Will Smart Co.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥550M
• Operating Income: ¥-241M
• Net Income: ¥-220M
• EPS: ¥-150.16

Income Statement

Balance Sheet

Profitability Ratios

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: FY2025 Q3 shows a materially loss-making quarter with steep operating losses despite adequate short-term liquidity. Revenue was 5.50 (100M JPY), generating gross profit of 1.48 and a gross margin of 27.0%, but SG&A of 3.89 overwhelmed gross profit, resulting in operating loss of -2.41 and operating margin of -43.8%. Ordinary loss was -2.19 after 0.23 in non-operating income and 0.01 in non-operating expenses, indicating limited relief from non-core items. Net income came in at -2.20, a net margin of -40.0%, driving a deeply negative calculated ROE of -111.1%. DuPont shows net margin (-40.0%), asset turnover (1.005x), and leverage (2.76x), with the margin collapse being the primary driver of the negative ROE. Compared with typical software/solutions peers, the 27% gross margin is thin, suggesting pricing pressure, high cost of delivery, or mix shift to lower-margin projects. SG&A/revenue of ~71% is structurally heavy, implying insufficient scale or elevated fixed costs; this is the main reason for the operating deficit. Non-operating items were modestly positive (+0.22 net), but too small to offset core operating weakness. Liquidity is presently comfortable: current ratio is 203.6%, quick ratio 198.9%, and working capital 2.45; cash of 1.08 covers a large portion of short-term loans (1.45). However, solvency headroom is not large: equity is 1.98 (equity ratio ~36.2%) with retained earnings at -4.84, highlighting accumulated deficits and potential pressure if losses persist. Interest coverage is highly negative (-184.8x), reflecting operating losses rather than high interest burden (interest expense only 0.01). Cash flow statement is unreported, limiting assessment of earnings quality and cash burn; this is a key data gap. Intangibles (1.18) including goodwill (0.49) comprise a sizable share of assets (~31%), creating impairment risk if profitability does not recover. Forward-looking, break-even likely requires a step-up in gross margin and/or material SG&A reduction; otherwise, additional funding (debt/equity) may be needed over the next 12–18 months. Monitoring order intake, backlog quality, and project execution will be critical to judge the path to profitability.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-40.0%) × 1.005 × 2.76 ≈ -111.1%. The largest adverse change driver is clearly net profit margin at -40.0%, given operating margin of -43.8% driven by SG&A of 3.89 exceeding gross profit of 1.48 by a large margin. Business reason: revenue scale and mix are insufficient to absorb fixed operating costs, and a 27% gross margin suggests delivery cost intensity and/or pricing constraints in the core solutions/services. Asset turnover at ~1.0x is reasonable for an asset-light model but cannot offset the margin deficit. Leverage (Assets/Equity 2.76x) magnifies the net loss into a severely negative ROE. Sustainability assessment: the high SG&A ratio appears structural in the short term; without restructuring or higher-margin growth, current profitability is not sustainable. Flags: SG&A as a percent of revenue (~71%) significantly exceeds gross margin (27%), indicating negative operating leverage; any revenue softness will disproportionately widen losses. No evidence of one-time gains/losses of material size in non-operating items; results look largely recurring at this stage.

Growth Assessment

Revenue of 5.50 is reported without YoY; sustainability cannot be benchmarked due to missing prior-year data. Profit quality is weak: operating margin -43.8% and net margin -40.0% indicate a business that has not reached efficient scale or is facing unfavorable project economics. With gross margin at 27%, a mix shift toward higher-margin software/recurring elements or repricing of projects is likely necessary to move toward break-even. The modest positive non-operating income (0.23) is not a meaningful growth driver. Outlook hinges on cost control (SG&A reduction) and better utilization on delivery to lift gross margin; absent these, growth alone may not translate to profit. Given the scale of losses vs equity (net loss -2.20 vs equity 1.98), the company’s capacity to invest for growth may be constrained without external funding. Key forward indicators needed: order backlog, churn/retention of recurring contracts, and win rates in higher-margin verticals.

