Nakamichi Lease Co., Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥38.29B
• Operating Income: ¥1.66B
• Net Income: ¥1.28B
• EPS: ¥171.80

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

FY2025 Q3 was a solid quarter for Nakamichi Lease (8594), delivering double-digit profit growth on modest top-line expansion. Revenue rose 5.8% YoY to 382.92, while operating income increased 29.0% YoY to 16.62 and ordinary income climbed 23.2% YoY to 18.49, culminating in net income of 12.84 (+24.3% YoY). Gross profit was 29.68, implying a gross margin of 7.8%, and operating margin reached approximately 4.34%. Using prior-period back-solving, operating margin appears to have expanded by about 78 bps YoY (from roughly 3.56% to 4.34%) and net margin by about 50 bps (from roughly 2.85% to 3.35%). Non-operating income totaled 2.61 against non-operating expenses of 0.48, with dividend income at 0.19 and interest income effectively unreported; net non-operating contribution supported ordinary income. Interest expense of 0.46 yielded a strong interest coverage ratio of 36.2x, underscoring comfortable coverage despite a highly leveraged balance sheet typical of leasing businesses. Balance sheet scale remains large (total assets 1,500.57) with a low equity base of 134.40, resulting in high financial leverage and a reported D/E ratio of 10.91x. Liquidity looks robust in the short term with a current ratio of 274.1% and working capital of 827.19, though noncurrent liabilities are large (990.89) and long-term loans total 699.45, reflecting structural leverage in lease funding. ROE (DuPont) is 9.6%, driven more by high financial leverage (11.16x) than by margin (3.4%) or asset turnover (0.255), while ROIC is weak at 1.6%, signaling subpar capital efficiency. Earnings quality cannot be fully assessed due to unreported cash flow statements; OCF/NI and FCF coverage are not calculable. The calculated payout ratio is low at 12.2%, implying a conservative dividend stance and room for flexibility, though dividend amounts are unreported. Overall, Q3 shows margin-led earnings growth with disciplined costs and strong coverage, but the structurally high leverage and low ROIC remain key constraints on quality of returns. Forward-looking, the company’s near-term profitability trajectory appears supported by operating leverage and funding-cost control, but sustainability will hinge on credit quality, residual value outcomes, and interest-rate dynamics. With net income outpacing revenue growth, operating leverage is favorable, yet the absence of cash flow disclosure tempers confidence in earnings quality. We also note the single-entity (standalone) basis of reporting, which may limit visibility into any affiliate exposures. In sum, positive momentum is evident, but structural return metrics and funding profile warrant continued caution.

Profitability Analysis

ROE decomposition: 9.6% ROE = 3.4% Net Profit Margin × 0.255 Asset Turnover × 11.16x Financial Leverage. The greatest contributor to achieving 9.6% remains financial leverage, given thin margins and modest asset turnover inherent to leasing. YoY, operating income grew far faster than revenue (+29.0% vs +5.8%), indicating margin improvement was the primary change driver; we estimate operating margin expanded by ~78 bps and net margin by ~50 bps. Business drivers likely include better funding spreads, tighter SG&A discipline (SG&A/revenue ~4.39%), and possibly improved credit costs or asset disposal gains reflected in non-operating items. This margin uplift appears cyclical/operating in nature rather than one-off, but durability will depend on maintaining credit quality and funding cost stability. Sustainability risk arises because ROE depends heavily on leverage while ROIC is low (1.6%), suggesting underlying economic returns are thin; any deterioration in spreads or credit could quickly compress margins. A potential red flag is that non-operating income (2.61) materially supports ordinary income; while not excessive, reliance on non-core items should be monitored. Without SG&A YoY detail, we cannot confirm if SG&A growth outpaced revenue; however, operating leverage suggests SG&A was contained relative to gross profit growth. Overall profitability quality improved in Q3, but structural dependence on leverage limits resilience.

