kubell Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.95B
• Operating Income: ¥274M
• Net Income: ¥135M
• EPS: ¥1.08

Income Statement

Balance Sheet

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: FY2025 Q3 was operationally solid with improving core profitability, but bottom-line was heavily hit by non-recurring losses that crushed net income. Revenue grew 12.4% YoY to 69.48, evidencing continued topline momentum. Gross profit reached 42.63 with a robust gross margin of 61.4%, indicating sticky unit economics. Operating income rose 48.6% YoY to 2.74, outpacing revenue and signaling positive operating leverage. Ordinary income also increased 48.4% YoY to 2.51, but was curtailed by higher non-operating expenses than income. Profit before tax fell to 1.70, implying significant extraordinary losses of roughly 0.81 versus ordinary income. Net income plunged 66.6% YoY to 0.45, compressing the net margin to 0.7%. Operating margin improved to 3.9% this quarter from about 3.0% a year ago, a roughly 96 bps expansion. Conversely, net margin contracted by about 153 bps YoY (from ~2.2% to 0.7%) due to one-off or non-core items. Earnings quality assessment is constrained by missing cash flow data; OCF/NI cannot be assessed, a key limitation. Liquidity is adequate with a current ratio of 124.6%, supported by cash and deposits of 30.57, but below the 150% comfort benchmark. Leverage is elevated: D/E at 2.49x and financial leverage at 3.49x amplify both upside and downside. Retained earnings remain negative (-41.87), limiting balance sheet flexibility despite positive quarterly profits. Effective tax rate around 20–21% appears normal, so the net income shortfall is unlikely tax-driven. Forward-looking, if extraordinary losses abate, the improved operating margin trajectory should lift earnings; however, high leverage and negative retained earnings constrain risk tolerance and investment capacity.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.5% = Net Profit Margin 0.7% × Asset Turnover 1.126 × Financial Leverage 3.49x. The largest change factor vs last year is Net Profit Margin, which compressed sharply due to extraordinary losses despite higher operating profit. Business reason: while core operations benefited from scale (SG&A growth likely controlled vs revenue), non-operating/extraordinary items (implied ~0.81 loss between ordinary income and PBT) dragged net profit materially. Sustainability: Operating margin expansion (to 3.9%) looks more repeatable given revenue growth and cost discipline; the extraordinary loss impact is likely one-time, but recurrence risk cannot be ruled out without disclosure. Asset turnover at 1.126 is steady for a software/service model with modest receivables (AR 3.38) and high intangibles (11.09). Financial leverage at 3.49x is structurally high given small equity (17.69) relative to liabilities (44.00), magnifying ROE sensitivity to margin volatility. Watch for SG&A growth exceeding revenue; while SG&A totals are disclosed (40.79), the breakdown is not, limiting visibility on fixed vs variable cost dynamics and potential operating leverage durability.

Growth Assessment

Revenue growth of 12.4% YoY (to 69.48) appears organically driven with no disclosed M&A effects; AR of 3.38 suggests collection cycles are manageable. Operating income growth of 48.6% YoY (to 2.74) indicates healthy operating leverage from a 61.4% gross margin base. Net income, however, fell 66.6% YoY (to 0.45), implying one-off headwinds overshadowed operational gains. Sustainability hinges on maintaining gross margin and scaling SG&A slower than revenue; missing SG&A details limit line-of-sight. The ordinary margin (3.6%) supports a path to earnings normalization if extraordinary losses subside. Outlook: with adequate cash (30.57) and improving core profitability, near-term growth is plausible, but high leverage and negative retained earnings could cap strategic investments. Monitor churn/upsell, contract wins, and any announced impairment or litigation, as these could explain the extraordinary loss gap.

