SK-Electronics CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥29.19B
• Operating Income: ¥3.85B
• Net Income: ¥1.92B
• EPS: ¥263.00

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: FY2025 Q4 results were solid, featuring double-digit top-line growth and stronger operating leverage, with clean cash generation offset by elevated growth capex. Revenue grew 13.4% year over year to 291.9, while operating income rose 26.0% to 38.5, outpacing sales and signaling improved efficiency. Net income increased 19.2% to 27.3, aided by higher operating profit and a stable effective tax rate of 29.0%. Operating margin expanded to 13.2% from an estimated 11.9% last year, a widening of roughly 132 basis points. Net margin increased to 9.4% from about 8.9% a year ago, an improvement of roughly 46 basis points. Gross margin printed at 23.7%, and EBITDA margin was a healthy 24.5%, reflecting a favorable cost/mix environment and disciplined SG&A. Ordinary income rose 25.8% to 38.5, as non-operating items were largely a wash (income 1.62 versus expenses 1.70), indicating earnings quality is primarily operational. Cash flow quality was strong: operating cash flow of 51.3 was 1.88x net income, indicating solid accrual-to-cash conversion. Free cash flow was negative at -10.1 due to heavy investing cash outflows (-61.4) led by capex (-49.2), consistent with capacity/technology investments. The balance sheet is very conservative with equity of 345.9 (equity ratio ~81%), cash and deposits of 96.9, and minimal interest burden (interest expense 0.07). Liquidity is ample: current ratio 341% and quick ratio 338%, with working capital of 173.5 supporting operations and capex execution. Leverage remains low (assets/equity 1.23x; D/E 0.23x), and interest coverage is exceptionally strong at 555x. ROE was 7.9%, driven mainly by improved net margin and respectable asset turnover of 0.686, while ROIC of 11.0% exceeds standard 7–8% benchmarks. Despite negative FCF this year, cash on hand and robust OCF suggest dividends (implied payout ~45%) are manageable barring a sustained capex surge. Forward-looking, the company enters the next period with improved profitability, strong liquidity, and room to fund ongoing investments, but performance sensitivity to capex payback, customer demand cycles, and FX remains a key watchpoint.

Profitability Analysis

DuPont decomposition: ROE (7.9%) = Net Profit Margin (9.4%) × Asset Turnover (0.686) × Financial Leverage (1.23x). The component that changed most versus last year appears to be net profit margin, given operating income grew +26% against +13.4% revenue and non-operating items were small; asset turnover likely improved modestly with higher sales on a similar asset base, while leverage remained low/stable. Business reason: favorable operating leverage from higher volume/revenue mix, controlled SG&A (30.6), and stable tax rate, while interest burden stayed de minimis (0.07). Sustainability: margin uplift is partially sustainable if mix and utilization remain favorable and if inflationary inputs are contained; however, margins could normalize if demand slows or pricing tightens. Asset turnover could improve further if recent capex translates into revenue, but near-term it may dip as assets ramp before sales scale. Flags: SG&A grew slower than revenue (implied), indicating positive operating leverage; no concerning expense spikes are evident. Overall, margin-driven ROE improvement is the key driver, with low leverage limiting financial risk and ROE volatility.

Growth Assessment

Revenue growth of 13.4% YoY to 291.9 indicates solid demand/mix recovery. Operating income +26.0% to 38.5 outpaced revenue, showing improved operating leverage. Net income +19.2% to 27.3 benefited from higher operating profit and stable non-operating items; effective tax rate held at 29.0%. Operating margin expanded to 13.2% (vs ~11.9% last year), and net margin to 9.4% (vs ~8.9%), confirming quality growth rather than one-off gains. EBITDA of 71.6 and a 24.5% margin reflect healthy recurring economics. Non-operating contributions were minor (income 1.62; expenses 1.70), reducing reliance on financial income. Growth sustainability hinges on conversion of current capex (-49.2) into incremental revenue/EBITDA, with limited working capital drag evident. Order momentum/backlog and utilization (not disclosed) are the key forward indicators for sustaining double-digit growth.

