THECOO Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.43B
• Operating Income: ¥123M
• Net Income: ¥110M
• EPS: ¥52.93

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: THECOO's FY2025 Q3 (single-entity, JGAAP) shows modest topline growth and positive earnings with very high financial leverage and tight liquidity, alongside notable line-item inconsistencies that complicate interpretation. Revenue grew 10.8% YoY to 34.33, demonstrating demand resilience. Operating income was 1.23, implying an operating margin of about 3.6%, and net income was 1.10 with EPS of 52.93 JPY. Ordinary income printed at 1.37, suggesting a small non-operating net gain (non-operating income 0.05 vs expenses 0.04). Despite these positives, profit before tax was reported at -1.48, which conflicts with the ordinary income and net income figures and implies a sizable extraordinary loss and/or classification issue; nonetheless, the reported net income aligns with EPS and shares, so we take NI as the anchor for profitability. Gross profit margin is listed at 37.1%, but the provided gross profit (12.72) does not reconcile with revenue minus cost of sales; we therefore treat operating income and revenue as the most reliable indicators for margin analysis. On margins, the current operating margin appears around 3.6%; YoY margin changes are not quantifiable due to missing comparatives. Earnings quality cannot be assessed as operating cash flow was not disclosed; OCF/NI and FCF remain N/A. Balance sheet strength is weak: equity is only 4.77 against total assets of 28.70, with negative retained earnings (-13.54), resulting in very high financial leverage (D/E 4.86x, assets/equity 6.0x) and a razor-thin current ratio of 1.00. Working capital is essentially nil, increasing liquidity risk if collections slip or payables tighten. ROE calculates at 23.1%, but is primarily leverage-driven given a modest net margin (3.2%) and asset turnover (1.20x); this elevates risk if profitability softens. ROIC is reported at -10.9%, indicating poor capital efficiency relative to management benchmarks, despite positive operating income, likely due to the invested capital base and extraordinary items. Forward-looking, stabilizing margins, improving cash conversion, and rebuilding equity will be critical to sustain growth without dilutive or expensive financing. Absent cash flow data and with multiple inconsistencies in P/L subtotals, we emphasize caution in extrapolating this run-rate until the company provides fuller disclosures and reconciliations.

Profitability Analysis

ROE decomposition: ROE (23.1%) = Net Profit Margin (3.2%) × Asset Turnover (1.196x) × Financial Leverage (6.02x). The largest driver is financial leverage, which is elevated due to a very small equity base (equity 4.77 vs assets 28.70). Net margin is modest, derived from NI 1.10 on revenue 34.33; operating margin is about 3.6% (1.23/34.33). Asset turnover at ~1.20x reflects a relatively lean asset base versus revenue, but we cannot benchmark YoY momentum without prior-period data. Business reason for the ROE mix: leverage magnifies returns on a thin margin business; ordinary income slightly above operating income indicates small non-operating tailwind, while the reported negative PBT suggests extraordinary losses that could compress margins if persistent. Sustainability: leverage-driven ROE is fragile—if margins compress or revenue growth slows, ROE can drop quickly, and high D/E limits balance sheet flexibility. Warning signs: SG&A of 14.23 relative to operating income implies limited operating leverage; however, without YoY SG&A growth vs revenue, we cannot conclude if SG&A is outpacing revenue. Given the inconsistencies between gross profit, operating income, and PBT, we treat the current margin profile as uncertain pending fuller notes.

Growth Assessment

Revenue growth of +10.8% YoY to 34.33 indicates healthy topline momentum. Profit growth trends cannot be measured YoY as operating and net income comparatives were not disclosed. The mix suggests core earnings are driven by operations with minimal non-operating contribution (0.01 net non-operating), but the negative PBT hints at significant extraordinary items that could mask true underlying growth. Without cash flow data, we cannot confirm whether growth is supported by cash collections (e.g., DSO or OCF). Sustainability hinges on: maintaining >10% growth while improving operating margin from ~3.6%, controlling SG&A intensity, and avoiding further extraordinary losses. Outlook: If revenue growth persists and management expands gross margin or lowers SG&A ratio, earnings can scale despite a small equity base; conversely, any slowdown could quickly pressure profitability given limited cost absorption and high leverage.