Growth Assessment

Top-line growth was moderate at +5.8% YoY (382.92), while operating income rose +29.0% and net income +24.3%, evidencing positive operating leverage. Margin expansion (operating margin ~4.34% estimated +78 bps YoY; net margin ~3.35% estimated +50 bps YoY) drove the profit outperformance. Non-operating contributions (net +2.13) also aided ordinary income, though the core improvement appears operating-led. Revenue sustainability will hinge on lease origination volume, pricing discipline, and customer demand in core regions/segments; absent segment disclosure, we assume broadly steady demand. Profit quality depends on funding costs and credit performance; interest coverage is strong (36.2x), providing near-term cushion. With ROIC at 1.6%, incremental growth needs to be capital-disciplined to avoid diluting economic returns. Lack of cash flow disclosure prevents validation of cash conversion; this is a key limitation in assessing sustainability. Near-term outlook: stable-to-improving earnings if spreads and credit conditions hold; downside risks if interest rates or defaults rise.

Financial Health

Liquidity appears strong: current ratio 274.1% and working capital 827.19 indicate ample short-term coverage; quick ratio equals current ratio due to limited inventory disclosure. Solvency remains the main watchpoint: D/E is very high at 10.91x (warning) and equity ratio approximates 9% (134.40/1,500.57), typical for leasing but inherently riskier. Noncurrent liabilities are heavy (990.89), with long-term loans at 699.45; refinancing and interest rate exposure are therefore material. Maturity mismatch risk is mitigated by high current assets (1,302.19) vs current liabilities (475.01), but asset composition likely includes receivables with varying maturities; detailed matching is not disclosed. No off-balance sheet obligations are reported in the provided data; however, leasing businesses may have contingent residual value and guarantees not captured here. Interest coverage is strong at 36.2x, suggesting adequate buffer against modest rate increases. Overall, short-term liquidity is comfortable, while structural leverage is high and must be actively managed.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported; thus OCF/Net Income and FCF coverage are not calculable. We cannot confirm earnings-to-cash conversion or working capital movements. Given the business model, cash flows can be volatile with origination cycles and funding flows; without disclosure, we cannot rule out timing effects. No signs of working capital manipulation can be assessed from the data provided. Dividend and capex cash coverage cannot be evaluated; we rely on low payout (12.2%) as a partial mitigant but acknowledge the limitation. This constitutes a material data gap in evaluating earnings quality.

Dividend Sustainability

The calculated payout ratio is 12.2%, implying a conservative distribution relative to earnings (EPS 171.80 JPY). DPS amounts are unreported; however, the implied DPS based on the payout suggests room for continued distributions under current earnings. Interest coverage is strong (36.2x), supporting ongoing service of debt and dividends. FCF coverage cannot be assessed due to unreported cash flows and capex; in a leasing model, growth investment can constrain FCF even when earnings are healthy. Balance sheet leverage is high (D/E 10.91x), so management may prioritize capital buffers over aggressive shareholder returns. Policy outlook appears conservative and maintainable barring a sharp deterioration in spreads or credit costs.

Risk Assessment

Business Risks:

• Spread compression risk if funding costs rise faster than lease yields
• Credit risk from lessee defaults and counterparty concentration
• Residual value risk on leased assets at contract end
• Demand cyclicality in core customer industries impacting origination volumes

Financial Risks:

• High leverage (D/E 10.91x) amplifies earnings volatility
• Refinancing and interest-rate risk given large long-term borrowings (699.45)
• Low ROIC (1.6%) suggests thin economic returns and limited shock absorption
• Potential covenant or rating pressure in adverse scenarios

Key Concerns:

• ROE (9.6%) relies heavily on leverage rather than core return efficiency
• Non-operating income contribution is meaningful and should be monitored
• Cash flow statements are unreported, preventing validation of cash conversion
• Equity ratio is sub-10%, limiting capital flexibility in a downturn

Investment Implications

Key Takeaways:

• Earnings beat revenue growth, driven by margin expansion and operating leverage
• Strong interest coverage (36.2x) mitigates near-term rate pressures
• Structural leverage is very high, while ROIC is weak at 1.6%
• Short-term liquidity is ample (current ratio 274.1%), but solvency risk is structural
• Cash flow opacity (unreported OCF/FCF) is a material limitation

Metrics to Watch:

• Net interest margin/spread between lease yields and funding costs
• Credit costs and delinquency trends
• Debt maturity profile and average funding rate
• ROIC progression and asset turnover
• Disclosure of operating cash flow and free cash flow
• Dividend policy updates and payout trajectory

Relative Positioning: Within Japan’s leasing cohort, the company shows healthy short-term liquidity and strong interest coverage but operates with high leverage and subpar ROIC versus larger, more diversified peers; profitability momentum is improving, yet returns remain constrained by capital efficiency.

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