TORQ Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥22.54B
• Operating Income: ¥1.01B
• Net Income: ¥905M
• EPS: ¥39.90

Income Statement

Balance Sheet

Cash Flow Statement

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

Torque Co., Ltd. (TSE: 80770) delivered a stable FY2025 Q4 consolidated performance under JGAAP, with revenue of 225.38 and operating income of 10.09, up 0.6% and 11.5% YoY respectively. Gross profit was 51.54, yielding a gross margin of 22.9%, while operating margin expanded to roughly 4.5%, indicating solid cost discipline amid modest topline growth. Ordinary income rose to 12.79 (+3.1% YoY) supported by 4.43 of non-operating income, notably 3.20 from dividend income, underscoring a recurring but non-core earnings component. Net income increased slightly to 9.04 (+1.0% YoY), translating to a net margin of 4.0% and basic EPS of 39.90 yen. DuPont decomposition shows ROE of 6.3% = 4.0% net margin × 0.662x asset turnover × 2.38x financial leverage, reflecting moderate profitability and leverage with relatively slow asset turns for a trading/distribution model. Cash generation was strong: operating CF of 20.61 (OCF/NI 2.28x) and FCF of 18.70 support earnings quality and internal funding capacity. The balance sheet shows total assets of 340.42 and equity of 142.90 (assets/equity 2.38x), with total liabilities of 197.52 and current liabilities of 120.34. Liquidity appears adequate with a current ratio of 137% and reported quick ratio at the same level (inventories unreported), while working capital is 44.95. Interest-bearing debt, approximated by short- and long-term loans of 118.10, implies net debt around 85.5 after cash of 32.58; interest coverage remains healthy at 8.0x on operating income. Investment securities are sizable at 90.80 and contributed materially to non-operating income via dividends, adding market sensitivity to earnings and net assets. Capex was minimal (-0.02), and investing CF (-1.91) suggests limited growth investment this period, with FCF used for modest shareholder returns (share repurchases of -1.58) and net debt reduction via negative financing CF (-7.81). Dividend payout ratio is reported at 0.2% in XBRL but calculated at 18.6%; DPS is unreported, so dividend metrics should be treated cautiously. Overall profitability improved incrementally, cash flow quality is strong, leverage is moderate, and liquidity is sufficient, though part of earnings relies on non-operating dividend income. Key data gaps (e.g., inventories, detailed SG&A, DPS) limit precision in certain ratios (quick ratio, working capital dynamics, dividend analysis). Outlook hinges on sustaining margin discipline, managing funding costs on 118.1 of loans, and the stability of dividend income from investment securities.

Profitability Analysis

ROE (6.3%) via DuPont: net margin 4.0% × asset turnover 0.662 × leverage 2.38x. Operating margin improved to approximately 4.5% (10.09/225.38), signaling positive operating leverage given only 0.6% revenue growth against an 11.5% rise in operating income. Gross margin at 22.9% indicates a stable spread over cost of goods; SG&A of 41.44 implies an SG&A ratio of about 18.4%, leaving room for incremental margin gains if overhead is contained. Ordinary income margin is about 5.7% (12.79/225.38), helped by non-operating dividend income (3.20), which enhances reported profitability but is not core-operational. EBITDA is 14.34 (margin 6.4%), providing additional buffer over interest and fixed charges. Interest coverage at ~8.0x (10.09/1.26) is comfortable, but net debt/EBITDA is estimated near 6.0x given net debt ~85.5 and EBITDA 14.34, which warrants attention if earnings soften. Effective tax rate of ~31.1% is in line with Japan’s statutory range and does not distort net profitability. Margin quality: the mix includes a meaningful non-operating component; underlying operating margin still improved, pointing to cost control. Operating leverage: modest revenue growth translated into double-digit operating income growth, suggesting fixed cost absorption benefits. ROA (ordinary) is not reliable from XBRL (0.0% reported), but operating and net margins indicate adequate asset productivity for a balance sheet with large investment securities.

Growth Assessment

Revenue grew 0.6% YoY to 225.38, indicative of stable but subdued topline momentum. Operating income rose 11.5% YoY to 10.09, outpacing sales growth and implying improved mix or cost efficiencies. Ordinary income growth (+3.1%) lagged operating profit growth due to a less pronounced uptick in non-operating items; nevertheless, dividend income (3.20) remained a supportive contributor. Net income increased 1.0% to 9.04, with a 31.1% effective tax rate limiting bottom-line expansion. The sustainability of revenue growth appears modest; maintaining gross margin and SG&A discipline will be key to carry operating income growth forward. Profit quality benefited from strong OCF (20.61; 2.28x NI), suggesting accruals are well-managed and earnings are cash-backed. With minimal capex (-0.02) and small investing CF outflows (-1.91), growth investments appear limited this period, which may cap organic growth unless working capital turns improve. Outlook hinges on maintaining operating margin near mid-4% levels and the continuity of dividend income; any volatility in equity markets could affect non-operating returns given investment securities of 90.80. Absent detailed segment data, we assume a steady-state growth trajectory with a focus on incremental efficiency rather than aggressive expansion.

