Recovery International Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.92B
• Operating Income: ¥106M
• Net Income: ¥50M
• EPS: ¥36.27

Income Statement

Balance Sheet

Profitability Ratios

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

Recovery International (92140) reported FY2025 Q3 consolidated results under JGAAP with stable top-line performance but modest profitability and limited disclosure on cash flows. Revenue was ¥1,924 million, essentially flat year over year, indicating a pause in growth momentum. Gross profit reached ¥824.6 million, implying a robust gross margin of 42.9%, which suggests solid pricing power and/or a favorable mix in higher-margin services. Operating income was ¥106 million, translating to an operating margin of 5.5%; the gap between gross and operating margins points to meaningful SG&A intensity. Ordinary income of ¥110 million exceeded operating income marginally, reflecting limited financial income/expense effects; interest expense was only ¥1.28 million and interest coverage was strong at 82.7x. Net income was ¥49 million, giving a net margin of 2.55%; the drop from operating to net level reflects a relatively high tax burden. The reported effective tax charge of ¥60.7 million versus pre-tax income (approximated by ordinary income) suggests an effective tax rate near 55%, indicating either non-deductible items, tax rate differentials, or timing effects; the “0.0%” effective tax rate shown in calculated metrics is inconsistent with the income statement and should be disregarded. On balance sheet strength, total assets were ¥1,319 million and equity was ¥742 million, implying an equity ratio of roughly 56.3% despite the reported 0.0% (which appears to be an undisclosed figure, not an actual zero). Liquidity is sound with current assets of ¥1,151 million and current liabilities of ¥397 million, yielding a current ratio of 290% and working capital of ¥754 million. Asset turnover of 1.46x and financial leverage of 1.78x produced a DuPont ROE of 6.6%, consistent with the reported figure and supported by a net margin of 2.55%. EBITDA and depreciation are unreported (displayed as zero), which constrains operating cash dynamics analysis; similarly, all cash flow statement line items are unreported, preventing verification of earnings-to-cash conversion. Dividend data also appear undisclosed (DPS shown as zero), so payout policy cannot be inferred from this quarter. Overall, the company exhibits decent gross profitability, conservative leverage, and strong liquidity, but earnings quality and sustainability cannot be validated without cash flow disclosure. The flat revenue and modest operating margin suggest limited operating leverage at this stage. Data gaps (cash flow, D&A, shares outstanding, BVPS) limit precision in valuation or per-share assessments. We therefore focus on available profitability and balance sheet indicators while flagging key items to monitor in subsequent disclosures.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 2.55% (NI ¥49m / Revenue ¥1,924m)
• asset_turnover: 1.46x (Revenue ¥1,924m / Assets ¥1,319m)
• financial_leverage: 1.78x (Assets ¥1,319m / Equity ¥742m)
• calculated_ROE: ≈6.6% (consistent with reported 6.60%)
• commentary: ROE is driven predominantly by asset turnover and moderate leverage, with a thin net margin limiting return expansion. Improving operating margin would most directly benefit ROE. margin_quality:
• gross_margin: 42.9% (¥824.6m / ¥1,924m) indicates strong unit economics or favorable mix.
• operating_margin: 5.5% (¥106m / ¥1,924m); significant SG&A absorption implied.
• net_margin: 2.55% (¥49m / ¥1,924m); compressed by a high effective tax burden.
• tax_effect: Income tax ¥60.7m vs. pre-tax ~¥110m implies ~55% effective tax rate; warrants investigation (non-deductible expenses, deferred tax impacts, or jurisdictional mix). operating_leverage: Limited evidence of operating leverage in this period: revenue flat YoY while operating income is also flat, suggesting cost growth broadly matched sales. With high gross margin, incremental sales should scale if SG&A growth is controlled; however, current data do not show margin expansion.

