MFS,Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.41B
• Operating Income: ¥-11M
• Net Income: ¥29M
• EPS: ¥-1.84

Income Statement

Balance Sheet

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

Verdict: A mixed quarter with strong top-line expansion but continued bottom-line weakness and low capital efficiency. Revenue surged to 14.05 (100M JPY), up 163.5% YoY, demonstrating substantial demand growth or successful expansion of service lines. Gross profit was 4.54, implying a gross margin of 32.3%, consistent with the reported margin metric. Operating income remained slightly negative at -0.11, down 0.4% YoY on a small base, indicating that operating leverage has not yet turned positive despite significant revenue growth. Ordinary income was -0.07 and net income was -0.16 (EPS -1.84 JPY), pointing to continued net losses. Notably, profit before tax was reported at 0.38 with taxes of 0.09, yet net income was -0.16, suggesting the presence of non-recurring items or minority interest effects that swung the bottom line negative under JGAAP. Liquidity is very strong with cash and deposits of 19.31 against current liabilities of 2.33, delivering a current ratio of 1,088% and ample working capital of 22.99. Leverage is conservative with long-term loans of 3.91 and a D/E ratio of 0.28x. However, interest coverage was flagged at -15.45x due to negative operating income, highlighting earnings fragility even if absolute interest burden is small (interest expense 0.01). ROE was -0.7% and ROIC -1.2%, underscoring subpar returns despite balance sheet strength. Gross margin stood at 32.3%; operating margin, ordinary margin, and net margin were -0.8%, -0.5%, and -1.1%, respectively, indicating insufficient scale or elevated SG&A (4.15) to support profitability. Cash flow statements were not disclosed, limiting assessment of earnings quality and free cash flow sustainability. Retained earnings remain negative at -13.25, constraining near-term distributable capacity while capital surplus is sizeable at 29.48. With substantial cash on hand and modest debt, solvency risk is low, but the key to improved equity returns is translating the strong revenue growth into positive operating leverage. Near-term focus should be on SG&A discipline, monetization efficiency, and confirming that revenue quality is recurring rather than one-off. Given the company’s likely exposure to housing/financial intermediation trends, sensitivity to mortgage demand and marketing spend efficiency will be critical in the coming quarters.

Profitability Analysis

ROE decomposition (DuPont): ROE (-0.7%) = Net Profit Margin (-1.1%) × Asset Turnover (0.490) × Financial Leverage (1.28x). The most adverse component is the net profit margin, which remains negative despite rapid sales growth. Business drivers: SG&A of 4.15 absorbed virtually all gross profit (4.54), leaving an operating loss (-0.11) and pressuring net margin; this suggests high customer acquisition costs, investment in growth, or limited price/monetization power at current scale. Sustainability: The SG&A intensity may normalize if operating leverage materializes as volumes scale, but until gross profit per unit or conversion improves, the negative margin risk persists. Asset turnover at 0.49 is moderate for an asset-light, cash-rich model and could improve as the business scales; leverage at 1.28x is low and not the lever to boost ROE. Concerning trends: SG&A growth appears elevated relative to revenue scale in the quarter (SG&A equals 92% of gross profit), limiting operating leverage; without explicit YoY SG&A data, we flag the high SG&A-to-gross-profit ratio as a headwind. Note: Margin basis-point trends versus prior period cannot be computed due to lack of comparative margin disclosures.

Growth Assessment

Revenue growth was very strong at +163.5% YoY to 14.05, signaling robust demand or expanded service penetration. Gross profit reached 4.54, translating to a 32.3% gross margin, which is adequate but not sufficient to cover current SG&A levels (4.15) and yield positive operating income. Operating income remained slightly negative (-0.11), and ordinary income was also negative (-0.07), implying that recurring profitability has not been achieved. The positive profit before tax (0.38) alongside negative net income (-0.16) points to non-recurring or below-the-line effects under JGAAP, warranting caution in interpreting the PBT improvement as core earnings strength. With cash at 19.31 and minimal near-term liabilities, the company has runway to invest; the question is conversion of growth into unit economics that support positive EBIT. Outlook hinges on SG&A efficiency, customer acquisition cost trends, and potential pricing/mix improvements that lift contribution margins. Given negative ROIC (-1.2%), incremental growth should be evaluated for return discipline; management’s ability to steer toward >5% ROIC will be an important milestone. Overall, top-line momentum is encouraging, but quality and sustainability of growth need validation via improved operating margin in subsequent quarters.

