GAKKEN HOLDINGS CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥199.12B
• Operating Income: ¥8.24B
• Net Income: ¥2.52B
• EPS: ¥86.02

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: Solid Q4 finish with healthy top-line growth and improved profitability, underpinned by strong cash conversion and disciplined cost control. Revenue rose 7.3% YoY to 1,991.2, driving operating income up 19.7% YoY to 82.4 and ordinary income up 13.1% YoY to 78.1. Net income jumped 58.3% YoY to 35.8 despite a high effective tax rate of 46.1%, indicating meaningful operational gains. Gross profit reached 549.5 with a gross margin of 27.6%, and operating margin improved to 4.1%. Based on back-calculations, operating margin expanded by roughly 43 bps YoY (from ~3.71% to ~4.14%). Net margin improved by about 58 bps YoY (from ~1.22% to ~1.80%) as stronger operating leverage offset higher taxes and slightly negative equity-method results. Earnings quality was strong: OCF of 78.2 exceeded net income by 2.18x, and FCF was positive at 82.1 aided by net investment inflows. Non-operating items were a modest drag (income 5.8 vs expenses 10.1) and equity-method income was slightly negative (-1.0), but not thesis-changing. Liquidity remains robust with a current ratio of 173% and quick ratio of 148%, supported by cash and deposits of 229.2 versus short-term loans of 27.5. Balance sheet leverage is moderate (D/E 1.34x; financial leverage 2.34x), with interest coverage a solid 15.9x. ROE printed 6.0% on DuPont math (1.8% margin × 1.431x turnover × 2.34x leverage), with ROIC at 7.6%, broadly aligned with typical management targets in Japan. The effective tax rate is elevated and a headwind to bottom-line conversion; normalization would boost ROE. Intangibles (197.4) and goodwill (96.3) are material, warranting continued monitoring for impairment risk in slower segments. The investment cash flow was positive (3.9), implying asset monetization or lower capex in the period; sustainability of this FCF level depends on future reinvestment needs. Overall, Q4 corroborates a trajectory of modest growth, improving margins, and high cash conversion, setting a constructive base for FY2026 if cost discipline is maintained and tax burden moderates. Forward-looking, watch SG&A intensity vs sales, digital product mix, and any change in the tax rate and equity-method contribution.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 1.8% × Asset Turnover 1.431 × Financial Leverage 2.34x = ROE 6.0%. The most notable driver YoY appears to be net margin expansion (approximately +58 bps), inferred from NI growth (+58.3%) outpacing revenue growth (+7.3%). Business drivers include operating leverage (OI +19.7% vs sales +7.3%), aided by stable gross margin and controlled SG&A ratio (SG&A at 23.5% of sales), while non-operating items were a small net negative and taxes remained high. Asset turnover of 1.431 indicates efficient use of the asset base for a content/education company, while leverage at 2.34x contributed meaningfully but remains moderate. Sustainability: operating margin gains look partly structural via efficiency, but some OI uplift could reflect mix and timing; the high tax rate is a non-operating constraint that could normalize, aiding ROE. Concerning trends: none acute, though we note the lack of SG&A YoY disclosure; if SG&A growth were to exceed revenue growth, the operating leverage would reverse. Equity-method loss (-1.0) is small but signals affiliate variability.

Growth Assessment

Top-line growth of 7.3% YoY reflects steady demand across core education/content businesses. Operating income growth of 19.7% indicates positive operating leverage, with operating margin at 4.1% vs an estimated ~3.7% last year. Net income rose 58.3%, helped by operating gains but tempered by a 46.1% effective tax rate and non-operating expense netting. Revenue quality appears solid given high OCF conversion (OCF/NI 2.18x), suggesting limited revenue recognition issues and healthy collections. Equity-method contribution was slightly negative (-1.0), implying limited reliance on affiliates for growth. Outlook: sustaining mid-single-digit revenue growth with stable-to-improving margins is plausible if SG&A discipline and product mix improvement (digital/recurring) continue. Near-term catalysts could include cost optimization, tax normalization, and improved affiliate performance. Risks to growth include demographic headwinds in Japan and competitive dynamics in digital learning. Overall, growth appears sustainable at a moderate pace with improving profit quality.

