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

THECOO (4255) reported FY2025 Q3 single-entity results under JGAAP with revenue of ¥3,433 million, up 10.8% YoY, indicating healthy top-line momentum. Gross profit was ¥1,271.9 million, corresponding to a gross margin of 37.1%, suggesting reasonable unit economics for a digital/marketing-services oriented model. Operating income was ¥123 million, flat YoY, implying that operating leverage did not materialize in the quarter despite revenue growth. Ordinary income of ¥137 million and net income of ¥110 million translate to ordinary and net margins of 4.0% and 3.2%, respectively, consistent with a low-single-digit profitability profile. DuPont metrics indicate ROE of 23.06%, driven by modest net margin (3.20%), solid asset turnover (1.196x), and high financial leverage (6.02x). The high ROE is therefore leverage-driven rather than margin-driven, which raises durability questions absent sustained operating margin expansion. Liquidity appears tight: current assets of ¥2,236.0 million barely cover current liabilities of ¥2,235.6 million, yielding a current ratio of ~1.00x and working capital of only ¥0.377 million. Total liabilities of ¥2,316.5 million against equity of ¥477 million produce a debt-to-equity of 4.86x, indicating a levered balance sheet. Interest expense is minimal at ¥0.193 million and interest coverage is very high at 637x, suggesting low-cost liabilities or limited financial debt; however, refinancing and rollover risks cannot be dismissed given the short-term heavy liability structure. The equity ratio was listed as 0.0%, but given total equity and assets, the implied equity ratio is approximately 16.6%, highlighting a data disclosure limitation rather than an actual zero. Operating, investing, and financing cash flows are not disclosed (shown as zero), preventing assessment of cash conversion and free cash flow quality this quarter. Dividend per share is zero, consistent with a reinvestment or preservation stance amid tight liquidity and leverage. Overall, the quarter shows decent revenue growth with flat profits, thin but positive margins, leverage-assisted ROE, and very tight short-term liquidity. Sustained margin improvement and better working capital management will be important to support the growth trajectory without increasing balance sheet risk. Data gaps in cash flow statements constrain the assessment of earnings quality and dividend capacity, so subsequent disclosures will be critical for confirmation.

Profitability Analysis

ROE_decomposition: Reported/Calculated ROE: 23.06% = Net margin (3.20%) × Asset turnover (1.196x) × Financial leverage (6.02x). ROE is primarily leverage-driven, with modest profitability and decent asset productivity. margin_quality: Gross margin at 37.1% suggests acceptable contribution economics. Operating margin is ~3.6% (¥123m/¥3,433m), indicating high SG&A intensity and limited operating leverage this quarter. Net margin at 3.2% is constrained by thin operating income; tax burden appears low this period. operating_leverage: Despite 10.8% YoY revenue growth, operating income was flat YoY, implying incremental margins near zero in the period. This suggests either increased operating costs (sales promotion, personnel, platform costs) or revenue mix shifts that capped operating leverage.

Growth Assessment

revenue_sustainability: Top-line growth of 10.8% YoY is solid for a marketing/platform-driven model, indicative of demand resilience or user/client growth. Sustainability will depend on client retention, spend per client, and ongoing traction in core services. profit_quality: Flat operating and net income despite revenue growth indicates profit quality depends on tighter cost control and potential pricing power. Ordinary income exceeded operating income modestly, suggesting limited non-operating tailwinds. outlook: Near-term outlook hinges on converting growth into operating profit via cost discipline and mix improvement. If gross margin holds near ~37% and SG&A growth moderates, operating margin expansion is possible; otherwise, profitability may remain range-bound.

Financial Health

liquidity: Current assets ¥2,236.0m vs current liabilities ¥2,235.6m yields current ratio ~1.00x and working capital of ~¥0.377m, indicating very tight liquidity and limited buffer for shocks. Quick ratio approximates current ratio given no inventories reported. solvency: Total liabilities ¥2,316.5m vs equity ¥477.0m yields debt-to-equity 4.86x. Implied equity ratio ~16.6% (equity/assets), despite a reported 0.0% figure likely due to disclosure labeling. Balance sheet is leveraged but interest expense is low. capital_structure: Financial leverage of ~6.0x (assets/equity) supports ROE but elevates risk if earnings weaken. Liability mix appears short-term heavy (current liabilities nearly equal total liabilities), elevating rollover and working capital management importance.

Cash Flow Quality

earnings_quality: Operating cash flow not disclosed this period; OCF/NI ratio shown as 0.00 is a placeholder and not interpretable. Therefore, cash conversion cannot be evaluated. FCF_analysis: Free cash flow cannot be derived due to missing OCF and capex data. Assessment of reinvestment needs and FCF sustainability is not possible from the provided data. working_capital: Working capital is effectively neutral (~¥0.377m), implying minimal cushion. Without detailed components (AR/AP/prepaids), the direction of cash tied in working capital cannot be assessed.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is zero; payout ratio reported 0.0%. Given thin margins and tight liquidity, a conservative payout stance aligns with balance sheet conditions. FCF_coverage: FCF coverage cannot be assessed due to missing cash flow data; the 0.00x shown is not indicative of actual coverage. policy_outlook: With leverage high and working capital tight, maintaining a no-dividend or minimal dividend stance appears prudent until cash generation and equity base strengthen. Future distributions likely depend on sustained OI growth and improved cash conversion.

Risk Assessment

Business Risks:

• Client concentration and volatility in advertising/marketing spend
• Competitive intensity in influencer marketing and community platforms
• User growth and retention risks affecting monetization
• Regulatory and compliance risks in advertising disclosures and data privacy
• Execution risk in scaling new services without margin dilution

Financial Risks:

• Tight liquidity with current ratio ~1.00x and minimal working capital
• High leverage (D/E 4.86x; financial leverage ~6.0x) increasing sensitivity to earnings shortfalls
• Short-term liability concentration raising refinancing/rollover risk
• Potential cash flow volatility not observable due to missing OCF disclosure
• Low equity cushion (implied equity ratio ~16.6%) limiting shock absorption

Key Concerns:

• Operating income flat despite double-digit revenue growth
• Dependence of ROE on leverage rather than margin strength
• Insufficient disclosure of cash flows impeding earnings quality assessment

Investment Implications

Key Takeaways:

• Top-line up 10.8% YoY but profitability flat; operating leverage not yet evident
• Gross margin stable at ~37% supports path to margin expansion if SG&A growth moderates
• High ROE (23.1%) is leverage-driven given thin margins
• Liquidity very tight (working capital ~¥0.4m), elevating execution and rollover risk
• Interest burden currently low (coverage ~637x), but balance sheet reliance persists

Metrics to Watch:

• Operating margin progression and SG&A growth vs revenue
• Operating cash flow and free cash flow once disclosed
• Working capital components (AR/AP days) and current ratio trend
• Equity ratio/deleveraging trajectory and liability tenor mix
• Gross margin stability and revenue mix (recurring vs project-based)

Relative Positioning: Relative to domestic digital marketing/platform peers on the TSE Growth market, THECOO shows respectable revenue growth but thinner operating margins and tighter liquidity, with higher leverage supporting ROE; improving cash conversion and operating leverage would be key to closing the profitability gap.

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