Funai Soken Holdings Incorporated FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥24.54B
• Operating Income: ¥6.37B
• Net Income: ¥4.04B
• EPS: ¥55.77

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

Funai Soken Holdings posted solid topline and operating results for FY2025 Q3 (cumulative), with revenue of ¥24.54bn (+10.3% YoY) and operating income of ¥6.371bn (+7.2% YoY), indicating resilient demand and good cost control at the operating level. Gross profit of ¥8.549bn implies a gross margin of 34.8%, while the operating margin remains high at about 26.0%, consistent with a high-value-added consulting model. Ordinary income was ¥6.397bn, broadly in line with operating income, reflecting minimal financial expense and limited non-operating drag. However, net income declined 36.1% YoY to ¥2.585bn, compressing net margin to 10.5%; this suggests heavier tax and/or extraordinary items versus the prior year. The DuPont framework indicates ROE of 11.18%, driven primarily by strong net margin and reasonable asset turnover (0.798x) with modest leverage (financial leverage 1.33x). The balance sheet is robust: total assets ¥30.735bn, equity ¥23.115bn, liabilities ¥6.449bn, implying low gearing and substantial financial flexibility. Liquidity appears strong with a current ratio of 283% and positive working capital of ¥11.482bn. Interest expense is de minimis at ¥3.7mn with coverage of roughly 1,745x, underscoring low financial risk. While reported “equity ratio” shows 0.0%, the data provided (equity and assets) imply an equity ratio of approximately 75%, indicating conservative capitalization. Cash flow statement items are undisclosed (reported as 0), preventing a direct assessment of operating cash conversion and free cash flow. Dividend data are also undisclosed (DPS and payout shown as 0.00), so dividend capacity must be inferred from earnings strength and balance sheet stability rather than FCF coverage. Overall, the quarter reflects steady topline growth and strong operating profitability but a notable drop at the net level, likely from tax and/or one-off items; the company remains well capitalized with ample liquidity. Key areas to monitor include normalization of the effective tax rate, potential extraordinary items, and the translation of earnings into cash once OCF is disclosed. Given the limited disclosure of cash flow and share data, conclusions about cash conversion and per-share metrics should be treated with caution.

Profitability Analysis

ROE decomposition suggests: Net margin ~10.5%, Asset turnover ~0.80x, and Financial leverage ~1.33x, which together yield an ROE of ~11.2%. Operating margin is strong at ~26.0% (¥6.371bn / ¥24.54bn), reflecting operating discipline and a high-margin advisory mix. Gross margin (34.8%) provides a solid spread; the gap between gross margin and operating margin indicates controlled SG&A relative to revenue. Ordinary income sits slightly above operating income, aided by minimal interest expense (¥3.7mn) and limited non-operating losses, supporting margin quality at the pre-tax level. The sharp drop in net income versus operating income growth implies a heavier effective tax and/or extraordinary charges affecting the bottom line. Using net income and disclosed income tax (¥1.800bn), a rough implied pre-tax profit is ~¥4.385bn, giving an indicative effective tax rate of ~41%, higher than typical, though the presence of non-recurring items cannot be ruled out. Operating leverage appears present but measured: revenue growth of +10.3% vs. operating income growth of +7.2% suggests some cost normalization or increased growth investments (e.g., hiring, marketing) in the period. Interest coverage is exceptionally high (~1,745x), confirming that financing costs do not pressure profitability.

Growth Assessment

Revenue growth of +10.3% YoY demonstrates healthy demand and likely stable project flow across consulting segments. Operating income growth of +7.2% YoY indicates that the company is still scaling profitably, though the slightly slower growth vs. revenue points to some reinvestment or cost inflation. Net income contracted by 36.1% YoY to ¥2.585bn, with net margin at 10.5%; this divergence from operating performance suggests non-operating impacts, higher tax burden, and/or extraordinary items year-on-year. Sustainability of revenue growth appears reasonable given the high operating margin and low financial leverage, but depends on consultant capacity, pricing, client mix (SME exposure), and conversion of order backlog to revenue. Profit quality at the operating level looks strong; bottom-line quality is clouded by the unusually heavy tax/one-off effect in this period. Near-term outlook hinges on headcount expansion, utilization, pricing discipline, and retention; wage inflation or aggressive hiring could temper operating leverage. With cash flow data undisclosed, confirmation of growth-to-cash conversion must await OCF release.

