GRANDES,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.32B
• Operating Income: ¥-38M
• Net Income: ¥-6M
• EPS: ¥-15.05

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: Weak quarter with shrinking top line and an operating loss, cushioned by a strong liquidity position but deteriorating profitability metrics. Revenue fell 10.9% YoY to 23.21 (100M JPY), while gross profit reported at 5.47 implies a gross margin of 23.6%. SG&A was 5.41, and operating income printed at -0.38 (down 85.8% YoY per disclosure), resulting in an operating margin of approximately -1.6%. Ordinary income came in at -0.37 and profit before tax at a slim positive 0.02, but net income was -0.61, pointing to sizable below-the-line charges and/or tax effects. The effective tax rate of 361.7% is abnormally high and likely reflects non-recurring items (e.g., valuation allowance movements) rather than underlying tax burden. Debt service capacity is weak with interest coverage at -6.06x, driven by negative operating income against interest expense of 0.06. Balance sheet liquidity is a bright spot: current assets of 54.53 against current liabilities of 15.60 yield a robust current ratio of 349.6%. Leverage is moderate with D/E at 1.18x and total interest-bearing loans of 22.15 (short- and long-term) versus cash of 8.48. ROE calculated at -2.3% (net margin -2.6%, asset turnover 0.405, leverage 2.18x) underscores capital inefficiency, and ROIC at -0.5% is well below a typical 7–8% hurdle. Operating margin directionally worsened from last year per the company’s YoY commentary; however, line-item inconsistencies (gross profit vs cost of sales vs operating income) mean the degree of margin compression should be viewed cautiously. Earnings quality cannot be verified due to unreported cash flows; OCF/NI is not calculable. The gap between profit before tax (0.02) and net income (-0.61) raises quality and one-off item concerns. Near term, focus should be on restoring operating profitability, improving interest coverage, and lifting ROIC above the cost of capital. With liquidity adequate but profitability weak, the company’s outlook hinges on project execution, cost control, and mix improvement to stabilize margins.

Profitability Analysis

ROE decomposition: ROE (-2.3%) = Net profit margin (-2.6%) × Asset turnover (0.405×) × Financial leverage (2.18×). The primary drag is the net profit margin turning negative, as revenues declined and the company recorded an operating loss. Asset turnover at 0.405 is low for a developer-centric model and indicates underutilized assets or slow project turnover. Financial leverage at 2.18x magnifies outcomes but cannot offset a negative margin. Biggest change driver: margin deterioration (revenue -10.9% YoY, operating income negative), suggesting adverse mix, project timing, and/or cost pressures. Business rationale: likely lower handover volume, fewer high-margin closings, and elevated SG&A relative to sales created negative operating leverage. Sustainability: negative margin appears cyclical/project-timing related but will persist if volume/mix do not normalize or if construction costs remain elevated. Watch for SG&A growth vs revenue; current period shows SG&A at 5.41 against revenue of 23.21 (approximately 23% of sales), which is high and suggests limited operating scale near-term.

Growth Assessment

Revenue decreased 10.9% YoY to 23.21, indicating weaker project deliveries or delayed closings. Operating income moved into loss territory (-0.38), implying negative operating leverage from lower sales. Non-operating impact is small net (+0.01), not enough to offset operating weakness. Profit quality is questionable due to the large gap between pretax (0.02) and net (-0.61), hinting at extraordinary items or tax valuation effects. Outlook hinges on delivery schedule recovery, improved project mix, and tighter SG&A control. Absent evidence of backlog expansion or stronger pre-sales (not disclosed), revenue visibility is limited. Near-term growth catalysts would be: accelerated closings, cost normalization, and inventory turn improvements. Risks include continued cost inflation and sluggish housing demand suppressing volumes.

Financial Health

Liquidity is strong: current ratio 349.6% and cash of 8.48 vs short-term loans of 7.76; no warning for current ratio (<1.0) as the metric is comfortably above threshold. Solvency: Debt-to-equity at 1.18x indicates moderate leverage; below the 2.0x warning but elevated for a company with negative operating income. Maturity mix: current liabilities (15.60) are well covered by current assets (54.53), reducing near-term refinancing pressure, though persistent losses would erode buffers. Long-term loans total 14.39 alongside 7.76 short-term, suggesting a balanced but meaningful debt load relative to equity (26.27). No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not preclude existence of guarantees typical in real estate projects.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net Income cannot be assessed, limiting earnings quality conclusions. Free cash flow and capex are also unreported, so we cannot test dividend or debt service coverage by FCF. Working capital details (inventories, payables) are largely unreported, preventing analysis of potential end-period working capital management. The negative interest coverage (-6.06x) signals that accrual earnings are not translating into cash earnings sufficient to cover interest this period.

Dividend Sustainability

Dividend data are unreported; the calculated payout ratio of -134.5% is not meaningful with negative net income and absent cash flow information. Without OCF/FCF disclosure, coverage cannot be assessed. Given negative earnings and weak interest coverage, prudence would suggest constrained dividend capacity unless there is strong free cash flow from project deliveries in subsequent quarters. Policy outlook is unclear due to disclosure gaps.

Risk Assessment

Business Risks:

• Project timing/closing risk leading to volatile quarterly revenue and margins
• Construction cost inflation compressing gross margins
• Demand softness in residential/land development affecting inventory turns
• Execution risk on SG&A containment amidst lower sales
• Potential extraordinary losses or adjustments affecting bottom line

Financial Risks:

• Negative interest coverage (-6.06x) indicating weak debt service capacity
• Moderate leverage (D/E 1.18x) against negative operating income
• Refinancing risk on short-term loans (7.76) if operating losses persist
• Tax/valuation allowance volatility (effective tax rate 362%) introducing earnings noise

Key Concerns:

• Large gap between profit before tax (0.02) and net income (-0.61)
• ROIC at -0.5% far below a typical 7–8% target
• Asset turnover at 0.405 suggests capital tied up with slow conversion to sales
• Data limitations on OCF and inventories reduce visibility into cash generation

Investment Implications

Key Takeaways:

• Top line down 10.9% YoY; operating margin around -1.6% with an operating loss of -0.38
• Interest coverage negative; debt service capacity is a key near-term watchpoint
• Liquidity is ample (current ratio 3.5x; cash 8.48 vs ST debt 7.76), cushioning near-term risk
• ROE -2.3% and ROIC -0.5% indicate subpar capital efficiency requiring margin and turnover recovery
• Line-item inconsistencies and unreported cash flows constrain conviction in earnings quality

Metrics to Watch:

• Order backlog/contracted sales and quarterly closings
• Gross margin trajectory and construction cost trends
• SG&A as a percentage of sales (operating leverage)
• Operating cash flow and free cash flow once disclosed
• Interest coverage and net debt to equity
• ROIC and asset turnover improvements

Relative Positioning: Small-cap real estate operator with strong liquidity but weaker profitability and capital efficiency than desirable; near-term outlook depends on delivery timing 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