KOKEN LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥7.44B
• Operating Income: ¥547M
• Net Income: ¥310M
• EPS: ¥74.00

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

Koken Co., Ltd. (TSE:7963) delivered steady topline growth and improved operating profitability in FY2025 Q3 under JGAAP, with revenue up 6.0% year on year to ¥7,443 million. Gross profit reached ¥3,259 million, translating to a robust gross margin of 43.8%, indicative of solid pricing power and/or favorable mix in respiratory protective equipment and filters. Operating income rose 18.8% YoY to ¥547 million, evidencing operating leverage; our back-calculation suggests prior-year operating income of roughly ¥461 million and a margin of 6.6%, implying operating margin expanded by about 80 bps to approximately 7.4% in the current period. Ordinary income of ¥514 million was slightly below operating income, reflecting net non-operating costs primarily from interest expense of ¥35 million. Net income increased 17.7% YoY to ¥364 million, yielding a net margin of 4.89%, in line with a niche manufacturer with specialized products but moderate scale. DuPont decomposition shows ROE at 2.75%, driven by a 4.89% net margin, asset turnover of 0.354x, and modest financial leverage of 1.59x, indicating that return profile is constrained more by efficiency and scale than by leverage. The balance sheet remains conservative: total assets of ¥20,998 million are funded by ¥13,217 million in equity (implied equity ratio ~62.9%), and liabilities total ¥7,831 million. Liquidity is ample with a current ratio of 242.7% and quick ratio of 223.1%, supported by working capital of ¥5,890 million. Inventory stands at ¥811 million, implying inventory days near 79 days versus cost of sales, which appears reasonable for a safety equipment manufacturer with product variety and standards compliance. Interest coverage is strong at roughly 15.4x (operating income/interest expense), providing resilience against rate or earnings volatility. The effective tax burden appears normal at about 31–32% based on income tax of ¥164 million versus pre-tax profit approximated from ordinary income. Cash flow details are not disclosed (OCF/ICF/FCF reported as zero, which indicates unreported), limiting assessment of earnings-to-cash conversion this quarter. Dividend data are also not disclosed; thus, we cannot comment on payout trends, though the balance sheet could support distributions if policy permits. Overall, results point to resilient demand and good cost control, with improving operating margins and stable non-operating expenses. Key watch items include sustainability of post-pandemic industrial demand, procurement timing of public-sector orders, and input cost trends, given modest net margins and low ROE. Data limitations exist for cash flow, DPS, and per-share base (shares outstanding unreported), so conclusions on cash conversion and shareholder returns are provisional.

Profitability Analysis

ROE decomposition (DuPont): Net margin 4.89% × Asset turnover 0.354 × Financial leverage 1.59 = ROE 2.75%. Operating margin is approximately 7.35% (¥547m / ¥7,443m), up from ~6.56% in the prior period by our YoY back-solve, indicating margin expansion and positive operating leverage. Gross margin is 43.8%, reflecting favorable pricing/mix and/or cost pass-through; the gap between gross and operating margin (~36.5 ppt) captures SG&A intensity typical for specialized PPE manufacturers. Ordinary margin is ~6.9% (¥514m / ¥7,443m), showing limited non-operating drag primarily from interest. Net margin at 4.89% remains modest, which caps ROE despite conservative leverage. ROA is ~1.73% (¥364m / ¥20,998m), highlighting scope for efficiency gains via better asset turnover and scale. Effective tax rate is approximately 31% (¥163.6m income tax divided by an estimated pre-tax of ~¥528–¥514m), consistent with Japan statutory ranges. EBITDA cannot be derived due to undisclosed depreciation/amortization; accordingly, EBITDA margin is not assessable this period. Overall, profitability is improving with evidence of operating leverage, but returns remain below double-digit levels given scale and margin profile.

Growth Assessment

Revenue growth of 6.0% YoY to ¥7,443m suggests steady demand across industrial and public safety customers. Operating income growth of 18.8% outpaced sales, implying improved mix, pricing, and/or cost discipline. Net income rose 17.7%, confirming flow-through of operating gains despite non-operating costs. The margin expansion (~+80 bps at the operating line by back-calculation) indicates positive operating leverage and potential normalization of input costs. Sustainability will depend on order visibility in public procurement cycles, industrial production trends, and replacement demand for filters and respirators. With asset turnover at 0.354x, revenue efficiency remains modest; further growth would benefit returns disproportionately if incremental margins remain healthy. No segment or geographic breakdown is available, limiting insight into whether growth is broad-based or concentrated. Without cash flow disclosure, we cannot validate whether higher earnings reflect strong cash collection or inventory build. Outlook-wise, if current demand holds and cost inflation is contained, incremental operating leverage can continue; however, the net margin starting point is mid-single digits, leaving less buffer against shocks.

