TB GROUP INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.24B
• Operating Income: ¥-27M
• Net Income: ¥-140M
• EPS: ¥-10.12

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

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: FY2026 Q2 was weak at the earnings line despite double-digit top-line growth, with a small operating loss, a deeper net loss, and strained coverage metrics. Revenue rose 10.5% YoY to 12.43, while gross profit reached 7.12, implying a solid gross margin of 57.3%. However, SG&A of 7.39 exceeded gross profit, driving an operating loss of -0.27 and operating margin of about -2.2%. Ordinary income was -0.27, and below-the-line items plus tax effects widened the loss to net income of -1.39, translating to a calculated ROE of -26.1%. EBITDA was slightly negative at -0.16, indicating limited operating cash earnings despite positive reported operating cash flow. On margins, the quarter posted a gross margin of 5,730 bps and an operating margin of -217 bps; YoY basis-point change cannot be calculated due to unreported prior-period margin data. Cash flow quality flags are raised by the OCF/NI ratio of -0.95x (below the >1.0 benchmark), reflecting a divergence between accounting loss and positive cash generation. Liquidity appears acceptable with a current ratio of 165% and quick ratio of 112%, supported by cash and deposits of 3.34. Balance sheet scale remains small at total assets of 15.42, with inventories of 3.74 a notable working capital component. Leverage is on the higher side for this scale (D/E 1.89x), and interest coverage is deeply negative (-4.74x), underscoring sensitivity to financing costs. Accumulated deficits persist (retained earnings -11.42), constraining equity buffers despite paid-in capital. ROIC at -4.1% is well below typical cost of capital thresholds, signaling value erosion absent a turnaround. Positive OCF of 1.32 suggests some relief from working capital or non-cash items, and capex discipline (0.08) limits cash burn. Forward-looking, profitability hinges on controlling SG&A relative to gross profit, improving operating leverage, and sustaining cash conversion. With dividends unreported and losses ongoing, capital allocation will likely prioritize liquidity and deleveraging over shareholder distributions. Overall, management needs to improve cost discipline and margin capture to restore break-even and protect balance sheet resilience.

Profitability Analysis

ROE decomposition: ROE (-26.1%) = Net profit margin (-11.2%) × Asset turnover (0.806×) × Financial leverage (2.89×). The largest drag is the net profit margin, as the operating loss and below-the-line items pulled net margin into double-digit negative territory despite a healthy gross margin. Asset turnover (0.806×) is modest for the scale but not the main issue; leverage (2.89×) amplifies the negative margin into a steep ROE. Business drivers: SG&A (7.39) exceeded gross profit (7.12), turning operating profit negative even with gross margin at 57.3%; interest expense (0.06) and tax items further pressured bottom line. Sustainability: The gross margin level looks defensible in the near term, but the cost base must be resized; without SG&A normalization or revenue scale, negative operating leverage will persist. Warning signs: SG&A intensity is high at 59.5% of revenue, exceeding gross profit; EBITDA was negative (-0.16); interest coverage was -4.74x. Focus should be on cost containment and mix improvements to convert top-line growth into operating income.

Growth Assessment

Revenue grew 10.5% YoY to 12.43, indicating demand resilience or improved order flow. However, profit quality did not follow: operating income (-0.27) and net income (-1.39) deteriorated versus the implied prior period (YoY comparisons for profit not disclosed). The gross margin of 57.3% suggests pricing/mix is not the core issue; rather, overhead scale and operating efficiency constrained earnings. With EBITDA slightly negative, operating leverage is unfavorable at current volumes. Outlook hinges on SG&A control and conversion of revenue to operating profit; even modest SG&A reductions or incremental gross profit could swing to break-even. Inventory at 3.74 relative to revenue implies execution risk if sell-through slows; conversely, it supports near-term shipments if demand holds. Near-term catalysts would be cost actions, pricing discipline, and improved billing/collection to sustain OCF. Absent these, ROIC (-4.1%) will likely remain below the 7–8% target range typically sought by Japanese corporates.

