Meinan M&A Co., Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥1.49B
• Operating Income: ¥-22M
• Net Income: ¥-51M
• EPS: ¥-16.34

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 was a weak quarter with a swing to operating loss and negative bottom-line, driven by a sharp revenue decline and cost rigidity. Revenue fell 22.9% YoY to 14.87, while gross profit was 4.95, yielding a gross margin of 33.3%. SG&A of 5.17 exceeded gross profit, pushing operating income to -0.22 (operating margin -1.5%). Ordinary income deteriorated to -0.31 (down 98.2% YoY), and net income was -0.51, with EPS at -16.34 JPY. Operating cash flow was notably worse than earnings at -3.65 versus net income of -0.51, highlighting cash conversion stress despite modest accounting loss. Free cash flow was -5.21, pressured by negative OCF and continued investing outflows (-1.56) including modest capex (-0.20). Liquidity remained very strong: cash and deposits of 11.86, current assets 13.36 vs current liabilities 2.46, delivering a current ratio of 543%. Leverage is low with total liabilities of 2.46 and D/E of 0.14x; equity stands at 17.83 (BVPS ~566 JPY). Profitability ratios deteriorated: net margin at -3.4%, asset turnover 0.733, leverage 1.14x produced ROE of -2.9%, while ROIC printed -3.7% (below the 5% warning threshold). Operating margin compressed into negative from positive territory last year; exact basis point change is not derivable from disclosed data, but the direction and magnitude (to -1.5%) indicate a material deterioration. Earnings quality flags are present: OCF/NI is 7.16x due to both being negative, but in substance cash generation is weaker than accrual earnings. Cost structure rigidity is evident as SG&A outpaced gross profit, eliminating operating leverage amid a 22.9% revenue decline. Balance sheet strength mitigates near-term solvency risk, but sustained cash burn would erode cash reserves if revenue softness persists. With dividends unreported and payout ratios distorted by negative earnings, near-term capital return visibility is limited. Forward-looking, recovery hinges on deal execution velocity in the M&A advisory pipeline, utilization of professionals, and cost discipline to restore positive operating leverage. Management attention should focus on stabilizing revenue, aligning SG&A with current run-rate, and improving cash conversion, as ROIC below WACC is not sustainable.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (-3.4%) × Asset Turnover (0.733) × Financial Leverage (1.14x) = ROE (-2.9%). The biggest driver of ROE deterioration is net profit margin turning negative, as asset turnover of 0.733 and low leverage (1.14x) are relatively stable. Business reason: a 22.9% YoY revenue contraction in a largely fixed-cost advisory model caused gross profit (4.95) to fall short of SG&A (5.17), creating an operating loss (-0.22) and pushing net margin negative. Non-operating items were a modest net expense (0.08 income vs 0.16 expense), offering no offset. Sustainability: the margin compression appears cyclical/volume-driven rather than structural; if deal closings normalize, margin can recover, but near-term visibility is uncertain. Operating leverage turned adverse; SG&A did not flex down with revenue, a sign of cost rigidity typical in people-based businesses. Warning flags: SG&A growth vs revenue growth cannot be quantified due to lack of prior-period SG&A disclosure, but SG&A > gross profit this quarter is a negative mix signal. Gross margin at 33.3% is insufficient to cover SG&A at the current revenue base, implying the breakeven revenue level is higher than 14.87.

Growth Assessment

Top-line contracted 22.9% YoY to 14.87, indicating a sharp slowdown in advisory deal closures. Profitability deteriorated disproportionately, with operating income swinging to -0.22 and net income to -0.51, evidencing negative operating leverage. Revenue sustainability is challenged by transaction timing risk typical in M&A advisory; absent backlog disclosure, near-term rebound visibility is low. Non-operating contributions were small and net negative, providing little cushion. EBITDA was slightly negative (-0.07), confirming core profitability pressure even before D&A. ROIC at -3.7% signals value dilution if this level persists. Outlook hinges on improved deal flow, conversion of mandates to closings, and utilization of professional staff; cost discipline is needed to realign SG&A with current activity levels. Without segment or pipeline data, we assume normalization rather than structural decline, but timing remains the key uncertainty.

