Tokai Kisen Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥10.99B
• Operating Income: ¥377M
• Net Income: ¥384M
• EPS: ¥109.28

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 results for Tokai Kisen (9173) show weaker profitability on softer demand and higher financial costs, with earnings cushioned by extraordinary gains. Revenue declined 2.8% YoY to 109.95, while operating income fell 37.1% YoY to 3.77, indicating negative operating leverage. Gross margin stands at 15.4%, and operating margin compressed to 3.43%, reflecting either higher operating costs or lower pricing power. Ordinary income dropped 39.9% to 3.28, pressured by net non-operating expenses of 0.53 (non-op income 0.61 vs non-op expenses 1.14) and a sizable interest burden of 0.97. Profit before tax was 5.47, notably above ordinary income, implying roughly 2.19 in net extraordinary gains that bolstered bottom-line performance. Net income decreased 20.2% YoY to 2.39, with net margin at 2.17%. Based on the YoY rates provided, operating margin compressed by about 187 bps (from ~5.30% to 3.43%), and net margin compressed by about 48 bps (from ~2.65% to 2.17%). Interest coverage is modest at 3.89x, below the 5x comfort threshold, due to operating income contraction and 0.97 in interest expense. Leverage is elevated (D/E 2.20x, quality alert), with short-term loans of 35.26 offset by cash and deposits of 44.66, providing some liquidity buffer. Liquidity is adequate (current ratio 1.29x, quick ratio 1.28x), and the equity ratio is approximately 31.2%, but financial flexibility is constrained relative to peers with lighter debt loads. ROE is 3.5% per DuPont (net margin 2.2% × asset turnover 0.511 × leverage 3.20x), underscoring that low margins and low asset turns are the main drags despite leverage. ROIC is low at 2.1%, well below the 5% warning threshold, implying value creation is challenged after capital costs. Earnings quality is mixed, as the gap between ordinary income (3.28) and PBT (5.47) suggests one-time gains lifted results; however, cash flow data is not disclosed, limiting assessment of cash conversion. The calculated payout ratio is low at 9.2%, but dividend sustainability depends on free cash flow and upcoming vessel capex, which are not disclosed. Looking ahead, restoring operating margin, improving load factors/yields, and managing fuel and interest costs will be critical to stabilize ROE and ROIC. Near-term focus should be on cost control and deleveraging to lift interest coverage above 5x while reducing dependence on extraordinary items for earnings support.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.5% = Net profit margin 2.2% × Asset turnover 0.511 × Financial leverage 3.20x. The largest YoY change is in the margin component: operating income down 37.1% on a 2.8% revenue decline implies operating margin compressed by ~187 bps (from ~5.30% to 3.43%). Business drivers likely include higher fuel/maintenance costs, adverse route mix or pricing, and interest cost drag flowing through ordinary income; the presence of extraordinary gains indicates non-recurring support to PBT rather than core profit improvement. Asset turnover at 0.511 is low for a transport operator, reflecting the capital-intensive fleet; no explicit YoY asset base is provided, but revenue decline suggests turnover likely deteriorated modestly. Leverage at 3.20x (assets/equity) remains high, boosting ROE mechanically but increasing financial risk. The margin compression appears cyclical and potentially reversible with demand normalization and cost controls, but fuel price and weather volatility are persistent structural headwinds. SG&A details are unreported; however, operating income contracted more than revenue, indicating negative operating leverage and possible cost inflation; we flag that expense growth likely outpaced revenue growth.

Growth Assessment

Top line contracted 2.8% YoY to 109.95, indicating softer passenger/cargo demand or lower fares. Operating income declined 37.1% YoY to 3.77, and ordinary income declined 39.9% to 3.28, signaling pressure in core earnings. Net income decreased 20.2% YoY to 2.39, partly buffered by extraordinary gains that lifted PBT to 5.47. Current gross margin is 15.4% and operating margin 3.43%, both modest for the asset intensity of the business. Non-operating items are net negative excluding extraordinary gains, with interest expense of 0.97 outweighing non-operating income of 0.61. Growth sustainability hinges on recovering load factors and yields, stabilizing fuel costs, and maintaining route reliability; absent that, negative operating leverage could persist. Given the low ROIC (2.1%), incremental growth that requires capital may be dilutive unless pricing or utilization improves. Outlook: focus on yield management, fuel hedging or surcharges, and cost initiatives to rebuild operating margin; extraordinary gains should not be relied upon for recurring growth.

