MUSCAT GROUP Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.61B
• Operating Income: ¥-203M
• Net Income: ¥-186M
• EPS: ¥-62.41

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

FY2026 Q2 was a weak quarter with widening losses and reliance on financing inflows to support liquidity. Revenue grew strongly to 16.07 (100M JPY), up 49.7% YoY, but the company posted an operating loss of -2.03 and a net loss of -1.86. Gross profit reached 8.73 with a high gross margin of 54.3%, indicating solid unit economics at the gross level. However, SG&A of 10.77 exceeded gross profit, driving an operating margin of approximately -12.6%. Ordinary loss was -2.16 with non-operating expenses (0.28) exceeding non-operating income (0.16), and interest expense of 0.22 weighed on results. Net margin was -11.6%, and ROE was -18.5% per DuPont, driven by negative margins and high financial leverage of 4.50x. Asset turnover was 0.355, highlighting low efficiency, particularly given a balance sheet heavy in intangibles and goodwill (intangible assets 22.06, goodwill 21.11, together 47% of total assets). Liquidity is tight: current ratio is 0.82 and quick ratio 0.82, with working capital of -3.51, signaling near-term funding stress. Debt is elevated with D/E of 3.50x and interest coverage deeply negative at -9.32x. Operating cash flow was -1.55 versus net income of -1.86, an OCF/NI ratio of 0.83x—better than a pure accrual loss but still negative cash generation. Financing cash inflow of 6.29 (likely new borrowings) bridged the cash shortfall; capex was minimal at 0.05. ROIC was -7.2%, well below a typical cost of capital, reflecting value destruction if sustained. YoY margin comparisons in basis points are not available due to limited prior-period disclosures; absolute margins remain negative across operating and net levels. The presence of negative retained earnings (-0.85) constrains dividend capacity and underscores capital preservation needs. The large goodwill balance raises impairment risk if loss-making continues. Forward-looking, near-term priorities are SG&A rebase vs. revenue scale, improving operating leverage, and de-risking the balance sheet; absent swift improvement, refinancing risk may rise.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-11.6%) × 0.355 × 4.50x ≈ -18.5%. The dominant driver of the negative ROE is the net profit margin, which is negative due to SG&A exceeding gross profit. Asset turnover at 0.355 indicates low efficiency, partially explained by a balance sheet loaded with intangibles/goodwill that do not contribute to revenue generation, dampening turnover. Financial leverage at 4.50x amplifies the margin-driven loss into double-digit negative ROE, and also elevates interest burden. Business reason for margin pressure: despite strong revenue growth (+49.7% YoY), fixed/semi-fixed SG&A (10.77) outpaced gross profit (8.73), preventing operating leverage from materializing; interest expense (0.22) further widened the bottom-line loss. Sustainability: the gross margin (54.3%) looks healthy, suggesting pricing and mix are not the primary issue; the drag is opex discipline and scale efficiency—potentially improvable but requiring cost actions or continued growth. One-time factors are not evident from disclosures; depreciation/amortization is only 0.20, implying minimal non-cash buffer, so earnings are primarily operational. Concerning trends: SG&A exceeds gross profit, and non-operating expenses exceed non-operating income, producing ordinary losses; interest coverage is negative. Without YoY SG&A or margin breakdowns, we cannot quantify bps expansions/compressions, but the current operating margin is roughly -1,260 bps and net margin -1,160 bps.

Growth Assessment

Top-line growth of +49.7% YoY to 16.07 is strong and suggests either successful business expansion or consolidation effects; however, sustainability is uncertain without customer/segment data. Gross margin at 54.3% indicates favorable unit economics, but lack of operating leverage (SG&A > gross profit) negated revenue gains. EBITDA at -1.83 and operating loss at -2.03 confirm that growth is not yet profitable. The negative ROIC (-7.2%) shows that current growth is not creating value; improvements require cost base realignment and higher utilization of assets. Profit quality is mixed: limited D&A (0.20) means losses are not masked by non-cash charges, but the balance sheet’s large goodwill could mask future impairment risk. Outlook hinges on the company’s ability to convert revenue growth into positive operating margin by reducing SG&A intensity and managing financing costs; absent this, continued financing dependence could constrain growth.

