ICHIKOH INDUSTRIES,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥86.14B
• Operating Income: ¥3.74B
• Net Income: ¥2.65B
• EPS: ¥40.26

Income Statement

Balance Sheet

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

FY2025 Q3 was a solid profitability beat despite a softer top line, with margins expanding materially and ordinary income up strongly. Revenue declined 6.4% YoY to 861.41, but operating income rose 72.7% YoY to 37.39 and ordinary income increased 48.1% YoY to 49.82. Net income advanced 52.6% YoY to 38.73, driving EPS to 40.26 JPY. Operating margin improved to 4.34%, up roughly 199 bps from an estimated 2.35% a year ago (based on reported YoY growth rates). Net margin increased to 4.49%, up about 173 bps from an estimated 2.76% last year. Gross margin printed at 18.1%, and the SG&A ratio was 15.6% of revenue, indicating tighter cost discipline versus sales. Non-operating income of 15.07 (notably 1.33 interest income) was sizable at 38.9% of net income, providing a meaningful tailwind to ordinary profit. The effective tax rate stood at 33.9%, consistent with a normalized burden. Balance sheet quality is sound: current ratio 157.6%, quick ratio 153.1%, and D/E 0.66x with ample working capital of 210.93. Interest coverage is robust at 39.36x, reflecting low financial risk. ROE is 5.3% via DuPont (NPM 4.5% × AT 0.710 × leverage 1.66x), but ROIC is a weak 4.2% and below the 5% warning threshold. Cash flow disclosure is limited this quarter, preventing an OCF cross-check; thus earnings quality cannot be fully validated. The calculated payout ratio is modest at 32.4%, suggesting room for distributions, though FCF coverage is unverified. Forward-looking, the key swing factors are sustainability of margin gains amid declining sales and the stability of non-operating income contributions. If cost discipline and mix improvements persist, margins could remain resilient, but the sub-5% ROIC underscores the need for further efficiency gains. Overall, profitability improved meaningfully, liquidity is healthy, but capital efficiency and limited cash flow visibility temper the quality of the beat.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 4.5% × Asset Turnover 0.710 × Financial Leverage 1.66x = ROE 5.3%. The component that improved most YoY is the margin: operating income grew 72.7% YoY against a 6.4% revenue decline, lifting operating margin by ~199 bps (to 4.34%), and net margin by ~173 bps (to 4.49%). Business drivers likely include cost-down initiatives, improved product/mix and price pass-through, and a notable lift from non-operating income (15.07), while SG&A discipline kept the SG&A ratio to 15.6% of sales. Asset turnover at 0.71x appears stable-to-soft for an auto components manufacturer given the revenue decline and a sizeable asset base; leverage at 1.66x remains moderate. Sustainability: core operating margin gains may be partly sustainable if cost and mix benefits persist, but the sizeable non-operating contribution is inherently more volatile, making the current net margin uplift less certain. Watch for any re-acceleration in SG&A versus sales; we lack SG&A YoY detail, so we cannot confirm whether SG&A growth outpaced revenue.

Growth Assessment

Top-line contracted 6.4% YoY to 861.41, indicating softer demand or customer/program timing effects. Despite this, operating income surged 72.7% YoY to 37.39, driven by improved cost structure and non-operating support. Ordinary income rose 48.1% YoY to 49.82, reflecting strong below-OP contributions. Net income increased 52.6% YoY to 38.73, translating to EPS of 40.26 JPY. Operating margin expanded by ~199 bps to 4.34%, and net margin by ~173 bps to 4.49%, showing improved operating leverage despite revenue decline. Profit quality is mixed: core OPM improved, but the 38.9% non-operating income ratio to net income suggests a meaningful non-core boost. With OCF unreported, sustainability of earnings cannot be validated through cash conversion. Near-term outlook hinges on maintaining cost efficiencies, mix, and price pass-through against potential auto demand softness and input cost/FX volatility. Absent a rebound in sales, further margin gains may be harder to achieve; focus shifts to maintaining OPM >4% and lifting ROIC toward/above 6–7% over time.

