Nareru Group Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥24.16B
• Operating Income: ¥2.83B
• Net Income: ¥2.09B
• EPS: ¥238.74

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

Revenue grew 11.8% YoY to 241.58, demonstrating healthy top-line momentum into FY2025 Q4. Despite this, operating income declined 9.1% YoY to 28.27, indicating margin compression and negative operating leverage in the period. Gross profit of 62.38 translated to a gross margin of 25.8%, while SG&A of 33.70 equated to 13.9% of sales, implying that operating margin settled at 11.7%. Net income came in at 20.86, down 4.6% YoY, with an effective tax rate of 24.4% and a small net non-operating expense (profit before tax 27.58 versus operating income 28.27). DuPont decomposition points to a calculated ROE of 14.4% (net margin 8.6% × asset turnover 0.984 × leverage 1.70x), which appears more economically meaningful than the reported ROE of 0.1% in XBRL. Asset efficiency remains solid with asset turnover near 1.0x, supported by an equity ratio of 58.9% and total assets of 245.62. The balance sheet shows interest-bearing loans of 48.57 (short-term 27.14, long-term 21.43), consistent with a moderate leverage position relative to equity of 144.78. Operating cash flow was robust at 22.98, exceeding net income (OCF/NI 1.10x), and free cash flow was 21.01 after -1.97 investing CF, reflecting low capital intensity (capex only 0.58). Cash and equivalents ended at 48.22, providing flexibility for working capital, selective investments, or shareholder returns. Financing cash flow of -19.23 largely reflects dividends (-10.04) and likely net debt repayment, aligning with a conservative capital allocation stance. Dividend sustainability looks comfortable with a calculated payout ratio of 46.1% and FCF coverage of 2.18x, although official XBRL payout and ROE ratios (0.4 and 0.1%) are likely artifacts of disclosure taxonomy rather than economics. The key issue this year is margin pressure: revenue growth was strong but did not translate into operating profit growth, implying higher cost-of-sales or SG&A intensity. With EBITDA of 31.12 (12.9% margin) and modest D&A of 2.85, the earnings base remains cash-generative. Liquidity ratios cannot be computed due to missing current liability details, but current assets of 84.69 and cash of 48.22 suggest an adequate near-term buffer. Overall, fundamentals indicate a growing, cash-generative business with a strong equity base, yet near-term profitability is constrained by cost pressure. Looking ahead, sustaining revenue growth while stabilizing gross margin and SG&A efficiency will be critical to re-accelerate operating profit and preserve ROE in the mid-teens. Data limitations (several unreported items) constrain deeper diagnostics of non-operating items, working capital drivers, and detailed cost structures.

Profitability Analysis

ROE decomposition (DuPont): net profit margin 8.6% × asset turnover 0.984 × financial leverage 1.70x = 14.4% ROE. Operating margin is 11.7% (28.27/241.58), down YoY given operating income decline (-9.1%) despite sales growth (+11.8%), indicating negative operating leverage. Gross margin is 25.8%; the gap between gross margin (25.8%) and operating margin (11.7%) implies SG&A intensity of 13.9%. EBITDA margin sits at 12.9% with low D&A (2.85), highlighting a relatively asset-light model and good cash conversion of earnings. Profit before tax (27.58) versus operating income (28.27) suggests minor net non-operating expenses; interest expense is unreported, preventing interest coverage calculation. The effective tax rate was 24.4%, consistent with a standard corporate tax profile under IFRS. Margin quality: the compression likely stems from either cost of sales escalation or SG&A growth ahead of revenue (exact drivers are unreported), and should be a near-term focus. Operating leverage turned negative in the year; stabilizing gross margin and improving SG&A efficiency would be needed to restore positive incremental margins.

Growth Assessment

Revenue increased 11.8% YoY to 241.58, evidencing solid demand. However, operating income fell 9.1% YoY to 28.27, and net income declined 4.6% to 20.86, indicating that growth was not profit-accretive this period. With EBITDA at 31.12, underlying cash EBITDA growth is unclear due to lack of prior-year data, but current margins (12.9%) are healthy. The PBT/EBIT gap is small, so non-operating items were not a material drag on growth. Revenue sustainability appears reasonable given the scale and asset turnover near 1.0x, but cost controls are necessary to translate growth into earnings. Outlook hinges on normalizing input costs and SG&A discipline; if cost pressure abates, operating profit should re-couple with revenue growth. Limited disclosure on segment mix and backlog/contracts constrains a more granular growth forecast.