Financial Health

Liquidity is strong: current assets 13.36 vs current liabilities 2.46 yield a current ratio of 543% and quick ratio of 543%; clear headroom with working capital of 10.90. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.14x and total liabilities are modest at 2.46. Cash and deposits are 11.86, covering current liabilities almost 4.8x, minimizing near-term maturity mismatch risk. Interest-bearing debt is unreported; given low total liabilities and strong cash, leverage risk appears low. Noncurrent liabilities are unreported; absent data on leases or other obligations, off-balance sheet exposure cannot be assessed. Equity is solid at 17.83 with Owners’ Equity equal to Total Equity, and BVPS ~566 JPY.

Cash Flow Quality

OCF was -3.65 against net income of -0.51, yielding an OCF/NI ratio of 7.16x mechanically, but the economic signal is weak cash conversion (cash usage greater than accounting loss). FCF was -5.21, indicating the business did not self-fund operations and investments during the period. Capex was modest at -0.20, so cash burn stems primarily from operating cash outflows and broader investing CF (-1.56). Potential working capital factors (e.g., contract advances, work-in-progress, receivables) are not disclosed; with receivables at 0.01, other items likely drove OCF (e.g., decline in contract liabilities or higher prepayments), but details are unavailable. There are no clear signs of deliberate working capital manipulation, but variability in transaction settlements can materially swing OCF in this model. Sustainability: With cash 11.86 and low debt, negative FCF is tolerable short term; prolonged negative OCF would pressure cash balances.

Dividend Sustainability

Dividend data are unreported this quarter. The calculated payout ratio of -154.4% is not meaningful due to negative earnings; the reported payout ratio of 0.2% appears inconsistent with other disclosures and may reflect a different basis or period. FCF coverage is -6.62x, indicating FCF did not cover potential dividends if any were paid. With net loss and negative OCF, sustaining cash dividends would rely on balance sheet cash rather than internally generated funds. Policy outlook is unclear due to lack of disclosure; a conservative stance would be expected until profitability and cash generation normalize.

Risk Assessment

Business Risks:

• Deal volume and timing volatility in M&A advisory leading to lumpy revenue
• Fixed-cost base and staff costs creating negative operating leverage in down periods
• Competitive intensity in SME succession/M&A advisory compressing fees
• Execution risk in converting mandates to signed/closed transactions
• Reputation risk affecting win rates and referral pipelines

Financial Risks:

• Negative OCF (-3.65) and FCF (-5.21) despite modest accounting loss
• ROIC at -3.7% below threshold, implying potential value dilution if prolonged
• Dependence on cash reserves to fund operations during weak quarters
• Limited disclosure on interest-bearing debt and noncurrent liabilities

Key Concerns:

• Operating margin at -1.5% with SG&A exceeding gross profit
• Revenue down 22.9% YoY with unclear near-term catalysts for recovery
• Cash burn from operations if revenue softness persists
• Lack of dividend visibility due to negative earnings and unreported DPS

Investment Implications

Key Takeaways:

• Sharp revenue decline (-22.9% YoY) pushed operating margin to -1.5% and ROE to -2.9%
• Cash burn elevated: OCF -3.65 and FCF -5.21 despite strong cash balance (11.86)
• Cost structure appears rigid with SG&A (5.17) exceeding gross profit (4.95)
• Balance sheet is strong (current ratio 543%, D/E 0.14x), mitigating solvency risk
• ROIC -3.7% flags capital efficiency concerns until activity rebounds

Metrics to Watch:

• Quarterly deal closures and backlog/mandate pipeline conversion
• SG&A trajectory versus revenue to restore positive operating leverage
• Operating cash flow normalization and working capital movements
• ROIC and ROE recovery toward positive territory
• Any updates on dividend policy and capital allocation

Relative Positioning: As an M&A advisory-focused firm, results are more cyclical and transaction-timing sensitive than diversified peers; the company currently lags on profitability and cash generation but maintains superior liquidity and low leverage versus many small-cap advisory peers.

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
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