AppBank Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥875M
• Operating Income: ¥-126M
• Net Income: ¥-453M
• EPS: ¥-28.69

Income Statement

Balance Sheet

Profitability Ratios

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

Verdict: FY2025 Q3 was weak with deep losses driven by thin gross margins, negative operating leverage, and significant extraordinary losses, despite ample liquidity. Revenue was 8.75 (100M JPY) with gross profit of only 0.55, implying a very low gross margin of 6.3%. SG&A of 1.81 exceeded gross profit by 1.26, resulting in operating loss of -1.26 and an operating margin of -14.4%. Ordinary loss was -1.27, but profit before tax deteriorated to -4.52, indicating sizeable extraordinary losses (~-3.25) as the main driver of the net loss of -4.53. EPS was -28.69 JPY and calculated ROE was -65.4%, reflecting the scale of losses against a small equity base. Asset turnover was 0.904 and financial leverage was modest at 1.40x, so the negative ROE is primarily explained by the -51.8% net margin. ROIC was reported at -39.6%, signaling severe capital inefficiency. Liquidity remains strong: cash and deposits are 4.55, current assets 6.75, current liabilities 2.31, and current ratio 292%, with net cash of roughly 3.74 after loans. Balance sheet quality is mixed as goodwill/intangibles total ~2.83, nearly 41% of equity, increasing impairment risk. Working capital is positive at 4.44; short-term loans (0.37) are small relative to cash. Margin comparison in basis points versus prior periods is not available due to absent YoY/QoQ disclosures. Operating cash flow was not reported, so earnings quality (OCF vs NI) cannot be assessed this quarter. The combination of a thin gross margin and SG&A above gross profit suggests the core business is sub-scale and not covering fixed costs. The extraordinary loss magnitude implies one-off items weighed heavily; confirmation of their nature is critical to gauge recurrence risk. Forward-looking, absent a rapid margin recovery and cost reduction, the current run-rate of losses could pressure cash within a few quarters, despite current balance sheet liquidity. Monitoring whether gross margin can lift above SG&A intensity, the trajectory of extraordinary items, and any goodwill impairments will be key to stabilizing profitability.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-51.8%) × 0.904 × 1.40 ≈ -65.4%. The dominant driver of the ROE swing is the net profit margin at -51.8%, overwhelming the modest asset turnover (0.904) and low leverage (1.40x). Business context: a 6.3% gross margin with SG&A at 1.81 (well above gross profit of 0.55) produced an operating margin of -14.4%, while extraordinary losses (~-3.25) pushed net margin deeply negative. Sustainability: the structurally low gross margin and SG&A mismatch appear ongoing unless pricing, mix, or cost structure change; extraordinary losses may be one-time but need disclosure to confirm. Warning signs: SG&A growth vs revenue cannot be assessed due to missing YoY data, but the absolute gap (SG&A > gross profit by 1.26) indicates negative operating leverage and insufficient scale.

Growth Assessment

Top-line of 8.75 lacks YoY/QoQ comparatives, so sustainability cannot be inferred from growth rates. Profit quality is weak: gross margin at 6.3% suggests limited value-add or adverse mix/pricing pressure. Operating losses reflect cost base above gross profit; absent restructuring or margin expansion, profitability is unlikely to inflect. Extraordinary losses (~-3.25) heavily influenced quarterly bottom line; if non-recurring, normalized loss would be closer to ordinary loss (-1.27), but still negative. Outlook hinges on initiatives to raise gross margin, reduce fixed SG&A, and eliminate recurrent special losses; transparency on the extraordinary items is essential. Near term, expect continued pressure on earnings until cost actions and margin improvement are evidenced.

Financial Health

Liquidity is ample: current ratio 292.2% and quick ratio 292.2%, with cash 4.55 exceeding short-term loans 0.37 and covering current liabilities 2.31 comfortably. No warning flags for current ratio (<1.0) or D/E (>2.0): D/E is 0.40x (2.75 liabilities / 6.93 equity), conservative. Net cash position is approximately 3.74 (cash 4.55 minus total loans 0.81), reducing refinancing risk. Maturity mismatch risk appears low: current assets 6.75 vs current liabilities 2.31; cash alone covers current liabilities nearly 2x. Balance sheet quality concerns include high goodwill/intangibles (2.83) relative to equity (6.93), raising impairment sensitivity. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating, investing, and financing cash flows were not reported, so OCF/Net Income and free cash flow cannot be calculated this quarter. Consequently, we cannot validate accrual quality or the cash conversion of losses. Given the sizeable net loss (-4.53) and net cash of ~3.74, if OCF mirrors NI, cash burn would be material and could pressure liquidity within a few quarters; however, this is contingent on working capital and non-cash items (unavailable). No signs of working capital manipulation can be assessed due to absent cash flow and detailed WC movements.

Dividend Sustainability

Dividends were unreported this period. With negative net income (-4.53), accumulated deficits in retained earnings (-18.31), and ROIC at -39.6%, dividend capacity appears very limited. FCF coverage cannot be assessed without OCF and capex data, but given current losses, sustaining any distribution would likely require drawing on cash or external sources, which would be imprudent absent a profit turnaround. Policy outlook is likely conservative until a return to profitability and positive OCF is demonstrated.

Risk Assessment

Business Risks:

• Structural margin weakness: gross margin at 6.3% is insufficient to cover SG&A.
• Negative operating leverage: SG&A (1.81) exceeds gross profit (0.55), embedding operating losses.
• Potential recurrence risk if extraordinary losses are operationally linked rather than one-off.
• Intangible/goodwill concentration (~2.83 vs equity 6.93) elevates impairment risk.

Financial Risks:

• Sustained net losses (-4.53) eroding equity and potentially shortening cash runway.
• Accumulated deficit (retained earnings -18.31) limiting financial flexibility.
• Small scale balance sheet (assets 9.68) increases sensitivity to shocks.
• Potential covenant headroom unknown given lack of disclosure on debt covenants.

Key Concerns:

• Large extraordinary losses (~-3.25) drove bottom-line deterioration this quarter.
• ROE (-65.4%) and ROIC (-39.6%) indicate severe capital inefficiency.
• OCF not disclosed, preventing verification of earnings quality and cash burn rate.
• Customer or revenue concentration risks cannot be assessed due to missing segment data.

Investment Implications

Key Takeaways:

• Core profitability is sub-scale: gross margin 6.3% with SG&A coverage gap of 1.26.
• Extraordinary losses (~-3.25) were the main driver of net loss, but even ordinary loss (-1.27) is significant.
• Balance sheet liquidity is strong (current ratio 292%, net cash ~3.74), mitigating near-term solvency risk.
• High intangibles relative to equity heighten impairment sensitivity and could further reduce equity.
• ROE (-65.4%) and ROIC (-39.6%) are deeply negative; capital efficiency must improve materially.

Metrics to Watch:

• Gross margin trajectory and pricing/mix improvements.
• SG&A to sales ratio and evidence of cost restructuring.
• Nature, size, and recurrence of extraordinary items.
• Operating cash flow and free cash flow once disclosed.
• Goodwill impairment tests and any write-downs.
• Cash balance versus quarterly cash burn rate.

Relative Positioning: Versus small-cap digital/media peers on the TSE, the company appears weaker on profitability (negative operating and net margins), significantly below on ROIC/ROE, but stronger on short-term liquidity with net cash and a high current ratio.

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