Kudan (4425) FY2026 Q3 Earnings Report

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Executive Summary

Although revenue expanded significantly by 187.2% year on year, the Company continues to report a substantial operating loss and remains far from profitability. Revenue was ¥7.2B (¥2.5B in the same period of the previous year, +¥4.7B), while operating income was ¥-5.2B (¥-6.9B in the same period of the previous year, an improvement of +¥1.7B). Ordinary income was ¥-1.4B (¥-4.8B in the same period of the previous year), and net income was ¥-2.3B (¥-5.2B in the same period of the previous year), with the loss narrowing in both cases. The improvement in ordinary income was heavily dependent on foreign exchange gains of ¥3.3B, and the underlying earnings power of the operating business must be assessed based on the ¥5.2B operating loss.

Factors Affecting Performance

【Revenue】Revenue was ¥7.2B, an increase of +187.2% year on year. The primary factor was the expansion of projects and progress in revenue recognition within the single AP Business segment. Meanwhile, cost of sales increased to ¥4.8B, rising at a faster pace than revenue, and the gross margin declined significantly from 63.1% in the same period of the previous year to 32.9%.

【Profit and Loss】Selling, general and administrative expenses were ¥7.6B, down 10.2% year on year, and the control of fixed costs contributed to the reduction in the operating loss. The operating loss was ¥-5.2B (¥-6.9B in the same period of the previous year), while the operating margin improved to -72.7% (-274.8% in the same period of the previous year). The ordinary loss was ¥-1.4B, with non-operating income of ¥3.9B (including foreign exchange gains of ¥3.3B and subsidies of ¥0.6B) substantially offsetting the operating loss. Net income was ¥-2.3B; corporate income taxes and other taxes of ¥0.9B were incurred against a loss before tax of ¥-1.4B, resulting in a larger loss than at the loss-before-tax stage. This is not a case of higher revenue but lower profit; rather, it represents a stage of narrowing losses amid revenue growth. In conclusion, the Company is in a phase of revenue growth accompanied by reduced losses.

Segment Analysis

The Group’s principal business is the AP Business, and because the importance of other segments is limited, segment information has been omitted. Revenue is highly concentrated in the single AP Business, creating a structure in which customer adoption trends in that business determine overall performance.

Key Financial Indicators

【Profitability】The operating margin was -72.7% (-274.8% in the same period of the previous year), and the net profit margin was -31.8% (-207.9% in the same period of the previous year); both improved substantially but remained negative. The gross margin was 32.9%, down from 63.1% in the same period of the previous year, confirming a deterioration in profitability accompanying revenue growth.【Cash Flow Quality】Days sales outstanding were 77 days on an annualized basis, while inventories increased 74.8% year on year to ¥0.7B, suggesting the possibility of inventory accumulation accompanying sales expansion.【Investment Efficiency】ROE was -11.8%, and annualized ROIC was -103.5%, indicating low earnings generation capacity relative to invested capital. Interest coverage was substantially negative due to the operating loss.【Financial Soundness】The equity ratio was 87.1%, and the current ratio was 634.4%, indicating a conservative and substantial capital structure and short-term liquidity position. Cash and deposits of ¥21.2B substantially exceeded short-term borrowings of ¥2.0B.

Cash Flow Analysis

Because cash flow statement figures have not been disclosed, fund movements are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥4.8B year on year to ¥21.2B, while net assets also decreased by ¥5.4B to ¥25.9B. In addition to the continuing operating loss, comprehensive loss of ¥5.5B, mainly attributable to foreign currency translation adjustments of ¥-3.1B, is placing pressure on capital. Accounts receivable were ¥2.0B, and inventories were ¥0.7B; both increased from the same period of the previous year, suggesting that the accumulation of working capital may be affecting capital efficiency. Cash and deposits substantially exceeded current liabilities of ¥3.8B, indicating strong short-term liquidity; however, if the operating deficit continues, monitoring the pace of cash consumption will be important.

Quality of Earnings

The improvement in profit and loss for the current period reflects a structure in which the operating loss narrowed while dependence on non-operating income remained. Of non-operating income of ¥3.9B, foreign exchange gains accounted for ¥3.3B (84.3% of non-operating income), including subsidy income of ¥0.6B. These factors are not necessarily highly recurring, and when evaluating the reduction in the ordinary loss of ¥-1.4B, they must be distinguished from the underlying earnings power represented by the operating loss of ¥-5.2B. Extraordinary gains and losses consisted only of an impairment loss of ¥0.01B and were immaterial. Net income reflected a larger loss than the loss before tax because corporate income taxes and other taxes of ¥0.9B were incurred against a loss before tax of ¥-1.4B, and the tax burden in a loss-making period is limiting the tangible improvement in profitability.

Shareholder Returns

Both the Q2 dividend and the full-year dividend forecast are ¥0 per share, and there has been no revision to the dividend forecast for the current quarter. The Company has recorded a cumulative net loss of ¥2.3B and an operating loss of ¥5.2B, making the retention of internal funds through a zero-dividend policy consistent with the current profit-and-loss situation. Future capacity for shareholder returns will depend on the reduction of the operating loss and trends in maintaining the cash balance.

Risk Factors

1. Earnings Structure Risk: The gross margin declined significantly from 63.1% in the same period of the previous year to 32.9%, and revenue growth has not translated into profit growth. Changes in the project mix and cost burden are background factors; if revenue growth continues without directly improving profitability, the pace of operating loss reduction may slow.

2. Foreign Exchange Dependency Risk: The primary factor behind the reduction in the ordinary loss was foreign exchange gains of ¥3.3B, which accounted for 84.3% of non-operating income. If foreign exchange trends reverse, ordinary income could deteriorate, making it necessary to evaluate operating income and ordinary income separately.

3. Revenue Concentration Risk: The AP Business is the sole principal business, and revenue is susceptible to the development projects and production launch timing of customers. If the 187.2% year-on-year growth does not continue, SG&A expenses may not be adequately absorbed, creating a risk that the operating loss will widen again.

Industry Benchmark (Reference—Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability was substantially below the industry median, with both operating and net profit margins in negative territory and ranking toward the bottom of the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeded the industry median, demonstrating outstanding growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Revenue increased 187.2% year on year, while the operating loss narrowed by ¥1.7B, indicating that project expansion in the AP Business and SG&A expense control progressed simultaneously. However, the gross margin declined by 3,020bp, requiring further verification of profitability by project to assess the quality of the revenue growth.

2. The reduction in the ordinary loss was highly dependent on foreign exchange gains of ¥3.3B, creating a structural divergence between operating income (¥-5.2B) and ordinary income (¥-1.4B). The degree of improvement in underlying earnings power should appropriately be assessed based on the trend in operating income excluding foreign exchange factors.

3. The financial foundation—an equity ratio of 87.1%, a current ratio of 634.4%, and cash and deposits of ¥21.2B—supports resilience during a period of operating losses. However, net assets decreased by ¥5.4B year on year, and the fact that comprehensive loss (the deterioration in foreign currency translation adjustments) is placing pressure on capital should be noted as a structural change.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific securities. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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