PhoenixBio Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥756M
• Operating Income: ¥5M
• Net Income: ¥-125M
• 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

PhoenixBio (TSE: 61900) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥756 million, down 4.0% YoY, indicating a modest topline contraction against a likely soft demand backdrop. Gross profit was ¥548 million, implying a very high gross margin of 72.5%, which underscores strong unit economics and pricing but also highlights the fixed-cost sensitivity downstream. Operating income was ¥5 million, essentially flat YoY, translating to an operating margin of 0.7% and suggesting limited operating leverage in the first half. Ordinary income improved to ¥16 million, supported by non-operating items, while net income was ¥12 million, yielding EPS of ¥3.03. DuPont analysis shows ROE at 0.87%, driven by a slim net margin of 1.59%, modest asset turnover of 0.360x, and financial leverage of 1.52x; profitability rather than leverage is the primary constraint on returns. Liquidity appears strong with a current ratio of 303% and working capital of ¥1,151 million, providing an ample short-term buffer. The reported debt-to-equity ratio of 0.67x indicates a moderate leverage profile, but interest coverage at 1.9x is thin and warrants attention if rates rise or earnings soften. Operating cash flow was negative at ¥95 million versus positive net income, producing an OCF/NI ratio of -7.93 and signaling weak cash conversion for the half. Investing cash flow and cash balances were not disclosed in the XBRL (zeros indicate not reported), limiting full cash flow and liquidity assessment; consequently, free cash flow cannot be reliably derived from the provided figures. Despite the resilient gross margin, the EBITDA margin of 2.3% points to heavy operating expense absorption and limited scale efficiencies. The effective tax rate appears minimal in the period, likely reflecting small taxable income or timing differences. No dividends are indicated in the data provided, and payout metrics cannot be validated without full cash flow disclosure. Balance sheet strength partly offsets earnings volatility, but the combination of negative OCF and low operating margins increases execution risk. Business visibility in the second half, order trends, and capacity utilization will be critical to margin recovery and cash normalization. Overall, the profile is one of high gross margin potential constrained by scale and cost structure, with adequate liquidity but modest return on equity and weak first-half cash conversion. Data limitations—particularly unreported cash, investing flows, inventories, and equity ratio—temper confidence and necessitate cautious interpretation of solvency and dividend capacity.

Profitability Analysis

ROE (0.87%) decomposes into net margin 1.59% × asset turnover 0.360x × financial leverage 1.52x. The principal drag is the low net margin, reflecting thin operating profitability (operating margin ~0.7%) despite a strong gross margin of 72.5%. Gross margin strength suggests favorable mix/pricing for specialized products/services, but SG&A and R&D intensity likely absorb most of the contribution, as evidenced by the small EBITDA of ¥17.0 million (2.3% margin). Operating leverage appears limited in H1: a 4% revenue decline resulted in operating income holding flat at a low absolute level, implying cost containment but little scale benefit. Interest expense of ¥2.6 million versus ordinary income of ¥16 million yields some cushion, but interest coverage of 1.9x is thin for cyclical or project-driven revenue. The gap between gross margin and EBITDA margin indicates that fixed costs and/or elevated discretionary spending are constraining earnings conversion. Profit quality is mixed: ordinary income exceeding operating income hints at non-operating support (e.g., grants, FX, or other income), which may be less durable than core operations.

Growth Assessment

Revenue declined 4.0% YoY to ¥756 million in H1, pointing to a softer demand environment or project timing effects in the period. With operating income flat at ¥5 million, incremental margins were near zero, suggesting limited operating leverage at current scale. The high gross margin provides headroom for profit recovery if volume returns and fixed costs are leveraged in H2. Ordinary and net income benefited from non-operating items; reliance on these is not a sustainable growth driver. Absent backlog/order data, visibility into H2 rebound is limited; historically, research tools/CRO-like businesses can experience order lumpiness tied to customer budget cycles. The reported asset turnover of 0.360x for the first half implies moderate capital intensity; scaling revenue could materially improve returns if costs are disciplined. Near-term growth depends on booking momentum, capacity utilization, and product mix; any delays in customer programs could prolong margin pressure. Given the negative OCF, growth quality is currently weak; conversion of earnings to cash will be a key validator of underlying demand.

