IMAGE MAGIC Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.88B
• Operating Income: ¥497M
• Net Income: ¥296M
• EPS: ¥122.82

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: Strong top-line and operating profit growth with modest operating margin expansion, but a slight net margin compression due to below-the-line items and a higher effective tax burden. Revenue rose 23.2% YoY to 68.78, while operating income grew 36.4% YoY to 4.97, demonstrating positive operating leverage. Ordinary income increased 33.4% YoY to 4.99, supported by small net non-operating gains of about +0.10 (0.12 non-op income minus 0.02 non-op expense). Net income climbed 18.4% YoY to 2.96, translating to EPS (basic) of 122.82 JPY. Gross profit reached 21.44 with a gross margin of 31.2%. Operating margin is 7.23% (4.97/68.78), up approximately 71 bps from an estimated prior-year operating margin of 6.52%. Net margin is 4.30% (2.96/68.78), down roughly 18 bps from an estimated prior-year 4.48%, as extraordinary losses (~1.25) reduced profit before tax below ordinary income. The effective tax rate stands at 32.9%, which likely contributed to the modest net margin compression. Balance sheet strength is solid: current ratio 192.8%, quick ratio 183.9%, D/E 0.60x, and interest coverage at a very comfortable 216x. ROE is healthy at 14.6%, driven primarily by strong asset turnover (2.12x) with moderate leverage (1.60x). Liquidity is ample with cash and deposits of 9.41 against current liabilities of 9.71, and net working capital of 9.01. Cash flow data are unreported; thus, earnings quality via OCF conversion cannot be assessed this quarter. Dividend payout ratio is a conservative 25.7%, implying room for stability if earnings persist, though FCF coverage cannot be verified. Forward-looking, the demonstrated operating leverage and cost discipline support earnings momentum into Q4, but the presence of extraordinary losses this period and a relatively high tax rate temper the bottom-line translation.

Profitability Analysis

ROE decomposition (DuPont): ROE 14.6% = Net Profit Margin 4.3% × Asset Turnover 2.119 × Financial Leverage 1.60x. The most notable change YoY appears to be margin-driven at the operating level: revenue +23.2% vs operating income +36.4% implies operating margin expansion of ~71 bps to 7.23%. However, net margin compressed by ~18 bps to 4.30%, reflecting below-the-line drag (extraordinary loss inferred from ordinary income 4.99 vs PBT 3.74) and a 32.9% effective tax rate. Asset turnover looks strong at 2.12x given total assets of 32.46 and annualized revenue run-rate, and likely contributed positively to ROE; leverage is modest at 1.60x (Assets/Equity), indicating ROE is not reliant on high gearing. Business drivers: SG&A was 17.79 (25.9% of sales), and the OI growth outpacing sales suggests improved scale benefits and/or price/mix favorable to gross profit. The negative delta between ordinary income and PBT indicates one-time or non-recurring extraordinary losses (~1.25) that offset operating improvements. Sustainability: The operating margin lift appears sustainable if volume growth and mix persist; the extraordinary loss impact is likely one-off, but needs monitoring. Concerning trends: none acute at the operating level; however, the net margin slippage vs prior year despite stronger operations highlights sensitivity to non-recurring items and tax. Also note we cannot validate EBITDA trends due to unreported depreciation.

Growth Assessment

Revenue growth of +23.2% YoY to 68.78 indicates robust demand and/or successful expansion initiatives. Operating income growth of +36.4% YoY evidences positive operating leverage from better utilization and cost control. Ordinary income rose +33.4% YoY, showing limited reliance on non-operating items (non-operating income net ~+0.10). Net income growth of +18.4% lagged operating growth due to extraordinary losses and a relatively high effective tax rate (32.9%). The operating margin improved to 7.23% vs ~6.52% a year ago (estimated), while net margin softened slightly to 4.30% from ~4.48%. With inventories low at 0.86 and receivables at 4.54, growth appears more services/throughput-driven than inventory-heavy, supporting scalability. Outlook: Continued scale benefits could support mid-single-digit operating margin expansion if revenue growth persists; however, bottom-line conversion will depend on the absence of extraordinary losses and better tax efficiency.

