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

Tsunagu Group Holdings (6551) reported FY2025 Q4 consolidated results under JGAAP showing solid top-line growth and stronger profitability. Revenue rose 11.5% year over year to ¥18,269 million, supported by improved operating leverage that lifted operating income 39.3% to ¥877 million. Net income increased 42.7% to ¥511 million, driving a net profit margin of 2.8%, while ordinary income of ¥897 million indicates small but positive non-operating contributions. Gross profit of ¥7,169 million implies a gross margin of 39.2%, consistent with reported metrics, and suggests effective pricing and/or mix improvement even as labor-related costs typically pressure margins in staffing and HR services. EBITDA reached ¥1,203 million with a 6.6% margin, demonstrating incremental scale benefits relative to revenue growth. DuPont analysis shows ROE of 24.79%, powered by high asset turnover of 4.11x and moderate financial leverage of 2.16x, indicating an efficient, asset-light business model. Liquidity is adequate with a current ratio of 1.18x and quick ratio of 1.18x, reflecting the low-inventory nature of the business. The company generated strong operating cash flow of ¥1,131 million, over 2.2x net income, highlighting solid earnings quality. Free cash flow of ¥1,184 million (using OCF plus net investing inflow as a proxy) provides ample financial flexibility. Financing cash outflow of ¥953 million suggests debt repayment and/or other balance sheet optimization, especially in the absence of dividends. Interest coverage was very strong at 142x, underscoring a modest interest burden relative to operating earnings. The reported effective tax rate appears low, with income tax of ¥27.6 million on ordinary income of ¥897 million, implying potential tax shields or loss carryforwards; the calculated 0.0% figure should be treated as a placeholder. Balance sheet strength is reasonable with total equity of ¥2,061 million and a debt-to-equity ratio of 1.50x, consistent with a services company that leverages working capital financing. Data limitations include undisclosed equity ratio, cash and equivalents, and share count, which constrain per-share and capital allocation analysis. Despite these limitations, the combination of double-digit revenue growth, margin expansion, robust cash generation, and high ROE points to improving fundamentals. Near-term priorities likely include sustaining revenue momentum, maintaining cost discipline in SG&A, and balancing reinvestment with deleveraging given strong free cash flow.

Profitability Analysis

ROE of 24.79% decomposes into a net margin of 2.80%, asset turnover of 4.112x, and financial leverage of 2.16x. The main ROE driver is efficiency (high turnover), consistent with an asset-light services model. Gross margin of 39.2% indicates solid value-add relative to cost of sales, while the operating margin of roughly 4.8% (¥877m / ¥18,269m) reflects improved operating leverage versus revenue growth. EBITDA margin at 6.6% shows additional headroom from depreciation/amortization, suggesting limited capital intensity. Ordinary income exceeding operating income points to small non-operating gains or financial income. The interest coverage ratio of 142.2x highlights minimal financing drag on profitability. Margin quality appears to be improving, supported by disciplined cost control and scale benefits in fixed SG&A. We note a discrepancy between revenue minus cost of sales and reported gross profit; we rely on the disclosed gross profit and margin, which align with the calculated margin provided. Tax burden appears unusually light; normalized tax rates could modestly reduce net margin going forward.

Growth Assessment

Revenue grew 11.5% YoY to ¥18.27bn, a healthy pace given the company’s scale and industry context. Operating income growth of 39.3% outpaced revenue, signaling positive operating leverage and better cost absorption. Net income rose 42.7%, aided by both operating improvements and a low effective tax rate. Asset turnover at 4.11x underscores efficient utilization of the asset base and suggests the growth is not reliant on heavy capital deployment. The quality of growth appears sound given OCF/NI of 2.21x, indicating earnings are cash-backed. With EBITDA margin at 6.6% and operating margin near 4.8%, there is scope for incremental margin expansion if mix improves and SG&A remains contained. Sustainability hinges on maintaining client demand in recruitment/process outsourcing and HR-related services, where macro hiring trends and wage dynamics can affect volume and pricing. Given the strong free cash flow and deleveraging capacity, the company is positioned to fund organic initiatives and selective investments without stressing the balance sheet. Near-term outlook is constructive, contingent on labor market stability and ongoing cost discipline.