Financial Health

Liquidity is strong: Current Ratio 173.4% and Quick Ratio 147.8%, with cash and deposits (229.2) comfortably exceeding short-term loans (27.5). No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is 1.34x, within a conservative range for the sector. Working capital is positive at 296.5, and receivables (257.4) plus inventory (103.6) look proportionate to annualized scale. Maturity profile: Noncurrent liabilities (393.4) primarily long-term loans (190.5) are backed by substantial noncurrent assets (691.6), indicating manageable maturity mismatch risk. Interest coverage is strong at 15.9x, reducing refinancing risk in a rising-rate context. No specific off-balance sheet obligations are reported in the provided data. Goodwill (96.3) and intangibles (197.4) are material relative to equity (594.7), which should be monitored for impairment sensitivity but do not currently signal distress.

Cash Flow Quality

OCF of 78.2 exceeds net income (35.8) by 2.18x, clearing the 0.8x quality threshold and indicating strong earnings-to-cash conversion. Free cash flow of 82.1 is positive, aided by net positive investing cash flow (3.9), which likely reflects asset sales or reduced capex; sustainability depends on normalized capex levels not provided here. Financing cash flow was -56.0, including share repurchases of -10.1 and likely debt service/dividends (not disclosed). Working capital appears well-managed; receivables at ~12.9% of sales and inventories at ~5.2% of sales do not indicate aggressive revenue cut-off or inventory build concerns, though full WC schedules are not disclosed. No signs of working capital manipulation are evident from the limited data.

Dividend Sustainability

Payout ratio (calculated) stands at 31.2%, within the <60% benchmark for sustainability, though reported payout ratio is 0.5% due to XBRL labeling differences; DPS is unreported. FCF coverage is strong at 7.36x, implying ample capacity to fund dividends, share buybacks (10.1), and maintenance capex. Given solid liquidity and interest coverage, the dividend outlook appears secure, contingent on sustaining FCF once investment cash flows normalize. Policy signals are not provided; absent guidance, we assume a stable-to-modestly rising dividend trajectory supported by earnings and cash generation.

Risk Assessment

Business Risks:

• Domestic demographic decline reducing addressable market for education materials and services
• Digital transition execution risk impacting legacy print margins and requiring upfront investment
• Curriculum/revision cycle timing risk affecting sales phasing and inventory management
• Competitive pressure from edtech platforms and low-cost digital content
• Affiliate performance variability (equity-method income -1.0) impacting below-OP line

Financial Risks:

• High effective tax rate (46.1%) suppressing net margin and ROE
• Intangible assets (197.4) and goodwill (96.3) create impairment risk if growth slows
• Moderate leverage (D/E 1.34x) exposes to interest rate and refinancing risk, albeit mitigated by 15.9x coverage
• Potential volatility in investing cash flows; current positive inflow may not repeat

Key Concerns:

• Sustainability of margin gains if SG&A growth accelerates ahead of sales
• Visibility on capex and dividend outflows is limited due to unreported items
• Non-operating expenses exceed non-operating income, a minor but persistent headwind

Investment Implications

Key Takeaways:

• Top-line growth of 7.3% with operating income +19.7% demonstrates healthy operating leverage
• Operating margin expanded ~43 bps YoY to 4.1%; net margin improved ~58 bps to 1.8%
• Cash generation is strong: OCF/NI 2.18x and FCF 82.1, supporting capital returns
• Balance sheet resilience: current ratio 173%, interest coverage 15.9x, D/E 1.34x
• ROE at 6.0% and ROIC at 7.6% indicate improving capital efficiency with scope to enhance via tax normalization

Metrics to Watch:

• SG&A-to-sales ratio and its YoY trend
• Effective tax rate trajectory
• Equity-method contribution and affiliate performance
• OCF conversion and normalized capex/FCF
• Goodwill/intangible impairment indicators
• Receivables and inventory turns

Relative Positioning: Within Japan’s education/content peers, the company exhibits above-average cash conversion and solid liquidity with moderate leverage; profitability is improving but absolute margins and ROE remain mid-pack, leaving room for enhancement via mix shift to digital, SG&A efficiency, and tax-rate normalization.

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