Kidswell Bio Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.28B
• Operating Income: ¥215M
• Net Income: ¥61M
• EPS: ¥1.26

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 with a return to operating profitability, but cash burn is severe and earnings quality is weak due to large negative operating cash flow. Revenue rose 87.2% YoY to 32.76, lifting gross profit to 9.93 and yielding an operating income of 2.15. Operating margin stands at 6.6% (2.15/32.76), while ordinary income was 0.76 (margin 2.3%) after 1.44 of non-operating expenses. Net income reached 0.60 (net margin 1.8%) and EPS (basic) was 1.26 JPY. Gross margin is 30.3%, reflecting improved scale versus cost of sales, although no prior margins were disclosed to quantify YoY basis point changes. Because prior-period margin data are not provided, we cannot compute margin expansion/compression in bps; current benchmarks are GM 30.3%, OPM 6.6%, and NPM 1.8%. Earnings quality is a key concern: operating cash flow was -14.48 versus positive net income of 0.60, implying an OCF/NI ratio of -24.13x, well below the >1.0 benchmark. Accounts receivable of 16.60 (about 51% of half-year sales) and zero reported depreciation suggest an asset-light model but also potential working capital and collection risk. Liquidity appears adequate with a current ratio of 180% and quick ratio of 180%, backed by 15.42 in cash and 16.60 in receivables against 30.39 in current liabilities. Leverage is moderate with D/E of 1.66x and an implied equity ratio of roughly 37.6% (21.86/58.15). Interest burden is manageable (interest coverage ~12.8x), but non-operating costs beyond interest (roughly 1.27) weighed on ordinary income. Retained earnings remain negative (-7.67), limiting near-term dividend capacity and highlighting the need for sustained profitability and cash conversion. Reported ROE of 2.7% is modest, driven mainly by financial leverage (2.66x) given thin net margin. Management’s next steps should focus on converting receivables to cash, maintaining cost discipline, and reducing non-operating expense drag. Forward-looking, sustaining the revenue step-up while improving cash conversion will be critical to avoid additional financing or dilution. Without capex and investing cash flow disclosure, visibility on FCF and capital intensity is limited, reinforcing the importance of working capital management. Overall, the quarter marks operational progress but leaves a significant cash flow execution challenge that must be addressed to solidify the turnaround.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.7% = Net Profit Margin (1.8%) × Asset Turnover (0.563) × Financial Leverage (2.66x). The thin net margin is the primary constraint on ROE, while moderate asset turnover and leverage provide modest uplift. The largest swing factor this period is margin quality: non-operating expenses of 1.44 compressed ordinary income to 0.76, diluting the flow-through from operating profit. Business drivers likely include higher cost of sales tied to revenue mix and elevated non-operating charges (beyond interest of 0.17), possibly affiliate losses or other expenses (not disclosed). Sustainability: operating profitability at 6.6% margin is promising, but persistence depends on sustaining the 87% YoY revenue step-up and controlling non-operating costs; with OCF deeply negative, current profitability quality is not yet durable. Watch for SG&A growth vs revenue in future periods; although SG&A is 7.77 (no prior disclosed), any SG&A growth outpacing revenue would erode operating leverage. Ordinary-to-operating income conversion is weak (0.76 vs 2.15), indicating sensitivity to non-operating line volatility.

Growth Assessment

Top line growth of +87.2% YoY to 32.76 is strong and the key driver behind returning to operating profit. The sustainability of this surge is uncertain due to lack of segment or contract breakdown; high receivables (16.60) relative to sales suggest back-loaded collections or extended terms. Gross margin at 30.3% indicates some scale benefit, but room for improvement remains, especially if mix shifts toward higher-margin revenue (e.g., licensing or services). Operating income of 2.15 demonstrates positive operating leverage at current scale, but ordinary income was constrained by 1.44 in non-operating expenses. Net income of 0.60 is modest and highly sensitive to non-operating line items and taxation (effective tax 30.6%). With depreciation reported as 0.00, the model is asset-light, but cash conversion is problematic (OCF -14.48). Near-term outlook hinges on converting AR to cash, managing non-operating expense, and maintaining demand momentum; absent that, financing pressure could re-emerge.