Financial Health

Liquidity is tight: current ratio at 1.00 is at the warning threshold, implying little buffer for working capital shocks; quick ratio also 1.00 with cash of 16.01 and receivables of 5.71 against current liabilities of 22.36. We explicitly warn that D/E of 4.86x exceeds the 2.0 threshold, signaling high leverage and vulnerability to earnings volatility. Maturity mismatch risk is present: current liabilities (22.36) fully absorb current assets (22.36), leaving no net working capital; any delay in receivables or acceleration in payables could require external funding. Interest-bearing debt amounts are unreported, so we cannot assess refinancing risks or covenant headroom; the very high reported interest coverage ratio likely reflects negligible reported interest and should not be over-interpreted. Equity quality is weak with negative retained earnings (-13.54), highlighting accumulated losses and limited loss-absorption capacity. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating CF, investing CF, and financing CF were not disclosed, so OCF/NI and free cash flow coverage cannot be assessed. Therefore, we cannot validate earnings quality via cash conversion; OCF/NI could be a key risk if receivables rise alongside growth. With working capital effectively zero, any seasonal build in AR or decreases in AP could push OCF negative absent cash buffers. Capex, capitalized development, and lease cash flows are unreported, limiting FCF sustainability analysis. No signs of working capital manipulation can be concluded from the limited data, but the juxtaposition of positive NI and negative PBT suggests classification/extraordinary items rather than cash timing, which still warrants scrutiny.

Dividend Sustainability

Dividend information is unreported. With retained earnings at -13.54 and high leverage, distributable capacity appears constrained under typical capital policy norms, though we cannot confirm legal distributable amounts. Without OCF and FCF data, we cannot assess coverage. Policy outlook likely prioritizes balance sheet strengthening (retained earnings recovery) over distributions until profitability and cash flow are consistently positive and leverage is reduced.

Risk Assessment

Business Risks:

• Execution risk in scaling revenue while improving operating margin from ~3.6%
• Potential extraordinary losses recurring, depressing underlying profitability
• Dependence on digital advertising/creator economy dynamics (cyclicality of client marketing spend)
• Platform and policy risk (e.g., changes by Apple/Google/social platforms impacting monetization or acquisition costs)

Financial Risks:

• High leverage (D/E 4.86x) and thin equity base (equity 4.77) increase solvency and volatility risk
• Tight liquidity with current ratio at 1.00 and zero working capital, raising short-term funding risk
• Negative retained earnings limiting financial flexibility and potentially restricting dividends
• Cash flow visibility is poor (OCF, FCF unreported), elevating earnings quality uncertainty

Key Concerns:

• Inconsistencies in P/L subtotals (ordinary income positive vs profit before tax negative) complicate true earnings assessment
• Gross profit figure does not reconcile with revenue and cost of sales, increasing data reliability risk
• ROIC at -10.9% signals capital inefficiency despite positive operating income
• Reported very high interest coverage likely reflects minimal reported interest and may not persist if rates or borrowings rise

Investment Implications

Key Takeaways:

• Topline grew 10.8% YoY to 34.33 with positive operating and net income
• ROE of 23.1% is largely leverage-driven (assets/equity ~6.0x) given modest 3.2% net margin and 1.20x asset turnover
• Balance sheet is stretched: D/E 4.86x and current ratio 1.00 with negative retained earnings
• Margin and subtotal inconsistencies (GP, PBT vs NI) necessitate caution and a focus on reconciliations and notes
• Capital efficiency is weak (ROIC -10.9%), requiring improved returns or lower invested capital to create value

Metrics to Watch:

• Operating margin progression and SG&A ratio vs revenue
• OCF/Net income and free cash flow once disclosed
• Working capital cycle (AR trend vs revenue; payables coverage) and cash balance sufficiency
• Extraordinary gains/losses and reconciliation between ordinary income, PBT, and NI
• Leverage trajectory (D/E, equity rebuild via retained earnings or capital measures)

Relative Positioning: Within small-cap Japanese digital/marketing platforms, THECOO shows decent revenue growth but weaker balance sheet resilience and capital efficiency versus peers with stronger equity cushions and clear cash generation; near-term positioning is more vulnerable to shocks given leverage and liquidity constraints.

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