Japan Ecosystem Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥11.26B
• Operating Income: ¥437M
• Net Income: ¥341M
• EPS: ¥34.71

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

Verdict: Top-line growth was strong but profitability deteriorated materially; FY2025 Q4 shows significant margin compression and a heavy capex cycle, resulting in weak ROE/ROIC despite healthy liquidity. Revenue rose 21.1% YoY to 112.61, evidencing solid demand or successful project conversion. Gross profit reached 29.78 with a gross margin of 26.4%, indicating decent cost pass-through at the gross level. However, operating income declined 42.5% YoY to 4.37, implying severe operating deleverage as SG&A absorption worsened. We estimate operating margin compressed from roughly 8.2% to 3.9% (about 429 bps deterioration). Ordinary income fell 41.7% YoY to 4.68, while non-operating income of 0.75 provided a modest cushion against higher non-operating expenses of 0.44. Profit before tax was 7.62, implying sizable below-ordinary gains, but a high effective tax rate of 58.0% reduced the net benefit. Net income declined 51.3% YoY to 3.01, translating to a net margin of 2.7% and EPS (basic) of 34.71 yen. Cash flow quality is better than earnings: operating cash flow of 6.40 was 2.13x net income, indicating strong cash conversion this period. Free cash flow was deeply negative at -38.52 due to significant investing cash outflows (-44.92), including capex of -33.46, signaling a step-up in growth or maintenance investments. The balance sheet remains liquid (current ratio 159.5%, quick ratio 119.8%), and coverage is strong (interest coverage 13.4x), but overall capital efficiency is weak (ROE 5.3%, ROIC 2.1%). Leverage at the liability level (D/E 1.45x) is moderate for a project-heavy business but raises the bar for returns given ROIC well below typical cost of capital. Dividend data are largely unreported; the calculated payout ratio of 150.5% and FCF coverage of -8.50x imply potential unsustainability if such payouts occurred, though disclosure gaps limit certainty. Forward-looking, the investment ramp suggests potential capacity for growth, but a return to at least mid-single-digit ROIC is necessary to justify the balance-sheet usage. Near-term priorities should be (1) restoring operating margin via SG&A discipline and pricing, (2) ensuring capex translates into revenue/EBITDA growth, and (3) normalizing the tax rate to support net margins.

Profitability Analysis

ROE (5.3%) decomposes into Net Profit Margin (2.7%) × Asset Turnover (0.809) × Financial Leverage (2.45x). The most significant driver of YoY deterioration is the sharp decline in net profit margin, as operating income fell 42.5% despite 21.1% revenue growth. Operating margin compressed to about 3.9% from an estimated 8.2%, driven by higher SG&A intensity and possibly project mix and inflationary cost pressures not fully offset by pricing. Asset turnover at 0.81x is reasonable for a business with a large noncurrent asset base but not sufficient to compensate for weak margins. Financial leverage of 2.45x (assets/equity) supports ROE arithmetically, but with ROIC at 2.1%, incremental leverage does not create value. Sustainability: margin pressure appears cyclical and operational rather than one-off; absent structural cost resets or improved mix, recovery could be gradual. Watch for concerning trends: SG&A growth likely outpaced revenue given OP decline, suggesting overhead creep or growth investments weighing on current earnings. Non-operating items and a high effective tax rate (58.0%) further compress bottom-line profitability and should normalize for ROE to improve.

Growth Assessment

Revenue growth of 21.1% YoY to 112.61 indicates healthy demand or improved project execution. However, profit quality is mixed: OP fell 42.5% and OPM compressed ~429 bps, signaling negative operating leverage. EBITDA of 9.85 (margin 8.7%) provides some buffer, but below-ordinary gains were needed to lift PBT, highlighting limited recurring profit strength. The investment cycle is pronounced (capex 33.46; total investing CF -44.92), which should underpin future growth if deployed into productive assets or capacity. For sustainability, management needs to convert this capex into higher asset turnover and EBITDA/OP growth within 12–24 months. Near-term, we expect margins to remain under pressure until SG&A productivity improves and the tax rate normalizes. Outlook hinges on pricing power, project mix, and cost control; with liquidity intact, the company has time to execute but must lift ROIC toward 5–7% at minimum.

