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

Endo Manufacturing Co., Ltd. (78410) reported FY2025 Q3 consolidated results under JGAAP showing modest top-line growth but significant earnings compression. Revenue reached 13.65 billion yen, up 3.5% YoY, indicating resilient demand but not enough to offset cost pressures. Gross profit was 2.70 billion yen, translating to a gross margin of 19.8%, which signals tight cost dynamics and likely input price/mix headwinds. Operating income declined 27.2% YoY to 967 million yen, compressing the operating margin to roughly 7.1%, pointing to negative operating leverage as SG&A and/or manufacturing costs rose faster than sales. Ordinary income of 1.12 billion yen exceeded operating income, suggesting a positive net non-operating balance despite reported interest expense being minimal at 1.24 million yen. Net income fell 35.5% YoY to 636 million yen, with net margin at 4.66%, implying additional pressure from taxes and/or below-the-line items. DuPont analysis shows a calculated ROE of 2.83%, driven by a low net margin (4.66%), moderate asset turnover (0.501x), and low financial leverage (1.21x), underscoring that profitability, not balance sheet structure, is the principal driver of returns. The balance sheet remains conservative with total assets of 27.24 billion yen, equity of 22.49 billion yen, and total liabilities of only 4.28 billion yen, resulting in a low debt-to-equity ratio of 0.19x. Liquidity appears robust: current assets of 17.17 billion yen versus current liabilities of 3.05 billion yen produce a current ratio of 563% and a quick ratio of 530%. Working capital is ample at 14.12 billion yen, providing strong funding for operations and inventory needs. Interest coverage is extremely comfortable at approximately 780x (operating income to interest expense), reflecting negligible financial risk from debt service. Inventory stood at 0.99 billion yen (about 7% of year-to-date revenue), consistent with tight working capital discipline, though receivables/cash disclosures were not available. Cash flow data (OCF, investing, financing, and cash balance) were not disclosed in the XBRL feed and thus cannot be evaluated; zeros reflect non-disclosure rather than actual zero values. Depreciation and amortization were also not disclosed; consequently, EBITDA and effective tax rate metrics provided as zeros should be treated as not available. Dividend information (DPS and payout) was not disclosed, so distribution policy and coverage cannot be assessed from this dataset. Overall, the company exhibits very strong liquidity and low leverage but faces margin pressure and negative operating leverage in FY2025 Q3, leaving ROE subdued at 2.83%.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 4.66% × asset turnover 0.501 × financial leverage 1.21 = ROE 2.83%. The low ROE is primarily a function of margin compression rather than balance sheet leverage, as leverage is intentionally conservative. Operating margin is approximately 7.1% (967 million yen operating income on 13.65 billion yen revenue), down notably given the -27.2% YoY operating income versus +3.5% revenue growth, indicating negative operating leverage. Gross margin of 19.8% suggests cost pressure from materials, energy, or product mix; the gap between gross margin and operating margin (~12.7ppt) reflects SG&A intensity and reduced scale efficiency this period. Ordinary income exceeded operating income by 152 million yen, implying positive non-operating items (e.g., forex gains or interest/dividend income) partially offsetting weaker operations; interest expense is negligible at 1.24 million yen. EPS is 72.44 yen, consistent with subdued earnings; however, share count was not disclosed, limiting per-share diagnostics beyond EPS. Without D&A disclosure, we cannot precisely assess EBITDA or amortization burden; the EBITDA margin reported as 0.0% is a placeholder due to missing D&A, not an actual margin. Overall margin quality appears pressured, with sensitivity to input costs and volume mix likely elevating earnings volatility near-term.

Growth Assessment

Revenue grew 3.5% YoY to 13.65 billion yen, pointing to steady demand, likely supported by stable orders from key OEM customers and/or modest pricing. However, operating income fell 27.2% YoY to 967 million yen, and net income declined 35.5% YoY to 636 million yen, indicating that cost escalation and operating deleverage outweighed topline expansion. The ordinary income outperformance relative to operating income suggests non-operating factors provided a temporary cushion, which may not be structurally repeatable. Gross margin at 19.8% implies limited pricing power or elevated input costs; if raw materials/energy prices normalize or if product mix shifts to higher value-added items, margin recovery is possible. Asset turnover of 0.501x is moderate for a manufacturing business, reflecting capital intensity; incremental growth will likely require continued utilization improvement rather than heavy balance sheet expansion. With inventory at 0.99 billion yen (about 7% of revenue YTD), there is no clear sign of overstocking, but receivables trends are unknown due to non-disclosure. Near-term outlook hinges on cost pass-through, product mix improvements, and demand trends in key end-markets (e.g., consumer discretionary/precision components). Absent a rebound in gross margin and tighter SG&A control, earnings growth will lag sales growth.

