Lovable Marketing Group,inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥2.63B
• Operating Income: ¥160M
• Net Income: ¥256M
• EPS: ¥107.34

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

Lovable Marketing Group (TSE: 9254) delivered solid topline growth in FY2025 Q4, with revenue up 21.7% YoY to 26.30 (100M JPY), indicating healthy demand and likely market share gains in its core marketing services. Gross profit of 12.70 implies a gross margin of 48.3%, a strong level for a services-led model, and suggests pricing power or favorable mix. Operating income rose 16.9% YoY to 1.60, translating to an operating margin of roughly 6.1%, showing positive operating leverage but also indicating that SG&A growth (11.10) absorbed a substantial portion of gross profit. Ordinary income reached 1.66, supported by modest non-operating income (0.22) offset by non-operating expenses (0.16). Profit before tax was 1.47, and net income rose sharply by 83.4% to 1.33, aided by a low effective tax rate of 8.3%, likely reflecting tax shields or timing effects. DuPont analysis shows ROE at 28.7% (net margin 5.1%, asset turnover 1.371x, financial leverage 4.13x), highlighting that high leverage and efficient asset use amplify returns on a relatively modest margin base. Liquidity remains comfortable with a current ratio of 149% and quick ratio the same, supported by cash and deposits of 8.71. Total liabilities of 14.54 imply a reported debt-to-equity of 3.13x, but with cash of 8.71 vs total loans of 7.67, the company has a net cash position of approximately 1.04, mitigating solvency concerns. Intangibles and goodwill total 3.34, or roughly 72% of equity, introducing potential impairment sensitivity if growth underperforms. Cash flow quality is a watch point: operating cash flow was slightly negative at -0.01 despite positive earnings, and free cash flow was -1.13, indicating working capital investment and ongoing investment outflows. Capex remains light at -0.08, consistent with an asset-light model, while investing cash outflows (-1.12) suggest spending on intangibles or investment securities (0.52 on the balance sheet). Financing cash flow was a small outflow (-0.06), though separate disclosure shows share repurchases of -3.58, indicating sizable shareholder returns that may not be fully reflected in the financing CF line for the period due to timing/classification. EPS (basic) was 107.34 JPY on average shares of 1,240,655, consistent with the reported net income of 1.33 (100M JPY). Book value per share appears between 337–374 JPY depending on methodology, implying that capital return actions and retained earnings are key drivers of per-share equity. Overall, revenue momentum and high ROE are positives, but the combination of negative OCF, high total liabilities relative to equity, and substantial intangibles warrants ongoing monitoring. The company appears to balance growth investments with shareholder returns, but sustaining both will require improving cash conversion. Data limitations exist, notably around dividends and several SG&A and non-operating breakdowns, so conclusions focus on disclosed non-zero items.

Profitability Analysis

ROE of 28.7% is driven by a net margin of 5.1%, asset turnover of 1.371x, and financial leverage of 4.13x, indicating leverage is a meaningful contributor to equity returns. The operating margin is approximately 6.1% (1.60 / 26.30), with non-operating items netting to +0.06 to reach ordinary income of 1.66. The gross margin of 48.3% reflects solid value-add for a marketing services model, but SG&A at 11.10 consumed 87% of gross profit, underscoring the importance of cost discipline and utilization. EBITDA of 1.77 implies an EBITDA margin of 6.7%, only modestly above operating margin given low D&A (0.17), consistent with an asset-light business. Interest expense of 0.15 is well-covered: EBIT/interest coverage is roughly 10.5–10.7x, providing cushion against rate or earnings volatility. The effective tax rate of 8.3% boosted net margin YoY, elevating ROE beyond what operating improvements alone would produce. Operating leverage is present but moderate: revenue grew 21.7% while operating income grew 16.9%, suggesting incremental SG&A (e.g., hiring, sales expenses) partially offset scale benefits. Margin quality appears serviceable, but maintaining a 6%+ operating margin will require careful management of personnel and selling costs as the company scales. Ordinary income exceeding PBT indicates the presence of extraordinary losses or adjustments (~0.19), not detailed, which slightly suppressed bottom line profitability.

Growth Assessment

Revenue growth of +21.7% YoY to 26.30 indicates strong demand and likely client expansion or higher wallet share in performance marketing/social media services. Operating income growth of +16.9% lagged revenue, implying some near-term reinvestment or higher operating costs to support growth. Net income rose +83.4% to 1.33, magnified by a low tax rate rather than only by operating fundamentals. Asset turnover at 1.371x is healthy and indicates efficient use of the asset base to drive growth. The increase in accounts receivable to 4.43 alongside negative OCF suggests timing effects or extended payment terms accompanying growth. Capex remains minimal (-0.08), indicating growth is primarily driven by headcount, capabilities, and possibly acquisitions/intangibles rather than heavy fixed assets. Investment securities of 0.52 and higher investing outflows (-1.12) may reflect strategic investments or intangible build-out to support future services. Overall growth appears sustainable near term given demand indicators, but improving cash conversion and normalizing the tax rate will be important to sustain profit growth quality. Outlook hinges on maintaining client retention, diversifying across sectors, and managing hiring/productivity to capture operating leverage.

