HI-LEX CORPORATION FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥304.12B
• Operating Income: ¥3.39B
• Net Income: ¥9.65B
• EPS: ¥224.87

Income Statement

Balance Sheet

Cash Flow Statement

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

Hilex Corporation (7279) reported FY2025 Q4 consolidated results under JGAAP showing resilient bottom-line recovery despite modest top-line softness. Revenue was 3,041.23 (100M JPY), down 1.4% YoY, reflecting a subdued demand backdrop in autos and potential FX normalization. Gross profit was 339.57, equating to an 11.2% gross margin, which remains thin for an auto parts supplier and suggests cost pass-through remains incomplete. Operating income improved sharply to 33.91 (+828.9% YoY) as SG&A discipline (305.65) and stabilized input costs supported profitability, yet the operating margin is still a modest 1.1%. Non-operating income of 49.91—mainly dividend income (13.03) and interest income (7.42)—offset non-operating expenses of 11.11, lifting ordinary income to 72.72 (+166.6% YoY). Profit before tax rose to 112.16, implying sizable extraordinary gains (~39.4) not itemized in the disclosure. Net income reached 84.19 (+326.7% YoY), with an effective tax rate of 13.9% and a residual gap to PBT likely explained by non-controlling interests and other below-the-line items. DuPont analysis yields a 4.4% ROE (net margin 2.8%, asset turnover 1.10x, financial leverage 1.45x), indicating ROE is primarily constrained by low operating margin. Cash generation was solid: operating cash flow (OCF) was 120.23 and investing cash flow was a net inflow of 6.65, resulting in positive free cash flow of 126.88 using the company’s definition (OCF + investing CF). EBITDA was 128.62 with a 4.2% margin; D&A of 94.71 indicates a capital-intensive base, but interest coverage remains healthy at 9.74x (operating income/interest expense). The balance sheet is conservative with total assets of 2,769.97 and total equity of 1,916.92, implying low leverage (assets/equity 1.45x); current ratio is 216.7% and quick ratio 199.3%, underpinned by cash and deposits of 576.66. Working capital stood at 843.17, providing ample liquidity to navigate cyclicality. Debt is modest (short-term loans 74.91, long-term loans 10.12), supporting a debt-to-equity ratio of 0.45x as reported; cash exceeds interest-bearing debt by a wide margin. The earnings mix is helped by financial income from investment securities (437.24 on the balance sheet) and equity-method income (3.37), but this also elevates sensitivity to market valuation and dividend streams. Dividend data were not fully disclosed; however, the calculated payout ratio is 18.2% and FCF coverage is 8.30x, implying room for stable distributions under the current earnings and cash flow profile. Overall, FY2025 shows meaningful earnings repair driven by non-operating and extraordinary items alongside improving, but still low, core margins. Sustaining ROE improvement will depend on further operating margin expansion and disciplined capital allocation. Data limitations exist for certain items (e.g., SG&A and dividend breakdowns, R&D), so conclusions focus on disclosed figures.

Profitability Analysis

ROE is 4.4%, decomposed as net margin 2.8% × asset turnover 1.098 × financial leverage 1.45x. Operating margin is 1.1% (33.91/3,041.23), indicating that most of the ordinary income uplift came from non-operating gains (net +38.8). Gross margin of 11.2% suggests ongoing cost pressures and/or pricing constraints typical of Tier-1/2 automotive suppliers; SG&A at 10.1% of sales (305.65/3,041.23) leaves a narrow operating spread. EBITDA margin of 4.2% highlights modest operating leverage, with D&A at 94.71 consuming most of the EBITDA to reach EBIT. Interest coverage of 9.74x signals adequate headroom even at current low margins. Ordinary income at 72.72 (+166.6% YoY) materially exceeds operating income due to sizable dividend and interest income, reflecting returns on a large securities portfolio (437.24). Profit before tax at 112.16 implies ~39.4 of extraordinary income; hence, FY2025 profitability benefited from one-off items. The gap between PBT and net income (after a 13.9% tax rate) implies deductions for non-controlling interests or other items. Overall profit quality is mixed: core operations improved but remain thin-margin; headline profit growth relies on non-operating and extraordinary factors.

Growth Assessment

Revenue declined 1.4% YoY to 3,041.23, pointing to muted auto production/shipments or FX normalization. Operating income surged (+828.9% YoY) from a low base, primarily via cost control and reduced headwinds rather than robust top-line expansion. Ordinary income rose 166.6% YoY due to non-operating income (dividends, interest) and likely improved equity-method contributions (3.37). Net income climbed 326.7% YoY, bolstered by extraordinary gains (~39.4) and a relatively light effective tax burden (13.9%). Sustainability: the non-operating and extraordinary components are less repeatable; recurring growth hinges on expanding gross margin and operating efficiency. With EBITDA at 128.62 and D&A at 94.71, incremental revenue could lift EBIT if mix and utilization improve, but the current margin starting point is low. Outlook: absent large one-offs, profit trajectory will depend on OEM production volumes, pricing pass-through of materials, and FX. Investment securities income (dividends/interest) can support ordinary income but is sensitive to market conditions and rates. Near-term growth should focus on margin normalization and selective growth in higher-value mechatronics/cable systems.

