Decollte Holdings Corporation FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥6.05B
• Operating Income: ¥294M
• Net Income: ¥145M
• EPS: ¥28.42

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

Decorte Holdings (TSE:7372) delivered FY2025 Q4 consolidated results under IFRS showing steady top-line growth and solid operating leverage. Revenue rose 8.2% year over year to 60.46, supported by a 30.5% gross margin that translated into operating income of 2.94 (+34.3% YoY). The operating margin improved to roughly 4.9%, implying about 1 percentage point expansion versus an implied prior-year operating margin near 3.9%. EBITDA was 11.62 (19.2% margin), underpinned by depreciation and amortization of 8.68, indicating a capital-intensive model but with improving operating efficiency. Net income came in at 1.45 (+37.1% YoY), yielding a net margin of 2.4% and basic EPS of 28.42 yen, consistent with the reported average share count. Cash generation was a standout: operating cash flow of 13.66 was 9.4x net income, reflecting strong cash conversion and likely favorable working capital timing. Free cash flow was robust at 11.02 (about 18% of revenue), after investing cash outflows of 2.64 that we treat as a proxy for capex in the absence of detail. The balance sheet remains sound with total assets of 123.22 and equity of 49.82 (equity ratio 40.4%). Leverage at the liability level is moderate (liabilities/equity ~1.6x), and estimated net debt/EBITDA is around 1.9x using disclosed loans and cash equivalents. DuPont decomposition yields a calculated ROE of 2.9%, driven by modest net margin (2.4%), slow asset turnover (0.491x), and financial leverage of 2.47x. Notably, ordinary income of just 0.19 is far below operating income and profit before tax, indicating material but undisclosed non-operating items or classification differences; this is a key data limitation. The effective tax rate is low at about 8.9%, boosting bottom-line result, though sustainability of this rate is unclear. Liquidity assessment is constrained by the lack of current liability disclosure; reported working capital equals current assets, suggesting the metric is not comparable. Dividend information is unreported, so payout capacity must be inferred from earnings and free cash flow, both of which appear sufficient to support distributions if policy allows. Overall, the quarter shows improving profitability and very strong cash flow conversion, with a manageable leverage profile. Key issues to monitor include the non-operating result swing, the durability of gross margin at 30%+, and reinvestment needs given high D&A. Given data gaps (notably cash breakdown, current liabilities, interest expense, and dividend policy), conclusions are based on available non-zero items and reasonable assumptions on investing cash flows.

Profitability Analysis

ROE decomposition (DuPont): net profit margin 2.4% × asset turnover 0.491 × financial leverage 2.47x = calculated ROE ~2.9%. Operating margin is about 4.9% (operating income 2.94 / revenue 60.46), up from an implied ~3.9% last year given +34.3% OI vs +8.2% revenue, evidencing positive operating leverage. Gross margin of 30.5% provides adequate headroom for overhead absorption; SG&A of 15.37 represents ~25.4% of revenue, suggesting efficiency gains versus prior year. EBITDA margin of 19.2% indicates healthy operating cash earnings despite meaningful D&A (8.68, ~14.4% of revenue). The large gap between operating income (2.94) and ordinary income (0.19) highlights negative non-operating impacts or classification differences; without disclosed interest and other items, we cannot parse sources. Profit before tax (1.98) sits between OI and ordinary income, another sign of presentation differences; we rely on PBT and net income for margin quality. Effective tax rate is about 8.9% (0.18/1.98), which augmented net margin; persistence is uncertain. Overall, profitability quality improved as revenue growth outpaced overhead expansion, and margin expansion is evident. Asset turnover remains modest at 0.491x, consistent with a fixed-asset-intensive model, restraining ROE despite leverage.

Growth Assessment

Revenue grew 8.2% YoY to 60.46, indicating resilient demand. Operating income increased 34.3% to 2.94, showing operating leverage from prior cost and productivity actions. Net income rose 37.1% to 1.45, aided by both margin expansion and a low effective tax burden. Gross profit of 18.42 and a 30.5% gross margin suggest pricing and/or mix were supportive; sustainability hinges on maintaining utilization and unit economics. EBITDA growth (implied) is strong given the margin at 19.2%, supporting reinvestment capacity. The ordinary income decline (-88.4% YoY to 0.19) is at odds with operating profit improvement and likely reflects undisclosed non-operating items; we do not extrapolate this to core growth absent detail. With noncurrent assets at 120.06 (~97% of assets), the business appears asset-heavy, suggesting growth will depend on utilization and throughput rather than rapid footprint expansion unless capex increases. Outlook: near-term growth should track demand in core services with continued focus on SG&A discipline; however, we flag potential normalization of the tax rate and any return of non-operating headwinds as risks to reported profit growth.