Financial Health

Liquidity: Current ratio 180% and quick ratio 180% are healthy; working capital is 24.30, supported by cash 15.42 and AR 16.60. No explicit warning flag on current ratio (<1.0) is triggered. Solvency: D/E 1.66x is above the conservative 1.5x benchmark but below the 2.0x warning threshold; implied equity ratio is ~37.6%. Interest-bearing debt detail is partially unreported; disclosed long-term loans are 3.52, and interest expense is 0.17, indicating manageable debt service near term. Maturity mismatch: Current assets 54.69 comfortably cover current liabilities 30.39, reducing short-term refinancing risk if AR are collected on time. Off-balance sheet: Not disclosed; no information on lease or contingent obligations provided. Key watchpoint: sustained negative OCF could erode liquidity despite an adequate balance sheet profile.

Cash Flow Quality

OCF/Net Income is -24.13x, signaling poor earnings quality and a major mismatch between accrual profits and cash generation. Drivers likely include working capital build, particularly receivables (16.60), and possibly timing of payments/collections; detailed working capital movements are not disclosed. With investing CF and capex unreported, Free Cash Flow cannot be calculated; however, large negative OCF implies negative FCF absent offsetting inflows. Financing CF was a small outflow (-0.18), suggesting limited external funding this quarter despite cash burn. Sustainability: Without improved cash conversion, the company may need to increase financing or slow spending. No clear signs of deliberate working capital manipulation are evident from the limited data, but the AR-to-sales ratio (≈51%) warrants close monitoring for collection risk and revenue recognition timing.

Dividend Sustainability

No dividends are reported; payout ratio and FCF coverage are not calculable. With retained earnings at -7.67 (accumulated deficit) and OCF deeply negative (-14.48), discretionary cash returns are not supported. Policy outlook: Priority should remain on funding operations and improving cash conversion; dividends appear unlikely until sustained positive FCF and reversal of accumulated deficit.

Risk Assessment

Business Risks:

• Revenue concentration and volatility risk typical of biotech/healthcare business models (licensing, milestone timing not disclosed).
• Execution risk in scaling operations while maintaining gross and operating margins.
• Product/pipeline and regulatory approval risks inherent to sector (details not disclosed).
• Dependence on counterparties for payments, reflected in high accounts receivable versus sales.

Financial Risks:

• Severe cash burn: OCF -14.48 vs NI 0.60, risking future liquidity strain.
• Leverage at D/E 1.66x heightens sensitivity to earnings volatility, though interest coverage is currently adequate.
• Potential dilution risk if external financing is required to bridge cash flow gaps.
• Non-operating expenses (1.44) materially erode ordinary income; sources unreported and could be volatile.

Key Concerns:

• OCF/NI ratio of -24.13x indicates low-quality earnings and poor cash conversion.
• High AR relative to sales (~51%) raises collection and working capital risk.
• Negative retained earnings (-7.67) constrain capital allocation flexibility (e.g., dividends).
• Limited disclosure on investing CF, capex, and R&D expenses restricts visibility on capital intensity and future growth drivers.

Investment Implications

Key Takeaways:

• Strong revenue inflection (+87.2% YoY) returned the company to operating profit (OP 2.15, OPM 6.6%).
• Earnings quality is weak with OCF -14.48 despite positive NI, necessitating improved cash conversion.
• Non-operating expenses (1.44) are a significant drag from OP to ordinary income (0.76).
• Liquidity is adequate (current ratio 180%), but sustained cash burn could pressure balances.
• Leverage (D/E 1.66x) is manageable now with interest coverage ~12.8x, but leaves less cushion if profits soften.
• ROE 2.7% is modest and reliant on leverage given thin net margins.

Metrics to Watch:

• Accounts receivable days and cash conversion cycle.
• Operating cash flow trajectory and any shift to positive FCF.
• Non-operating expense composition (breakdown beyond interest).
• Gross and operating margins by revenue mix.
• Leverage metrics (D/E, interest coverage) and any incremental financing.
• Order/backlog or contract milestones (if disclosed) to gauge revenue sustainability.

Relative Positioning: Within small-cap Japanese biotech/healthcare peers, the company shows better near-term operating profitability due to strong revenue growth but weaker cash flow quality and higher working capital intensity; sustainability hinges on converting receivables and stabilizing non-operating items.

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