KATO SANGYO CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥1.14T
• Operating Income: ¥18.18B
• Net Income: ¥12.05B
• EPS: ¥425.71

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

Kato Sangyo Co., Ltd. reported FY2025 Q4 consolidated results under JGAAP with flat revenue at ¥1,135.8bn (+0.0% YoY), while operating income rose 7.9% to ¥18.18bn, indicating underlying margin improvement. Gross profit reached ¥78.45bn, resulting in a gross margin of 6.9%, consistent with the structurally low-margin profile of food wholesalers. Operating margin expanded to 1.60%, and ordinary income of ¥20.10bn exceeded operating income, implying net non-operating gains (e.g., interest/dividends, equity method) of roughly ¥1.9bn. Despite better operating performance, net income declined 8.5% YoY to ¥13.23bn, suggesting increased tax burden, non-controlling interests, or one-offs. The DuPont breakdown shows ROE of 7.47%, driven by modest net margin (1.16%), high asset turnover (2.436x), and leverage of 2.63x, a profile typical for the sector. Interest coverage is very strong at 59.6x (EBIT/interest), reflecting conservative funding costs relative to earnings power. Working capital remains positive at ¥39.61bn, and liquidity is adequate with a current ratio of 114.9% and a quick ratio of 101.1%. Solvency appears sound: although the equity ratio was not disclosed in XBRL (0.0% placeholder), the calculated equity ratio is approximately 38.0% (equity ¥177.0bn / assets ¥466.3bn). Operating cash flow was weak at ¥4.07bn (OCF/NI 0.31x), pointing to sizable working capital absorption or timing effects despite EBITDA of ¥23.64bn. Free cash flow was negative at ¥-10.81bn, as investing cash outflows of ¥14.88bn exceeded internally generated cash; with D&A at ¥5.46bn, this suggests expansionary or strategic investment. Inventory stood at ¥36.81bn; relative to COGS, this implies roughly 12–13 days of inventory on hand, consistent with efficient turnover for wholesale. Leverage measured by debt-to-equity is 1.65x, which is reasonable for a scale distributor, supported by high interest coverage. The reported effective tax rate metric shows 0.0% due to data limitations; using income tax expense of ¥7.85bn and implied pre-tax profit, the effective tax rate looks closer to the high-30% range. Dividend data (DPS, payout, FCF coverage) were not disclosed; EPS was ¥425.71 but share counts were not reported, limiting per-share crosschecks. Overall, the quarter reflects improved operating efficiency offset by weaker cash conversion and higher bottom-line drag, with a solid balance sheet underpinning ongoing investment capacity.

Profitability Analysis

ROE_decomposition: Reported ROE is 7.47%, consistent with the DuPont calculation (1.16% net margin × 2.436x asset turnover × 2.63x leverage). The ROE level is in line with Japanese food distribution peers that rely on high turnover rather than margin. margin_quality: Gross margin of 6.9% and operating margin of 1.60% reflect disciplined pricing and cost control in a structurally thin-margin business. Operating income grew 7.9% YoY on flat sales, indicating improved mix/efficiency and potentially lower SG&A ratio. Net margin fell to 1.16% on a YoY basis due to higher taxes/one-offs despite ordinary income support. operating_leverage: With revenue flat and operating income up, incremental margin was positive, implying some operating leverage from scale/efficiency. EBITDA margin is 2.1%, and the EBITDA-to-operating income spread (¥5.46bn D&A) is modest, indicating limited fixed-cost absorption but stable cost discipline. other_notes: Ordinary income exceeded operating income by ~¥1.92bn, suggesting recurring non-operating contributions (e.g., financial income, equity method), which helped offset thin operating margins.

Growth Assessment

revenue_sustainability: Sales were flat YoY at ¥1,135.8bn, suggesting stable volumes and pricing in core wholesale channels. The high asset turnover (2.436x) underscores sustained throughput and customer retention. profit_quality: Operating income growth (+7.9%) with flat sales indicates quality improvement from mix, procurement, and SG&A discipline. However, net income declined (-8.5%) due to higher tax burden and/or below-the-line impacts, diluting the translation of operating gains into bottom-line growth. outlook: Near-term growth is likely to remain volume-driven with tight margins; continued focus on procurement efficiency, private label, and logistics optimization should support operating margin stability. Investment cash outflows above D&A suggest capacity/efficiency projects that could underpin medium-term growth and productivity.