Financial Health

Liquidity is adequate: current ratio 165.1% and quick ratio 112.0%, with cash and deposits of 3.34 and accounts receivable of 1.86 covering short-term loans of 2.75. No explicit warning on current ratio (<1.0) is needed. Solvency: D/E is 1.89x (above a conservative 1.5x, though below the 2.0x explicit warning threshold), indicating limited room for additional debt without earnings recovery. Total liabilities are 10.09 against equity of 5.33, with long-term loans of 1.93 providing some tenor balance. Maturity mismatch risk appears contained given current assets (11.63) exceed current liabilities (7.05), but negative interest coverage magnifies refinancing risk if lenders tighten. Off-balance sheet obligations were not reported; none can be assessed from the provided data. Accumulated losses (retained earnings -11.42) weaken capital quality and could constrain covenant headroom or credit appetite.

Cash Flow Quality

OCF was positive at 1.32 despite a net loss of -1.39, yielding an OCF/NI ratio of -0.95x, which flags under the >0.8 benchmark in the alerts framework. The positive OCF likely reflects non-cash charges (depreciation 0.11) and/or working capital inflows (details unreported). Capex was modest at 0.08, implying a proxy FCF (OCF - capex) of roughly 1.24 before other investing flows (full investing CF unreported). This indicates near-term cash self-sufficiency, but sustainability depends on maintaining working capital discipline and restoring operating profit. No signs of aggressive working capital manipulation are evident from available data, but the relatively high inventory (3.74) warrants monitoring for obsolescence or required discounting. Financing CF was -0.43, suggesting some net debt repayment or interest payments; with interest coverage negative, serviceability remains a concern absent earnings improvement.

Dividend Sustainability

Dividend data are unreported for the period, and the company posted a net loss with negative retained earnings (-11.42). Given losses and weak coverage metrics, capacity for distributions is likely constrained. Proxy FCF was positive (~1.24), but with leverage elevated and interest coverage negative, prudent capital allocation would prioritize liquidity and deleveraging over dividends. Without explicit policy disclosure, assume a conservative stance until recurring profitability and positive ROE are re-established.

Risk Assessment

Business Risks:

• Operating leverage risk: SG&A (59.5% of revenue) exceeds gross profit, keeping operating margin negative.
• Execution risk around inventory (3.74) if demand softens, potentially leading to markdowns and margin pressure.
• Small scale (assets 15.42) limits bargaining power and elevates volatility of earnings.
• Customer/segment concentration risk cannot be assessed due to unreported breakdowns but is typical for small-cap manufacturers.

Financial Risks:

• Elevated leverage (D/E 1.89x) with negative interest coverage (-4.74x) increases refinancing and covenant risk.
• Accumulated deficits (retained earnings -11.42) reduce capital flexibility.
• Sensitivity to interest rate levels given reliance on short-term loans (2.75).
• ROIC (-4.1%) below cost of capital indicates potential value erosion if unaddressed.

Key Concerns:

• Sustained net losses (net margin -11.2%) despite healthy gross margin.
• Cash flow-basis health depends on continued working capital inflows; sustainability uncertain.
• Lack of disclosure on SG&A components and profit bridges limits diagnosis of cost drivers.
• No visibility on dividend policy or equity issuance plans to bolster capital.

Investment Implications

Key Takeaways:

• Top-line grew 10.5% YoY to 12.43 but failed to translate into operating profit (operating margin ~ -2.2%).
• Gross margin is robust at 57.3%, but SG&A intensity (59.5% of revenue) must be reduced to achieve break-even.
• ROE is sharply negative (-26.1%) driven by the net margin component; leverage (2.89x financial leverage) amplifies losses.
• OCF was positive (1.32), supporting liquidity, but earnings quality flagged by OCF/NI ratio (-0.95x).
• Liquidity is acceptable (current ratio 165%, quick ratio 112%), but interest coverage is a critical weak point.
• ROIC of -4.1% underscores the need for margin repair and more efficient capital deployment.
• Equity is constrained by accumulated losses; any growth investment likely requires internal turnaround first.

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio each quarter
• Interest coverage trend and total finance costs
• Inventory turnover and write-downs, if any
• OCF sustainability excluding working capital swings
• ROIC versus cost of capital
• D/E ratio and composition of short- versus long-term debt

Relative Positioning: Within small-cap electronics/technology peers, TB Group shows decent gross margin but weaker operating leverage and coverage metrics. Liquidity is adequate, yet leverage and negative ROIC place it below peers on profitability and solvency quality until cost base alignment and stable operating income are demonstrated.

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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