Financial Health

Liquidity is strong: current assets 25.32 vs current liabilities 2.33 yield a current ratio of 1,088% and a quick ratio of 1,088%. Cash and deposits of 19.31 comfortably exceed total current liabilities, minimizing short-term liquidity risk. Solvency is conservative: total liabilities 6.24, long-term loans 3.91, and D/E of 0.28x. No red flags on the thresholds (Current Ratio well above 1.0; D/E far below 2.0). Maturity mismatch risk is limited: ample cash covers near-term obligations; long-term debt is modest relative to total equity (22.43). Off-balance sheet obligations were not disclosed; we cannot assess lease or guarantee exposure. Retained earnings are negative (-13.25) despite high capital surplus (29.48), suggesting accumulated losses; while not a liquidity issue, it may constrain dividend capacity under JGAAP until earnings recover.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow were not disclosed; consequently, OCF/Net Income and free cash flow cannot be evaluated. Earnings quality assessment is limited; we cannot confirm whether revenue growth is translating into cash receipts or if working capital is absorbing cash. With cash and deposits at 19.31 and minimal current liabilities, liquidity appears ample even absent OCF disclosure. Without cash flow data, we cannot test for working capital management tactics (e.g., timing of payables/receivables). Dividend and capex coverage by FCF are not assessable this quarter.

Dividend Sustainability

Dividend data were not disclosed; payout ratios and FCF coverage cannot be calculated. Negative net income (-0.16) and accumulated negative retained earnings (-13.25) suggest limited capacity for dividends under JGAAP unless offset by capital surplus transfers in accordance with corporate law and Board/AGM approvals. With strong liquidity and low leverage, the balance sheet could support modest shareholder returns if policy allows, but sustainability would still hinge on turning operating cash flow positive. Policy outlook is unclear due to lack of guidance and undisclosed DPS.

Risk Assessment

Business Risks:

• Profitability risk: persistent negative operating and net margins despite strong revenue growth.
• Monetization risk: SG&A (4.15) nearly matching gross profit (4.54), limiting operating leverage.
• Execution risk: need to convert user/revenue growth into sustainable unit economics.
• Industry cyclicality: exposure to housing/mortgage market activity and consumer refinancing demand.
• Regulatory risk: changes in financial intermediation, data/privacy, or advertising standards.

Financial Risks:

• Earnings fragility: interest coverage flagged at -15.45x due to operating loss.
• Capital efficiency risk: ROIC at -1.2% and ROE at -0.7%, implying value dilution if prolonged.
• Retained earnings deficit (-13.25) may constrain future distributions and covenant headroom if any.
• Data limitations: lack of cash flow disclosure obscures liquidity generation and FCF profile.

Key Concerns:

• Negative net income (-0.16) with reported profit before tax (+0.38) suggests non-recurring/structural items affecting the bottom line.
• High dependency on controlling SG&A to achieve breakeven; current SG&A-to-gross-profit ≈ 91%.
• Unclear working capital and cash conversion due to unreported OCF.
• ROIC below 5% benchmark; needs rapid improvement to justify growth investments.

Investment Implications

Key Takeaways:

• Top-line growth (+163.5% YoY) is strong, but losses persist at operating and net levels.
• Gross margin of 32.3% is insufficient against current SG&A intensity (4.15), capping operating leverage.
• Balance sheet is robust: cash 19.31, current ratio 1,088%, D/E 0.28x.
• Capital efficiency is weak: ROE -0.7%, ROIC -1.2%.
• Earnings quality and FCF cannot be assessed this quarter due to missing cash flow statements.

Metrics to Watch:

• Operating margin progression (target: move to positive territory over the next quarters).
• SG&A-to-gross-profit ratio and CAC/LTV trends.
• Cash conversion: OCF/Net Income (>1.0 desirable) once disclosed.
• ROIC trajectory toward >5% medium-term.
• Unit economics: gross profit per transaction/user and churn/retention metrics (if disclosed).

Relative Positioning: Within Japan Growth-market, asset-light platforms often exhibit strong liquidity but face a proving period to achieve scale economies. MFS shows superior liquidity and low leverage versus peers but lags on profitability and ROIC; sustained revenue growth must be matched by SG&A discipline and monetization improvements 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
• 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