Financial Health

Liquidity: current ratio 203.6% and quick ratio 198.9% indicate healthy near-term liquidity. Cash and deposits are 1.08 versus short-term loans of 1.45; while not full coverage, overall current assets of 4.82 comfortably exceed current liabilities of 2.37, suggesting low near-term maturity mismatch risk. Solvency: D/E ratio 1.25x is within conservative thresholds (<1.5x), and equity ratio is approximately 36.2% (1.98/5.47). Interest-bearing debt totals about 1.54 (short 1.45 + long 0.09); net debt is roughly 0.46 after cash. No explicit off-balance sheet obligations are reported. Warning thresholds: no trigger for Current Ratio <1.0 or D/E >2.0. However, persistent losses could erode equity and tighten covenants/funding access over time. Intangibles and goodwill total ~1.67 (31% of assets), which could pressure equity if impaired.

Cash Flow Quality

Operating cash flow is unreported; therefore, OCF/Net Income and free cash flow cannot be assessed. As such, we cannot validate earnings quality via cash conversion. Given the scale of operating loss (-2.41), it is likely that operating cash burn exists unless offset by working capital releases, but this remains unverified. No signs of working capital manipulation can be concluded due to missing receivables and payables turnover data; however, current liabilities (2.37) are largely funded by current assets (4.82), suggesting no acute stretch. Dividend and capex cash demands are unreported, preventing FCF coverage assessment.

Dividend Sustainability

Dividends are unreported for the period, and with net income at -2.20 and retained earnings at -4.84, the capacity to pay dividends appears very limited under JGAAP profit constraints. Payout ratio and FCF coverage are not calculable due to missing cash flow data. Policy outlook: until operating profitability and positive OCF are established, dividend initiation or resumption looks unlikely. Any future distributions would likely require a return to profits and/or capital policy actions (e.g., capital surplus utilization) subject to legal constraints.

Risk Assessment

Business Risks:

• Subscale operations: SG&A/revenue ~71% leading to structurally negative operating leverage.
• Low gross margin (27%), implying project delivery cost pressure and/or unfavorable pricing.
• Execution risk on projects that can further compress margins if delays/overruns occur.
• Intangible asset impairment risk (goodwill 0.49; total intangibles 1.18) if turnaround falters.

Financial Risks:

• Sustained net losses (-2.20) eroding equity (1.98), raising potential need for external financing.
• Negative interest coverage (-184.8x) driven by operating losses, heightening lender sensitivity.
• Refinancing/maturity risk given short-term loans of 1.45 exceed cash of 1.08, though offset by broader current assets.
• Potential covenant or going concern pressure if losses persist over the next 12–18 months.

Key Concerns:

• Cash flow opacity due to unreported OCF/FCF, limiting assessment of burn rate and runway.
• Customer concentration or order backlog visibility not disclosed; demand sustainability uncertain.
• Sensitivity to macro IT spending cycles and procurement delays impacting project starts and revenue recognition.

Investment Implications

Key Takeaways:

• Core profitability is weak: operating margin -43.8% and net margin -40.0% with SG&A far above gross profit.
• Liquidity is adequate near term (current ratio ~204%), but solvency could deteriorate if losses continue.
• Leverage (D/E 1.25x) is moderate, but negative ROE (-111%) underscores value erosion risk.
• Intangibles constitute ~31% of assets, elevating impairment downside to equity.
• Non-operating income is small and not a driver; turnaround must come from core operations.

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed (OCF/NI target >1.0).
• Gross margin trajectory and project mix (target sustained improvement above 30–35%).
• SG&A growth versus revenue growth (aim for SG&A growth below revenue to gain operating leverage).
• Order backlog/book-to-bill and recurring revenue share.
• Cash balance versus short-term debt, and any covenant disclosures or refinancing activities.

Relative Positioning: Versus domestic small-cap IT/IoT solution peers, Will Smart exhibits weaker operating margins and scale efficiency, with comparable leverage but higher earnings volatility and greater equity sensitivity due to persistent losses.

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