Financial Health

Liquidity is solid: current ratio 159.5% and quick ratio 119.8% exceed benchmarks, with working capital of 15.74. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); reported D/E (total liabilities/equity) is 1.45x—moderate but requires earnings support. Maturity profile appears manageable: short-term loans of 3.00 are comfortably covered by cash (5.97) and current assets (42.18). Long-term loans total 48.69, aligning with the heavy noncurrent asset base (97.03), limiting maturity mismatch risk. Interest coverage is strong at 13.42x, suggesting low near-term refinancing pressure. Off-balance sheet obligations: none reported in the provided data. Equity of 56.76 offers a stable capital base, but with ROE at 5.3% and ROIC 2.1%, incremental leverage does not currently enhance value creation.

Cash Flow Quality

Earnings quality is good this period: OCF of 6.40 is 2.13x net income (3.01), surpassing the 1.0x benchmark. Free cash flow is -38.52 due to expanded investing outflows (-44.92), dominated by capex (-33.46), indicating a growth or renewal phase rather than poor cash conversion per se. Dividend cash out is unreported; thus FCF coverage metrics carry uncertainty. Working capital indicators are incomplete (accounts receivable unreported), limiting visibility into collection dynamics; inventory stands at 10.50, but no abnormal OCF red flags are evident. No clear signs of working capital manipulation given positive OCF vs declining NI and lack of spikes in non-cash gains at the operating level.

Dividend Sustainability

Dividend disclosures are largely unreported. The calculated payout ratio (150.5%) suggests an over-distribution versus earnings if accurate, while the reported payout ratio (0.2%) is inconsistent with the calculated figure and likely reflects disclosure mapping differences. FCF coverage is -8.50x, implying any meaningful dividend would not be covered by free cash flow during this investment phase. With ROE at 5.3% and ROIC at 2.1%, a conservative dividend stance would be prudent until capex translates into cash-generative growth. Policy outlook cannot be confirmed without DPS guidance; investors should monitor the next results briefing or securities report for dividend policy updates.

Risk Assessment

Business Risks:

• Margin compression risk from SG&A growth outpacing revenue and unfavorable project mix
• Execution risk on large capex program (-33.46) not delivering commensurate revenue/EBITDA
• Potentially elevated and volatile effective tax rate (58.0%) weighing on net margins
• Supply chain and input cost volatility impacting gross margins
• Customer/project concentration risk typical of project-based businesses (disclosure not provided)

Financial Risks:

• ROIC at 2.1% materially below typical cost of capital, raising value-creation concerns
• Moderate leverage (liabilities/equity 1.45x) with low returns increases sensitivity to shocks
• Negative FCF due to heavy investing CF may require continued external funding if prolonged
• Interest rate risk on 51.69 equivalent loans exposure (3.00 short-term, 48.69 long-term)

Key Concerns:

• Operating margin compressed by ~429 bps YoY despite 21.1% revenue growth
• Dependence on below-ordinary gains to lift PBT to 7.62 this period
• Data gaps on dividends and receivables limit assessment of cash return capacity and WC risk
• Non-operating items (0.75 income, 0.44 expenses) add volatility to ordinary income

Investment Implications

Key Takeaways:

• Strong revenue growth but significant operating deleverage; OPM down to ~3.9%
• Cash conversion solid (OCF/NI 2.13x), but FCF deeply negative on capex ramp
• Liquidity healthy; leverage moderate; coverage strong
• Capital efficiency weak (ROE 5.3%, ROIC 2.1%); value creation currently constrained
• Tax normalization and SG&A discipline are pivotal for earnings recovery

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Conversion of capex into EBITDA growth and asset turnover
• ROIC progression toward 5–8% and ROE toward high single digits
• Effective tax rate normalization
• Working capital turns (DSO/DIO) once receivables disclosure is available
• Free cash flow and dividend policy disclosures

Relative Positioning: Within Japan small/mid-cap project and solutions peers, the company shows above-average growth but below-average profitability and capital efficiency; liquidity and coverage are strengths, yet sustained improvement hinges on converting the investment cycle into higher recurring margins and ROIC.

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