TSUNAGU GROUP HOLDINGS Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥18.27B
• Operating Income: ¥877M
• Net Income: ¥492M
• EPS: ¥60.82

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

Verdict: Solid finish to FY2025 with double-digit top-line growth and outsized profit expansion, underpinned by operating leverage and very strong cash generation. Revenue rose 11.5% YoY to 182.69, while operating income increased 39.3% to 8.77 and net income climbed 42.7% to 5.11. Gross profit reached 79.70, implying a gross margin of 43.6%. Operating margin expanded to approximately 4.8% (8.77/182.69). Ordinary income was 8.97 (+43.2% YoY), evidencing broad-based improvements beyond core operations. Based on growth differentials, operating margin expanded by about 95 bps YoY (from roughly 3.85% to 4.8%), and net margin expanded by about 61 bps (from roughly 2.19% to 2.80%). Earnings quality was strong: operating cash flow of 11.31 was 2.21x net income, and free cash flow was reported at 11.84, indicating solid cash conversion. The effective tax rate was elevated at 40.3%, tempering bottom-line flow-through. Liquidity remains adequate with a current ratio of 140% and cash of 11.48 versus short-term loans of only 0.10. Leverage is moderate (D/E 1.16x) and interest coverage is extremely strong (≈140x), reflecting minimal financial risk. Balance sheet quality is reasonable with equity of 20.61 (equity/assets ≈46%), though intangible assets of 7.28 (including goodwill of 2.22) warrant monitoring for impairment risk. ROE is high at 24.8%, driven by high asset turnover (4.112x) rather than unusually high margins, which is consistent with the company’s operational model. Dividend capacity appears ample with a calculated payout ratio of 17% and FCF coverage of 13.6x, albeit DPS details are unreported. Forward-looking, operating leverage and disciplined SG&A should continue to support margins if demand holds, but the high tax rate, potential wage inflation, and any slowdown in client hiring could limit further margin expansion. Overall, the quarter signals improving profitability, robust cash generation, and sufficient balance sheet resilience to fund growth and shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ 24.8% = Net Profit Margin (2.8%) × Asset Turnover (4.112x) × Financial Leverage (2.16x). The most material change appears to be margin expansion, inferred from operating income growth (+39.3%) outpacing revenue growth (+11.5%), indicating improved operating leverage. Business drivers likely include better mix/pricing, utilization gains, and SG&A discipline (SG&A/revenue at ~38.8%), though exact SG&A YoY is unreported. Asset turnover is strong at 4.1x, consistent with a service-heavy model and low capital intensity; leverage at 2.16x is moderate and not the main ROE driver. The margin gains seem sustainable near term if demand remains solid and cost control continues; however, the elevated tax rate (40.3%) may cap net margin upside, and wage/cost inflation could pressure SG&A. Watch for any reversal if growth slows, as operating leverage can work in both directions. A potential concern is if SG&A growth were to reaccelerate ahead of revenue (YoY SG&A detail is unreported), which would compress margins. Overall, ROE quality is good, powered by efficient asset use and improving, though still modest, operating margins.

Growth Assessment

Revenue grew 11.5% YoY to 182.69, with operating income up 39.3% and net income up 42.7%, evidencing positive operating leverage. Operating margin expanded ~95 bps YoY to ~4.8%, and net margin expanded ~61 bps to ~2.8%. EBITDA was 10.64 (EBITDA margin ~5.8%), pointing to modest capital intensity and room for incremental margin gains. Ordinary income rose 43.2% to 8.97, suggesting non-operating items were supportive (non-operating income 0.41 vs expenses 0.21). Sustainability: growth appears demand-led with efficient cost control; however, a high effective tax rate and potential wage inflation may temper net growth. Outlook: if hiring demand remains resilient and receivables collection stays efficient (AR days ~35), the company can sustain mid-to-high single-digit revenue growth with incremental margin expansion, barring macro slowdown. Limited capex (-0.25) and strong OCF provide capacity for selective investments or bolt-ons.