Financial Health

Liquidity is healthy: current ratio 157.6% and quick ratio 153.1% exceed benchmarks. No warning on current ratio (<1.0) or excessive leverage (D/E reported at 0.66x, well below 2.0). Interest coverage is strong at 39.36x, indicating low debt service risk. Maturity mismatch risk appears contained: current assets of 576.99 comfortably cover current liabilities of 366.06, with cash 140.93 and receivables 133.08 providing additional flexibility; short-term loans are minimal at 0.13. Total liabilities are 481.16 vs equity 732.46, underscoring a conservative capital structure. Off-balance sheet obligations are not disclosed in the provided data; none can be assessed.

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be calculated; as such, earnings quality cannot be validated via cash conversion (we cannot flag or clear the <0.8 threshold). Free cash flow and capex are also unreported, preventing an assessment of coverage for dividends and strategic investments. Working capital appears adequate given positive working capital of 210.93; however, without period-on-period working capital movements, we cannot evaluate any potential earnings management via payables or receivables timing. The strong interest coverage (39.36x) and cash balance (140.93) provide some cushion in lieu of OCF disclosure.

Dividend Sustainability

The calculated payout ratio is 32.4%, comfortably within the <60% benchmark, suggesting room for sustained payouts. However, DPS and FCF data are unreported, and FCF coverage cannot be computed. Balance sheet strength (current ratio 1.58x; D/E 0.66x) supports dividend capacity in the near term, but the sub-5% ROIC (4.2%) indicates capital efficiency headroom; management may prioritize reinvestment to lift returns. Absent visibility on capex and OCF, we assume dividends are covered by earnings but cannot confirm cash coverage.

Risk Assessment

Business Risks:

• Auto demand cyclicality and program timing risk leading to revenue volatility (-6.4% YoY this quarter).
• Pricing pressure from OEM customers compressing margins over time.
• Input cost and logistics volatility (resin, energy, freight) impacting gross margin.
• Product/mix and launch execution risk affecting cost absorption and yields.
• FX fluctuation risk affecting non-operating income and cost base.

Financial Risks:

• Earnings quality uncertainty due to unreported OCF/FCF; cash conversion cannot be validated.
• Dependence on non-operating income (38.9% of net income) introduces volatility to ordinary profit.
• ROIC at 4.2% below the 5% warning threshold signals capital efficiency risk versus cost of capital.
• Potential working capital swings (AR/AP) could impact cash if sales mix shifts.

Key Concerns:

• Sustaining margin gains with declining sales; risk that cost improvements are not fully structural.
• Limited disclosure on cash flows and capex reduces visibility on FCF and dividend cover.
• Ordinary income uplift partly driven by non-core items; reversals could weigh on EPS.
• Asset turnover at 0.71x suggests underutilization; needs improvement to lift ROE/ROIC.

Investment Implications

Key Takeaways:

• Profitability improved meaningfully: OPM 4.34% (+~199 bps YoY) and net margin 4.49% (+~173 bps) despite revenue -6.4% YoY.
• Ordinary income +48.1% and net income +52.6% YoY, aided by sizable non-operating income (15.07).
• Balance sheet and liquidity strong (current ratio 1.58x, D/E 0.66x, interest coverage 39.36x).
• Capital efficiency remains weak: ROE 5.3% and ROIC 4.2% below target range, requiring further operational improvement.
• Earnings quality unverified due to missing OCF/FCF; sustainability depends on cash generation.

Metrics to Watch:

• Operating cash flow and free cash flow conversion vs net income (OCF/NI >1.0 target).
• Gross margin and SG&A ratio trajectory to confirm structural cost improvements.
• Breakdown and volatility of non-operating income (FX, interest, other).
• ROIC progress toward >6–7% via asset efficiency and margin improvement.
• Revenue normalization and order/program pipeline; asset turnover uplift.
• Capex levels and working capital movements (AR/AP/inventory days).

Relative Positioning: Versus domestic auto parts peers, the company exhibits conservative leverage and solid liquidity but lags on capital efficiency (ROIC 4.2%). Margins improved from a low base and are now in the mid-single-digit range for OPM, still below best-in-class peers. The quarter’s beat relies partly on non-operating support, leaving relative quality mixed until cash conversion is evidenced.

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