ASIAN STAR CO. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.74B
• Operating Income: ¥37M
• Net Income: ¥-128M
• EPS: ¥0.42

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

Verdict: A mixed FY2025 Q3 print with strong topline growth and a modest operating recovery, but profitability remains thin and earnings quality signals are mixed. Revenue rose 62.7% YoY to 27.41, while operating income increased 135.2% YoY to 0.37, indicating improved operating leverage from a low base. Gross profit was 4.46, implying a gross margin of 16.3% against the much larger revenue base. Operating margin stands at 1.35%, while ordinary income margin is 1.02% and net margin is only 0.36–0.40%, highlighting razor-thin bottom-line profitability. Based on the YoY growth rates, prior-year operating margin is inferred at roughly 0.93%, implying c.42 bps margin expansion to the current 1.35%. SG&A of 5.68 is larger than gross profit, suggesting reliance on other operating income to reach a positive operating result (typical for project-based/real estate-related businesses with volatile recognition). Non-operating income and expenses both printed 0.05, with interest expense at 0.04 and interest coverage a comfortable 9.17x, supported by the small absolute interest burden. Despite positive ordinary income (0.28), profit before tax is reported at -1.24 and net income at 0.10, indicating undisclosed extraordinary items and a non-standard effective tax rate (-3.3%). Total comprehensive income was -0.08, likely reflecting valuation losses in investment securities (4.18 on the balance sheet), which offsets the positive net profit. Liquidity is solid with a current ratio of 195.6% and cash of 8.45 versus short-term loans of 7.70, leaving working capital of 12.63. Leverage is moderate (reported D/E of 0.77x; assets/equity 1.77x), but low ROE (0.4%) and ROIC (1.5%) underscore capital inefficiency. Asset turnover is 0.676x, reasonable for a small balance sheet, but profitability is the primary constraint on returns. With OCF unreported, earnings quality cannot be validated against cash conversion, a key gap given thin margins and possible working capital swings. Book value per share is about 96.35 JPY, while EPS is only 0.42 JPY, implying very low annualized returns on equity. Forward-looking, sustaining margin gains and stabilizing below-the-line items (including OCI) will be crucial, while maintaining liquidity against short-term debt and funding needs. Overall, the quarter shows momentum on revenue and some operating recovery, but return metrics and comprehensive income weakness temper the improvement.

Profitability Analysis

ROE decomposition (DuPont): ROE (0.4%) = Net Profit Margin (~0.4%) × Asset Turnover (0.676x) × Financial Leverage (1.77x). The main drag is the very low net profit margin; asset turnover is adequate for the business footprint and leverage is moderate. Versus last year, inferred operating margin expansion of c.42 bps (from ~0.93% to 1.35%) points to improved operating efficiency, though net margin remains minimal due to below-the-line volatility and thin operating spread. Business drivers: revenue scale-up (+62.7% YoY) helped operating income (+135.2% YoY) outpace sales, suggesting positive operating leverage; however, SG&A at 20.7% of sales (5.68/27.41) still exceeds gross profit, implying reliance on other operating income or project accounting to bridge the gap. Sustainability: incremental operating margin gains could persist if the sales mix improves and other operating income remains supportive, but one-time or lumpy items (extraordinary gains/losses) and OCI swings make the bottom line volatile. Concerning trends: reported profit before tax (-1.24) despite positive ordinary income (0.28) flags non-recurring items; total comprehensive income (-0.08) despite positive NI indicates valuation losses, dampening equity growth.

Growth Assessment

Revenue growth of +62.7% YoY to 27.41 demonstrates strong momentum, likely driven by project deliveries or a favorable sales mix. Operating income rose +135.2% to 0.37, indicating improved operating leverage from a small base. Operating margin improved to ~1.35% (from an inferred ~0.93%), but remains very thin, making profits sensitive to cost or mix shifts. Non-operating line was neutral (income and expense both 0.05), but below-the-line items turned PBT negative, underscoring volatility in non-recurring elements. Net income improved to 0.10 (+288.9% YoY) but at only ~0.4% margin, suggesting limited quality of earnings absent cash flow validation. The negative comprehensive income (-0.08) suggests securities-related OCI losses offsetting net profit, tempering equity accretion. With ROIC at 1.5%, growth is not yet value-accretive versus typical cost of capital. Outlook hinges on sustaining revenue scale and raising gross/operating margins, while reducing reliance on extraordinary factors. Absence of cash flow and segment detail limits visibility on durability of growth.

