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

Grandy's Co., Ltd. (32610) reported FY2025 Q3 consolidated results under JGAAP showing a contraction in topline and a swing to operating loss, highlighting margin pressure and operating deleverage. Revenue declined 10.9% YoY to ¥2.321bn, while operating income deteriorated to a ¥38m loss (down 85.8% YoY), indicating that fixed costs did not flex sufficiently with the lower sales base. Ordinary loss was ¥37m and net loss was ¥61m (EPS: -¥15.05), implying limited non-operating offsets and some tax expense despite losses, likely due to statutory minimum taxes. The provided gross profit figure of ¥546.8m implies a gross margin of 23.6%, which is reasonable for a project-based business; however, note that the cost of sales line item and gross profit do not arithmetically reconcile, suggesting differences in classification/reporting rather than a data error. DuPont metrics indicate a net margin of -2.63%, asset turnover of 0.405x, and financial leverage of 2.18x, yielding a calculated ROE of -2.32%. The key driver of ROE weakness is the negative net margin, as both asset turnover and leverage are within moderate ranges for an asset-backed operator. Liquidity appears strong with a current ratio of 5.24x and sizeable working capital of ¥3.565bn, providing near-term cushion despite losses. Balance sheet leverage is modest with a debt-to-equity ratio of 0.67x and an equity base of ¥2.627bn; by simple computation, the equity ratio approximates 46% (equity/total assets), although the reported equity ratio metric is not disclosed. Interest coverage is negative (-6.1x) due to operating losses, underscoring sensitivity to further margin compression. Cash flow statements are not disclosed in the dataset, limiting assessment of earnings-to-cash conversion and the timing of project cash cycles. No dividend is indicated (DPS: ¥0, payout 0%), consistent with the current loss position and prudent capital preservation. Overall, the quarter reflects a typical cyclical soft patch for a project-centric company: lower sales volume drove operating deleverage and losses, while the balance sheet remains comparatively sound. Sustainability of margins and the pace of revenue normalization are the principal variables for recovery of profitability and ROE. Given data limitations (notably cash flow and share count), conclusions focus on available non-zero data points and the provided calculated metrics.

Profitability Analysis

ROE (-2.32%) decomposes into net margin (-2.63%), asset turnover (0.405x), and financial leverage (2.18x). The negative margin is the primary headwind, overwhelming moderate efficiency and leverage. Operating margin is approximately -1.64% (operating income of -¥38m on ¥2.321bn sales), signaling that SG&A and fixed costs did not adjust to the reduced revenue base. The provided gross margin is 23.6%, suggesting underlying project-level profitability remains positive; the drop from gross to operating level indicates elevated overhead absorption or project timing effects. Ordinary margin (-1.6%) is close to operating margin, indicating limited non-operating support and a manageable non-operating burden outside interest. Interest expense of ¥6.27m is small in absolute terms, but negative EBITDA/operating income yields a negative interest coverage (-6.1x), highlighting vulnerability if losses persist. Operating leverage appears high: a 10.9% revenue decline translated into an 85.8% contraction in operating income, moving into loss. Profitability recovery will rely on restoring volume/mix and tightening cost control to lift operating margin back into positive territory.

Growth Assessment

Revenue declined 10.9% YoY to ¥2.321bn, reflecting softer demand and/or project delivery timing. The move to an operating loss despite a 23.6% gross margin points to unfavorable mix or timing, where fixed costs weighed on results. Net loss of ¥61m (-28.3% YoY) indicates some stabilization vs. the prior-year loss magnitude, but profitability remains fragile. Asset turnover at 0.405x is modest, consistent with an asset-intensive/project-based model where revenue recognition is lumpy. Sustainability of revenue depends on order intake, backlog conversion, and the cadence of project completions—none of which are disclosed here. With ordinary loss roughly equal to operating loss, non-operating items are not a major growth driver. Near-term outlook hinges on normalization of deliveries and gross margin retention; if revenue rebounds even modestly, operating leverage could quickly restore profitability. Conversely, further revenue slippage would deepen losses given the fixed cost base. Given limited disclosure (no segment, backlog, or CF data), our growth read-through primarily relies on the magnitude of the revenue decline and leverage of costs observed this quarter.

