HAGIHARA INDUSTRIES INC. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥31.94B
• Operating Income: ¥1.47B
• Net Income: ¥1.52B
• EPS: ¥128.49

Income Statement

Balance Sheet

Cash Flow Statement

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

Hagihara Industries Co., Ltd. (TSE: 78560) reported FY2025 consolidated results under JGAAP showing resilience in cash generation and balance sheet strength despite a clear contraction in core profitability. Revenue declined 3.6% year over year to ¥31.94bn, reflecting softer demand and/or pricing pressure in key product categories. Gross profit was ¥8.86bn with a gross margin of 27.7%, indicating reasonable value-add but some compression from input costs or mix. Operating income fell 30.0% YoY to ¥1.47bn, compressing the operating margin to roughly 4.6%, signaling weaker operating leverage and/or elevated SG&A amid lower top line. Ordinary income decreased 17.1% YoY to ¥1.82bn, cushioned by positive net non-operating items (¥218m income vs ¥126m expenses), which supported earnings above operating levels. Net income increased 18.2% YoY to ¥1.79bn, aided by non-operating gains and tax effects; however, the reported zero profit-before-tax figure is an unreported item and not an actual zero, so the effective tax rate metric is not meaningful. EPS (basic) was ¥128.49, essentially flat YoY as share count dynamics offset earnings movement. DuPont ROE was 5.79%, driven by a 5.62% net margin, asset turnover of 0.747x, and financial leverage of 1.38x, indicating ROE is mainly constrained by margin pressure and modest asset intensity. Cash generation was strong: operating cash flow of ¥4.49bn (2.5x net income) and positive free cash flow of ¥1.71bn despite elevated capex (¥3.33bn) well above D&A (¥1.71bn). The balance sheet remains robust with total assets of ¥42.73bn, equity of ¥30.97bn, and a debt-to-equity ratio of 0.44x; cash and deposits of ¥5.60bn roughly offset total loans of ¥5.45bn, implying a near net cash position. Liquidity is ample with a current ratio of 249.5% and quick ratio of 222.8%, providing a substantial buffer against macro or cyclical volatility. Working capital is solid at ¥13.15bn, with an estimated cash conversion cycle around the high-70s days, appropriate for the industry. Dividend disclosures in the dataset show DPS and total dividends as zero due to unreported items, but reported payout ratio (~50%) and DOE (~3%) suggest a shareholder return policy anchored to earnings. The key message is that core operations compressed meaningfully in FY2025, but cash flow quality improved and the financial base remains strong, positioning the company to invest through the cycle. Near-term focus should be on restoring operating margin through pricing, mix, and cost pass-through while maintaining inventory discipline. Data limitations exist (several items reported as zero reflect non-disclosure), but the trends in non-zero metrics are sufficiently clear to assess fundamentals.

Profitability Analysis

roe_decomposition: ROE 5.79% = Net Profit Margin 5.62% x Asset Turnover 0.747x x Financial Leverage 1.38x. ROE is modest and primarily constrained by lower operating profitability; leverage is conservative and not a major driver. margin_quality: Gross margin 27.7% and EBITDA margin 9.9% indicate decent value-add but weaker conversion to operating profit (operating margin 4.6%) due to elevated SG&A and likely cost passthrough lags. Non-operating items were net positive (¥92m), supporting ordinary income above operating income. operating_leverage: Operating income fell 30.0% on a 3.6% revenue decline, evidencing negative operating leverage. The drop implies fixed cost absorption issues and/or price/mix pressure; improving demand or cost pass-through could meaningfully lift margins given the cost structure.

Growth Assessment

revenue_sustainability: Revenue of ¥31.94bn (-3.6% YoY) suggests soft end-market demand and/or pricing headwinds, likely tied to resin price normalization, competitive pricing, or cautious downstream spending. profit_quality: Operating income declined to ¥1.47bn (-30% YoY), underscoring core earnings pressure. Ordinary income (-17.1% YoY) and net income (+18.2% YoY) reflect support from non-operating gains and tax effects; sustainability of this mix is lower than operating profit. outlook: Recovery hinges on input cost stabilization, price pass-through, and product mix upgrades. With capex above D&A, management appears to be investing for medium-term growth/efficiency; if these investments lift productivity and product differentiation, margin and growth normalization are plausible.