Financial Health

Liquidity is adequate: current ratio 1.40x and quick ratio 1.40x (no inventory reliance). No explicit warning thresholds triggered (Current Ratio > 1.0). Working capital is positive at 9.41. Cash and deposits of 11.48 comfortably exceed short-term loans (0.10). Solvency is sound: equity/assets ≈46% (20.61/44.43), D/E 1.16x within conservative bounds (<1.5x benchmark), and interest coverage is ~140x, indicating low refinancing risk. Maturity profile is benign with minimal noncurrent debt (0.10) and tiny short-term loans relative to cash; maturity mismatch risk is low. No off-balance-sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/NI is 2.21x (>1.0), indicating strong earnings quality and healthy cash conversion. Reported FCF is 11.84, benefiting from both robust OCF (11.31) and net investing inflow (0.53), which likely includes asset sales or low capex intensity; on a maintenance basis, OCF - capex is ~11.06, still strong. Capex is modest at 0.25, consistent with a service-centric model. No signs of aggressive working capital maneuvers; AR of 17.58 versus annual revenue implies ~35 days sales outstanding, reasonable for the sector. The cash build supports flexibility for dividends, buybacks (share repurchases -1.96), and selective growth initiatives.

Dividend Sustainability

The calculated payout ratio is 17.0%, comfortably below the <60% benchmark, implying ample headroom. FCF coverage is 13.62x, indicating strong capacity to fund dividends from organic cash generation. DPS and total dividends paid are unreported, so absolute distributions are unclear, but the balance sheet and cash flows suggest sustainability and potential room for incremental shareholder returns. Policy outlook: with leverage moderate and capex light, continued cash returns appear feasible, contingent on maintaining current profitability and OCF conversion.

Risk Assessment

Business Risks:

• Cyclical hiring demand and client budget sensitivity impacting placement volumes and pricing
• Wage and SG&A inflation compressing margins if not offset by pricing/efficiency
• Execution risk in digital/IT investments embedded in intangible assets (7.28) and potential amortization drag
• Competitive intensity in recruitment/support services leading to pricing pressure
• High effective tax rate (40.3%) limiting net margin expansion

Financial Risks:

• Potential impairment risk for goodwill (2.22) and other intangibles if growth slows
• Receivables concentration or delays (AR 17.58) could pressure OCF, though current AR days look healthy
• Dependence on operating leverage: revenue slowdown would disproportionately hit profits
• Non-operating gains variability (investing CF positive) may not be recurring

Key Concerns:

• Margin expansion durability amid cost inflation
• Sensitivity to macro slowdown in hiring demand
• Limited disclosure granularity (SG&A breakdown, DPS details) constrains visibility

Investment Implications

Key Takeaways:

• Strong FY finish with revenue +11.5% YoY and operating income +39.3%, driving ~95 bps operating margin expansion
• High-quality earnings: OCF/NI 2.21x and robust FCF despite modest capex
• ROE 24.8% driven by high asset turnover (4.1x) and moderate leverage (2.16x), not one-off items
• Balance sheet soundness with equity/assets ~46% and interest coverage ~140x
• Dividend capacity ample (payout ~17%, FCF coverage ~13.6x) though DPS details unreported

Metrics to Watch:

• SG&A ratio and trend vs revenue to gauge operating leverage sustainability
• Effective tax rate trajectory and any structural drivers
• AR days and OCF/NI to monitor cash conversion quality
• Intangible assets and goodwill for amortization/impairment risk
• Client demand indicators (job openings, placement volumes, renewal rates)

Relative Positioning: Within Japan’s HR/recruiting support peer set, the company exhibits high asset turnover and strong cash conversion with moderate leverage, positioning it favorably on ROE quality; margins remain modest but improving, suggesting scope for further operating leverage if demand holds.

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