Financial Health

Total assets are ¥5.734bn against total liabilities of ¥1.754bn, yielding a book equity of ¥2.627bn and implying an equity ratio around 46% by computation (equity/total assets), indicative of a solid capital base. The current ratio is 5.24x and working capital is ¥3.565bn, pointing to ample liquidity headroom. Quick ratio matches current ratio per the dataset, as inventories are not disclosed; this may overstate quick liquidity if inventories are material but unreported. Debt-to-equity is 0.67x, a moderate leverage level for a project business. Interest expense is low at ¥6.27m, but negative operating income results in negative interest coverage, which could become a constraint if losses persist. No cash balance is disclosed, limiting precision on immediate liquidity; however, the size of current assets vs. current liabilities suggests flexibility. Overall solvency and liquidity appear adequate, with the principal risk being earnings weakness rather than balance sheet strain.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in the dataset, so earnings-to-cash conversion cannot be assessed. The OCF/Net Income ratio shown as 0.00 and FCF as 0 reflect non-disclosure rather than true zeros. Given the project nature implied by the financials, working capital swings (receivables, payables, and project assets) likely drive cash flow timing; without inventory and CF details, the extent of cash tie-up is unclear. The positive gross margin coupled with operating loss suggests higher period costs or lower absorption, which might coincide with temporary working capital build. With interest expense modest, cash interest burden is likely manageable if OCF normalizes with deliveries. In absence of CF data, we cannot confirm whether losses translated into cash burn in the quarter.

Dividend Sustainability

DPS is ¥0 with a reported payout ratio of 0%, which aligns with the current net loss (¥61m). Without disclosed operating or free cash flow, FCF coverage cannot be assessed; the reported 0.00x is a placeholder for non-disclosure. Given modest leverage and large working capital, the balance sheet could theoretically support dividends in profitable periods, but sustaining payouts requires a return to positive earnings and OCF. Current policy stance is not disclosed; prudence favors retention until profitability stabilizes. Near-term dividend capacity appears limited by losses and negative interest coverage.

Risk Assessment

Business Risks:

• Revenue timing and project delivery risk leading to lumpiness in topline and earnings
• Margin pressure from cost inflation, mix shifts, or lower absorption of fixed costs
• High operating leverage amplifying the impact of volume fluctuations on profitability
• Customer demand cyclicality tied to macro conditions and real estate/construction cycles
• Execution risk on projects affecting gross margin realization

Financial Risks:

• Negative interest coverage due to operating losses
• Potential working capital build consuming cash during project execution
• Limited visibility on cash and liquidity given non-disclosure of CF and cash balances
• Refinancing or covenant risk if losses persist (mitigated by moderate leverage)

Key Concerns:

• Sustained negative operating income despite a 23.6% gross margin
• Revenue decline of 10.9% YoY with evidence of operating deleverage
• Lack of cash flow disclosure impeding assessment of earnings quality and liquidity
• Tax expense despite losses, indicating unavoidable cash taxes

Investment Implications

Key Takeaways:

• Topline down 10.9% YoY to ¥2.321bn with operating loss of ¥38m, signaling pressure from operating leverage
• Gross margin at 23.6% suggests project-level profitability remains, but overhead absorption is a drag
• ROE at -2.32% driven by negative net margin; efficiency (0.405x turnover) and leverage (2.18x) are moderate
• Liquidity is strong (current ratio 5.24x; working capital ¥3.565bn) and leverage modest (D/E 0.67x)
• Interest coverage is negative (-6.1x), a key constraint if losses persist
• Cash flow data not disclosed; assessment of earnings quality and FCF is limited

Metrics to Watch:

• Revenue run-rate and order backlog/booking trends
• Gross margin trajectory and SG&A ratio to sales
• Operating margin recovery toward positive territory
• Asset turnover and project cycle times
• Operating cash flow and free cash flow once disclosed
• Interest coverage and debt levels

Relative Positioning: Within small-cap, project-driven businesses on the TSE, the company exhibits weaker current profitability but comparatively solid balance sheet liquidity and moderate leverage. Near-term positioning hinges on restoring volume and margins to leverage fixed costs, with balance sheet strength providing a buffer during the adjustment period.

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