TOKYOTOKEIBA CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥31.18B
• Operating Income: ¥11.81B
• Net Income: ¥7.62B
• EPS: ¥294.25

Income Statement

Balance Sheet

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: A solid quarter with revenue growth translating into notable operating margin expansion, though bottom-line growth was tempered by extraordinary losses. Revenue rose 3.2% year over year to 311.81, while operating income increased 8.8% to 118.08, indicating positive operating leverage. Gross profit reached 124.16, yielding a gross margin of 39.8%. SG&A expenses were well-contained at 15.61, just 5.0% of sales, supporting operating margin strength. Operating margin printed at 37.9% (118.08/311.81), up from an implied 35.8% last year, an expansion of roughly 202 bps based on available YoY figures. Ordinary income of 118.10 was essentially flat versus operating income, but profit before tax dropped to 110.09, implying approximately 8.0 in extraordinary losses under JGAAP. Net income rose 3.4% to 78.53, lagging operating income growth due to these one-off items and a 30.8% effective tax rate. Net margin stood at 25.2%, up modestly versus an implied 25.1% last year (about +12 bps), as operating gains were offset by non-operating/extraordinary headwinds. Balance sheet strength remains a highlight: current ratio at 246.2%, quick ratio at 244.4%, and debt-to-equity at 0.34x, with cash and deposits of 218.44 providing ample liquidity. Interest coverage is extremely strong at 345x, reflecting minimal financial risk. ROE calculated at 8.2% is healthy for an asset-heavy leisure/racing operator and consistent with an ROIC estimate of 10.2%. Cash flow disclosure is limited this quarter, so earnings quality versus cash conversion cannot be validated. Dividend affordability looks reasonable with a calculated payout ratio of 41.4%, but free cash flow coverage is unverified. Forward-looking, margin discipline and cost control underpin earnings resilience, though one-off losses and regulatory/attendance volatility remain watch points. Overall, fundamentals point to sustained profitability with a fortress balance sheet; the key to sustaining EPS growth will be stabilizing extraordinary items and maintaining attendance and wagering momentum.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.2% = Net Profit Margin (25.2%) × Asset Turnover (0.243) × Financial Leverage (1.34x). The biggest driver versus last year appears to be margin improvement, given operating income growth (+8.8% YoY) outpaced revenue (+3.2%), implying operating margin expansion of ~202 bps to 37.9%. Asset turnover remains structurally low at 0.243, consistent with asset-intensive facilities (racecourse/amusement) and likely little changed YoY. Financial leverage is conservative at 1.34x, suggesting minimal contribution from gearing to ROE changes. Business reason: stronger cost control (SG&A at 5.0% of sales) and stable gross margin dynamics lifted operating margins, while non-operating/extraordinary losses diluted the pass-through to net margin. Sustainability: operating margin gains look partly sustainable if event schedule, attendance, and wagering hold, as SG&A discipline appears structural; however, the extraordinary loss (~8.0) is non-recurring by nature and could normalize, improving net margin volatility. Watch for any trend where SG&A growth outstrips revenue; current data show the opposite (positive operating leverage).

Growth Assessment

Revenue growth of 3.2% indicates steady demand, likely supported by attendance/wagering resilience and stable ancillary revenues. Operating income growth of 8.8% demonstrates effective cost discipline and favorable mix/operating leverage. Net income growth lagged at 3.4% due to implied extraordinary losses and a ~31% tax rate, constraining EPS expansion. Non-operating income remained small (0.46) with minimal dividend/interest contributions, underscoring that core operations drove results. The current operating margin of 37.9% versus an implied 35.8% last year suggests improved profitability per yen of sales. With asset turnover at 0.243, incremental growth in sales can still produce solid operating leverage, but structural capex needs may cap turnover improvements. Outlook hinges on maintaining event calendars, attendance, and wagering handle; any weather/regulatory disruptions could sway growth. Given a conservative balance sheet, the company is positioned to fund maintenance and selective growth capex without stressing financials. Near term, normalization of extraordinary items could allow net income to catch up with operating trends.

Financial Health

Liquidity is very strong: current ratio 246.2% and quick ratio 244.4%, comfortably above benchmarks; no warning flags (both >1.0). Cash and deposits of 218.44 far exceed current liabilities of 120.98, and short-term loans are negligible at 0.42, indicating no maturity mismatch risk. Solvency is conservative: debt-to-equity at 0.34x, long-term loans at 61.75, and an implied equity ratio of ~74.8% (960.73/1285.38). Interest coverage at 345x underscores minimal refinancing/interest-rate sensitivity. No off-balance-sheet obligations are disclosed in the provided data. Overall capital structure is robust, supporting operational stability and optionality for capex.

Cash Flow Quality

Operating, investing, and financing cash flows were unreported, so OCF/Net Income and free cash flow cannot be assessed. As a result, we cannot confirm cash conversion or the sustainability of FCF relative to dividends and capex. Working capital appears healthy given strong cash and low inventories (2.13), and there are no signs of end-period working capital manipulation in the disclosed figures. However, the implied extraordinary losses this period highlight that bottom-line volatility can diverge from cash generation depending on non-cash items; this remains unverified without the cash flow statement.

Dividend Sustainability

The calculated payout ratio is 41.4%, within the generally sustainable range (<60%), supported by strong margins and low leverage. With OCF and capex unreported, FCF coverage of dividends cannot be confirmed; thus, our assessment relies on earnings-based coverage. The balance sheet (net cash-like position and low debt) provides a cushion for stable distributions even through moderate volatility. Policy outlook appears consistent with maintaining a reasonable payout given earnings growth and capital needs for facility upkeep; any large-scale capex or regulatory changes could prompt a temporary recalibration.

Risk Assessment

Business Risks:

• Attendance and wagering handle volatility impacting revenue
• Weather-related disruptions affecting race days and amusement operations
• Regulatory risk around public racing and gaming frameworks
• Competition from other leisure options and JRA races
• Event calendar concentration risk (seasonality)
• Cost inflation (labor, utilities) pressuring margins

Financial Risks:

• Extraordinary losses (~8.0) causing net income volatility
• Potential capex requirements for facilities reducing near-term FCF
• Tax rate variability around 30–31% affecting net margins
• Limited diversification of non-operating income

Key Concerns:

• Bottom-line growth lagging operating growth due to one-off losses
• Low asset turnover (0.243) constraining ROE scalability
• Cash flow disclosure gaps limit visibility into earnings quality and FCF coverage
• Sensitivity to macro/leisure demand cycles

Investment Implications

Key Takeaways:

• Positive operating leverage with ~200 bps operating margin expansion to 37.9%
• Net income growth moderated by implied extraordinary losses (~8.0)
• Balance sheet is exceptionally strong (equity ratio ~75%, D/E 0.34x, 345x interest coverage)
• ROE 8.2% supported primarily by high net margins rather than leverage or turnover
• Dividend payout ratio appears prudent at ~41%, but FCF coverage unverified

Metrics to Watch:

• OCF/Net Income and free cash flow once disclosed
• Extraordinary gains/losses and their recurrence
• Attendance/wagering handle and per-capita spending
• SG&A ratio and gross margin stability
• Capex plans and execution against ROIC (10.2% current benchmark)
• Effective tax rate trends

Relative Positioning: Within Japan’s leisure and public racing space, the company exhibits superior liquidity and conservative leverage, with margins that are strong versus peers; earnings quality appears solid operationally, but transparency on cash flows and the recurrence of extraordinary items will determine how sustainably it can convert high margins into shareholder returns.

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