Financial Health

Liquidity: current assets 165.29 vs current liabilities 120.34 yield a current ratio of 137.4%; quick ratio is reported equal, but inventories are unreported, so true quick liquidity may be lower. Working capital stands at 44.95, providing a buffer against short-term obligations. Cash and deposits total 32.58, covering roughly 27% of short-term loans (61.00). Solvency: total liabilities/equity is 1.38x; leverage (assets/equity) at 2.38x is moderate. Debt structure: short-term loans 61.00 and long-term loans 57.10 imply total loans of 118.10; estimated net debt is ~85.5 after cash, giving an estimated net debt/equity of ~0.60x. Interest coverage is strong at ~8.0x on operating income, indicating manageable financing costs at present. Investment securities are substantial (90.80), bolstering solvency via liquid or near-liquid assets but also introducing market valuation risk that can affect equity.

Cash Flow Quality

OCF of 20.61 vs net income of 9.04 yields an OCF/NI of 2.28x, indicating high earnings quality and positive working capital contributions or non-cash add-backs. FCF is 18.70, comfortably positive despite minimal capex (-0.02), implying that maintenance investment needs are currently low or timed outside the period. Investing CF of -1.91 suggests modest portfolio or asset investments; given large investment securities, flows may include financial asset movements rather than productive capex. EBITDA of 14.34 provides a solid cash earnings base; the gap between EBITDA and OCF is favorable. Working capital specifics are partly unavailable (inventories unreported), but reported accounts receivable of 39.25 is a material component; the strong OCF suggests receivable collections and payables management were effective this period. Overall, cash conversion appears robust and supportive of both deleveraging and shareholder returns.

Dividend Sustainability

DPS data are unreported; however, the calculated payout ratio is 18.6% versus an XBRL-reported 0.2%, indicating disclosure or tagging inconsistencies. Using the calculated 18.6% payout on net income of 9.04 implies dividends of roughly 1.68; FCF coverage is strong at 11.13x, suggesting ample headroom from cash generation. Financing CF of -7.81 and share repurchases of -1.58 indicate an active but restrained capital return stance. With net debt estimated at ~85.5 and interest coverage at ~8x, current dividend capacity appears supported by cash flows, barring a sharp decline in operating income or non-operating dividend receipts. Policy outlook cannot be confirmed without management guidance; given the data, a prudent, earnings-linked payout appears consistent with recent cash flow dynamics. Note that DOE reported at 0.0% is not decision-useful due to reporting limitations.

Risk Assessment

Business Risks:

• Low topline growth (0.6% YoY) raises sensitivity to margin fluctuations for profit expansion
• Dependence on non-operating dividend income (3.20) to support ordinary income and net income
• Potential input cost or pricing pressure affecting 22.9% gross margin
• Execution risk in cost control to sustain ~4.5% operating margin
• Limited capex (-0.02) may constrain medium-term organic growth if not offset by productivity gains

Financial Risks:

• Refinancing and interest rate risk on 118.10 of loans despite current 8.0x interest coverage
• Market valuation risk on 90.80 of investment securities affecting net assets and comprehensive income
• Liquidity assessment uncertainty due to unreported inventories (quick ratio may be overstated)
• Elevated estimated net debt/EBITDA (~6.0x) if EBITDA weakens
• Dividend policy uncertainty due to unreported DPS and XBRL inconsistencies

Key Concerns:

• Sustainability of operating margin improvement amid slow revenue growth
• Reliance on dividend income in non-operating items for overall profitability
• Balance between deleveraging and shareholder returns with net debt ~85.5

Investment Implications

Key Takeaways:

• Modest revenue growth but strong operating leverage drove operating income +11.5% YoY
• ROE at 6.3% is supported by moderate leverage and a 4.0% net margin
• High cash conversion (OCF/NI 2.28x) and positive FCF (18.70) underpin balance sheet flexibility
• Leverage is manageable (liabilities/equity 1.38x), but estimated net debt/EBITDA near 6x warrants monitoring
• Non-operating dividend income is a meaningful earnings contributor and source of variability

Metrics to Watch:

• Operating margin (%) and SG&A ratio
• OCF/NI and working capital turns (AR and inventories when disclosed)
• Net debt/EBITDA and interest coverage
• Contribution of dividend and securities income to ordinary income
• Capex trajectory and indications of growth investment
• Equity ratio and sensitivity to investment securities valuation

Relative Positioning: Within Japanese mid-cap trading/distribution peers, Torque exhibits average profitability (operating margin mid-4%), strong cash conversion, and moderate balance sheet leverage, with a higher-than-typical reliance on investment securities income compared to pure-play operators.

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