Kudan Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥400M
• Operating Income: ¥-416M
• Net Income: ¥-330M
• EPS: ¥-29.21

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: Strong top-line acceleration (+170% YoY) but the quarter remained deeply loss-making with heavy SG&A, resulting in negative operating and net income. Revenue reached 4.00, while gross profit was 1.08, yielding a 27.0% gross margin. Operating loss was -4.16 (operating margin approximately -104%), and ordinary loss was -2.87, supported partly by non-operating income of 1.32. Net loss came in at -3.29 (EPS -29.21 JPY), with a tax expense of 0.42 despite losses, implying a negative effective tax rate (-14.4%). SG&A of 5.24 exceeded gross profit by a wide margin, implying insufficient scale at current revenue levels. Cash and deposits were robust at 22.02 against total liabilities of 3.17, underpinning a very strong liquidity position (current ratio 789%). Operating cash flow was -3.94, which broadly tracked the net loss (OCF/NI 1.20x), indicating acceptable cash conversion quality despite losses. Gross margin stood at 27.0%; operating margin at roughly -104% and ordinary margin at about -71.8%. We cannot quantify YoY basis point margin expansion/compression due to lack of comparable prior-period margin disclosures in the dataset. Non-operating income was sizeable relative to revenue (1.32 vs revenue 4.00), partially mitigating operating losses, though the durability of these items is unclear given the limited breakdown. Capital intensity remains low with reported capex at -0.03, and financing cash flows were flat, signaling no recent external funding in the quarter. Balance sheet strength provides runway to continue investment in growth; annualizing the first-half OCF burn suggests roughly 2.8 years of cash runway. However, capital efficiency metrics remain weak (ROE -12.1%, ROIC -58.2%), reflecting early-stage scaling economics. Forward-looking, the key to profitability is scaling revenue to absorb fixed SG&A while protecting gross margins. In the near term, we expect continued focus on commercialization wins and potential reliance on non-operating income to support ordinary earnings until operating leverage improves.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin (-82.2%) × Asset turnover (0.132) × Financial leverage (1.12x) = ROE (-12.1%). The dominant driver of negative ROE is the deeply negative net margin; asset turnover is modest and leverage is low. Business reason: SG&A (5.24) materially exceeds gross profit (1.08), leading to an operating margin of about -104%; this is consistent with a company investing ahead of scale in R&D/commercial infrastructure. Sustainability: The current margin drag is partly structural in an early scaling phase; improvement depends on revenue growth outpacing SG&A and maintaining/improving gross margin from 27.0%. Asset turnover should improve with top-line growth given relatively light asset base (total assets 30.33). Leverage is conservative (D/E 0.12x), so changes in ROE will primarily come from margin and turnover rather than financial gearing. Warning flags: SG&A as a percentage of revenue is ~131%, which is unsustainably high; we cannot confirm whether SG&A growth exceeded revenue growth due to missing YoY SG&A data, but the absolute level is the key pressure point. Non-operating income (1.32) cushioned ordinary loss; however, reliance on non-operating items raises quality concerns if these are one-time or volatile.

Growth Assessment

Revenue growth was strong at +170.2% YoY to 4.00, indicating traction in commercialization. Gross margin of 27.0% is positive but leaves limited room to absorb current fixed cost structure; margin expansion will be necessary for profitability. Operating loss of -4.16 underscores that scale is still insufficient, with SG&A at 5.24. Profit quality is mixed: non-operating income (1.32) played a significant role in narrowing ordinary losses, and the durability of these items is unclear given limited breakdown beyond 0.02 of interest income. Outlook hinges on sustaining high double- or triple-digit revenue growth and improving unit economics; with a lean balance sheet and ample cash, the company has runway to invest. We lack segment and product-level granularity to assess mix effects, pricing power, or recurring revenue proportion, which are critical for forecasting.

Financial Health

Liquidity is very strong: current assets 25.02 vs current liabilities 3.17 (current ratio 789%, quick ratio 770.6%). No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is 0.12x (conservative). Maturity mismatch risk appears low: short-term loans of 2.00 are well-covered by cash and deposits of 22.02 and accounts receivable of 1.63. Total liabilities are modest at 3.17 vs total equity 27.16, indicating a strong equity cushion. Interest expense is minimal (0.02), and while interest coverage is negative due to operating losses, absolute debt service burden is low. Noncurrent liabilities are negligible (0.07). We have no disclosure of off-balance sheet obligations; none can be assessed from the provided data.

Cash Flow Quality

OCF/Net Income is 1.20x, which exceeds the 1.0 benchmark and indicates that reported losses are not being masked by working capital swings; cash burn is consistent with the P&L. Using capex (-0.03) as a proxy for investment needs (investing CF otherwise unreported), free cash flow is approximately -3.97, implying ongoing cash consumption. Working capital shows no apparent manipulation: receivables (1.63) and inventories (0.59) are small relative to cash (22.02) and revenue scale, though we lack YoY/quarterly deltas to confirm. Cash runway is solid: annualizing OCF (-3.94 for H1) suggests ~-7.9 per year, implying roughly 2.8 years of runway on current cash if burn remains steady.

Dividend Sustainability

Dividends are unreported; given negative earnings and negative FCF, the capacity to pay dividends is limited. Payout ratios are not calculable due to losses. With ample cash but continued operating and cash losses, prudent capital allocation would prioritize growth investments and maintaining runway over distributions. We therefore view near-term dividends as unlikely absent a clear inflection to sustained positive FCF.

Risk Assessment

Business Risks:

• Execution risk in commercializing AI/SLAM solutions and converting pipeline into recurring revenue
• Margin risk from high SG&A intensity (SG&A/revenue ~131%) and a modest gross margin (27.0%)
• Dependence on non-operating income (1.32) to narrow ordinary losses; limited visibility on recurrence
• Project-based revenue and potential customer concentration risk (not disclosed but typical for early-stage deep-tech)

Financial Risks:

• Sustained cash burn (OCF -3.94 in H1) leading to eventual need for external funding if growth does not improve cash generation
• Negative interest coverage (-172.9x) due to operating losses, though absolute interest burden is low
• ROIC of -58.2% indicates poor capital efficiency at current scale

Key Concerns:

• Path to operating breakeven requires significant scale-up from current revenue base
• Tax expense (0.42) despite losses complicates near-term bottom line
• Data gaps (D&A, R&D, detailed non-operating breakdown) limit assessment of recurring vs. one-off earnings components

Investment Implications

Key Takeaways:

• Revenue inflected strongly (+170% YoY) but operating leverage not yet visible; operating margin about -104%
• Liquidity is a strength: cash 22.02 vs total liabilities 3.17 (current ratio 789%)
• Cash burn is manageable relative to cash on hand; estimated runway ~2.8 years at current pace
• Earnings quality is acceptable from a cash conversion standpoint (OCF/NI 1.20x) but relies on non-operating income to support ordinary profit
• Capital efficiency remains weak (ROE -12.1%, ROIC -58.2%), highlighting the need for scale and margin improvement

Metrics to Watch:

• Quarterly revenue growth and backlog/pipeline conversion
• Gross margin trend from 27.0% and mix impacts
• SG&A trajectory and operating leverage (SG&A/revenue ratio)
• Non-operating income composition and recurrence
• OCF and FCF progression; cash runway vs. investment needs

Relative Positioning: Among Japan small-cap AI/deep-tech names, Kudan exhibits strong liquidity and top-line momentum but remains behind peers that have demonstrated clearer operating leverage; its balance sheet provides runway, yet profitability hinges on achieving scale and improving gross margin while normalizing reliance on non-operating income.

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