Financial Health

Liquidity is very strong: current ratio 341.1% and quick ratio 337.8% comfortably exceed benchmarks; no warning on current ratio (<1.0) or D/E (>2.0). Cash and deposits stand at 96.85 against current liabilities of 71.98, indicating no near-term funding stress. Working capital is 173.53, and inventories are minimal at 2.38, consistent with a low-inventory model. Solvency is conservative: equity/asset ratio ~81.3% (345.9/425.2), and reported D/E is 0.23x; interest-bearing debt items were unreported, but interest expense is negligible, implying low leverage. Interest coverage is extremely strong at 555x, reflecting minimal financing risk. Maturity mismatch risk appears low given cash exceeds current liabilities; short-term borrowings were unreported, but liquidity metrics suggest ample buffer. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 1.88x, indicating high-quality earnings with strong cash conversion. Operating cash flow of 51.33 more than covered interest and tax outflows, underscoring robust core cash generation. Free cash flow was -10.08 due to elevated investing cash flows (-61.41), primarily capex of -49.16, pointing to a growth/investment phase rather than cash burn. Given cash on hand (96.85) and low leverage, the company can accommodate temporary negative FCF. No clear signs of working capital manipulation are evident from the single-period snapshot; inventories are very low and receivables (86.39) appear manageable relative to revenue, but lack of prior-period working capital detail limits deeper diagnostic checks.

Dividend Sustainability

The calculated payout ratio is 45.4%, within the <60% benchmark for sustainability. With EPS of 263 JPY and a 45.4% payout, implied annual DPS is roughly 119 JPY (company DPS not disclosed; treat as indicative). FCF coverage is -0.81x this year due to heavy capex, which implies dividends are funded by balance sheet/OCF rather than FCF in the current period. However, strong OCF and cash reserves support near-term dividend capacity, assuming capex moderates or begins to yield cash returns. Policy outlook: if management prioritizes growth capex, expect stable or cautiously progressive dividends aligned to earnings, with flexibility given the conservative balance sheet.

Risk Assessment

Business Risks:

• Demand cyclicality in electronics/FPD/semiconductor-related markets impacting orders and utilization
• Technology transition risk (e.g., shifts to new lithography/packaging or display technologies) requiring ongoing capex
• Customer concentration risk typical of equipment/components suppliers
• Pricing pressure from global competitors affecting margins
• Execution risk on large capex turning into revenue/returns (payback uncertainty)

Financial Risks:

• Negative FCF in the investment phase if capex remains elevated
• FX exposure (JPY vs USD/CNY/KRW) affecting revenue and component costs
• Potential receivables concentration given AR of 86.39 and industry credit cycles
• Limited non-operating income buffer; earnings largely depend on core operations

Key Concerns:

• Sustainability of margin expansion as volume/mix normalizes
• Timing of capex monetization needed to improve FCF and support both growth and dividends
• Potential volatility in end-market orders leading to operating leverage downside
• Data gaps (e.g., SG&A breakdown, debt detail, DPS) may mask nuances in cost structure or capital allocation

Investment Implications

Key Takeaways:

• Quality beat on profitability: revenue +13.4% and operating income +26.0% drove ~132 bps operating margin expansion
• Cash conversion strong (OCF/NI 1.88x), underpinning earnings quality
• Negative FCF driven by growth capex (-49.2) rather than weak operations
• Balance sheet highly conservative (equity ratio ~81%, interest coverage 555x)
• ROIC at 11.0% exceeds benchmark, supporting value creation if sustained

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue visibility
• Capex-to-sales and capex execution/returns (ROIC trend)
• OCF/NI and FCF trajectory as investments ramp
• Receivables days and collection trends
• Operating margin sustainability and SG&A discipline
• FX sensitivity and hedging practices

Relative Positioning: Within Japanese electronics capital goods/component peers, the company shows above-average balance sheet strength, improving operating leverage, and ROIC above the 8% benchmark, though current negative FCF from heavy capex places it in an investment phase that requires execution to translate into sustained cash returns.

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