KIYO Learning Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.79B
• Operating Income: ¥113M
• Net Income: ¥91M
• EPS: ¥13.30

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

Verdict: Solid top-line growth but profit underperformance, with margin compression and elevated leverage tempering the quarter’s quality. Revenue rose 12.9% YoY to 37.89, evidencing healthy demand and/or expansion of the customer base. Gross profit reached 29.09 with a robust gross margin of 76.8%, underscoring high inherent unit economics typical of digital content/SaaS-like models. Operating income declined 28.0% YoY to 1.13, dragging operating margin down to about 3.0%. Ordinary income was 1.12 (−26.9% YoY) and net income was 0.91 (−23.3% YoY), implying a net margin of 2.4%. Using the YoY changes, operating margin compressed by roughly 170 bps (from ~4.7% to ~3.0%). SG&A intensity was high at 72.6% of sales (27.51), indicating continued investment and/or cost pressure outpacing revenue. Interest expense remained small at 0.03 with interest coverage of 33.8x, so near-term debt service risk is low. Liquidity is adequate but not comfortably strong (current ratio 125.4%), and leverage is elevated (D/E 2.19x), warranting caution. Cash and deposits of 34.76 provide a buffer relative to current liabilities of 30.59, but short-term loans of 4.50 highlight refinancing and rate sensitivity. DuPont ROE calculates to 6.5%, driven by modest net margin (2.4%), decent asset turnover (0.83x), and high financial leverage (3.27x). Reported ROIC is −5.7%, signaling subpar capital efficiency even with positive operating profit, likely due to definition differences (NOPAT vs invested capital) and still-low absolute earnings. Earnings quality cannot be validated because OCF is unreported; hence cash conversion of earnings is unknown. Forward-looking, revenue momentum is encouraging, but sustaining profit growth requires SG&A discipline and better operating leverage; the balance sheet suggests limited room for misexecution given elevated leverage and accumulated deficit in retained earnings.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 2.4% × 0.830 × 3.27 ≈ 6.5%. The component that swung the most this quarter is net profit margin, reflecting a 28% YoY decline in operating income despite double-digit revenue growth. Business driver: SG&A rose to 72.6% of sales, implying stepped-up spending (e.g., salesforce, marketing, product/content, or platform costs recorded in OpEx) that more than offset gross margin strength. The leverage component (3.27x) elevated ROE despite thin margins; this is not a high-quality driver and increases risk sensitivity. Sustainability: margin pressure appears driven by cost growth outpacing revenue; if spending is growth investment, future operating leverage could normalize margins, but near-term visibility is limited without SG&A detail. Concerning trends: SG&A intensity is very high, and given revenue +12.9% YoY vs operating income −28.0% YoY, operating leverage was negative this period; if persistent, it will cap ROE and cash generation.

Growth Assessment

Revenue growth of 12.9% YoY to 37.89 is solid and consistent with a scaling digital learning model. However, profit growth lagged materially: operating income fell 28.0% YoY to 1.13, ordinary income fell 26.9% to 1.12, and net income fell 23.3% to 0.91. The deterioration implies higher customer acquisition or development spend and/or weaker cost control. Gross margin remained strong at 76.8%, suggesting core product economics are intact. The key question is whether SG&A inflation is investment (future growth) or structural (cost base reset). With limited disclosure on SG&A breakdown and R&D, we assume a mix of growth investment and cost inflation. Outlook hinges on converting recent spend into revenue scale that improves operating margin back toward mid-single digits. Near term, we expect continued revenue growth but only gradual profit recovery unless SG&A discipline improves.

Financial Health

Liquidity: Current ratio is 125.4% and quick ratio the same; above 1.0 but below the >1.5 comfort benchmark—adequate but tight. Solvency: D/E is 2.19x (warning threshold >2.0), reflecting high liabilities relative to equity; we flag this. Interest coverage is strong at 33.8x, indicating manageable interest burden currently. Maturity profile: Current liabilities of 30.59 nearly match current assets of 38.37; short-term loans are 4.50, indicating some refinancing exposure and rate sensitivity, though cash and deposits of 34.76 provide a liquidity cushion. Retained earnings are negative at −3.04, signaling accumulated past losses and limited internal capital. Noncurrent liabilities are minimal (0.04), so the liability stack is largely short term—monitor rollover risk. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

Operating cash flow is unreported, so we cannot compute OCF/Net Income or assess cash conversion; earnings quality therefore cannot be validated. Free cash flow is unreported; sustainability of investment and dividends (if any) is unknown. Working capital: Accounts receivable of 0.75 versus annualized revenue run-rate suggests low receivables intensity (likely upfront/online collections), which is positive, but without OCF we cannot confirm. No clear signs of working capital manipulation can be inferred from the limited balance sheet snapshot.

Dividend Sustainability

Dividends are unreported for the period, so payout ratio and FCF coverage cannot be assessed. Given negative retained earnings (−3.04) and elevated leverage (D/E 2.19x), capacity for sizable dividends appears limited until profits scale and deficits are repaired. Policy outlook is unclear from disclosures; prudence would suggest prioritizing reinvestment and balance sheet strengthening over distributions until operating margin improves.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A (72.6% of sales) leading to negative operating leverage.
• Execution risk in converting growth investments into sustained profitability.
• Competitive intensity in digital learning/EdTech potentially raising customer acquisition costs and churn.
• Product relevance and content refresh risk impacting renewals and upsell.

Financial Risks:

• High leverage: D/E 2.19x with predominately short-term liabilities.
• Refinancing and interest rate risk tied to short-term loans of 4.50.
• Negative retained earnings (−3.04) limiting financial flexibility.
• Capital efficiency concern: reported ROIC −5.7% despite positive operating profit.

Key Concerns:

• Operating margin compressed by ~170 bps YoY to ~3.0%.
• Profit declines (OP −28%, NI −23.3%) despite 12.9% revenue growth.
• OCF unreported—earnings quality and cash generation unverified.
• Reliance on high gross margins to offset rising operating costs may be challenged if growth slows.

Investment Implications

Key Takeaways:

• Top line grew 12.9% YoY, but profit fell due to higher SG&A intensity.
• Operating margin compressed to ~3.0% (−170 bps YoY), indicating negative operating leverage.
• ROE at 6.5% is supported by leverage (3.27x), not margin strength—quality mixed.
• Balance sheet shows adequate liquidity but elevated leverage (D/E 2.19x) and accumulated deficit.
• Earnings quality, FCF, and dividend capacity cannot be assessed due to missing cash flow data.

Metrics to Watch:

• OCF and OCF/NI once disclosed (target >1.0).
• SG&A growth vs revenue growth and SG&A-to-sales ratio trajectory.
• Operating margin recovery toward mid-single digits.
• Net cash position and reliance on short-term loans; interest coverage trend.
• ROIC improvement toward >5% initially and >7–8% medium term.

Relative Positioning: Within small-cap digital learning peers, KIYO shows healthy gross margins and double-digit revenue growth but weaker operating leverage and higher balance-sheet leverage than desired; improving cost discipline and demonstrating cash conversion are essential to close the quality gap.

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