Growth Assessment

revenue_sustainability: Revenue flat at ¥1,924m YoY indicates stabilization but no acceleration; sustainability will depend on retention, renewal rates, and new business pipelines (not disclosed). profit_quality: Gross margin is healthy, but the translation to operating and net profit is muted by SG&A and taxes. Lack of D&A and cash flow disclosure prevents assessment of recurring vs. non-recurring cost elements and capex intensity. outlook: With solid gross margins and low interest burden, incremental growth could lift operating profit if overhead is leveraged. However, the absence of growth in the quarter implies near-term earnings momentum is modest pending catalysts (pricing, mix, or volume).

Financial Health

liquidity: Current assets ¥1,151.4m vs. current liabilities ¥396.9m; current ratio 290% and working capital ¥754.4m. Quick ratio also 290% given inventories unreported. Liquidity appears strong. solvency: Total liabilities ¥576.2m vs. equity ¥742.0m; debt-to-equity ~0.78x. Interest expense is low and coverage is 82.7x, indicating low financial risk from debt service. capital_structure: Equity ratio computed at ~56.3% (¥742m/¥1,319m) despite reported 0.0% (undisclosed). Moderate leverage provides flexibility while supporting ROE.

Cash Flow Quality

earnings_quality: Unassessable from reported CF lines—OCF, investing CF, and financing CF all undisclosed. The displayed OCF/NI of 0.00 is a placeholder and should not be interpreted as cash flow weakness. FCF_analysis: Free cash flow cannot be computed without OCF and capex data. D&A is unreported, further limiting capex proxy analysis. working_capital: Working capital is ample (¥754m), but without CF data we cannot determine if changes in receivables/payables drove earnings volatility or cash consumption/production.

Dividend Sustainability

payout_ratio_assessment: DPS reported as ¥0.00 likely reflects undisclosed dividends rather than an intentional zero payout. EPS is ¥36.27, implying that if any dividend exists, payout is not disclosed. FCF_coverage: Cannot be assessed given missing OCF and capex; the shown 0.00x is not meaningful. policy_outlook: With stable earnings, low interest burden, and strong liquidity, capacity for distributions may exist; however, lack of stated policy and cash flow disclosure precludes conclusions about sustainability or intent.

Risk Assessment

Business Risks:

• Revenue stagnation risk given flat YoY sales in FY2025 Q3.
• Margin compression risk from SG&A growth outpacing revenue.
• Pricing and mix risk despite high gross margin if competitive dynamics intensify.
• Customer concentration or contract renewal risk (not disclosed).
• Regulatory/taxation risk highlighted by elevated effective tax rate indications.

Financial Risks:

• Disclosure risk: absence of cash flow and D&A data obscures true cash generation.
• Working capital swings potentially impacting cash (receivables/payables not disclosed).
• Potential refinancing or covenant risks unknown due to lack of debt detail, though interest burden currently low.
• Equity/share data gaps (shares outstanding, BVPS) impede per-share metrics and capital policy analysis.

Key Concerns:

• Inability to validate earnings-to-cash conversion in the quarter.
• High implied effective tax rate (~55%) depressing net profitability.
• Lack of growth momentum with flat revenue and operating income.

Investment Implications

Key Takeaways:

• ROE of ~6.6% is supported by decent asset turnover and moderate leverage but capped by a thin net margin.
• Gross margin strong at 42.9%, but SG&A intensity limits operating margin to 5.5%.
• Liquidity is robust (current ratio ~290%), and leverage moderate (D/E ~0.78x).
• Interest coverage is very strong at ~83x, indicating low near-term financial stress.
• Cash flow and D&A disclosure gaps are material; quality of earnings and capex needs remain unclear.
• Tax rate appears elevated, weighing on bottom line.

Metrics to Watch:

• Top-line growth reacceleration (sequential and YoY).
• Operating margin trajectory and SG&A as a percentage of sales.
• Effective tax rate normalization or drivers of the elevated rate.
• Operating cash flow and free cash flow once disclosed.
• Capex intensity (when D&A and investing cash flows are reported).
• Customer concentration and backlog/renewal metrics (if disclosed).

Relative Positioning: Within a typical TSE small-cap services cohort, the company exhibits above-average gross margins, conservative leverage, and strong liquidity, but trails on transparency and demonstrated growth momentum; margin scalability and cash conversion evidence will be key to improving its standing.

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