Financial Health

Liquidity appears robust: current assets of ¥1,717 million against current liabilities of ¥567 million produce a current ratio of 303% and sizable working capital of ¥1,151 million. The quick ratio equals the current ratio in the dataset due to unreported inventories, which limits a granular liquidity read but suggests near-term obligations are well covered. Total liabilities of ¥920 million against equity of ¥1,381 million give a debt-to-equity ratio of 0.67x, indicating moderate leverage consistent with the DuPont leverage factor (1.52x). Interest coverage at 1.9x is a weak point; while serviceable, it leaves limited buffer if operating income deteriorates. The equity ratio was not disclosed (shown as 0.0% due to reporting), preventing a precise solvency ratio cross-check. Cash and equivalents were not reported, constraining an assessment of immediate liquidity headroom beyond working capital. Overall, the balance sheet looks adequate, but reliance on working capital rather than operating profitability to support obligations elevates risk if collections slip or payables timing shifts.

Cash Flow Quality

Operating cash flow was -¥95.2 million despite positive net income of ¥12.0 million, yielding OCF/NI of -7.93, a weak conversion that suggests working capital outflows and/or non-cash income effects in H1. Depreciation of ¥12.0 million indicates modest non-cash add-backs, but these were insufficient to offset working capital movements. Investing cash flow and cash balances were not disclosed, so free cash flow cannot be reliably determined; the reported FCF of 0 in the dataset should be treated as not available. Financing cash flow was -¥60.3 million, implying net repayments or distributions during a period of negative OCF, which could tighten liquidity if sustained. Without detailed receivables/payables/inventory data, the drivers of OCF shortfall cannot be decomposed, but the combination of high gross margin and weak OCF points to timing and collection dynamics rather than unit economics. Sustained negative OCF would pressure the balance sheet and potentially increase financing needs; normalization in H2 is important given typical seasonality and project timing in research-related businesses.

Dividend Sustainability

No dividend per share is indicated in the provided data, and the payout ratio is shown as 0.0%; however, zeros may reflect non-disclosure rather than policy, so dividend status is uncertain. Given low profitability (net margin 1.59%, ROE 0.87%) and negative operating cash flow in H1, distributable capacity appears limited near term. With investing cash flows unreported, free cash flow coverage of dividends cannot be assessed; any potential dividends would likely rely on existing cash and working capital, details of which are not disclosed. For sustainability, the company would need consistent positive OCF and higher operating margins. Policy outlook remains unclear without management guidance; firms in specialized preclinical tools/CRO niches often prioritize reinvestment over cash returns at modest scale.

Risk Assessment

Business Risks:

• Demand cyclicality and project timing tied to customers’ research budgets
• Product and customer concentration risk typical of specialized preclinical tools/services
• Utilization risk of specialized facilities and colonies; fixed-cost absorption can swing margins
• Regulatory and ethical frameworks affecting animal-based research demand
• FX exposure if sales/costs are partly USD-linked (pricing and input costs)
• Supply chain constraints for specialized biological materials and consumables
• Talent retention and key-person risk in a niche scientific domain

Financial Risks:

• Negative operating cash flow despite positive net income (H1) indicating weak cash conversion
• Thin interest coverage at 1.9x leaves limited buffer against earnings volatility
• Potential refinancing/renewal risk if debt matures amid soft operating metrics
• Working capital sensitivity (receivables and project milestones) without disclosed cash levels
• Dependence on non-operating income to support ordinary income in a low-margin period

Key Concerns:

• Sustained low operating margin (~0.7%) despite strong gross margin, indicating cost structure constraints
• OCF/NI of -7.93 in H1; need for H2 normalization to avoid liquidity creep
• Data gaps (cash, investing CF, inventories, equity ratio) limit visibility on solvency and FCF
• Revenue decline (-4% YoY) alongside flat operating income suggests limited operating leverage

Investment Implications

Key Takeaways:

• Topline softened 4% YoY; gross margin remains strong at 72.5%
• Operating profitability is minimal (OPM ~0.7%; EBITDA margin 2.3%) with limited leverage at current scale
• ROE is low at 0.87%, constrained by net margins rather than leverage
• OCF was -¥95 million; cash conversion is the primary near-term issue
• Liquidity looks adequate via working capital (current ratio 303%), but cash balance is undisclosed
• Interest coverage of 1.9x is a weak point if rates rise or earnings dip
• Non-operating support elevated ordinary income above operating income; sustainability uncertain

Metrics to Watch:

• Order intake/backlog and H2 revenue cadence
• Operating margin and SG&A ratio trajectory
• Operating cash flow, receivables days, and milestone billing collections
• Interest coverage and net debt to equity
• Capacity utilization and gross margin mix
• Capex plans (once investing cash flows are disclosed) and maintenance vs. growth split
• FX (USD/JPY) sensitivity on revenue and costs

Relative Positioning: Versus domestic preclinical CRO/tools peers, PhoenixBio shows strong gross margins but materially lower operating and EBITDA margins and weaker cash conversion in the period; balance sheet liquidity is acceptable, yet earnings quality and interest coverage lag best-in-class 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
• 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