PhoenixBio Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥756M
• Operating Income: ¥5M
• Net Income: ¥12M
• EPS: ¥3.03

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: A weak but positive-turn quarter with razor-thin operating profitability, heavy reliance on non-operating income, and poor cash conversion. Revenue was 7.56 (100M JPY), down 4.0% YoY, indicating a soft demand backdrop or timing of project deliveries. Gross profit of 5.75 translates to a high gross margin of 76.0%, underscoring strong unit economics of services/products offered. SG&A of 5.69 nearly consumed the gross profit, leaving operating income at just 0.05 and an operating margin of 0.7%. Ordinary income reached 0.16, cushioned by 0.13 in non-operating income (including 0.05 interest income), highlighting dependence on financial income to achieve profitability. Net income was 0.12, implying a slim net margin of 1.6%. Compared to the prior year, revenue declined by 4.0% but margin comparisons in basis points are not available due to unreported prior-period margin data. Versus the revenue base, non-operating income is outsized (non-operating income ratio 109.1% vs operating income), suggesting the core business remains subscale for current fixed-cost levels. Cash flow quality is poor: operating cash flow was -1.77 vs net income of 0.12 (OCF/NI -14.78x), indicating earnings not backed by cash, likely due to working capital outflows and/or milestone timing. Liquidity is ample near term with cash and deposits of 9.12 against current liabilities of 4.20, driving a current ratio of 3.71x. Leverage is moderate by D/E (0.52x) but high on a cash-flow basis (Debt/EBITDA 13.8x) due to small EBITDA. ROIC is 0.5%, well below a reasonable cost of capital, pointing to weak capital efficiency. Retained earnings remain negative (-20.21), evidencing accumulated losses and constraining dividend capacity. Effective tax rate (24.8%) is consistent with normalized levels despite low profitability. Forward-looking, the company must translate high gross margins into operating leverage through cost discipline and revenue growth; stabilizing orders and improving cash conversion are key to de-risk the model.

Profitability Analysis

ROE (0.9%) = Net Profit Margin (1.6%) × Asset Turnover (0.360) × Financial Leverage (1.52x). The most constrained component is net margin at 1.6%, given high gross margin but SG&A absorption that leaves operating margin at 0.7%. Asset turnover at 0.360 is low for a services-heavy model and reflects a relatively large asset base (cash and fixed assets) versus current revenue scale. Financial leverage is modest at 1.52x (Assets/Equity), providing limited ROE amplification. Business drivers: (1) SG&A nearly equals gross profit, indicating limited operating leverage at current scale; (2) Ordinary income depends on non-operating income (interest), masking weak core operations. Sustainability: current ROE relies on non-operating income and is not robust; without scaling revenue or structurally reducing SG&A, ROE is likely to remain subpar. Concerning trends include: revenue decline (-4.0% YoY) and SG&A at 75% of revenue (5.69/7.56), implying fixed-cost intensity; interest coverage of 2.09x is thin and vulnerable to profit dips.

Growth Assessment

Top line contracted 4.0% YoY to 7.56, suggesting softer client demand or timing variability (typical in preclinical/biotech services). Gross margin remains strong at 76.0%, so the issue is scale/SG&A, not unit economics. Operating income is marginal at 0.05 as SG&A consumed 99% of gross profit, limiting operating leverage. Ordinary income of 0.16 benefited from 0.13 non-operating income, including 0.05 interest; this is not a recurring operating engine. EBITDA of 0.20 (2.7% margin) is very thin for reinvestment and debt service. ROIC at 0.5% signals that current projects/investments are not yielding economic returns; scaling revenue or repricing is necessary for sustainable growth. Outlook hinges on order intake and utilization; absent acceleration, earnings will remain dependent on non-operating income and vulnerable to small revenue shocks.

Financial Health

Liquidity: Current ratio 370.8% and quick ratio 370.8% indicate strong near-term liquidity; cash 9.12 plus receivables 2.18 exceed current liabilities 4.20 by a wide margin. No warning triggers on liquidity (Current Ratio well >1.0). Solvency: D/E is 0.52x (moderate), total liabilities 7.20 vs equity 13.81. Interest-bearing debt identified: short-term loans 1.00 and long-term loans 1.80; maturity profile is fairly balanced with noncurrent liabilities 3.00. Interest coverage is 2.09x—above the strict warning threshold of 2x but below comfortable levels (>5x), indicating sensitivity to earnings fluctuations. Maturity mismatch risk appears low given cash holdings exceed short-term borrowings and total current liabilities. No off-balance sheet obligations are reported in the data provided.

Cash Flow Quality

OCF is -1.77 vs net income 0.12, yielding OCF/NI of -14.78x—this flags materially weak cash earnings quality. With capex of 0.09, implied FCF is approximately -1.86 (using OCF - capex), suggesting internal cash generation is insufficient for debt reduction or dividends. The large divergence likely stems from working capital outflows (e.g., receivables build or timing of customer advances) and recognition of non-cash earnings components. There are no explicit signs of manipulation, but reliance on non-operating income (interest) to support earnings while OCF is negative raises caution. Sustained negative OCF would pressure the cash balance and constrain investment capacity.

Dividend Sustainability

Dividend data is unreported. Retained earnings are negative (-20.21), implying prior accumulated losses and limited distributable reserves under JGAAP corporate law constraints. Given negative implied FCF and thin EBITDA, organic coverage of dividends would be weak if any were declared. Policy outlook: absent a clear return to positive, consistent OCF and a rebuild of retained earnings, sustained dividends appear unlikely; priorities should remain on funding operations and selective capex.

Risk Assessment

Business Risks:

• Revenue volatility from project timing and client budgets (biotech/pharma preclinical demand cycles)
• Operating leverage risk: SG&A near equal to gross profit leads to profit sensitivity to small revenue changes
• Customer concentration risk (common in niche preclinical services), though not disclosed here
• Execution risk in scaling utilization and maintaining high gross margins

Financial Risks:

• Weak cash conversion (OCF/NI -14.78x) creating funding pressure if sustained
• Thin interest coverage (2.09x) vulnerable to minor operating setbacks
• High Debt/EBITDA (13.8x) due to small EBITDA, limiting debt capacity
• ROIC at 0.5% well below cost of capital, risking value dilution if not improved

Key Concerns:

• Dependence on non-operating income (0.13) to achieve ordinary profit, masking core weakness
• Negative retained earnings (-20.21) constraining shareholder returns
• Potential FX exposure if customer base is international (not disclosed), affecting revenue and margins
• Data limitations on segment mix, backlog, and working capital details impede deeper diagnostics

Investment Implications

Key Takeaways:

• Core profitability is minimal (operating margin ~0.7%) despite strong gross margin (76%)
• Ordinary profit depends significantly on non-operating income, including interest
• OCF is materially negative, implying weak earnings quality and likely negative FCF
• Liquidity is ample near term (cash 9.12 vs current liabilities 4.20), mitigating immediate risk
• Capital efficiency is poor (ROIC 0.5%, ROE 0.9%), signaling limited value creation at current scale

Metrics to Watch:

• Order intake/backlog and revenue run-rate recovery from -4.0% YoY
• SG&A trajectory vs revenue growth to unlock operating leverage
• OCF normalization and working capital movements (receivables/advances)
• EBITDA margin progression and interest coverage (>5x target)
• ROIC improvement toward 5–8% range

Relative Positioning: Within small-cap biotech/preclinical service peers, the company exhibits strong gross margins but weaker operating leverage and cash conversion, leaving it more reliant on non-operating income and with poorer capital efficiency than typical profitable 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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