MARUKA FURUSATO Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥117.22B
• Operating Income: ¥2.02B
• Net Income: ¥4.04B
• EPS: ¥58.19

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 weak operationally with margin compression and heavy reliance on non-operating items, despite a solid balance sheet. Revenue declined 2.3% YoY to 1,172.19, while operating income fell 25.9% YoY to 20.15, driving operating margin down to 1.7%. Gross profit was 192.14, implying a gross margin of 16.4%; SG&A was 164.95, indicating limited operating leverage in a softer demand environment. Ordinary income declined 25.5% YoY to 25.34, supported by net non-operating gains of 6.86 (non-operating income 8.00 minus expenses 1.14), representing a high 57.5% of operating income. Profit before tax printed at a significantly higher 59.97, suggesting sizable extraordinary gains, but net income fell 64.7% YoY to 13.92, indicating material below-the-line or attribution effects (e.g., non-controlling interests) that diluted shareholders’ profit. Operating margin compressed by roughly 54 bps YoY (from about 2.3% to 1.7%), while net margin compressed by about 210 bps YoY (from roughly 3.3% to 1.2%). Interest coverage remains very strong at ~96x, and the company maintains net cash with low interest-bearing debt (short-term 5.06, long-term 3.68) against 296.38 in cash. Liquidity is robust with a current ratio of 188.4% and quick ratio of 162.7%. ROE is subdued at 1.9% (Net margin ~1.2% × Asset turnover ~1.00 × Leverage 1.65x), reflecting low profitability rather than excessive leverage. ROIC is 3.2%, below the 5% warning threshold, underscoring weak capital efficiency. Earnings quality is a concern given the unusually large gap between PBT and net income and the elevated contribution from non-operating items; cash flow data are unreported, limiting our ability to validate cash earnings. The calculated payout ratio of 193.3% implies dividends exceed current earnings, likely relying on balance sheet strength in the short term rather than recurring free cash flow. Strategic implication: restoring operating margin and improving ROIC above the 5–7% range is necessary to sustain the current shareholder return stance. Near-term focus should be on demand recovery in core segments, discipline in SG&A, and reducing dependency on non-operating/extraordinary gains. Data limitations (no cash flow statement or segment detail) constrain deeper diagnostics, but the headline signals point to cyclical softness and capital efficiency headwinds.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.9% = Net Profit Margin 1.2% × Asset Turnover 0.996 × Financial Leverage 1.65x. The weakest component is net profit margin, which deteriorated sharply (net margin down ~210 bps YoY to 1.2%), while asset turnover (~1.0x) and leverage (1.65x) are stable/modest. Business drivers: revenue softness (-2.3% YoY) combined with limited SG&A flexibility compressed operating margin to 1.7%, and heavier below-the-line drag reduced net margin further despite sizable non-operating gains. Ordinary income was assisted by non-operating income (8.00), indicating that core margin pressure required financial and other income to support profits. The large gap between PBT (59.97) and net income (13.92) implies non-recurring/attribution effects that depressed earnings available to owners, masking underlying operational trends. Sustainability: the margin headwinds tied to demand/pricing and SG&A rigidity can persist if the macro/capex cycle remains weak; non-operating and extraordinary contributions are by nature volatile. Operating margin contracted by ~54 bps YoY (from ~2.26% to ~1.72%), evidencing negative operating leverage; SG&A growth versus revenue is not disclosed, but the absolute SG&A burden (164.95) appears heavy versus gross profit (192.14), leaving a thin operating profit buffer. Key concern: reliance on non-operating/extraordinary items to bridge profitability and the low ROIC (3.2%) highlight structural profitability constraints.

Growth Assessment

Top-line decreased 2.3% YoY to 1,172.19, indicating a mild cyclical slowdown. Operating income declined 25.9% YoY to 20.15, outpacing the revenue contraction due to margin pressure and limited cost absorption. Ordinary income (-25.5% YoY) was cushioned by net non-operating gains (6.86), but net income dropped 64.7% YoY to 13.92 as below-the-line items and/or minority interests materially reduced profit to owners. Gross margin stands at 16.4%; without YoY GP detail, the visible driver of earnings decline is operating margin compression to 1.7%. Non-operating income (dividends 1.10, interest income 0.79) helped, but this mix is less durable than operating profit improvements. ROIC at 3.2% signals weak reinvestment returns; improving pricing power, mix, and overhead efficiency are necessary for sustainable growth. Outlook hinges on recovery in core industrial demand and better expense discipline; absent segment data, we assume mid-cycle normalization could lift margins, but near-term visibility is limited.

