SAKAI Holdings CO.,LTD FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥17.02B
• Operating Income: ¥1.47B
• Net Income: ¥1.01B
• EPS: ¥106.27

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

FY2025 Q4 results for Sakai Holdings (9446) show solid topline growth with modest operating profit improvement but a sharp decline in bottom line due to higher below-OP burdens. Revenue rose 9.9% YoY to 170.2, while operating income increased 4.2% YoY to 14.7. Gross profit reached 64.0 with a gross margin of 37.6%, indicating resilient pricing/mix despite cost pressures. Operating margin was 8.6% this year versus an estimated 9.1% last year, implying approximately 47 bps margin compression. Net income fell 25.3% YoY to 9.9, driving net margin down to 5.8% from an estimated 8.5% last year (c. 273 bps compression), mainly reflecting higher non-operating expenses and taxes. Ordinary income grew only 0.7% YoY to 13.3, highlighting increased interest burden (interest expense 1.72) and other non-operating costs (non-op expenses 2.04 > non-op income 0.71). Earnings quality was strong: OCF of 19.7 was 1.99x net income, and FCF was 20.5, comfortably covering shareholder returns including share repurchases of 8.81. EBITDA of 24.35 (14.3% margin) supports interest coverage of 8.5x, indicating manageable servicing capacity despite high leverage. Balance sheet liquidity is tight (current ratio 0.76; negative working capital of -18.1), and leverage is elevated (D/E 3.36x; total loans 115.3), posing refinancing and maturity-mismatch risks. Equity base remains modest at 46.8 versus assets of 204, resulting in high financial leverage (DuPont leverage 4.36x) and an ROE of 21.1% primarily supported by leverage rather than margin expansion. ROIC is 7.8%, around management target levels, implying reasonable capital efficiency on invested capital despite compressed profitability. Tax rate was 29.3%, a headwind versus prior year net margin. Reported XBRL ratios (e.g., 0.1% operating margin) appear mechanical placeholders and are not reflective of actual performance; calculated margins are used. Overall, the quarter demonstrates healthy revenue momentum and cash conversion but pressured profitability at the net level and elevated balance sheet risk. Sustained growth with cost discipline and deleveraging would be key to stabilizing margins and lowering financial risk in FY2026.

Profitability Analysis

DuPont ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.8% × 0.834 × 4.36 = 21.1%. The largest adverse YoY swing was in Net Profit Margin, which compressed an estimated ~273 bps (from ~8.5% to 5.8%) as non-operating expenses (2.04) and taxes (effective rate 29.3%) weighed on the bottom line despite revenue growth. Asset turnover at 0.834 indicates moderate efficiency; given revenue rose 9.9% with assets at 204, turnover likely improved slightly YoY, but not enough to offset margin pressure. Financial leverage is high at 4.36x, boosting ROE but elevating risk; D/E at 3.36x underscores reliance on debt-funded balance sheet. Business drivers: SG&A at 49.37 (28.9% of sales) implies limited operating leverage this period—operating profit grew only 4.2% versus revenue +9.9%, suggesting cost inflation or strategic investment in overheads. Non-operating items deteriorated (non-op expenses > non-op income), and interest expense (1.72) diluted ordinary income growth to +0.7% YoY. Sustainability: leverage-driven ROE is fragile; absent margin recovery and deleveraging, ROE could fall if financing costs rise. Concerning trends: operating expense growth appears to have outpaced gross profit growth (operating margin compressed ~47 bps), and bottom-line sensitivity to financing and tax costs increased.

Growth Assessment

Revenue expanded 9.9% YoY to 170.2, signaling healthy demand. Operating income rose 4.2%, lagging sales, indicating weaker operating leverage due to higher SG&A intensity (29% of sales). Net income decreased 25.3%, reflecting higher non-operating costs and taxes despite stable core operations. Gross margin of 37.6% suggests the company maintained pricing/mix, but below-gross profit cost items offset. Ordinary income +0.7% YoY highlights interest and other non-op drags. Non-operating income remains small (0.71), providing limited buffer against financing costs. ROIC at 7.8% is near target, supported by disciplined capex (-0.93) and strong cash generation. Outlook: sustaining revenue momentum while curbing SG&A and reducing interest burden will be critical to restore net margin. Cost normalization, potential repricing, and selective deleveraging could support mid-term margin recovery. The lack of disclosed R&D/segment data limits visibility into growth drivers’ durability.

