KITAKEI CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥58.98B
• Operating Income: ¥713M
• Net Income: ¥551M
• EPS: ¥59.38

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: A soft quarter with margin compression and negative operating cash flow; profitability remains thin but the balance sheet is liquid. Revenue declined 3.8% YoY to 589.8, while operating income fell 22.4% YoY to 7.13, indicating weaker operating leverage. Gross profit was 64.68, implying a gross margin of 11.0%, roughly stable for a building materials wholesaler. Operating margin compressed to 1.21% from 1.50% a year ago (down 29 bps). Net income fell 23.3% to 5.51, driving the net margin down to 0.93% from 1.17% (down 24 bps). Ordinary income of 9.06 benefitted modestly from non-operating income of 2.03 (interest/dividend gains), evidenced by an interest burden above 1.0 in the five-factor DuPont. ROE printed at 3.9%, below our 8% concern threshold, reflecting slim margins despite good asset turnover (2.12x) and moderate leverage (1.98x). Earnings quality is weak this quarter: OCF was -4.71 versus NI of 5.51, yielding an OCF/NI of -0.85x. Free cash flow was -4.85, insufficient to fully cover dividends this year (FCF coverage -1.73x). Liquidity remains strong with a current ratio of 190% and cash of 111, supporting near-term obligations despite negative OCF. Capex was light at 0.31 vs depreciation of 1.17 (CapEx/Dep 0.26), signaling potential underinvestment risk if prolonged, though the asset-light model can partly justify low capex. The effective tax rate was high at 39.2% (tax burden 0.608), further pressuring net margin. Outlook: With end-market softness in housing and tight operating margins, near-term earnings growth likely depends on mix improvement and expense control; cash conversion needs to normalize to avoid pressure on dividend sustainability.

Profitability Analysis

DuPont (3-factor): ROE 3.9% = Net Profit Margin 0.93% × Asset Turnover 2.12× × Financial Leverage 1.98×. The largest driver of change YoY appears to be net margin compression: net margin fell ~24 bps (from ~1.17% to 0.93%), while leverage is stable (~2.0×) and asset turnover strong but we lack prior assets to confirm a change. Operating margin compressed 29 bps (1.50% → 1.21%), likely due to volume declines (-3.8% revenue) and limited SG&A flexibility, reducing operating leverage. Non-operating income (interest/dividends) cushioned ordinary income, but a high effective tax rate (39.2%) reduced the tax burden (0.608), further lowering ROE. Sustainability: Margin pressure could persist if housing-related demand remains soft; partial relief could come from pricing/mix and tighter SG&A control. Concerning trends: Operating income declined faster than revenue (-22.4% vs -3.8%), indicating negative operating leverage; we cannot verify SG&A growth vs revenue due to missing prior SG&A, but the margin outcome signals cost rigidity.

Growth Assessment

Revenue declined 3.8% YoY to 589.8, consistent with softer housing-related demand and possibly price normalization in materials. Operating income fell 22.4% to 7.13 as operating margin narrowed to 1.21%; profit quality leaned on non-operating income to reach ordinary income of 9.06. Net income decreased 23.3% to 5.51, reflecting thinner margins and a high tax rate. With EBITDA at 8.30 (margin 1.4%), earnings sensitivity to small pricing or cost shifts remains high. Near-term growth sustainability is challenged without volume recovery or improved gross spread; operating expense efficiencies and better product mix will be pivotal. Given negative OCF and FCF this year, growth investment capacity depends on utilizing ample cash and managing working capital more tightly.

Financial Health

Liquidity is solid: current ratio 190%, quick ratio 184%, working capital 114.8, and cash of 111 more than covers accounts payable of 59.3, indicating low maturity mismatch risk. D/E ratio is reported at 0.98x, within conservative territory and well below the 2.0× warning; interest-bearing debt specifics are unreported, but leverage appears moderate given equity of 140.6 vs total liabilities 137.9. No explicit off-balance sheet obligations are disclosed in the dataset. With current assets of 242.1 versus current liabilities of 127.3, short-term liquidity risk is low. We do not flag any threshold breaches (no Current Ratio < 1.0, no D/E > 2.0).

Cash Flow Quality

OCF was -4.71 against net income of 5.51, yielding OCF/NI of -0.85x, a quality concern. Free cash flow totaled -4.85, insufficient to cover dividend outflows, implying reliance on cash on hand to fund shareholder returns this year. Cash conversion (OCF/EBITDA) was -0.57x, indicating working capital outflows or timing effects dragged cash generation despite positive EBITDA. Accruals ratio at 3.7% is benign, suggesting earnings are not overly accrual-driven; the cash shortfall is likely working capital related rather than aggressive accrual accounting. CapEx/Depreciation at 0.26x signals minimal reinvestment; sustainable if asset-light and capacity is ample, but if sustained could risk asset aging or constrain growth.

Dividend Sustainability

The company paid a year-end DPS of ¥28.0 with no interim dividend, implying a calculated payout ratio of about 50.9% on FY25 earnings—formally within sustainable bounds. However, FCF coverage was -1.73x, meaning dividends were not covered by free cash flow this year and were effectively funded by existing cash. With cash of 111 and strong liquidity, near-term dividend capacity is supported, but persistence of negative OCF would pressure sustainability. Policy outlook likely favors maintaining a stable base dividend, but future increases may require normalization of cash conversion and improved operating margins.

Risk Assessment

Business Risks:

• End-market softness in housing/remodeling dampening volumes and pricing
• Very thin operating margin (1.2%) leaves little buffer for cost inflation
• High effective tax rate (39%) suppressing net margins
• Potential underinvestment (CapEx/Dep 0.26) risking asset obsolescence if prolonged

Financial Risks:

• Negative operating cash flow and FCF this year, requiring cash balances to fund dividends
• Reliance on working capital movements; inventory/receivables swings can materially impact OCF
• Leverage moderate (D/E 0.98x), but interest-bearing debt details are unreported

Key Concerns:

• OCF/NI at -0.85x and cash conversion -0.57x indicate weak cash realization of earnings
• Operating margin below 5% benchmark and declining YoY
• Dividend not covered by FCF in FY25

Investment Implications

Key Takeaways:

• Profitability weakened: operating margin compressed 29 bps to 1.21%, NI margin to 0.93%
• ROE at 3.9% is below the 8% concern threshold, driven by margin pressure
• Cash generation deteriorated: OCF negative and FCF not covering dividends
• Balance sheet liquidity is a mitigant with current ratio ~190% and cash of 111
• Capex discipline is high, but sustained low reinvestment could constrain future competitiveness

Metrics to Watch:

• OCF/NI and cash conversion (target >1.0 and >0.9 respectively)
• Operating margin recovery toward >2% near term and >3% medium term
• Working capital turns: AR and inventory days vs AP days
• CapEx trajectory vs maintenance needs (CapEx/Dep moving toward ≥0.7)
• Effective tax rate normalization and any tax planning benefits

Relative Positioning: Compared to peers in building materials distribution, margins are on the low end and cash conversion was weak this year; however, liquidity and moderate leverage provide resilience pending demand recovery and cost discipline.

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