Sincere Co.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.42B
• Operating Income: ¥395M
• Net Income: ¥229M
• EPS: ¥38.16

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: A solid top-line-driven quarter with stable ROE and improved net profit, though operating margin compressed slightly due to higher cost/SG&A intensity. Revenue rose 11.8% YoY to 54.19, with operating income up 3.9% to 3.95 and net income up 11.6% to 2.47. Gross profit was 15.71, implying a gross margin of 29.0%, while operating margin was 7.3%. Based on back-solved prior-period figures, operating margin compressed by roughly 55 bps YoY (from ~7.84% to 7.29%), while net margin was effectively flat near 4.6% (0–5 bps change). Non-operating items were a net drag (income 0.12 vs expenses 0.36), and interest expense of 0.12 was easily covered (interest coverage ~33x). Tax expense of 1.27 drove an effective tax rate of ~35.7%, keeping net margin stable despite the operating margin compression. ROE calculated at 8.9% (NPM 4.6% × AT 0.957 × leverage 2.03x), matching the reported figure and signaling acceptable capital efficiency. The balance sheet is liquid and conservative, with current ratio at 215% and estimated equity ratio near 49%. Short-term loans (11.50) are amply covered by cash (18.83) and receivables (10.52), limiting refinancing risk. Total comprehensive income of 1.43 was below net income, indicating negative OCI (likely FX or valuation effects) that modestly reduced comprehensive returns. Dividend payout ratio is 52.8%, within a sustainable range, but cash flow disclosure is absent and limits a full coverage assessment. ROIC at 9.9% is above typical 7–8% targets, implying productive deployment of capital. Earnings quality cannot be fully assessed due to missing cash flow data (OCF/NI not available). Forward-looking, sustaining revenue growth while stabilizing margins will be key to preserving ROE near or above the current 9% level. Monitoring SG&A discipline and cost pass-through will determine whether the operating margin can re-expand. Overall, the quarter shows healthy growth and returns with manageable financial risk, tempered by slight operating margin pressure and data gaps on cash flows.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 4.6% × Asset turnover 0.957 × Financial leverage 2.03x = ROE 8.9%. Component changes: Revenue grew faster than operating income (+11.8% vs +3.9%), implying operating margin compressed ~55 bps YoY to 7.3%, while net margin stayed roughly flat (~4.6%). The largest change driver was margin (operating level), pressured by higher cost of sales and/or SG&A intensity; non-operating results were a small net negative. Business drivers: likely mix and input costs (e.g., materials, logistics) and/or elevated commercial spend to support growth. Sustainability: revenue momentum appears solid; margin pressure may be transitory if pricing and mix can offset costs, but absent evidence of cost relief, we assume only gradual normalization. Flags: operating income growth lagged revenue; SG&A trend is unreported, but implied operating leverage was negative this quarter. Interest burden is low (coverage ~33x), and tax rate ~36% remains a headwind to net margin expansion.

Growth Assessment

Revenue growth of 11.8% YoY indicates healthy demand and/or improved distribution. Operating income increased 3.9% YoY, lagging sales due to margin compression; net income rose 11.6% aided by stable net margin and possibly a favorable non-operating/tax mix versus the prior period. The gross margin at 29.0% is adequate but leaves limited cushion if costs rise further. Ordinary income (3.79) was slightly below operating income due to net non-operating expenses, suggesting core operations remain the primary profit driver. Outlook: sustaining double-digit sales growth while stabilizing COGS/SG&A ratios would enable operating margin recovery; price/mix optimization and procurement efficiency are focal levers. With ROIC at 9.9%, incremental growth investments appear value-accretive if returns can be maintained. Near-term growth quality is acceptable, but improvement in operating leverage is needed to translate top-line gains into bottom-line acceleration.

Financial Health

Liquidity is strong: current ratio 214.9% and quick ratio 214.9%, with cash (18.83) and receivables (10.52) comfortably exceeding short-term loans (11.50) and accounts payable (4.34). No warning triggers: Current Ratio well above 1.0; D/E (reported) 1.03x is moderate and appears to reflect total liabilities/equity; interest-bearing debt/equity is ~0.60x (16.72/27.84), conservative. Equity ratio (calculated) ~49.1% indicates a solid capital base. Maturity mismatch risk is low given substantial current assets (48.99) versus current liabilities (22.80). Off-balance sheet obligations are unreported; no specific commitments disclosed in the data. Interest coverage ~33x underscores low financial risk.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be assessed. As a result, earnings quality cannot be validated against cash conversion benchmarks (OCF/NI > 1.0). Working capital quality looks adequate from the balance sheet (cash and AR cover ST debt), but without cash flow statements, we cannot detect timing effects or working capital release/absorption patterns. Dividend and capex coverage by FCF is not calculable; we therefore refrain from conclusions on FCF sustainability.

Dividend Sustainability

Payout ratio is reported at 52.8%, which sits within a generally sustainable range (<60%). With strong liquidity and modest leverage, near-term payment capacity appears sound. However, the absence of OCF/FCF data prevents verification of cash coverage; sustainability is therefore contingent on continued positive cash generation and controlled capex. No DPS figures are disclosed for the period, and there is no visibility on buybacks. Policy outlook cannot be inferred from the data; maintaining payout near current levels seems plausible if earnings momentum and liquidity persist.

Risk Assessment

Business Risks:

• Operating margin pressure from input costs, logistics, and/or promotional intensity compressing OM by ~55 bps YoY
• Product mix and pricing risk affecting gross margin (29.0%)
• Competitive intensity in contact lenses/eyecare channels potentially requiring higher SG&A
• Regulatory/quality risk (PMDA compliance, product recalls) inherent to medical-related products
• FX exposure on imported materials and finished goods impacting COGS

Financial Risks:

• Partial reliance on short-term debt (11.50) though currently covered by cash and AR
• Negative OCI reducing total comprehensive income versus net income (2.47 vs 1.43)
• Limited visibility on cash generation due to unreported cash flow statements
• Potential refinancing risk if credit conditions tighten, albeit mitigated by liquidity

Key Concerns:

• Earnings quality cannot be validated (OCF/NI N/A)
• Operating leverage negative this quarter (OI growth < revenue growth)
• Tax rate near 36% constrains net margin expansion
• Non-operating items net negative despite interest coverage being strong

Investment Implications

Key Takeaways:

• Top-line strength (+11.8% YoY) with stable ROE at 8.9%
• Operating margin compressed ~55 bps YoY to 7.3%, net margin ~flat at 4.6%
• Balance sheet healthy: current ratio ~215%, equity ratio ~49%, interest coverage ~33x
• ROIC at 9.9% suggests value-accretive growth if sustained
• Comprehensive income below net income due to OCI losses
• Cash flow disclosure absent, limiting conviction on earnings quality and dividend coverage

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Gross margin resilience (pricing/mix vs input cost trends)
• OCF/Net income and FCF once disclosed
• Inventory levels/turnover (unreported) to gauge demand and obsolescence risk
• FX impacts on COGS and OCI components
• Short-term debt rollover and interest rate sensitivity

Relative Positioning: Within the domestic consumer healthcare/eyecare space, the company exhibits above-target ROIC and conservative leverage with robust liquidity. Profitability is respectable but currently constrained by operating margin pressure; sustained growth with restored operating leverage would enhance competitiveness versus peers with higher steady-state margins.

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