Financial Health

Liquidity: Current ratio 1.29x and quick ratio 1.28x are above 1.0 (no immediate warning), though below the >1.5x comfort benchmark. Working capital is 16.63, with cash and deposits of 44.66 providing coverage over short-term loans of 35.26, mitigating near-term maturity risk. Solvency: Debt-to-equity is high at 2.20x (warning threshold >2.0), indicating elevated leverage; interest-bearing debt totals 105.39 (short 35.26 + long 70.13). Equity ratio is approximately 31.2% (67.23/215.28), indicating a moderately levered balance sheet for a capital-intensive operator. Interest coverage is 3.89x, below the >5x strong benchmark, implying sensitivity to earnings downturns or rate increases. Maturity profile: current liabilities 57.77 versus current assets 74.40 suggests limited maturity mismatch near term; however, long-term loans of 70.13 indicate ongoing refinancing needs. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net income cannot be assessed; we cannot confirm cash conversion quality. Free cash flow and capex are unreported; given the industry’s asset intensity, medium-term capex for fleet maintenance/renewal could be substantial and may constrain FCF. Earnings quality appears mixed: ordinary income (3.28) vs PBT (5.47) indicates reliance on extraordinary gains (~2.19) this period; absent these, bottom-line performance would be weaker. Working capital movements cannot be evaluated due to lack of detail; no signs of manipulation can be identified from the limited data. With interest expense at 0.97 and modest operating income, recurring cash interest coverage may be tight if OCF tracks operating income.

Dividend Sustainability

The calculated payout ratio is low at 9.2%, suggesting headroom relative to earnings; DPS itself is unreported. FCF coverage cannot be evaluated due to missing OCF and capex data. Given low ROIC (2.1%) and elevated leverage (D/E 2.20x), management may prioritize balance sheet strength and capex over dividend expansion. If earnings remain supported by extraordinary gains rather than core OCF, dividend growth would be cautious. Near-term sustainability appears acceptable on earnings coverage alone, but true sustainability depends on FCF after maintenance capex and interest, which are undisclosed.

Risk Assessment

Business Risks:

• Demand volatility for passenger and cargo services leading to negative operating leverage
• Fuel price volatility impacting operating costs and margins
• Weather and disaster-related service disruptions (e.g., typhoons) affecting utilization
• Seasonality in tourism-driven routes affecting load factors and pricing
• Regulatory and safety compliance costs for marine operations

Financial Risks:

• High leverage (D/E 2.20x) and modest interest coverage (3.89x)
• Refinancing risk on short-term loans (35.26) and long-term loans (70.13)
• Interest rate risk increasing interest expense burden
• Low ROIC (2.1%) implying weak capital efficiency and potential value dilution

Key Concerns:

• Operating margin compression of ~187 bps YoY to 3.43%
• Reliance on extraordinary gains (~2.19) to lift PBT above ordinary income
• Limited disclosure on OCF/FCF and capex, constraining cash flow assessment
• Negative operating leverage as revenue declines 2.8% while operating income declines 37.1%

Investment Implications

Key Takeaways:

• Core profitability weakened; operating margin fell to 3.43% and ordinary income declined 39.9% YoY
• Extraordinary gains boosted PBT to 5.47, masking weaker core earnings
• Leverage is high (D/E 2.20x) with interest coverage at 3.89x, elevating financial risk
• ROE is modest at 3.5% and ROIC is low at 2.1%, indicating limited value creation currently
• Liquidity is adequate (current ratio 1.29x; cash 44.66 vs short-term loans 35.26) but not ample

Metrics to Watch:

• Operating margin and ordinary income trend (ex-extraordinary items)
• Fuel cost trajectory and any hedging/surcharge mechanisms
• Load factor and average fare/yield by route
• OCF/Net income and free cash flow after maintenance capex
• Debt maturities and interest rate on refinancings; interest coverage
• ROIC progression vs internal hurdle rates

Relative Positioning: Within domestic marine transport, Tokai Kisen exhibits adequate liquidity but higher financial leverage and lower capital efficiency than desired, with current profitability under pressure and outsized sensitivity to cost and demand fluctuations.

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