Financial Health

Liquidity is strong: current ratio 192.8% and quick ratio 183.9%, with cash and deposits of 9.41 nearly covering current liabilities of 9.71. Working capital is 9.01, and receivables (4.54) plus cash indicate low maturity mismatch risk versus accounts payable (2.51). Solvency is comfortable: D/E is 0.60x (provided), and long-term loans are modest at 1.55 against equity of 20.29; interest coverage is excellent at 216x. No warnings triggered (Current Ratio > 1.0; D/E < 2.0). Off-balance-sheet obligations are unreported; no explicit mentions available. Overall capital structure is conservative, with leverage not a primary driver of returns.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so we cannot compute OCF/Net Income or FCF coverage. As such, earnings quality via cash conversion cannot be validated this quarter. Working capital composition (low inventories, manageable receivables) is supportive of cash generation, but without OCF we cannot rule out timing effects or working capital outflows. No clear signs of working capital manipulation are detectable from the limited balance sheet snapshot; however, the inferred extraordinary losses suggest a one-time non-cash or non-core item may have affected PBT. Conclusion: cash flow quality is indeterminate due to data gaps; monitor OCF/NI (>1.0 benchmark) when disclosed.

Dividend Sustainability

The payout ratio is reported (calculated) at 25.7%, implying dividends of roughly 0.76 on net income of 2.96. On a per-share basis, this equates to approximately 31–32 JPY DPS versus 122.82 JPY EPS. With a conservative payout and solid liquidity, the dividend appears sustainable on earnings capacity; however, FCF coverage cannot be confirmed due to unreported cash flow and capex data. Policy outlook: absent a formal policy disclosure, a stable-to-gradual increase trajectory is plausible if operating improvements continue and cash generation tracks earnings. Key watchpoints: confirm OCF coverage and capex needs before assuming higher payouts.

Risk Assessment

Business Risks:

• Execution risk on sustaining >20% revenue growth while maintaining cost discipline.
• Potential for extraordinary losses (PBT below ordinary income by ~1.25) to recur and impact net earnings.
• Pricing and mix risk affecting gross margin (31.2%) if demand normalizes.
• Customer concentration risk (not disclosed) typical for specialized B2B/B2C printing/on-demand services.

Financial Risks:

• Cash flow visibility risk due to unreported OCF/FCF; inability to validate earnings-to-cash conversion.
• Tax burden risk with a relatively high effective tax rate (32.9%) compressing net margin.
• Refinancing/interest rate risk appears low given minimal interest expense (0.02) and high coverage, but still present.

Key Concerns:

• Net margin compression (~18 bps YoY) despite stronger operations, driven by below-the-line items.
• Data limitations on depreciation and capex, obscuring EBITDA and maintenance capital needs.
• Unreported breakdown of SG&A, limiting insight into fixed vs variable cost structure.

Investment Implications

Key Takeaways:

• Healthy top-line momentum (+23.2% YoY) with operating leverage delivering +36.4% YoY OI growth.
• Operating margin expanded to 7.23% (+71 bps YoY), but net margin dipped to 4.30% (-18 bps) on extraordinary loss and higher tax.
• ROE is solid at 14.6%, supported by strong asset turnover (2.12x) and modest leverage (1.60x).
• Balance sheet strength (CR 1.93x, QR 1.84x, D/E 0.60x) and very high interest coverage (216x) reduce financial risk.
• Dividend payout ratio of 25.7% suggests headroom, but FCF coverage is unverified.

Metrics to Watch:

• OCF/Net Income (>1.0 target) and FCF as capex details become available.
• Extraordinary gains/losses and their recurrence; reconcile ordinary income to PBT.
• Gross and operating margin trajectory versus SG&A intensity (SG&A/Sales currently ~25.9%).
• Effective tax rate normalization potential from 32.9%.
• Receivables and inventory turns to sustain asset turnover near 2.1x.

Relative Positioning: Within small-cap Japanese specialty manufacturing/printing peers, the company exhibits above-average growth and solid ROE with a conservative balance sheet. The main differentiator is operating leverage; the key relative weakness is limited disclosure on cash flows and capex, which constrains visibility on cash conversion and long-term payout capacity.

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