Financial Health

Liquidity is strong: current assets of 17.17 billion yen vs. current liabilities of 3.05 billion yen yield a current ratio of 563% and a quick ratio of 530%, indicating ample near-term solvency. Working capital stands at 14.12 billion yen, providing a substantial buffer to absorb demand fluctuations. The capital structure is conservative: total liabilities are 4.28 billion yen against equity of 22.49 billion yen, resulting in a debt-to-equity ratio of 0.19x. Financial leverage (assets/equity) is low at 1.21x, which reduces financial risk but also limits ROE amplification. Interest expense was 1.24 million yen for the period, and interest coverage is ~780x using operating income, indicating minimal refinancing or covenant risk. Equity ratio was not disclosed in the feed (reported as 0.0%), but based on the provided totals, equity comprises roughly 82.6% of assets (22.49/27.24), reinforcing the strong solvency profile. Cash and equivalents were not disclosed; while liquidity ratios are strong, the absence of cash flow statements prevents verification of cash generation and cash balance levels.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed; zeros in these fields reflect non-reporting rather than actual zero values. Consequently, OCF/Net Income and Free Cash Flow measures cannot be interpreted from the provided dataset. Earnings quality assessment must rely on accrual signals: gross margin of 19.8% and an operating margin of ~7.1% are consistent with a manufacturing profile, but the significant YoY decline in operating income versus modest sales growth suggests higher accrual sensitivity to costs and utilization. Inventory stands at 0.99 billion yen (~7% of revenue YTD), which does not indicate obvious inventory build; however, receivables and payables movements are unavailable, limiting working capital analysis. Depreciation and amortization were not disclosed, preventing assessment of non-cash expense contribution to earnings and capex replacement needs. Absent cash flow data, we cannot confirm OCF coverage of net income or the sustainability of earnings through the cycle.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed in this dataset, so we cannot assess current distributions or coverage; the reported zeros should be treated as not available. With net income at 636 million yen and a conservative balance sheet (debt-to-equity ~0.19x), capacity to pay dividends may exist, but actual policy, historical track record, and board guidance are not provided. Free cash flow data were not disclosed, so cash coverage of dividends cannot be evaluated. Given the YoY earnings decline and margin compression, a cautious stance on distribution growth would be reasonable until operating margins recover; however, any policy statements are not available here.

Risk Assessment

Business Risks:

• Demand cyclicality in end-markets (e.g., consumer discretionary and OEM order volatility)
• Raw material and energy cost inflation impacting gross margins
• Product mix shifts that pressure average selling prices and utilization
• Customer concentration risk typical of specialized OEM manufacturing
• Foreign exchange fluctuations affecting export competitiveness and non-operating gains/losses
• Capacity utilization risk in a capital-intensive footprint
• Geopolitical and supply chain disruptions affecting components and logistics
• Competitive pricing pressure from domestic and overseas manufacturers

Financial Risks:

• Earnings sensitivity to cost pass-through timing leading to negative operating leverage
• Working capital swings (receivables and payables) not observable due to non-disclosure
• FX-related non-operating income volatility
• Potential capex requirements for tooling and process upgrades that could compress FCF in recovery phases
• Limited ROE given low leverage; returns rely on margin and turnover improvement

Key Concerns:

• Operating income down 27.2% YoY despite 3.5% revenue growth indicates cost pressure
• Net income down 35.5% YoY with net margin at 4.66% highlights profit compression
• Lack of disclosed cash flow data limits verification of earnings quality and liquidity in cash terms
• Low ROE at 2.83% driven by weak margins rather than capital structure

Investment Implications

Key Takeaways:

• Top-line growth of 3.5% YoY did not translate into earnings growth due to cost and mix pressures
• ROE at 2.83% is constrained by low net margins; leverage is intentionally low (1.21x)
• Liquidity is very strong (current ratio 563%, quick ratio 530%) and debt burden is light (D/E 0.19x)
• Ordinary income exceeded operating income, implying supportive non-operating items this period
• Margin recovery and SG&A control are critical to re-accelerate earnings

Metrics to Watch:

• Gross margin trajectory and cost pass-through effectiveness
• Operating margin and SG&A-to-sales ratio
• Order trends/backlog and product mix (value-added vs. commodity)
• Inventory days and overall working capital turns
• FX rates (USD/JPY and other relevant currencies) and non-operating income components
• Capex and disclosed D&A to gauge maintenance vs. growth investments
• Operating cash flow and free cash flow once disclosed
• ROE progression relative to margin improvements

Relative Positioning: Relative to domestic manufacturing peers, the company maintains a more conservative balance sheet with superior liquidity and minimal interest burden, but current profitability is under pressure, leaving ROE below typical mid-cycle peer levels; near-term performance hinges on margin normalization and operating leverage turning positive.

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