ENDO MANUFACTURING CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥13.65B
• Operating Income: ¥967M
• Net Income: ¥986M
• EPS: ¥72.44

Income Statement

Balance Sheet

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

Verdict: FY2025 Q3 was a mixed quarter—solid top-line growth but significant margin compression and a sharp decline in operating and bottom-line profits. Revenue grew 3.5% YoY to 136.5, indicating steady demand. Gross profit reached 26.96 with a gross margin of 19.8%, but operating income fell 27.2% YoY to 9.67, implying notable cost pressure or unfavorable mix. Operating margin declined to 7.1% (from roughly 10.1% a year ago), a compression of about 300 bps. Ordinary income of 11.19 (-18.5% YoY) benefited from net non-operating gains, while profit before tax rose to 13.74 due to additional extraordinary factors. Net income declined 35.5% YoY to 6.36, driving a net margin of 4.7%. The operating-to-ordinary bridge suggests unreported non-operating items beyond the disclosed components, as ordinary income exceeds the simple sum of operating plus net non-operating by roughly 1.1. Similarly, gross profit minus SG&A implies 13.28 of operating profit, versus reported 9.67, indicating other operating expenses (e.g., impairment, provisions, or other operating items) that weighed on profitability. Effective tax rate was a normal 28.2%, not a distortion driver. Balance sheet strength is a clear positive: current ratio at 503.8%, quick ratio at 469.8%, and net cash of roughly 84.8 (cash 86.05 vs. loans 1.21) provide ample liquidity and shock absorption. Leverage is minimal (D/E 0.21x), and interest coverage is extremely strong at 779.8x. Capital efficiency, however, is muted with ROE at 2.8% and ROIC around 5.0%, below typical 7–8% targets for manufacturers. Earnings quality cannot be fully assessed due to unreported cash flows, but reliance on non-operating/extraordinary gains to lift pretax profit is a cautionary sign. Dividend payout ratio is calculated at 59.4%, near the upper bound of comfort, though the net cash position helps. Forward-looking, margin recovery (pricing, mix, cost pass-through) and visibility on one-off items will be key to stabilizing earnings and lifting ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.8% = Net Profit Margin 4.7% × Asset Turnover 0.501 × Financial Leverage 1.21x. The largest negative swing stems from net profit margin, given operating income dropped 27.2% YoY despite revenue growth, compressing operating margin by about 300 bps. The business driver appears to be higher operating costs or adverse mix, as GP–SG&A would imply higher operating profit than reported, suggesting additional operating expenses (e.g., other operating costs, maintenance, or one-offs) reduced OI. Asset turnover at 0.501 indicates modest efficiency typical of a capital-light, cash-rich balance sheet; leverage remains low at 1.21x and is not a driver of ROE. The margin compression looks partly cyclical (input costs, FX, mix) and partly potentially one-time (other operating expenses or extraordinary items influencing comparability), but sustainability of improvement will require cost normalization or pricing actions. Flag: SG&A rose to 10.0% of sales; while we lack YoY SG&A detail, the decline in operating margin versus revenue growth indicates negative operating leverage this quarter.

Growth Assessment

Top-line grew 3.5% YoY to 136.5, indicating steady sales momentum. However, profit growth lagged badly: operating income -27.2% and net income -35.5% YoY. Operating margin declined to 7.1%, with ordinary margin at 8.2% and net margin at 4.7%, reflecting heavier operating costs and reliance on non-operating and extraordinary items. Non-operating income totaled 1.62 and expenses 1.16, but ordinary income of 11.19 suggests additional unreported non-operating contributions. Profit before tax of 13.74 exceeded ordinary income by 2.55, implying extraordinary gains that are unlikely to be recurring. Interest burden is negligible (interest expense 0.01), so financing costs are not constraining growth. Revenue sustainability likely depends on OEM order flows and product mix; absent cost relief or pricing, earnings growth will lag revenue. Outlook hinges on normalization of other operating expenses and the absence of one-off boosts in future quarters.

Financial Health

Liquidity is very strong: current ratio 503.8% and quick ratio 469.8%, far above benchmarks, with working capital of 132.68. No warning on current ratio (<1.0) or leverage (D/E 0.21x well below 2.0). Maturity mismatch risk is low: short-term loans are only 1.04 versus current assets of 165.54, and cash of 86.05 alone more than covers current liabilities of 32.86. Long-term loans are minimal at 0.17, implying limited refinancing risk. Interest-bearing debt is very small relative to cash, resulting in a sizable net cash position. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

Operating cash flow data are unreported, so OCF/Net Income cannot be assessed (N/A). Accordingly, we cannot validate earnings conversion or identify working capital drivers this quarter. Free cash flow and capex are unreported, limiting visibility on reinvestment needs and dividend coverage from cash generation. Given the notable role of non-operating and extraordinary items in pretax profit, absence of OCF raises some quality caution, but this is a data limitation rather than evidence of manipulation. No explicit signs of working capital management are inferable from the period-end balances alone.

Dividend Sustainability

Calculated payout ratio is 59.4%, near the upper bound of the sustainable range per benchmark (<60%). With net cash of roughly 84.8 and low debt, balance sheet capacity currently supports dividends even amid profit volatility. However, FCF coverage is not calculable due to missing OCF and capex; thus, sustainability over a multi-year horizon cannot be confirmed. If operating margin remains compressed and extraordinary gains fade, payout flexibility may be required to preserve cash for reinvestment.

Risk Assessment

Business Risks:

• Margin pressure from input costs and product mix reducing operating margin by ~300 bps YoY
• Potential dependency on major OEM customers typical for specialized component manufacturing
• FX exposure affecting revenues and costs (e.g., USD-linked sales vs. JPY costs, or overseas production)
• Demand cyclicality in sports/leisure equipment impacting order volumes

Financial Risks:

• Earnings volatility due to reliance on non-operating and extraordinary items to support pretax profit
• Limited visibility on cash generation due to unreported OCF/FCF
• Low ROE (2.8%) and ROIC (~5.0%) signaling modest capital efficiency

Key Concerns:

• Other operating expenses not disclosed in detail, creating a gap (~3.6) between GP–SG&A and reported operating income
• Ordinary income exceeding the simple operating plus net non-operating sum by ~1.1, indicating unitemized items
• Extraordinary gains implied (~2.6) elevating pretax profit, which may not recur

Investment Implications

Key Takeaways:

• Top-line growth sustained at +3.5% YoY, but profitability weakened materially
• Operating margin compressed from ~10.1% to 7.1% (~300 bps), driving OI -27.2% YoY
• Balance sheet is cash-rich with minimal debt, reducing solvency and liquidity risk
• Earnings quality mixed due to reliance on non-operating and extraordinary items and limited cash flow disclosure
• Capital efficiency remains modest with ROE 2.8% and ROIC ~5.0%

Metrics to Watch:

• Operating margin recovery and drivers (pricing, mix, input costs)
• Disclosure of other operating expenses and extraordinary items
• OCF and FCF trends when reported; OCF/NI > 1.0 as a quality check
• Order backlog and OEM demand indicators
• FX sensitivity and hedging effects

Relative Positioning: Within small-cap Japanese manufacturers, the company stands out for very strong liquidity and low leverage but lags on profitability metrics due to recent margin compression and low ROE/ROIC; visibility on cash conversion and the normalization of one-off items will shape relative performance.

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