People, Dreams & Technologies Group Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥45.98B
• Operating Income: ¥2.68B
• Net Income: ¥448M
• EPS: ¥176.75

Income Statement

Balance Sheet

Cash Flow Statement

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: Solid top-line and operating profit growth with margin expansion, but bottom-line declined on a higher tax burden and negative operating cash flow—mixed quarter overall. Revenue rose 15.5% YoY to 459.84, with gross profit of 128.21 and operating income up 49.9% YoY to 26.83. Ordinary income advanced 54.2% YoY to 27.08, while profit before tax was 25.88, implying modest extraordinary losses (~1.2). Net income fell 21.0% YoY to 15.64, with basic EPS at 176.75 JPY. Gross margin printed at 27.9%, SG&A ratio at roughly 22.0%, and operating margin at about 5.8%. We estimate operating margin expanded by roughly 130–140 bps YoY (current ~5.8% vs. prior ~4.5%) on operating leverage. However, net margin compressed by about 150–160 bps (current 3.4% vs. prior ~5.0%) due to a materially higher effective tax rate (39.6%) and minor below-the-line drag. ROE was 7.5% via a 3.4% net margin, 1.118x asset turnover, and 1.97x financial leverage, broadly consistent with an 8.8% ROIC, which is above typical targets. Liquidity is strong with a current ratio of 214.8% and working capital of 154.51, while leverage remains moderate (D/E 0.97x) and interest coverage robust at 22.7x. Cash and deposits stood at 77.76, against short-term loans of 32.00 and long-term loans of 20.41, indicating ample near-term liquidity. Cash flow quality is a concern: operating cash flow was -11.42 despite net income of 15.64 (OCF/NI -0.73x), and free cash flow was -17.77, reflecting working capital outflows and capex of 6.75. Financing inflow of 10.36 and share repurchases of 6.54 suggest external funding partially supported shareholder returns and working capital. Dividend details are unreported, but the calculated payout ratio of 36.1% appears reasonable; however, FCF coverage was negative (-3.15x), limiting near-term flexibility if OCF does not normalize. Forward-looking, sustaining the higher operating margin while normalizing working capital and tax rate is key to restoring net margin and free cash flow. Balance sheet strength provides a buffer to navigate cash conversion volatility, but persistent OCF weakness would pressure buybacks and any dividend ambition. Overall, the operating trajectory is encouraging, yet earnings quality and tax volatility temper the headline growth.

Profitability Analysis

DuPont decomposition: ROE 7.5% = Net Profit Margin 3.4% × Asset Turnover 1.118 × Financial Leverage 1.97x. The largest component change YoY was net profit margin compression (estimated -160 bps), despite clear operating margin expansion (+130–140 bps), due to a higher effective tax rate (39.6%) and small non-operating/extraordinary headwinds. Business drivers: strong revenue growth and disciplined SG&A produced operating leverage, while below-the-line items and taxes curtailed flow-through to net. Sustainability: operating margin gains appear more sustainable (scale and mix benefits) if SG&A remains controlled; the tax rate spike and extraordinary impact look more one-off/variable, implying potential normalization. Watch points: SG&A grew below sales (implied), which is healthy; maintain vigilance that SG&A growth does not exceed revenue growth in coming periods. Non-operating line was roughly neutral (income 1.76 vs expenses 1.51), so core performance is driving results. EBITDA of 31.79 (margin 6.9%) versus OI of 26.83 indicates modest D&A intensity (4.96), consistent with an asset-light profile.

Growth Assessment

Revenue growth of 15.5% YoY indicates healthy demand and/or share gains. Operating income up 49.9% YoY demonstrates strong operating leverage from a higher gross profit base and controlled SG&A. Ordinary income rose 54.2% YoY, confirming core momentum. Net income declined 21.0% YoY on a high 39.6% effective tax rate and minor extraordinary drag (~1.2 from ordinary to PBT). Margin dynamics are mixed: OPM expanded to ~5.8% (+~130–140 bps), but NPM fell to 3.4% (-~150–160 bps). ROIC at 8.8% exceeds common 7–8% targets, suggesting value-accretive growth. Near-term sustainability hinges on maintaining gross margin and SG&A discipline while normalizing the tax rate; revenue momentum would support further operating leverage. The negative OCF and FCF weigh on growth quality, pointing to working capital intensity (likely receivables build) that should normalize if billing collections catch up. Outlook: if tax reverts toward mid-30s or lower and cash conversion improves, net margin and FCF should recover; otherwise, capital returns may be paced to liquidity.