Financial Health

Liquidity: Current ratio 124.6% (above 1.0 but below the 1.5x comfort benchmark); quick ratio matches at 124.6% given low inventories disclosure. No explicit warning for current ratio since it is >1.0, but cushion is modest. Cash and AR (33.95) nearly cover current liabilities (34.91), implying tight but manageable near-term liquidity. Solvency: D/E is high at 2.49x (warning), with total liabilities of 44.00 against equity of 17.69. Long-term loans total 6.23; other liability components not detailed, but leverage is the primary balance sheet risk. Equity quality: Retained earnings are negative (-41.87), reflecting accumulated losses; book value per share is low at 42.22 JPY. Maturity mismatch: Short-term debt is unreported; however, cash (30.57) plus AR (3.38) nearly offset current liabilities, suggesting limited refinancing pressure provided payables and accruals are manageable. Off-balance sheet: No disclosures provided; potential lease/commitment exposure unknown.

Cash Flow Quality

OCF is unreported, so OCF/Net Income and FCF cannot be assessed; this is a key limitation. Earnings quality proxy: interest coverage is strong at ~21x (2.74/0.13), consistent with cash generative operations, but without OCF we cannot validate conversion. Working capital: AR is modest relative to revenue, and no inventory is disclosed, reducing typical WC risk; however, we cannot rule out changes in accrued liabilities or contract liabilities. FCF sustainability for dividends/capex is indeterminable due to missing capex and dividend data. Watch for signs of earnings smoothing via extraordinary items—ordinary to PBT gap (≈0.81) should be clarified next quarter.

Dividend Sustainability

Dividend data is unreported, so payout ratio and FCF coverage are not calculable. Given negative retained earnings (-41.87) and elevated leverage (D/E 2.49x), capacity for sustained cash dividends may be structurally constrained even if operations improve. Policy outlook cannot be inferred from the provided data; if dividends are contemplated, prudent coverage would require visible positive OCF and stable FCF after capex.

Risk Assessment

Business Risks:

• Extraordinary losses (implied ≈0.81 between ordinary income and PBT) suggest impairment or one-off charges that could recur.
• Execution risk in scaling SG&A relative to revenue to preserve operating leverage.
• Dependence on high gross margin (61.4%); any pricing pressure would quickly compress operating margin (3.9%).
• Intangible-heavy balance sheet (intangible assets 11.09, goodwill 0.92) increases impairment risk.

Financial Risks:

• High leverage: D/E 2.49x and financial leverage 3.49x magnify earnings volatility and downside.
• Thin liquidity buffer: Current ratio 1.246x; cash+AR nearly equals current liabilities, leaving limited shock absorption.
• Negative retained earnings (-41.87) constrain capital flexibility and could limit access to capital on favorable terms.
• Potential maturity mismatch if short-term borrowings exist (unreported) versus cash and receivables.

Key Concerns:

• Net income down 66.6% YoY despite stronger operations due to non-core losses.
• Unreported cash flow data prevents validation of earnings quality and dividend capacity.
• ROIC indicated at -32.8% (data provided), far below 5% warning threshold, signaling poor capital efficiency if accurate.

Investment Implications

Key Takeaways:

• Core operations strengthened: operating margin expanded ~96 bps YoY to 3.9% on 12.4% revenue growth.
• Bottom-line weakness driven by extraordinary losses; net margin compressed by ~153 bps to 0.7%.
• Balance sheet risk is elevated with D/E at 2.49x and negative retained earnings.
• Liquidity is adequate but tight: current ratio 1.25x and cash+AR ≈ current liabilities.
• Earnings quality and dividend capacity remain unclear due to missing cash flow disclosures.

Metrics to Watch:

• Disclosure and nature of extraordinary losses (ordinary income to PBT gap ≈0.81).
• Operating cash flow and FCF trends; OCF/NI target >1.0.
• SG&A growth vs revenue and operating margin trajectory.
• Debt maturity profile and interest costs; maintain interest coverage >5x.
• Retention and growth of intangible assets; any impairments or write-downs.

Relative Positioning: Within Japan small/mid-cap software/service peers, kubell shows solid gross margin and improving operating leverage but is weaker on capital structure (high D/E, negative retained earnings). If extraordinary losses normalize, profitability can recover toward peer levels; until then, financial resilience lags more conservatively capitalized peers.

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
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