Aoyama Zaisan Networks Company,Limited FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥34.12B
• Operating Income: ¥3.61B
• Net Income: ¥1.69B
• EPS: ¥100.66

Income Statement

Balance Sheet

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

Verdict: Strong quarter with notable margin expansion and high ROE, albeit with cash flow and some line-item disclosure gaps limiting earnings quality assessment. Revenue rose 6.9% YoY to 341.19, while operating income surged 49.7% YoY to 36.11, driving operating margin to 10.6%. Gross profit was 48.59, implying a gross margin of 14.2%, and SG&A was well contained at 24.47 (7.2% of revenue). Ordinary income reached 35.00 (+46.8% YoY), and net income was 24.11 (+42.8% YoY), producing a net margin of 7.1%. ROE calculated at 21.3% is best-in-class for a mid-cap services/solutions firm, supported by asset turnover of 1.379x and modest financial leverage of 2.19x. Interest coverage is very strong at 60.2x, indicating minimal near-term financial strain. Liquidity is ample with a current ratio of 334% and cash/deposits of 160.03 against current liabilities of 54.90. The SG&A ratio appears well managed relative to revenue, supporting operating leverage. Operating income growth far outpaced revenue growth, signaling meaningful margin expansion (bps quantification not possible due to lack of prior margin data). Earnings quality cannot be verified because operating cash flow and free cash flow were not disclosed; OCF/NI and FCF coverage are therefore not calculable. Balance sheet quality is mixed: cash is high, but goodwill and intangible assets total 55.2, nearly half of equity, introducing potential impairment risk. Reported PBT (23.84) is lower than ordinary income (35.00) while net income (24.11) exceeds PBT, which likely reflects classification of extraordinary items; nonetheless, it complicates comparability. Dividend affordability looks reasonable with a calculated payout ratio of 47.9%, though FCF coverage is unknown. Forward-looking, sustained ROE >20% will depend on maintaining current net margins and asset turnover while avoiding impairments and keeping SG&A disciplined. Investors should focus on cash conversion, the durability of margin gains, and any strategic investments driving the increase in intangibles/goodwill.

Profitability Analysis

DuPont decomposition: ROE 21.3% = Net Profit Margin 7.1% × Asset Turnover 1.379 × Financial Leverage 2.19x. The most impactful driver this quarter is margin expansion, as operating income grew +49.7% vs revenue +6.9%, implying higher operating and net margins. Business reasons likely include improved mix toward higher-margin solutions/advisory and SG&A discipline (SG&A/revenue ~7.2%). Asset turnover of 1.379x is healthy and indicates efficient use of assets, helped by high cash not dragging turnover excessively and low receivables relative to revenue. Financial leverage at 2.19x is moderate; ROE is not leverage-dependent but margin- and turnover-led, which is higher quality. Sustainability: margin gains appear partly structural if tied to mix/efficiency, but some uplift may be one-time (e.g., project timing, non-operating items), especially given the unusual relationship between ordinary income, PBT, and NI; without segment detail, persistence is uncertain. Flags: revenue +6.9% while SG&A absolute grew to 24.47 but remained at 7.2% of sales; no sign of SG&A growing faster than revenue. Gross margin at 14.2% and operating margin at 10.6% show strong operating leverage from a relatively thin gross spread, suggesting tight cost control and/or increased fee-based revenue.

Growth Assessment

Top-line growth of 6.9% YoY is solid and appears broad-based given limited receivables growth (AR 5.95), suggesting timely collections and revenue quality. Operating income growth of 49.7% indicates favorable mix and operating leverage; current operating margin is 10.6%. Ordinary income (+46.8% YoY) and net income (+42.8% YoY) confirm earnings acceleration. Given the high cash balance and moderate leverage, the company has capacity to invest in growth or M&A; the increase in intangibles/goodwill (total 55.2) signals ongoing investment that could support future growth if integration is successful. However, absence of cash flow and segment data limits conviction on sustainability. Outlook hinges on maintaining fee/solution margins, avoiding impairment, and continuing SG&A efficiency. Watch for demand sensitivity to real estate/wealth management cycles and tax/regulatory changes affecting succession/estate services.