Financial Health

liquidity: Current ratio 249.5%, quick ratio 222.8%, cash and deposits ¥5.60bn; working capital ¥13.15bn. Liquidity is strong and sufficient to cover near-term obligations. solvency: Debt-to-equity 0.44x (total liabilities ¥13.48bn vs equity ¥30.97bn). Interest coverage 27.8x indicates low financial risk. Reported interest-bearing debt is unreported; observed loans total ¥5.45bn against cash of ¥5.60bn, implying a near net cash position. capital_structure: Equity ratio reported as 0% is an unreported metric; based on balances, equity/asset ratio is approximately 72% (¥30.97bn/¥42.73bn), signifying a conservative balance sheet with capacity for investment and consistent shareholder returns.

Cash Flow Quality

earnings_quality: OCF/Net Income = 2.50x indicates strong cash conversion and limited accrual risk in the period. Positive non-operating contribution to earnings suggests some non-core support, but cash generation is fundamentally robust. fcf_analysis: OCF ¥4.49bn less capex ¥3.33bn yields FCF of ¥1.71bn, comfortably positive despite elevated reinvestment (capex > D&A by ~¥1.62bn). This supports flexibility to fund growth capex and returns. working_capital: Receivables ¥6.30bn, inventories ¥2.35bn, payables ¥1.93bn imply DSO ~72 days, DIO ~35 days, DPO ~29 days; cash conversion cycle ~78 days, typical for the sector. Continued focus on receivable collections would further support OCF durability.

Dividend Sustainability

payout_ratio_assessment: While DPS is shown as zero due to non-disclosure, both calculated and reported payout ratios indicate ~50%, suggesting a balanced dividend policy anchored to earnings capacity. fcf_coverage: FCF coverage of dividends appears healthy (reported FCF coverage 1.92x), implying dividends are covered by internally generated cash even with elevated capex. policy_outlook: Given strong liquidity, low leverage, and stable OCF, dividend capacity is sustainable if operating margins stabilize. Management’s capital allocation (capex > D&A) may prioritize growth; dividends likely align with a moderate payout framework subject to earnings normalization.

Risk Assessment

Business Risks:

• Raw material price volatility (resin and energy) affecting gross margin and pricing.
• Demand cyclicality in industrial and construction-related end markets.
• Competitive pricing pressure and potential loss of mix/ASP in commoditized product lines.
• Execution risk on capex projects to deliver expected productivity and differentiation.
• FX exposure from overseas operations impacting costs and translation effects.

Financial Risks:

• Margin compression leading to lower coverage of fixed costs (negative operating leverage).
• Working capital swings (receivables collection, inventory normalization) impacting OCF.
• Interest rate risk on floating-rate borrowings, though mitigated by strong coverage and near net cash.

Key Concerns:

• Operating income down 30% YoY despite only a 3.6% revenue decline.
• Dependence on non-operating/tax effects to support net income growth in the period.
• Sustainability of gross margin amid input cost and pricing dynamics.

Investment Implications

Key Takeaways:

• Core profitability weakened materially; operating margin ~4.6% vs revenue down modestly.
• Cash flow quality strong: OCF 2.5x net income and positive FCF despite heavy capex.
• Balance sheet conservative with near net cash and high liquidity.
• ROE at 5.79% is constrained by margins rather than leverage; improvement hinges on operating recovery.
• Capex above D&A signals proactive reinvestment aimed at medium-term margin and growth uplift.

Metrics to Watch:

• Operating margin and gross margin trajectory (price/mix and cost pass-through).
• OCF/Net income and working capital days (DSO, DIO, DPO).
• Capex-to-sales and ROI on new investments.
• Order trends and pricing in core product categories.
• Net debt (cash minus loans) and interest coverage in a changing rate environment.

Relative Positioning: Within Japanese industrial materials/plastics peers, Hagihara exhibits stronger balance sheet resilience and cash conversion but currently weaker operating momentum; upside depends on restoring operating leverage while maintaining disciplined working capital.

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
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