Financial Health

Liquidity is strong: current ratio 188.4% and quick ratio 162.7% comfortably exceed benchmarks. The company carries minimal debt (short-term 5.06, long-term 3.68) versus cash of 296.38, implying a sizable net cash position; interest coverage is robust at ~96x. Debt-to-equity is 0.65x on a total liabilities basis, but interest-bearing leverage is very conservative. No warning flags on Current Ratio (<1.0) or D/E (>2.0). Maturity mismatch risk is low: current assets of 834.74 comfortably cover current liabilities of 443.12; short-term loans are de minimis relative to liquid assets. Off-balance sheet obligations are not disclosed; we cannot assess guarantees or commitments. Equity base is solid at 712.72, with retained earnings of 388.22 supporting resilience.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported for the period, so OCF/Net Income and FCF cannot be assessed. Consequently, we cannot validate accrual quality or working capital impacts underlying the earnings decline. The large spread between PBT (59.97) and net income (13.92) and the reliance on non-operating income suggest potential volatility in cash conversion if extraordinary or attribution items are significant. Inventory (113.94) and receivables (231.19) are material; without turnover data, we cannot rule out working capital drag. Given payout exceeding earnings, FCF sufficiency for dividends is unclear; near-term coverage may rely on the large cash balance.

Dividend Sustainability

The calculated payout ratio is 193.3%, indicating dividends exceed current earnings. With EPS of 58.19 JPY and average shares of 23.93 million, implied annual dividends approximate 112 JPY per share, or roughly 26–27 (100M JPY) in cash outflow, versus net income of 13.92 (100M JPY). Short term, the substantial cash balance of 296.38 (100M JPY) can fund dividends; however, without FCF disclosure, structural sustainability is uncertain. Policy-wise, if management targets stable or progressive dividends, maintaining this level would require a rebound in operating profitability and cash generation. Absent an earnings recovery, the payout ratio would likely remain above comfort thresholds (<60%), pressuring capital allocation flexibility.

Risk Assessment

Business Risks:

• Cyclical demand in core industrial/machinery and construction-related markets pressuring volumes and pricing
• Operating margin sensitivity to SG&A rigidity amid modest revenue declines
• Reliance on non-operating and extraordinary items to support profit
• ROIC at 3.2% indicates weak capital efficiency and potential misallocation risk

Financial Risks:

• Dividend payout exceeding earnings (193.3%) may not be supported by FCF
• Potential working capital build (receivables/inventory) could strain cash if demand slows further
• Earnings volatility from below-the-line items and minority interest attribution

Key Concerns:

• Net margin compression to 1.2% and operating margin at 1.7% limit earnings resilience
• Large gap between PBT (59.97) and NI (13.92) suggests one-offs/NCI that impair earnings visibility
• Low ROE (1.9%) and ROIC (3.2%) below cost-of-capital benchmarks
• Data limitations (no cash flow, no segment or equity-method detail) constrain validation of earnings quality

Investment Implications

Key Takeaways:

• Operating margin contracted ~54 bps YoY to 1.7% on a 2.3% revenue decline, driving a 25.9% drop in operating income
• Net income fell 64.7% YoY to 13.92 as below-the-line effects overwhelmed higher PBT
• Non-operating income (8.00) provided meaningful support; reliance on such income raises quality concerns
• Balance sheet is strong with net cash (cash 296.38 vs interest-bearing debt 8.74) and high liquidity
• ROIC at 3.2% and ROE at 1.9% underscore capital efficiency challenges
• Payout ratio of 193.3% suggests dividends exceed earnings and may require cash balance support near term

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Order backlog and book-to-bill in core segments
• OCF/Net Income and working capital turnover (AR and inventory days)
• ROIC progression toward >5–7%
• Composition of non-operating and extraordinary items; minority interest impacts
• Dividend policy updates relative to earnings trajectory

Relative Positioning: Within Japan’s industrial trading/tooling and machinery distribution peers, the company exhibits stronger-than-average balance sheet resilience (net cash, high liquidity) but weaker profitability and capital efficiency (ROIC 3.2%, ROE 1.9%) in the current quarter; sustaining elevated shareholder returns will likely depend on an operating recovery rather than financial income.

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