MUSCAT GROUP Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.61B
• Operating Income: ¥-203M
• Net Income: ¥25M
• 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

MUSCAT GROUP delivered strong top-line growth in FY2026 Q2, with revenue up 49.7% YoY to ¥1,607m, but profitability remained negative at the operating and bottom-line levels. The company posted a gross profit of ¥674m, implying a gross margin of 42.0%, which is healthy for a services-oriented or project-based business model. Despite this, operating income was -¥203m and net income -¥186m, indicating elevated operating expenses and/or project execution costs outweighing the solid gross margin. EBITDA was -¥193m, signaling that losses are not purely non-cash; core operations are still loss-making. DuPont analysis shows an ROE of -18.47%, driven by a negative net margin (-11.57%), modest asset turnover (0.355x), and high financial leverage (4.50x). The strong YoY revenue surge raises the question of sustainability and whether growth is driven by recurring or one-off factors. Operating cash flow was -¥47.5m, which is better than net loss, suggesting some non-cash charges and/or favorable working capital movements partially cushioned cash burn. Financing cash inflow of ¥417m supported liquidity, likely via debt or equity financing, but raises questions about reliance on external funding. The balance sheet indicates total assets of ¥4,533m, liabilities of ¥2,390m, and equity of ¥1,007m, implying an equity ratio near 22% (assets/equity leverage ~4.5x), despite the “0.0%” equity ratio item provided (likely a disclosure mapping issue). Liquidity appears adequate on headline metrics, with a current ratio of 191% and working capital of ¥886m, though the quick ratio mirrors the current ratio because inventories were unreported. Interest expense is modest at ¥5.6m, but interest coverage is deeply negative due to operating losses. Cash and equivalents were unreported; however, the positive financing CF signals proactive liquidity management. Dividend remains suspended (DPS ¥0), appropriate given negative earnings and cash outflow from operations. Overall, the story is one of rapid growth with ongoing operating losses, dependence on external financing, and a need to demonstrate operating leverage and cash conversion as scale builds. Data limitations (notably certain line items unreported and an apparent mismatch between cost of sales and gross profit) constrain precision, so conclusions focus on the disclosed, non-zero data and the provided calculated metrics.

Profitability Analysis

ROE_decomposition: DuPont indicates ROE of -18.47% = Net margin (-11.57%) × Asset turnover (0.355x) × Financial leverage (4.50x). The negative ROE is primarily due to a weak net margin, with moderate efficiency and high leverage amplifying losses. margin_quality: Gross margin of 42.0% (¥674m/¥1,607m) is healthy, but SG&A and other operating costs drove operating margin to -12.6% (approx. -¥203m/¥1,607m). EBITDA margin of -12.0% confirms limited contribution from non-cash items; core operations remain unprofitable. The provided cost of sales figure appears inconsistent with revenue and gross profit, so the gross margin provided is used as the anchor. operating_leverage: Despite 49.7% YoY revenue growth, operating income was flat at -¥203m, suggesting limited operating leverage so far. Cost growth likely kept pace with or exceeded revenue growth, potentially due to upfront hiring, project delivery costs, or higher subcontracting expenses. Demonstrating SG&A efficiency and stable project unit economics is key to turning scale into profit.

Growth Assessment

revenue_sustainability: Revenue of ¥1,607m (+49.7% YoY) indicates strong demand momentum. Sustainability depends on mix (recurring vs. project-based) and backlog conversion; current disclosures do not provide this granularity. profit_quality: Profitability remains negative across EBIT and net income despite a solid gross margin, which suggests either immature scale or cost inefficiencies. The gap between gross profit and operating loss highlights elevated overhead or delivery costs. outlook: Near-term outlook hinges on improving cost discipline and converting growth into positive operating leverage. If gross margin holds near 40%+, path to breakeven is achievable with SG&A containment and project execution discipline. However, absent improvement in operating margins and cash conversion, reliance on external financing may persist.

Financial Health

liquidity: Current assets ¥1,856m vs. current liabilities ¥970m yield a current ratio of 191% and working capital of ¥886m. Quick ratio matches due to unreported inventories; on a conservative view, liquidity is acceptable in the near term. solvency: Total liabilities ¥2,390m and equity ¥1,007m imply debt-to-equity of 2.37x and assets/equity leverage of 4.50x, indicating a geared balance sheet. Implied equity ratio is ~22% (not 0.0% as displayed), which provides a modest buffer but leaves limited room for prolonged losses. capital_structure: Interest expense is low at ¥5.6m relative to sales, but negative EBIT results in an interest coverage of -36.1x. Financing CF of ¥417m suggests recent capital raises or borrowings to fund operations and growth.

Cash Flow Quality

earnings_quality: OCF of -¥47.5m vs. net income of -¥186m yields OCF/NI of 0.26, indicating partial add-backs and/or favorable working capital effects but still negative cash generation. EBITDA is negative, so cash losses are not solely driven by non-cash items. FCF_analysis: Investing CF is unreported (0). With OCF negative, underlying FCF is likely negative even before capex. The provided FCF metric is 0 due to missing investing detail; thus, true FCF coverage cannot be confirmed but is likely weak. working_capital: Working capital stood at ¥886m. The OCF shortfall suggests either receivable build or limited payables support; more detail on receivables turnover, unbilled revenue, and advances would clarify cash conversion.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 and the payout ratio is 0%. Given negative net income, any dividend would be uncovered by earnings. FCF_coverage: With OCF negative and investing cash flows unreported, FCF coverage cannot be demonstrated; conservatively, dividends are not currently fundable from internal cash generation. policy_outlook: Resumption of dividends would likely require sustained positive OCF and EBIT, improved interest coverage, and clearer visibility on growth capex needs. Maintaining flexibility to fund operations and potential working capital swings appears prudent.

Risk Assessment

Business Risks:

• Execution risk on rapid growth leading to cost overruns or delivery slippage
• Project concentration and revenue cyclicality if sales are non-recurring
• Gross margin volatility due to input/subcontractor cost inflation
• Talent and hiring costs impacting SG&A and utilization
• Customer credit risk and slower collections affecting OCF

Financial Risks:

• Sustained operating losses requiring continued external financing
• High financial leverage (assets/equity ~4.5x) amplifying earnings volatility
• Weak interest coverage due to negative EBIT
• Potential covenant pressure if debt-funded
• Working capital intensity causing cash flow variability

Key Concerns:

• Limited operating leverage despite near-50% revenue growth
• Negative OCF alongside negative EBITDA
• Dependence on financing inflows (¥417m) to support liquidity
• Data limitations on investing/FCF and balance sheet line granularity
• Apparent mismatch between reported cost of sales and gross profit; reliance on provided gross margin for analysis

Investment Implications

Key Takeaways:

• Top-line growth is strong (+49.7% YoY), but profitability remains negative at EBITDA, EBIT, and net levels
• Gross margin is solid at 42%, offering a foundation for margin recovery if costs are controlled
• Operating leverage has yet to materialize; SG&A efficiency and delivery discipline are pivotal
• Liquidity is adequate short term (current ratio ~1.9x), but the model currently relies on external financing
• Leverage is meaningful (D/E 2.37x; assets/equity 4.50x), raising sensitivity to earnings volatility

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio
• OCF/NI conversion and receivables days
• Order backlog and recurring revenue mix
• Gross margin stability by project/service line
• Net debt and interest coverage trend
• Capex and investing cash flows (to refine FCF outlook)

Relative Positioning: Within Japan small/mid-cap growth peers, MUSCAT shows above-peer revenue growth but below-peer profitability and cash conversion, with higher financial leverage increasing risk until operating leverage improves.

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