Financial Health

Liquidity is strong: current ratio 216.7% and quick ratio 199.3%, with cash and deposits at 576.66 and accounts receivable at 442.12 against current liabilities of 722.37. Working capital is sizable at 843.17, providing operational flexibility. Solvency is sound with total liabilities of 853.04 versus equity of 1,916.92; financial leverage is modest at 1.45x (assets/equity). Reported debt-to-equity is 0.45x, while on-balance interest-bearing loans are low (short-term 74.91, long-term 10.12), implying net cash when considering cash and deposits. Interest coverage at 9.74x indicates comfortable servicing capacity. Investment securities of 437.24 are significant within noncurrent assets (1,204.41), supporting financial income but adding market valuation risk. Overall capital structure is conservative and capable of supporting steady operations and measured investment.

Cash Flow Quality

OCF of 120.23 exceeds net income of 84.19 (OCF/NI 1.43x), indicating healthy cash conversion and limited accrual reliance. Investing CF was a net inflow of 6.65 despite capital expenditures of -83.43, implying asset sales or proceeds from securities drove the positive net. Free cash flow, defined here as OCF + investing CF, was 126.88; on a traditional OCF − capex basis, core FCF would be ~36.8, highlighting the contribution from asset/portfolio recycling this year. Working capital appears well managed given the large positive OCF alongside stable receivables (442.12) and moderate inventories (125.82), but without YoY balance sheet deltas, amplitude of WC releases cannot be isolated. D&A of 94.71 versus capex of 83.43 suggests maintenance capex roughly in line with depreciation, limiting capital intensity pressure. Financing CF of -68.92 reflects outflows such as share repurchases (-15.00) and potentially debt reduction and/or dividends (dividends paid not disclosed). Overall earnings quality is solid on cash metrics, though a portion of total FCF stems from non-recurring investing inflows.

Dividend Sustainability

Dividend per share and total dividend paid are unreported; however, the calculated payout ratio is 18.2%, suggesting a conservative distribution versus earnings (NI 84.19). FCF coverage is 8.30x based on the company’s FCF definition (OCF + investing CF), indicating ample headroom this period; on a stricter OCF − capex basis, coverage would still appear reasonable given modest implied cash dividends. Balance sheet strength (net cash position) and stable OCF support ongoing payouts under current profitability. The reported payout ratio of 0.8% appears to reflect data mapping or disclosure gaps rather than the true policy. With DOE reported as 0.0% (unreported), formal equity-based payout targets are unclear. Absent explicit guidance, we assume a stable-to-cautious dividend stance anchored by cash generation, with potential for incremental returns if core operating margins structurally improve.

Risk Assessment

Business Risks:

• Automotive cycle sensitivity: volumes and model mix changes at OEM customers can swing orders and margins.
• Raw material and logistics costs: incomplete pass-through can compress the already thin 11.2% gross margin.
• Pricing pressure from OEMs and tiered supply chains limiting margin expansion.
• Product transition risk toward EVs and advanced driver systems requiring R&D and capex to maintain content per vehicle.
• Geographic and FX exposure impacting revenues and non-operating results (dividend/interest income partly FX-sensitive).
• Customer concentration typical of auto suppliers increases counterparty bargaining power.
• Execution risk in cost reduction and operational efficiency needed to expand 1.1% operating margin.

Financial Risks:

• Dependence on non-operating and extraordinary gains to bolster profits; underlying operating margin remains low.
• Market risk from sizable investment securities (437.24), affecting dividends, valuation, and potential OCI swings.
• Interest rate risk on financial assets and potential refinancing, albeit limited by low debt levels.
• Potential volatility in equity-method earnings (3.37) tied to affiliates’ performance.
• Tax and minority interest variability affecting net income conversion from PBT.

Key Concerns:

• Sustainability of profit before tax uplift given ~39.4 in unspecified extraordinary gains.
• Operating margin remains thin at 1.1%, constraining ROE at 4.4%.
• Positive investing CF driving FCF (company definition), indicating reliance on asset sales/portfolio gains this period.

Investment Implications

Key Takeaways:

• Top line softened 1.4% YoY, but earnings rebounded on non-operating and extraordinary items.
• Core profitability improved yet remains low: 11.2% gross margin and 1.1% operating margin.
• ROE at 4.4% is primarily limited by low net margin; leverage is modest at 1.45x.
• Strong liquidity (current ratio 216.7%, quick 199.3%) and net cash profile underpin resilience.
• Cash conversion is healthy (OCF/NI 1.43x); FCF benefited from investing inflows.
• Financial income (dividends/interest) is a meaningful earnings pillar tied to a large securities portfolio.
• Dividend capacity appears adequate given cash generation and conservative payout assumptions.

Metrics to Watch:

• Operating margin trajectory and gross margin improvement from cost pass-through and mix.
• Magnitude and recurrence of non-operating income and extraordinary gains.
• OCF minus capex (core FCF) and working capital movements.
• Utilization rates and D&A versus capex to gauge maintenance vs. growth spending.
• FX impacts and auto production indices across key regions.
• Portfolio size and returns from investment securities; potential OCI/valuation effects.
• Customer concentration and order backlog/new program wins in EV/mechatronics.

Relative Positioning: Within TSE-listed auto parts peers, Hilex exhibits below-average operating margin and ROE but above-average balance sheet strength and liquidity. Its earnings mix leans more on financial income and one-off items than many peers, while its conservative leverage and cash reserves provide downside protection but mute equity returns absent operating improvement.

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