Financial Health

Liquidity is strong: current ratio 195.6% and quick ratio 195.3%, with cash and deposits of 8.45 exceeding short-term loans of 7.70. Working capital totals 12.63, reducing near-term refinancing risk. Solvency is moderate with reported D/E at 0.77x and total loans of 9.72 (short-term 7.70, long-term 2.02). Interest coverage is healthy at 9.17x. No explicit red flag: Current Ratio > 1.0 and D/E < 2.0. Maturity mismatch appears manageable given cash on hand and current assets comfortably exceeding current liabilities (25.84 vs 13.21). Off-balance sheet obligations are not disclosed; none can be assessed from the provided data. Negative total comprehensive income modestly reduces equity growth and could signal market-value sensitivity via investment securities.

Cash Flow Quality

OCF, investing CF, and financing CF are unreported, so OCF/Net Income and FCF cannot be assessed. Given thin operating margin (1.35%) and the project-based nature suggested by the numbers, cash conversion can be volatile due to working capital timing (receivables 1.15, inventories 0.04, and potential contract assets not disclosed). With net income of only 0.10 and unknown capex/dividends, sustainability of free cash flow is not verifiable. No clear signs of working capital manipulation can be drawn without cash flow and detailed balance sheet movements. Conclusion: earnings quality cannot be validated; flag as data gap rather than a confirmed issue.

Dividend Sustainability

Dividend data is unreported, so payout ratio and FCF coverage cannot be calculated. Retained earnings stand at 1.35, indicating a small equity cushion. With ROE at 0.4% and ROIC at 1.5%, internally generated returns are low, suggesting limited room for aggressive distributions absent strong cash generation. Liquidity is adequate, but without OCF/FCF disclosure, dividend sustainability cannot be assessed. Policy outlook is unclear; a conservative stance would be prudent until cash flow visibility improves.

Risk Assessment

Business Risks:

• Thin profitability: operating margin ~1.35% and net margin ~0.4% leave little buffer against adverse movements.
• Project timing and recognition risk typical of property/project-driven revenues, leading to lumpy earnings.
• Dependence on other operating income to offset SG&A above gross profit.
• Market valuation exposure via investment securities, as suggested by negative comprehensive income.
• Execution risk in scaling sales while maintaining margin discipline.

Financial Risks:

• Short-term borrowings of 7.70 against moderate equity base; rollover risk if credit conditions tighten.
• Low ROIC (1.5%) below likely cost of capital, risking value dilution if growth continues without margin improvement.
• Potential extraordinary item volatility: positive ordinary income but negative PBT indicates below-the-line shocks.
• Net debt position likely modest (cash 8.45 vs total loans 9.72), reducing flexibility if cash flows weaken.

Key Concerns:

• Divergence between ordinary income (0.28) and profit before tax (-1.24), implying undisclosed extraordinary losses.
• Negative total comprehensive income (-0.08) despite positive NI, pointing to OCI losses (e.g., securities).
• Earnings quality untestable due to missing cash flow statements.
• Capital efficiency warning: ROIC 1.5% (<5% benchmark).

Investment Implications

Key Takeaways:

• Topline accelerated (+62.7% YoY) with operating income up +135.2%, but profitability remains very thin.
• Operating margin expanded by an inferred ~42 bps YoY to ~1.35%, aided by scale, yet SG&A intensity is high (20.7% of sales).
• Below-the-line volatility turned PBT negative, and OCI losses erased part of the profit at the comprehensive income level.
• Liquidity is solid (current ratio ~196%), and interest coverage is healthy (9.17x), mitigating near-term balance sheet risk.
• Return metrics are weak (ROE ~0.4%, ROIC ~1.5%), highlighting capital inefficiency.

Metrics to Watch:

• Gross margin and operating margin trajectory; confirm if the recent ~42 bps OPM expansion continues.
• OCF and FCF once disclosed; target OCF/NI > 1.0 for quality confirmation.
• Extraordinary gains/losses and OCI impacts; aim to close the gap between ordinary income and PBT/CI.
• Leverage mix and maturity profile: short-term loans (7.70) vs cash (8.45) and refinancing terms.
• SG&A-to-sales ratio and other operating income contributions needed to sustain positive operating profit.

Relative Positioning: Compared to small-cap peers in project-driven sectors, ASIAN STAR shows strong revenue momentum but trails on profitability and capital efficiency; balance sheet liquidity is comparatively comfortable, yet earnings quality and comprehensive income stability lag.

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