating income fell 39.4% to 3.60, and net income declined 35.3% to 2.72. Gross profit was 34.19, implying a gross margin of 34.5%. SG&A expenses of 28.24 remained heavy relative to gross profit, compressing operating margin to 3.6%. Ordinary income was 4.20 (-34.4% YoY), supported by net non-operating income of about 0.47 (0.54 non-operating income minus 0.07 expenses). The operating margin contracted by roughly 231 bps YoY (from ~5.9% to ~3.6%), while the ordinary margin narrowed by about 216 bps (from ~6.4% to ~4.2%). Net margin fell by about 146 bps (from ~4.2% to ~2.7%). The effective tax rate was 35.3%, in line with statutory levels and not a driver of the YoY decline. ROE is 4.0% on a DuPont basis (NPM 2.7% × AT 0.914 × leverage 1.58x), reflecting margin pressure more than balance sheet changes. ROIC is 4.2%, below the 5% warning threshold, indicating capital efficiency softness. Liquidity remains comfortable with a current ratio of 1.82x and conservative leverage (D/E 0.58x), and interest coverage is strong at 73.6x. Earnings quality is hard to judge this quarter due to unreported cash flow data; however, a 12.9% contribution of non-operating income to ordinary income indicates modest reliance on non-core items. Dividend payout is estimated at 63.2% of earnings, slightly above the 60% sustainability benchmark, which could become stretched if earnings weakness persists. With revenue broadly stable but margins under pressure, near-term focus shifts to SG&A control and gross margin stabilization. Forward-looking, the key will be improving cost discipline and lifting ROIC above 5–7% to support dividend stability. Data gaps (cash flows, segment details, capex) limit deeper diagnostics, but the core message is solid balance sheet strength offset by weaker operating profitability.

Profitability Analysis

ROE decomposition: Net Profit Margin (NPM) 2.7% × Asset Turnover (AT) 0.914 × Financial Leverage 1.58x = ~4.0% ROE. The dominant change driver YoY is margin compression: operating income fell 39.4% on a 0.9% revenue decline, indicating negative operating leverage and higher SG&A intensity. Business reason: SG&A (28.24) consumed 82.6% of gross profit (34.19), leaving a thin operating profit buffer; this suggests wage inflation, higher outsourcing/maintenance costs, or insufficient absorption of fixed costs amid flat volumes. Non-operating items provided a small offset (net +0.47), but could not compensate for core margin pressure. Sustainability: Without action on cost structure or pricing, current margin compression could persist; however, if cost inflation normalizes or pricing improves, a portion of margin could recover. Watch for SG&A growth outpacing revenue; in this quarter, the scale of operating profit decline versus near-flat sales flags negative operating leverage as a concern.

Growth Assessment

Top-line was resilient (-0.9% YoY) but lacked growth catalysts. Profit contraction was driven primarily by cost-side pressures, not demand shortfall. Gross margin stands at 34.5%; stability here will be critical for recovery. Non-operating income (0.54), including dividend income (0.12), contributed 12.9% of ordinary income, indicating some reliance on non-core support but not an outsized one-off. Given the -39% drop in operating income against roughly flat sales, underlying growth quality is weak this quarter. Outlook hinges on: (1) SG&A discipline and productivity improvements, (2) pricing power to offset input and labor costs, (3) mix shift toward higher-margin service/maintenance contracts, and (4) maintaining order/backlog visibility (not disclosed). Near-term, expect cautious profit recovery rather than top-line-led expansion unless demand improves.

Financial Health

Liquidity is healthy: current ratio 181.8% (60.42 current assets vs 33.24 current liabilities) and quick ratio reported at 181.8% (inventories not disclosed). No warning for current ratio (<1.0) or leverage; D/E is 0.58x, conservative. Interest-bearing debt totals 3.92 (short 1.20 + long 2.72), modest relative to equity of 68.48. Interest coverage is strong at 73.56x, indicating low refinancing risk. Maturity mismatch risk appears limited: cash and deposits (17.35) plus receivables (13.07) sum to 30.42, close to current liabilities (33.24); with other current assets undisclosed, headline current ratio suggests adequate coverage. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

Operating cash flow and free cash flow were not reported, so OCF/NI and FCF coverage cannot be assessed. This is a key limitation in evaluating earnings quality. Proxy indicators: ordinary earnings benefited modestly from non-operating income (~0.47), but operating profit remains the primary driver. With margins compressed and ROIC at 4.2%, internal cash generation may be under pressure; however, low interest burden and limited debt help. No working capital details (inventories, payables/receivables dynamics beyond period-end balances) were provided, limiting assessment of possible timing effects or manipulation. Until OCF is disclosed, treat earnings quality as uncertain.

Dividend Sustainability

The calculated payout ratio is 63.2%, modestly above the <60% benchmark for comfort. Based on EPS of 50.86 JPY, this implies an annualized DPS around 32 JPY if applied linearly (exact DPS not disclosed). With operating earnings down and ROIC at 4.2%, maintaining a >60% payout could constrain reinvestment unless cash flows are solid. Balance sheet capacity is reasonable (low leverage), offering some short-term cushion. However, without FCF data, coverage cannot be verified, and sustainability depends on near-term recovery in operating margin and stable OCF.

Risk Assessment

Business Risks:

• Margin compression from SG&A cost inflation and negative operating leverage
• Potential pressure on pricing in installation/maintenance contracts amid flat demand
• Execution risk in cost control and productivity improvements
• Supply chain/parts procurement costs affecting gross margin

Financial Risks:

• ROIC at 4.2% below 5% threshold, indicating weak capital efficiency
• Dividend payout at ~63% could become stretched if profits weaken further
• Limited visibility on cash generation due to unreported OCF/FCF

Key Concerns:

• Operating margin contraction of ~231 bps YoY with only -0.9% revenue change
• Dependence on non-operating income for ~12.9% of ordinary income (modest but notable)
• Data gaps: no cash flow statement, no inventory or segment detail to diagnose drivers

Investment Implications

Key Takeaways:

• Core profitability weakened materially; operating income -39% on flat sales
• ROE 4.0% and ROIC 4.2% indicate subpar returns; improvement needed to meet typical targets
• Balance sheet resilient (CR 1.82x, D/E 0.58x, strong interest coverage)
• Dividend payout slightly above comfort zone; sustainability hinges on OCF and margin recovery
• Non-operating income provided a small buffer but cannot offset core weakness structurally

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Gross margin trends and input cost pass-through
• OCF/Net income and FCF once disclosed
• ROIC trajectory toward/above 5–7%
• Backlog/order intake and service contract base (if disclosed)
• Payout ratio and DPS guidance vs earnings trend

Relative Positioning: Within small-cap industrial/services peers, the company shows solid balance sheet strength but below-average profitability and capital efficiency this quarter, with a need to restore operating margin to support returns and dividends.

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