Financial Health

Liquidity is weak: current ratio 0.82 (<1.0 warning) and quick ratio 0.82 indicate potential difficulty meeting near-term obligations. Working capital is -3.51, and current liabilities (19.81) exceed current assets (16.31), with short-term loans of 6.11. Cash and deposits of 7.05 plus receivables of 3.71 provide some cushion, but the gap vs current liabilities implies reliance on ongoing financing or rapid cash conversion. Solvency: D/E is 3.50 (>2.0 warning), total liabilities 35.26 vs equity 10.07; long-term loans of 13.47 add to leverage. Interest coverage is -9.32x (warning), reflecting inability to cover interest from operations. Maturity mismatch risk exists: short-term borrowings (6.11) against tight liquidity could pressure refinancing, especially in a rising rate or tighter credit environment. Asset quality: intangibles 22.06 and goodwill 21.11 (47% of assets) elevate impairment risk if profitability does not improve. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow was -1.55 versus net income -1.86, yielding OCF/NI of 0.83x—above the 0.8 threshold but still reflecting cash burn. With capex modest at 0.05, underlying free cash outflow likely approximates OCF absent major investing flows, but investing CF is unreported so FCF cannot be precisely determined. Negative OCF alongside negative EBITDA suggests core operations consumed cash; without working capital detail, we cannot identify whether receivables buildup or other WC changes contributed. Financing CF of +6.29 indicates dependence on external funding to offset operating needs and maintain liquidity. Sustainability: absent a shift to positive OCF, dividends (if any) and debt service must be funded by financing, which is not durable. No explicit signs of working capital manipulation can be assessed due to missing WC breakdowns.

Dividend Sustainability

Dividend data are unreported, and retained earnings are negative (-0.85), implying limited capacity for distributions under typical JGAAP capital policies. With net loss (-1.86), negative OCF (-1.55), and high leverage (D/E 3.50), any dividend would likely be uncovered by free cash flow. Payout ratio and FCF coverage are not calculable with the provided data, but qualitatively, coverage appears weak. Financing inflows (6.29) funded cash needs; using debt to pay dividends would be unsustainable. Unless profitability and OCF turn positive, dividend capacity is constrained.

Risk Assessment

Business Risks:

• Operating leverage risk: SG&A exceeds gross profit, preventing profitability despite revenue growth
• Execution risk on cost reductions and scaling to breakeven
• Goodwill and intangible concentration (47% of assets) elevating impairment risk if performance lags
• Revenue concentration and customer churn risks (not disclosed, but material if present)
• Competitive pressure potentially requiring higher SG&A to sustain growth

Financial Risks:

• Liquidity risk: current ratio 0.82 and negative working capital (-3.51)
• Refinancing risk on short-term loans (6.11) amid negative interest coverage (-9.32x)
• High leverage (D/E 3.50) amplifying earnings volatility and covenant breach risk
• Interest rate risk increasing finance costs and widening ordinary losses
• Dependence on external financing (FinCF +6.29) to fund operations

Key Concerns:

• Sustained negative ROIC (-7.2%) and ROE (-18.5%) indicate value destruction if continued
• Non-operating expenses exceed non-operating income, worsening ordinary loss
• Negative retained earnings (-0.85) limiting financial flexibility for dividends
• Data gaps (no YoY margins, no segment data, unreported investing CF) hinder visibility
• Apparent anomaly of positive diluted EPS (8.52 JPY) despite net loss could reflect methodology/anti-dilution effects; needs clarification

Investment Implications

Key Takeaways:

• Strong top-line growth (+49.7% YoY) but no operating leverage; operating margin ~ -12.6%
• High gross margin (54.3%) suggests potential to reach breakeven if SG&A is resized
• Liquidity tight: current ratio 0.82; working capital -3.51; reliance on financing inflow (6.29)
• Leverage elevated: D/E 3.50; interest coverage -9.32x; interest burden 0.22 per quarter
• ROE -18.5% and ROIC -7.2% reflect low capital efficiency and value erosion
• Balance sheet risk concentrated in goodwill/intangibles (≈47% of assets), raising impairment sensitivity

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio each quarter
• OCF and OCF/NI ratio (targeting >1.0) and progression toward positive FCF
• Current ratio and short-term debt balance vs cash/receivables
• Net debt/EBITDA and interest coverage improvement
• Any goodwill impairment tests or charges
• Revenue growth durability and customer/segment mix (when disclosed)

Relative Positioning: Versus typical TSE small-cap peers, MUSCAT GROUP is currently weaker on profitability (negative EBITDA/OP margin), liquidity (current ratio <1.0), and leverage (D/E >3x), with higher-than-average balance sheet intangibles increasing downside risk if execution falters.

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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