Terminalcare Support Institute Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.51B
• Operating Income: ¥-26M
• Net Income: ¥78M
• EPS: ¥16.01

Income Statement

Balance Sheet

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: Weak quarter with thin profitability and elevated leverage; headline profit remained positive due to below-the-line items rather than core operations. Revenue grew 0.9% YoY to 35.09, but gross profit was only 4.64, implying a low gross margin of 13.2%. SG&A was 3.82 (10.9% of sales), resulting in an operating loss of -0.26 and an operating margin of -0.7%. Despite the operating loss, ordinary income printed 0.51, supported by non-operating income of 0.65 and limited non-operating expenses of 0.22. Profit before tax was 1.25, implying material extraordinary or special items of roughly 0.74 above ordinary income. Net income fell 68.8% YoY to 0.24, translating to a net margin of 0.7% and EPS of 16.01 yen. Ordinary income margin contracted sharply to about 1.5% from an estimated ~3.6% last year (≈210 bps compression), while net margin compressed to ~0.7% from ~2.2% (≈150 bps). Operating leverage worked against the company as modest revenue growth was more than offset by cost pressure at gross/SG&A lines, pushing operating margin into negative territory. ROE was a modest 1.8%, derived from very low net margin (0.7%), middling asset turnover (0.621x), and high financial leverage (4.17x). ROIC was -0.4%, signaling poor capital efficiency relative to typical 7–8% targets. Liquidity was tight with a current ratio of 99.7% and quick ratio of 99.7%, and leverage was high with D/E at 3.17x and interest coverage at -1.21x. Earnings quality appears fragile as positive bottom-line results depended on non-operating/extraordinary items while operating profit was negative; operating cash flow was unreported, preventing validation of cash conversion. With PBT exceeding ordinary income, one-off gains likely contributed, which may not recur. Forward-looking, sustaining profitability will require improving core margins and deleveraging to reduce interest burden, while any normalization of one-off gains would pressure net income. The balance sheet can meet near-term needs given cash and receivables roughly cover short-term loans, but refinancing and rate risks are elevated. Overall, the quarter signals a need for operational turnaround and tighter cost control to restore recurring profitability and improve capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.8% = Net Profit Margin 0.7% × Asset Turnover 0.621 × Financial Leverage 4.17x. The weakest link is the net margin at 0.7%, which, combined with negative operating income, indicates profits were sustained by non-operating and/or extraordinary items rather than core operations. Asset turnover at 0.621x is reasonable for a small service-oriented business but not enough to offset thin margins. Financial leverage is high at 4.17x (assets/equity), magnifying a small net margin into a modest ROE; this is not an inherently healthy driver. The component that appears to have changed most YoY is net margin, given net income fell 68.8% despite revenue +0.9%, implying substantial compression in profitability (ordinary margin contracted by ~214 bps; net margin by ~154 bps). Business drivers likely include cost of sales pressure (gross margin only 13.2%) and SG&A rigidity (10.9% of sales), along with higher reliance on non-operating items. Sustainability: reliance on below-the-line gains is inherently volatile; absent core margin recovery, the current ROE level is at risk. Concerning trend: revenue growth of 0.9% alongside operating loss and a much larger drop in ordinary and net income indicates SG&A and/or COGS growth outpacing revenue, a negative operating leverage signal.

Growth Assessment

Top-line growth was modest at +0.9% YoY, suggesting limited volume or pricing momentum. Gross margin at 13.2% is low for service-like models and signals cost pressure or unfavorable mix. Operating income deteriorated to -0.26 despite higher sales, indicating negative operating leverage. Ordinary income fell 59.2% YoY to 0.51, and net income decreased 68.8% to 0.24, highlighting weakening profit quality. Non-operating and extraordinary items bridged operating losses to positive PBT, which is not a robust growth foundation. With ROIC at -0.4%, current investments are not covering their cost of capital. Near-term outlook hinges on cost control and mix/pricing improvements; absent these, profit growth is unlikely even if revenue inches up. Any normalization of one-off gains could further depress reported earnings. Management may need to prioritize margin accretive business and SG&A discipline to restore operating profitability.