Financial Health

Total assets 123.22 and total equity 49.82 imply an equity ratio of 40.4%, a solid capital base. Total liabilities of 79.47 equate to liabilities/equity of ~1.60x (the reported debt-to-equity ratio aligns if defined broadly). Interest-bearing loans disclosed total 24.97 (short-term 4.73, long-term 20.24); with cash and equivalents of 3.29, estimated net debt is ~21.68, implying net debt/EBITDA of ~1.87x—manageable for the cash generation profile. Current assets are 7.73, but current liabilities are unreported, so current and quick ratios are not calculable; liquidity assessment is therefore constrained. Working capital is listed as 7.73, but since current liabilities are not disclosed, this figure likely equals current assets and cannot be interpreted as excess liquidity. Asset composition is dominated by noncurrent assets (120.06, ~97% of total), reinforcing the need for steady cash flow to service fixed charges. Interest coverage cannot be computed due to undisclosed interest expense; nonetheless, cash flow indicates capacity to service debt and reduce leverage if desired.

Cash Flow Quality

Operating cash flow of 13.66 far exceeds net income of 1.45 (OCF/NI 9.42x), signaling very strong cash conversion, likely supported by favorable working capital movements and non-cash charges (D&A 8.68). EBITDA of 11.62 is slightly below OCF, implying working capital release in the period. Investing cash flow was -2.64; in the absence of detail we treat this primarily as maintenance and/or modest growth capex, yielding free cash flow of 11.02 (OCF - capex proxy). Free cash flow at ~18.2% of revenue highlights strong internal funding capacity. Quality of earnings is high for this period given cash realization; however, sustainability of working capital benefits should be monitored, as timing effects can reverse. With cash and equivalents at 3.29, the company appears to be using cash generation for debt reduction and/or other financing outflows (financing CF -9.94), consistent with balance sheet strengthening.

Dividend Sustainability

Dividend data (DPS, total dividends) are unreported, so payout ratios are not calculable. From a capacity standpoint, FY2025 FCF of 11.02 comfortably exceeds net income of 1.45, suggesting ample headroom for dividends if policy allows. The equity ratio of 40.4% and estimated net debt/EBITDA of ~1.9x are compatible with moderate distributions while maintaining balance sheet flexibility. Absent disclosure on dividend policy (target payout, DOE, or stability objective), we assume a prudent approach prioritizing reinvestment and/or deleveraging given the asset-heavy model and ongoing D&A. Sustainability would hinge on maintaining positive FCF after capex and servicing debt; on current numbers, coverage appears strong. We cannot assess FCF coverage of dividends or policy adherence due to missing dividend data.

Risk Assessment

Business Risks:

• Demand cyclicality in discretionary consumer services; bookings sensitive to macro conditions and consumer sentiment
• Market demographics and structural headwinds (e.g., marriage rates, domestic population trends)
• Cost inflation in labor and facility rents impacting SG&A and gross margin
• Utilization risk in an asset-heavy footprint; underutilization would pressure margins and ROE
• Geographic/segment exposure (including any overseas operations) to FX and tourism trends
• Competition and pricing pressure in core service categories

Financial Risks:

• Non-operating income volatility; ordinary income far below operating income suggests exposure to finance/other items
• Interest rate risk on floating-rate borrowings; interest expense not disclosed limits coverage analysis
• Liquidity visibility limited due to unreported current liabilities; near-term obligations cannot be assessed
• Refinancing and covenant risk given loans outstanding (short-term 4.73; long-term 20.24)
• Potential normalization of a low effective tax rate (8.9%) could reduce net margins

Key Concerns:

• Large discrepancy between operating income (2.94) and ordinary income (0.19) with non-operating details unreported
• Sustainability of working capital-driven cash flow strength (OCF/NI 9.4x) into future periods
• Low asset turnover (0.491x) constraining ROE absent further margin expansion
• Liquidity metrics (current, quick ratios) not calculable due to missing current liability data

Investment Implications

Key Takeaways:

• Core profitability improved: operating income +34.3% on revenue +8.2%, with operating margin near 4.9%
• Cash generation is strong: OCF 13.66 and FCF 11.02 indicate high earnings quality this period
• Balance sheet is sound: equity ratio 40.4%; estimated net debt/EBITDA ~1.9x
• ROE remains modest at ~2.9% due to low net margin and slow asset turnover
• Non-operating items appear to be a swing factor; ordinary income fell sharply to 0.19

Metrics to Watch:

• Operating margin trajectory and SG&A ratio
• Gross margin sustainability at ~30.5%
• Working capital movements and OCF/EBITDA conversion
• Net debt and interest expense (interest coverage once disclosed)
• Capex level versus D&A to gauge reinvestment and growth
• Effective tax rate normalization
• Booking trends and utilization in core service lines

Relative Positioning: Within consumer service peers, Decorte shows improving core margins and superior near-term cash conversion, offset by modest ROE and low asset turnover typical of asset-intensive models; balance sheet leverage is moderate and trending manageable.

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