Financial Health

liquidity: Current ratio 114.9% and quick ratio 101.1% indicate adequate short-term liquidity; working capital stands at ¥39.61bn (~3.5% of sales). Cash balance was not disclosed; therefore, detailed liquidity buffers cannot be verified. solvency: Calculated equity ratio is ~38.0% (equity ¥177.0bn / assets ¥466.3bn), despite a 0.0% placeholder in disclosures. Debt-to-equity is 1.65x, within typical sector tolerance given strong interest cover (59.6x). capital_structure: Total liabilities are ¥291.80bn vs. equity of ¥177.01bn, consistent with a leverage model supported by fast inventory/receivable turnover. Funding costs are low (¥305m interest), limiting financial risk.

Cash Flow Quality

earnings_quality: OCF/Net income is 0.31x, indicating weak cash conversion this period relative to earnings, likely driven by working capital outflows (receivables/payables timing and inventory). OCF/EBITDA is ~17%, also weak for the business model. FCF_analysis: Free cash flow was negative at ¥-10.81bn (OCF ¥4.07bn minus investing CF ¥14.88bn). Investing outflows were ~2.7x D&A (¥14.88bn vs. ¥5.46bn), pointing to expansionary capex or strategic investments rather than pure maintenance. working_capital: Inventories of ¥36.81bn imply ~12–13 days of inventory versus COGS, consistent with efficient turnover; however, net OCF weakness suggests receivables/payables swings. Sustained monitoring of AR days and AP terms is warranted, though detailed components were not disclosed.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio were not disclosed (zeros reflect unreported items). With EPS at ¥425.71 and net income of ¥13.23bn, capacity exists in earnings terms, but cash coverage is currently weak. FCF_coverage: FCF was negative (¥-10.81bn), implying dividends, if any, would not be covered by FCF this period. Sustainability hinges on normalization of working capital and capex cadence. policy_outlook: Without disclosed DPS or policy guidance, we infer a conservative stance is likely given sector norms and current cash conversion. Future dividends should align with OCF recovery and post-investment cash generation.

Risk Assessment

Business Risks:

• Thin structural margins in food wholesale heighten sensitivity to procurement and logistics costs.
• Commodity and food price volatility affecting gross margin management and customer pricing.
• Logistics cost inflation and driver shortages impacting distribution efficiency.
• Customer concentration in large GMS/SM chains and private label bargaining power.
• Inventory obsolescence and shrink risk, particularly in perishable categories.
• Competitive intensity from national wholesalers and regional players.
• Natural disaster and supply chain disruption risk in Japan.

Financial Risks:

• Weak cash conversion (OCF/NI 0.31x) and negative FCF in the period.
• Working capital volatility tied to receivable/payable timing.
• Moderate leverage (D/E 1.65x) amid interest rate normalization.
• Capex front-loading (Investing CF ~2.7x D&A) increasing funding needs.
• Potential tax rate volatility impacting net income.
• Limited visibility due to undisclosed cash balance and share count.

Key Concerns:

• Bottom-line decline (-8.5% YoY NI) despite operating improvement.
• Sustained negative FCF driven by higher investing outflows and low OCF.
• Data gaps (cash, DPS, share count, equity ratio) limiting precision of per-share and liquidity analyses.

Investment Implications

Key Takeaways:

• Operating performance improved (OI +7.9% YoY) on flat sales, highlighting efficiency gains.
• ROE of 7.47% is supported by high asset turnover and moderate leverage; net margin remains thin at 1.16%.
• Cash conversion was weak (OCF/NI 0.31x) and FCF negative (¥-10.81bn) due to investing and working capital outflows.
• Balance sheet resiliency with a calculated equity ratio of ~38% and strong interest coverage (59.6x).
• Investing outlays above D&A suggest capacity/efficiency investments that could bolster medium-term earnings.

Metrics to Watch:

• OCF/Net income and OCF/EBITDA recovery in coming periods.
• Capex-to-D&A trajectory and payoff from recent investments.
• Gross and operating margin progression amid cost inflation.
• Inventory days and receivables/payables turnover.
• Effective tax rate normalization (implied high-30% vs. reported placeholder).
• Leverage (D/E) and liquidity buffers once cash disclosures are available.

Relative Positioning: Within Japanese food distribution, Kato Sangyo exhibits typical low-margin/high-turnover economics, competitive ROE in the mid-to-high single digits, strong interest coverage, and adequate balance sheet strength; the main differentiator this period is weaker cash conversion alongside elevated investment for growth/efficiency.

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