Financial Health

Liquidity is strong: current assets ¥17.757bn vs. current liabilities ¥6.275bn yields a current ratio of 283% and quick ratio of 283% (inventories undisclosed). Working capital stands at ~¥11.482bn, providing ample cushion for operations. Solvency risk is low: total liabilities of ¥6.449bn against equity of ¥23.115bn equate to a debt-to-equity ratio of ~0.28x and an implied equity ratio of ~75% (based on provided assets and equity). Interest expense is minimal (¥3.7mn), and interest coverage is ~1,745x, underscoring negligible financial strain. The capital structure is conservative, with limited reliance on debt and significant equity backing. Cash and equivalents are undisclosed in the cash flow section, so net cash position cannot be determined from the provided data.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed (reported as 0), so direct assessment of earnings-to-cash conversion (OCF/NI) and free cash flow is not possible for this period. The presented OCF/Net Income ratio of 0.00 and FCF of 0 reflect non-disclosure rather than actual zero values. Working capital appears positive (¥11.482bn), which is supportive, but without details on receivables, contract assets, or payables, we cannot judge whether growth is consuming or releasing cash. Depreciation and amortization were not disclosed; therefore, EBITDA cannot be assessed (the displayed EBITDA of 0.0% is a placeholder, not an indication of true performance). Overall, earnings quality at the operating level seems strong, but confirmation via cash flow will require the release of the cash flow statement.

Dividend Sustainability

Dividend data for the period (DPS, payout, FCF coverage) were not disclosed, so we cannot compute payout ratios or FCF coverage from cash flows. Based on earnings alone, net income of ¥2.585bn suggests capacity to fund dividends if the company’s policy prioritizes stable shareholder returns; however, lack of OCF and capex data prevents assessment of sustainability from free cash flow. The strong balance sheet (low leverage, ample working capital) supports medium-term dividend-paying ability in principle, but confirmation awaits disclosure of cash generation and any capital allocation plans.

Risk Assessment

Business Risks:

• Demand cyclicality and macro sensitivity in client industries, particularly SMEs.
• Pricing pressure or mix shifts that could compress margins.
• Consultant hiring, retention, and wage inflation affecting utilization and operating leverage.
• Execution risk in scaling new practices or digital offerings.
• Potential increase in travel, marketing, or event-related costs as activity normalizes.
• Client concentration or project timing/deferrals impacting quarterly volatility.

Financial Risks:

• Limited visibility on cash conversion due to undisclosed cash flow statements.
• Potential working capital expansion (receivables/contract assets) during growth phases.
• Tax rate volatility and possible extraordinary items affecting bottom-line predictability.
• Currency exposure is typically limited for domestic consulting but could arise with overseas engagements.

Key Concerns:

• Sharp YoY decline in net income (-36.1%) despite operating growth, indicating tax/one-off headwinds.
• Undisclosed OCF/FCF and D&A data prevent verification of earnings quality and FCF coverage.
• Dividend metrics undisclosed, reducing visibility on shareholder return policy execution.

Investment Implications

Key Takeaways:

• Topline growth (+10.3% YoY) and strong operating margin (~26%) underscore a resilient core franchise.
• ROE of ~11.2% is primarily driven by margin and asset efficiency with modest leverage.
• Net income contraction (-36.1% YoY) points to heavier tax and/or one-off items; monitor normalization.
• Balance sheet strength (implied ~75% equity ratio, D/E ~0.28x) provides ample flexibility.
• Cash flow and dividend disclosure gaps limit assessment of cash conversion and payout sustainability.

Metrics to Watch:

• Effective tax rate trajectory and any extraordinary gains/losses.
• Operating cash flow, free cash flow, and working capital movements (DSO, contract assets).
• Headcount growth, utilization rates, and wage inflation impact on margins.
• Order backlog/pipeline conversion and pricing trends.
• AR aging and credit losses, given SME client exposure.

Relative Positioning: Within the Japanese consulting/SME advisory space, the company maintains above-average operating margins and low leverage, suggesting a competitively strong and financially conservative profile, though current visibility into cash generation and dividend capacity is limited by disclosure.

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