Financial Health

Liquidity: current ratio 0.76 and quick ratio 0.76 are below 1.0—explicit warning on short-term liquidity. Working capital is negative at -18.1, with current liabilities (74.4) exceeding current assets (56.3); short-term loans (38.0) exceed cash (28.6), indicating maturity mismatch risk if not rolled. Solvency: D/E 3.36x—explicit warning on high leverage; total interest-bearing loans of 115.3 (ST 38.0, LT 77.3). Interest coverage is adequate at 8.5x (operating income basis), but sensitivity to rate rises/refinancing is elevated. Asset base: noncurrent assets dominate (147.7), including goodwill (8.36) and intangibles (11.39), which reduce tangible buffer. Equity is 46.8 (owners’ equity 45.7), implying thin capital cushion relative to debt. No off-balance sheet obligations disclosed in the provided data.

Cash Flow Quality

OCF of 19.69 versus net income of 9.87 yields OCF/NI of 1.99x—high-quality earnings with strong cash conversion. FCF of 20.45 (OCF + net investing CF) easily covers known shareholder returns (share buybacks 8.81) and likely dividends (payout ratio calculated at 26.6%), indicating ample coverage this period. Investing CF was a small net inflow (0.76) with modest capex of 0.93, suggesting low capital intensity; sustainability depends on whether maintenance capex remains sub-1.0. Working capital detail is limited (AR/inventory undisclosed), but positive OCF despite revenue growth implies no apparent aggressive working capital build; no clear manipulation signs detected. Financing CF of -19.85 reflects debt service and buybacks; deleveraging pace is not explicit but cash generation provides optionality.

Dividend Sustainability

Calculated payout ratio is 26.6%, comfortably below the 60% threshold. FCF coverage is strong at 7.78x, implying high sustainability for current shareholder returns when combined with modest capex. Total dividends and DPS are unreported; assessment relies on calculated payout and cash flow coverage. With interest coverage at 8.5x and robust OCF, dividends appear serviceable; however, tight liquidity (current ratio 0.76) and high leverage (D/E 3.36x) argue for a cautious stance on incremental distributions until balance sheet flexibility improves. Policy outlook: maintaining a balanced payout while prioritizing deleveraging would enhance resilience.

Risk Assessment

Business Risks:

• Operating margin compression (~47 bps YoY) due to SG&A intensity and cost inflation
• Net margin sensitivity to non-operating expenses and tax rate (29.3%)
• Execution risk in cost control to restore operating leverage

Financial Risks:

• Low liquidity: current ratio 0.76 and negative working capital (-18.1)
• High leverage: D/E 3.36x; total loans 115.3 with short-term loans 38.0 exceeding cash 28.6
• Refinancing/maturity mismatch risk if short-term borrowing cannot be rolled on favorable terms
• Intangible asset load (goodwill 8.36, intangibles 11.39) reduces tangible equity buffer

Key Concerns:

• Bottom-line decline (-25.3% YoY) despite revenue growth, driven by non-operating costs
• Ordinary income growth stagnation (+0.7% YoY) indicating rising financing drag
• Potential vulnerability to interest rate increases given leverage

Investment Implications

Key Takeaways:

• Topline growth (+9.9%) with modest operating profit growth (+4.2%) but significant net profit decline (-25.3%)
• Operating margin at 8.6% compressed ~47 bps; net margin at 5.8% compressed ~273 bps
• Strong cash conversion (OCF/NI 1.99x) delivering FCF of 20.5 despite margin pressure
• Balance sheet risk elevated: current ratio 0.76, D/E 3.36x, short-term loans exceed cash
• ROE 21.1% supported by high leverage; ROIC 7.8% near target but sensitive to cost of capital

Metrics to Watch:

• Operating margin trajectory and SG&A as % of sales
• Net non-operating expense (interest expense trend) and effective tax rate
• Current ratio and short-term debt coverage (cash + OCF vs ST loans)
• Debt/EBITDA and progress on deleveraging
• Capex requirements vs OCF to sustain FCF
• Working capital components (AR, inventory) when disclosed

Relative Positioning: Within diversified service peers, the company demonstrates competitive cash generation and adequate interest coverage but is weaker on liquidity and leverage. Profitability at the operating level is reasonable, yet bottom-line resilience lags due to financing costs and tax headwinds. Balance sheet strengthening would be necessary to improve overall risk-adjusted 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