Financial Health

Total assets 245.62 and equity 144.78 yield an equity ratio of 58.9%, indicating a strong solvency position. Interest-bearing loans total 48.57 (short-term 27.14, long-term 21.43), implying moderate leverage; reported debt-to-equity is 0.70x (definition may include broader liabilities), while interest-bearing debt to equity is approximately 0.34x by direct calculation. Cash and equivalents of 48.22 provide liquidity cushion; however, current liabilities are unreported, so current and quick ratios are not calculable. Working capital is reported as 84.69, but this equals current assets due to missing current liability data, so true working capital cannot be confirmed. Financing CF of -19.23 suggests net outflows for dividends and likely debt repayment, consistent with a conservative balance sheet strategy. No data on covenants or maturities are provided; the mix of short-term (27.14) vs long-term (21.43) debt warrants monitoring of refinancing needs.

Cash Flow Quality

Operating cash flow of 22.98 exceeds net income of 20.86, yielding OCF/NI of 1.10x, a positive indicator of earnings quality. Free cash flow (defined here as OCF + investing CF) was 21.01, aided by modest investing outflows of -1.97 and very low capex of 0.58 (approximately 0.24% of revenue). The low D&A (2.85) and low capex suggest an asset-light model; sustainability of low capex depends on maintenance needs and growth investments. Working capital detail is unreported; thus, we cannot determine whether OCF benefited from payables or receivables timing, though cash conversion appears sound overall. Non-operating cash items appear limited given small differences between EBIT and PBT. Overall, cash flow quality is solid, with cash generation aligned with profit and sufficient to fund dividends and debt service.

Dividend Sustainability

Calculated payout ratio is 46.1% against net income of 20.86, indicating a balanced distribution policy. FCF coverage of dividends is 2.18x (FCF 21.01 vs dividends paid 10.04), supporting sustainability under current cash generation. With cash on hand of 48.22 and a strong equity base, there is buffer capacity; however, margin compression, if persistent, could pressure coverage. Reported XBRL payout ratio (0.4%) appears inconsistent with the calculated figure and likely reflects a taxonomy or denominator mismatch; we rely on calculated metrics. Absent DPS disclosure, per-share dividend trajectory cannot be assessed; policy signals (e.g., DOE target 0.1 reported) are likely placeholders and not reflective of actual policy. Near-term sustainability looks comfortable, contingent on maintaining OCF at or above current levels and disciplined capex.

Risk Assessment

Business Risks:

• Margin pressure from rising cost of sales or SG&A, leading to negative operating leverage.
• Potential pricing constraints limiting pass-through of cost inflation.
• Execution risk in scaling operations while maintaining service quality and efficiency.
• Customer/segment mix shifts that could dilute margins (details unreported).
• Regulatory or compliance changes affecting operating practices under IFRS and local rules.

Financial Risks:

• Refinancing risk from short-term borrowings of 27.14 in the absence of disclosed liquidity ratios.
• Sensitivity to interest rates given interest-bearing debt of 48.57 (interest expense unreported).
• Working capital volatility risk; lack of receivable/payable/inventory disclosure obscures cash conversion dynamics.
• Potential impairment risk on intangible assets or investments (details unreported).

Key Concerns:

• Operating income decline (-9.1% YoY) despite double-digit revenue growth (+11.8%).
• Compression of operating margin to 11.7% and potential continuation if costs remain elevated.
• Limited disclosure on non-operating items, current liabilities, and working capital components, reducing visibility.
• Discrepancies in reported ratios (e.g., ROE 0.1%, payout 0.4%) versus economic calculations.

Investment Implications

Key Takeaways:

• Top-line growth is solid, but profitability lagged due to cost pressure, resulting in negative operating leverage.
• ROE remains robust at a calculated 14.4%, driven by healthy margins, near-1.0x asset turnover, and moderate leverage.
• Cash generation is strong with OCF/NI at 1.10x and FCF of 21.01, supporting dividends and deleveraging.
• Balance sheet quality is high with a 58.9% equity ratio and ample cash (48.22).
• Key near-term swing factors are gross margin stabilization and SG&A efficiency.

Metrics to Watch:

• Gross margin and cost of sales trend versus revenue growth.
• SG&A as a percentage of sales and operating margin trajectory.
• OCF to net income ratio and working capital movements (DSO/DPO/DIO once disclosed).
• Debt maturity profile and interest expense/coverage once disclosed.
• Dividend outlays relative to FCF and cash balance.

Relative Positioning: Within domestic mid-cap peers, the company combines above-average revenue growth with a strong equity ratio and solid FCF generation, but currently trails best-in-class operators on operating margin momentum due to cost pressures.

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