Financial Health

Liquidity is tight: current ratio 99.7% (<1.0 warning) and quick ratio 99.7%, with working capital slightly negative at -0.05. Short-term loans of 10.01 are sizeable but are largely covered by cash and deposits of 10.09 plus receivables of 4.89; however, total current liabilities (17.89) marginally exceed current assets (17.84), indicating a narrow margin of safety. Solvency risk is elevated: D/E is 3.17x (>2.0 warning), total liabilities 42.96 vs equity 13.57 (equity ratio ~24%). Long-term loans of 24.68 create refinancing and interest-rate exposure. Interest coverage is -1.21x, reflecting operating losses and raising debt service risk. Maturity mismatch risk exists given reliance on both short- and long-term borrowings; maintaining cash buffers and stable banking lines is critical. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow was unreported, so we cannot compute OCF/Net Income or validate earnings conversion; this is a key limitation. Given negative operating income and positive net income supported by non-operating/extraordinary items, cash earnings quality is likely weak. Free cash flow is unreported, preventing assessment of coverage for debt service or potential dividends. Working capital appears tight but without inventory data we cannot diagnose drivers (receivables at 4.89; payables only 0.24). No clear signs of working capital manipulation can be assessed from the limited data; monitoring receivables turnover and any buildup would be prudent once disclosed.

Dividend Sustainability

Dividend information was not disclosed for the period, and payout ratios and FCF coverage cannot be calculated. With operating losses, negative interest coverage, and ROIC at -0.4%, sustainable dividend capacity is questionable absent a turnaround in operating cash flow. If a dividend exists, near-term sustainability would hinge on non-operating gains and financing capacity, both of which are less reliable than recurring OCF. Policy outlook remains unclear in the absence of guidance; prudence would suggest prioritizing deleveraging over distributions until core profitability improves.

Risk Assessment

Business Risks:

• Margin pressure evidenced by low 13.2% gross margin and negative operating margin (-0.7%)
• Execution risk in cost control as SG&A (10.9% of sales) appears rigid amid slow revenue growth
• Reliance on non-operating/extraordinary items to sustain profitability, which may not recur
• Potential pricing power limitations given minimal revenue growth (+0.9% YoY)

Financial Risks:

• High leverage: D/E 3.17x and equity ratio ~24%
• Weak debt service capacity: interest coverage -1.21x
• Tight liquidity: current ratio 99.7% and slight negative working capital
• Refinancing and interest rate risk with short-term loans 10.01 and long-term loans 24.68

Key Concerns:

• ROIC at -0.4% signals sub-par capital efficiency
• Earnings quality risk as PBT (1.25) materially exceeds ordinary income (0.51), implying one-offs
• Data gaps (cash flow, capex, dividends) hinder full assessment of sustainability

Investment Implications

Key Takeaways:

• Core business unprofitable this quarter (operating margin -0.7%); profits driven by non-operating/extraordinary items
• Margins compressed: ordinary margin down ~214 bps YoY; net margin down ~154 bps
• Leverage elevated (D/E 3.17x) with negative interest coverage, increasing refinancing risk
• ROE of 1.8% is leverage-driven; underlying ROIC of -0.4% is below cost of capital
• Liquidity tight with current ratio below 1.0; cash and receivables roughly offset short-term loans

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed
• Gross margin and SG&A ratio trajectory for signs of operating leverage improvement
• Interest coverage and average borrowing costs amid rate environment
• Debt maturity profile and refinancing activity
• Any recurrence or absence of extraordinary gains impacting PBT
• ROIC progression vs management targets

Relative Positioning: Within small-cap Japanese service-oriented peers, profitability and capital efficiency are currently below average, leverage is above average, and earnings quality is weaker due to reliance on non-operating items; a turnaround in core margins is necessary to close the gap.

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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