Financial Health

Liquidity is strong: current ratio 333.7% and quick ratio 333.7%; no warning (both >> 1.0). Cash and deposits of 160.03 comfortably cover current liabilities of 54.90; working capital is 128.31. Solvency: debt-to-equity is 1.19x (within conservative bounds <1.5x), with long-term loans 43.62 and short-term loans 1.00; interest coverage 60.18x is robust. Implied equity ratio is about 45.7% (113.02/247.43), indicating a balanced capital structure. Maturity mismatch risk is low given minimal short-term borrowings and large cash. Off-balance sheet obligations are not disclosed; no explicit guarantees/commitments available in the dataset. Asset quality considerations: goodwill 27.02 and intangible assets 28.17 total 55.19, around 48.8% of equity, elevating impairment risk in downturns.

Cash Flow Quality

Operating cash flow and free cash flow are unreported; OCF/Net Income and FCF coverage cannot be calculated. As a result, earnings quality cannot be validated against cash. Working capital indicators from the balance sheet look benign: accounts receivable of 5.95 appear modest relative to revenue, and cash is high, but inventories are unreported, limiting analysis of potential revenue pull-forward. No signs of aggressive working capital management are evident in the available data, but absence of cash flow statements prevents a definitive view. Dividend and capex coverage from FCF are not assessable this quarter.

Dividend Sustainability

Calculated payout ratio is 47.9%, which is within a generally sustainable range (<60%). With cash of 160.03 and strong interest coverage, near-term dividend capacity appears comfortable. However, OCF, FCF, and actual dividends paid are not disclosed, so FCF coverage cannot be evaluated. If the company maintains current profitability and capex remains moderate, sustaining dividends looks feasible; risk factors include potential goodwill/intangible impairments and any step-up in investment spending.

Risk Assessment

Business Risks:

• Revenue sensitivity to real estate and wealth/succession advisory demand cycles in Japan
• Potential changes in tax/regulatory frameworks affecting inheritance/business succession planning
• Execution and integration risk related to acquisitions reflected in higher goodwill/intangibles
• Competitive pressure in high-margin advisory/solutions segments that drove margin expansion

Financial Risks:

• Impairment risk: goodwill (27.02) and intangible assets (28.17) totaling 55.19 (~49% of equity)
• Information risk: lack of OCF/FCF disclosure limits validation of earnings quality
• Potential extraordinary item volatility affecting comparability of ordinary income, PBT, and NI
• Moderate leverage (D/E 1.19x) requires continued earnings to maintain safety buffers

Key Concerns:

• Unusual relationship of ordinary income (35.00), profit before tax (23.84), and net income (24.11) suggests non-recurring items or classification effects
• Absence of cash flow data obscures cash conversion and FCF sustainability
• ROIC figure (-1071.1%) is not decision-useful given likely denominator/definition issues and should not be interpreted at face value

Investment Implications

Key Takeaways:

• Strong topline growth (+6.9% YoY) with outsized operating income growth (+49.7% YoY) delivered clear margin expansion
• High ROE of 21.3% is driven by margin and asset turnover, not excessive leverage
• Balance sheet liquidity is ample (cash 160.03; current ratio 334%), and interest coverage is very robust (60.2x)
• Goodwill/intangibles equal ~49% of equity, creating sensitivity to impairment
• Dividend payout ratio at ~48% appears manageable, but FCF coverage is unknown

Metrics to Watch:

• Operating cash flow and free cash flow (OCF/NI target >= 1.0)
• Sustainability of operating margin (~10.6%) and gross margin (14.2%)
• SG&A-to-sales ratio trend and operating leverage
• Impairment testing outcomes for goodwill/intangibles
• Debt maturity profile and any changes in leverage
• Nature of extraordinary items affecting PBT vs ordinary income
• Order intake/backlog or AUM/client acquisition indicators (if disclosed)

Relative Positioning: Within Japan mid-cap advisory/solutions and asset/real estate-related services, the company currently stands out for high ROE and strong liquidity, with profitability momentum ahead of peers; however, the lack of cash flow disclosure and elevated intangible asset base temper the quality assessment versus best-in-class cash generators.

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