Financial Health

Total assets are ¥4,443m against total liabilities of ¥3,097m and equity of ¥2,061m, implying a liabilities-to-equity ratio of 1.50x. Liquidity is adequate with current assets of ¥3,413m and current liabilities of ¥2,884m, resulting in a current and quick ratio of 1.18x each (no inventories reported). Working capital stands at ¥529m, affording a buffer for operational needs. Interest expense is low at ¥6.2m and well covered by EBIT, lowering refinancing risk. Financial leverage (assets/equity) is 2.16x, moderate for a services business and consistent with the high asset turnover model. Equity ratio is shown as 0.0% but appears undisclosed; using reported figures, equity/asset ratio approximates 46.4%, which would be comfortable if confirmed. Financing cash outflow of ¥953m suggests net debt repayment or other financing uses, supporting balance sheet resilience. Overall solvency metrics are sound, though confirmation of cash balances and debt structure would refine the assessment.

Cash Flow Quality

Operating cash flow of ¥1,131m is 2.21x net income, indicating strong conversion and limited accrual risk in the period. Free cash flow is estimated at ¥1,184m using OCF plus a net investing inflow of ¥53m (proxy in absence of capex detail), implying ample internal funding capacity. The positive investing cash flow likely reflects asset disposals or inflow-heavy investment activities; lack of capex disclosure limits precision on maintenance versus growth spend. Working capital management appears effective given the strong OCF despite revenue growth, suggesting timely collections and controlled payables. Depreciation and amortization of ¥326m represent a moderate non-cash component relative to EBITDA, consistent with low capital intensity. Cash and equivalents are shown as 0 (undisclosed), so period-end liquidity can’t be validated from cash alone, but cash generation was strong. Overall, earnings quality is high, underpinned by cash-backed profits and conservative financing outflows.

Dividend Sustainability

No dividend was paid (DPS ¥0.00), with a payout ratio of 0.0%. Free cash flow coverage of dividends is therefore not applicable (0.00x reported). Given robust free cash flow and modest interest burden, the company has capacity for future distributions if policy permits, but current cash is being directed to financing outflows, likely deleveraging. Absent explicit guidance, we assume a continued reinvestment and balance-sheet-strengthening stance over the near term. Any potential initiation or resumption of dividends would depend on visibility of sustained earnings, working capital needs tied to growth, and clarity on tax normalization.

Risk Assessment

Business Risks:

• Cyclical exposure to hiring activity and client demand in HR and staffing services
• Pricing pressure from competitive HR solutions providers and digital platforms
• Margin sensitivity to wage inflation and subcontracting costs
• Client concentration risk if large accounts drive a significant share of revenue
• Execution risk in scaling higher-margin service lines and controlling SG&A

Financial Risks:

• Potential normalization of an unusually low effective tax rate reducing net margins
• Dependence on short-term financing for working capital (implied by current liabilities) if growth accelerates
• Limited disclosure on cash balances and debt terms complicates liquidity assessment
• Exposure to interest rate changes, albeit mitigated by very high coverage

Key Concerns:

• Data gaps: cash balance, equity ratio, and share count not disclosed
• Gross profit arithmetic discrepancy versus revenue and cost of sales; relying on disclosed margin
• Sustainability of operating leverage as growth normalizes

Investment Implications

Key Takeaways:

• Double-digit revenue growth (+11.5% YoY) with outsized operating profit growth (+39.3%) indicates improving operating leverage
• High ROE (24.79%) driven by strong asset turnover (4.11x) and moderate leverage (2.16x)
• Strong cash generation (OCF/NI 2.21x) and positive FCF (~¥1.18bn) bolster financial flexibility
• Liquidity adequate (current ratio 1.18x) and interest burden minimal (coverage 142x)
• Low effective tax rate boosted net income; normalization would modestly compress margins

Metrics to Watch:

• Revenue growth trajectory and client demand indicators
• Operating and EBITDA margins for evidence of sustained operating leverage
• Working capital turns (AR days/AP days) to sustain cash conversion
• Tax rate normalization and impact on net margin
• Financing cash flows and net debt to track deleveraging progress

Relative Positioning: Positioned as an asset-light HR/services operator with above-average asset turnover, improving margins, and strong cash conversion; balance sheet appears moderate in leverage and supported by FCF, comparing favorably to peers on ROE and interest coverage, subject to confirmation of undisclosed cash and equity ratio.

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