Financial Health

Liquidity is strong with a current ratio of 242.7% and quick ratio of 223.1%, backed by working capital of ¥5,890m. Inventories total ¥811m; relative to cost of sales, this implies ~79 inventory days, which appears reasonable though still requires monitoring for obsolescence in standards-driven products. Solvency is robust: total equity of ¥13,217m against assets of ¥20,998m implies an equity ratio around 62.9% despite the reported 0.0% placeholder. Debt-to-equity is 0.59x (total liabilities/equity), a conservative capital structure for a manufacturer. Interest expense is ¥35.5m, easily covered by operating income (15.4x), indicating low refinancing risk. No data on cash and equivalents is disclosed, but given the liquidity ratios and low leverage, near-term funding risk appears limited. Overall, the company exhibits a strong balance sheet with ample headroom for working capital needs and modest capex.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed this period (reported as zero, i.e., unreported). As a result, we cannot compute OCF/net income, free cash flow, or assess cash conversion. Earnings quality therefore cannot be corroborated via cash metrics. Working capital components beyond inventories are not itemized, so changes in receivables or payables cannot be evaluated. Depreciation and amortization are undisclosed, preventing us from separating non-cash charges from operating profit and from estimating maintenance capex needs. Given inventory of ¥811m and revenue growth, it will be important to monitor whether inventories are building faster than sales or normalizing. Until cash flow statements are available, conclusions on free cash flow generation and earnings quality remain tentative.

Dividend Sustainability

Dividend per share and payout ratio are undisclosed this period. Consequently, we cannot assess DPS trends or payout stability. From a capacity standpoint, net income of ¥364m, strong liquidity (current ratio 242.7%), and low leverage (equity ratio ~62.9%) suggest balance sheet flexibility for distributions if the board’s policy allows. However, without OCF or FCF disclosure, coverage of dividends by free cash flow cannot be evaluated. Policy outlook is therefore indeterminate; we would look for guidance on payout ratio targets, capital allocation priorities between growth investments and shareholder returns, and historical DPS patterns once disclosed.

Risk Assessment

Business Risks:

• Demand cyclicality and procurement timing in public-sector and industrial safety markets
• Post-pandemic normalization in mask and respirator usage potentially tempering volumes
• Raw material and component cost volatility affecting gross margin
• Regulatory and standards changes impacting product certification and time-to-market
• Competition from domestic and global PPE manufacturers leading to pricing pressure
• Supply chain disruptions affecting lead times and inventory levels
• Customer concentration risk if large institutional buyers represent significant share

Financial Risks:

• Limited visibility on cash generation due to undisclosed cash flow statements
• Potential working capital swings (receivables and inventories) not observable this period
• Interest rate risk is modest but present (¥35.5m interest expense); coverage remains strong
• FX exposure on imported materials and any export sales could impact margins
• Capex requirements unknown given undisclosed depreciation and investment cash flows

Key Concerns:

• Low ROE at 2.75% constrained by modest asset turnover and net margins
• Absence of OCF/FCF disclosure prevents assessment of earnings-to-cash conversion
• Sustainability of recent operating margin expansion amid input cost and pricing dynamics

Investment Implications

Key Takeaways:

• Topline grew 6.0% YoY to ¥7.44bn with operating income up 18.8%, indicating positive operating leverage
• Gross margin strong at 43.8%; operating margin improved to ~7.4%
• Net margin of 4.89% and ROE of 2.75% remain modest despite conservative leverage
• Balance sheet is solid with an implied equity ratio ~62.9% and current ratio 242.7%
• Interest coverage robust at ~15.4x, limiting refinancing risk
• Cash flow, DPS, and D&A are undisclosed, limiting visibility on FCF and payout capacity

Metrics to Watch:

• Order intake and backlog in industrial and public safety segments
• Gross margin trajectory versus raw material costs and pricing
• Operating margin and SG&A efficiency to validate ongoing operating leverage
• Inventory levels and turnover relative to sales
• Disclosure of OCF/FCF and capex to assess cash conversion and investment needs
• Any updates to dividend policy, payout ratio, and DPS
• Asset turnover improvement as a driver of ROE

Relative Positioning: Within Japan’s PPE and industrial safety peer set, Koken appears conservatively capitalized with solid gross margins but modest net margins and ROE; operating leverage is improving, yet returns remain below peers with higher scale and asset efficiency. Enhanced disclosure on cash flows and sustained margin expansion would strengthen its relative standing.

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