Financial Health

Liquidity is comfortable: current assets 14.83 vs current liabilities 9.93 yields a current ratio of 149% and identical quick ratio (no inventories disclosed). Working capital is 4.90, providing buffer for operations. Total assets are 19.18, with cash and deposits of 8.71 supporting liquidity. Total liabilities of 14.54 against equity of 4.64 imply a reported debt-to-equity of 3.13x; however, cash exceeds total loans (8.71 vs 7.67), producing net cash of roughly 1.04 and mitigating refinancing risk. Short-term loans are 3.08, highlighting some rollover exposure, but interest coverage is strong (~10.5x), suggesting manageable debt service. Noncurrent liabilities of 4.61 include long-term loans of 4.59, providing term structure balance. Intangibles and goodwill total 3.34 (1.72 + 1.62), which is approximately 72% of equity, raising sensitivity to impairment and affecting tangible capital strength. Equity at 4.64 is relatively lean, amplifying ROE but also making the balance sheet more sensitive to shocks. The absence of reported interest-bearing debt totals and equity ratio limits precision, but available items indicate adequate solvency supported by cash on hand.

Cash Flow Quality

Operating cash flow was -0.01 versus net income of 1.33, yielding an OCF/NI ratio of -0.01x, which is weak and points to working capital consumption (likely receivables growth) or timing differences. Free cash flow was -1.13 (OCF -0.01 less capex -0.08 and other investing outflows), indicating cash burn despite profitability. D&A is low at 0.17, consistent with an asset-light model and implying earnings are not materially inflated by non-cash items; however, cash conversion is currently the constraint. Investing cash outflows of -1.12 exceed capex (-0.08), suggesting spending on intangibles or financial investments (investment securities 0.52), which may support future growth but depress near-term FCF. Financing CF is a small outflow (-0.06), but separately disclosed share repurchases of -3.58 indicate significant capital returns; the timing/classification may differ from the period’s financing CF line. Working capital dynamics require monitoring: accounts receivable of 4.43 appear elevated relative to the revenue base, which can strain OCF when growth is rapid. Overall earnings quality is mixed: accounting earnings improved, but cash flow conversion lagged, with near-term reliance on cash reserves to fund growth and buybacks.

Dividend Sustainability

Dividend amounts are unreported, so payout ratios and DPS cannot be assessed directly. On capacity, net income of 1.33 and cash of 8.71 suggest room for shareholder returns, but negative OCF and negative FCF (-1.13) reduce organic coverage in the period. Significant share repurchases of -3.58 indicate an emphasis on buybacks; these outflows likely exceeded period FCF and were effectively funded by the existing cash balance. Retained earnings of 2.94 provide a moderate buffer, but substantial intangibles and a lean equity base argue for prudence in distributions if cash conversion does not improve. Policy outlook: absent DPS disclosure, the company appears to favor flexible returns (buybacks) over fixed dividends, which is consistent with growth investment optionality in an asset-light model.

Risk Assessment

Business Risks:

• Execution risk in scaling headcount and SG&A while maintaining operating margin near 6%.
• Client concentration or demand cyclicality in marketing spend could impact revenue visibility.
• Pricing pressure from competitors in digital/performance marketing lowering gross margins.
• Dependence on third-party platforms and algorithm changes affecting campaign effectiveness and service delivery.
• Intangible asset impairment risk if acquired businesses underperform.

Financial Risks:

• Weak cash conversion (OCF/NI at -0.01x) increasing reliance on cash balances to fund operations and shareholder returns.
• High total liabilities relative to equity (D/E 3.13x) despite net cash, making equity sensitive to shocks.
• Short-term loan rollover risk (3.08) if credit conditions tighten.
• Large share repurchases relative to equity and FCF potentially stressing liquidity if sustained.
• Low effective tax rate (8.3%) may normalize upward, reducing net income.

Key Concerns:

• Sustained negative or weak OCF while growing revenue.
• High proportion of goodwill and intangibles (~72% of equity) raising impairment sensitivity.
• Maintaining interest coverage if margins compress or if borrowing costs rise.
• Visibility on shareholder return policy given unreported dividends and sizable buybacks.
• Potential extraordinary losses affecting PBT as suggested by the ordinary income to PBT gap.

Investment Implications

Key Takeaways:

• Strong topline momentum (+21.7% YoY) with healthy gross margin (48.3%).
• ROE of 28.7% is elevated, driven by efficiency and leverage rather than high margins alone.
• Operating margin around 6.1% suggests moderate operating leverage but cost vigilance is needed.
• Net cash position (~1.04) offsets headline leverage; interest coverage is robust (~10.5x).
• Cash flow conversion is currently weak (OCF/NI -0.01x; FCF -1.13), a central area to monitor.
• Material intangibles/goodwill (3.34) relative to equity elevate balance sheet sensitivity.
• Significant buybacks (-3.58) indicate active capital return despite negative FCF.

Metrics to Watch:

• OCF/Net income and FCF trajectory over the next 2–4 quarters.
• DSO/receivables trends relative to revenue growth.
• Operating margin and SG&A-to-sales ratio to confirm operating leverage.
• Net cash position (cash minus total loans) and short-term debt rollover.
• Effective tax rate normalization and impact on net income.
• Goodwill/intangible impairment indicators and acquisition performance.

Relative Positioning: Within Japan’s marketing/services peers, the company exhibits above-peer revenue growth and high ROE supported by asset-light operations, but trails best-in-class on cash conversion and carries higher sensitivity due to a large intangible base and a lean equity buffer.

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