Financial Health

Liquidity is strong: current ratio 214.8% and quick ratio 214.8% (no inventory data provided), with working capital of 154.51. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.97x—moderate and within conservative bounds. Implied equity ratio is ~50.8% (equity 209.12 / assets 411.45), despite XBRL showing N/A. Interest coverage is robust at 22.74x, indicating ample capacity to service debt. Short-term loans of 32.00 are well covered by cash and deposits of 77.76, minimizing maturity mismatch risk. Long-term loans are 20.41; total interest-bearing debt is partially disclosed via short/long-term loans, with no aggregate provided. No off-balance sheet obligations were reported in the dataset. Overall solvency and liquidity profiles are healthy, giving flexibility to manage working capital volatility.

Cash Flow Quality

OCF was -11.42 versus net income of 15.64, yielding an OCF/NI of -0.73x, which is a clear quality flag. Free cash flow was -17.77 after capex of 6.75, indicating the period’s cash shortfall likely stems from working capital outflows (receivables and/or unbilled positions; details unreported). Financing inflow of 10.36 and buybacks of 6.54 suggest external funding and cash balances were used to bridge OCF and shareholder returns. No apparent signs of earnings management beyond working capital timing are evident from available data, but persistent negative OCF alongside rising revenue would warrant scrutiny of DSO and project billing terms. Sustainability: absent a normalization in working capital, sustaining both capex and shareholder returns from internal cash will be challenging.

Dividend Sustainability

Dividend amounts are unreported; calculated payout ratio is 36.1%, which appears moderate if based on current earnings capacity. However, FCF coverage is -3.15x, indicating dividends (if any) were not covered by free cash flow this period. With strong liquidity (cash 77.76) and moderate leverage (D/E 0.97x), the balance sheet can temporarily support distributions, but continuation would depend on OCF normalization. Policy outlook: management may prioritize improving cash conversion and funding growth while pacing buybacks/dividends to FCF recovery; absent data on DPS or total dividends paid, we assume a conservative stance until OCF turns positive.

Risk Assessment

Business Risks:

• Working capital intensity and receivables collection risk, evidenced by negative OCF despite profit
• Margin pressure from wage inflation and tight labor markets (likely for a human/technology services mix)
• Project execution and acceptance timing risk affecting revenue recognition and cash timing
• Tax rate volatility (effective tax at 39.6%) impacting net margin
• Potential goodwill impairment risk (goodwill 8.11) if acquired units underperform

Financial Risks:

• Reliance on external financing to fund buybacks and working capital in periods of negative OCF
• Interest rate risk on variable-rate borrowings (short-term loans 32.00)
• FCF shortfall (-17.77) constraining capacity for sustained shareholder returns
• Moderate leverage (D/E 0.97x) could drift higher if cash conversion remains weak

Key Concerns:

• OCF/NI at -0.73x indicates poor earnings-to-cash conversion this period
• Net margin compression despite stronger operating margin due to high tax rate
• Visibility on receivables/inventories is limited (unreported), obscuring working capital drivers

Investment Implications

Key Takeaways:

• Healthy top-line growth (+15.5% YoY) and operating margin expansion (~+130–140 bps) signal improving core execution
• Bottom-line decline (-21% YoY) driven by a high effective tax rate and minor below-the-line impacts
• Cash flow quality is weak (OCF negative; FCF -17.77), likely due to working capital build
• Balance sheet remains a buffer (current ratio 214.8%, cash 77.76, interest coverage 22.7x) despite moderate leverage (D/E 0.97x)
• ROE 7.5% and ROIC 8.8% are respectable, with room to improve if tax normalizes and cash conversion recovers

Metrics to Watch:

• OCF/Net Income and DSO to gauge cash conversion normalization
• Effective tax rate trend and drivers
• Operating margin sustainability vs. SG&A growth trajectory
• Leverage (D/E) and net debt trends amid buybacks/capex
• ROIC relative to cost of capital and segment mix

Relative Positioning: Within Japanese mid-cap human/technology services peers, the company shows above-average operating momentum and ROIC, offset by below-average cash conversion this period; liquidity and coverage are strengths, while tax and working capital volatility are the primary differentiators to monitor.

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