AI FUSION CAPITAL GROUP CORP. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.11B
• Operating Income: ¥-361M
• Net Income: ¥-296M
• EPS: ¥-22.58

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Share Information

Dividend Information

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2026 Q2 was weak with a sizable operating loss and negative free cash flow, despite a solid gross margin and a strong equity base. Revenue was 11.14, gross profit 6.44 (57.8% GPM), but SG&A of 9.47 drove an operating loss of -3.61 (operating margin roughly -32.4%). Net loss was -1.91 (EPS -22.58 JPY), and total comprehensive loss was -2.99, indicating additional OCI headwinds. Profit before tax of -3.25 implies non-operating items netted a small gain versus operating loss, likely supported by equity-method income of 0.45. Cash flow from operations was -5.11, materially worse than net loss, pointing to cash burn exceeding accounting losses. Free cash flow was deeply negative at -13.15 as investing cash outflow (-8.04) compounded the OCF shortfall; capex itself was modest at -0.62, suggesting M&A or financial investments (in line with elevated goodwill of 17.10) drove the bulk of investing outflows. Financing inflow of 15.51 covered the aggregate cash burn, but the mix (debt vs equity) is not disclosed. Balance sheet resilience remains a positive: total equity is 64.85 with an equity ratio of 64.2% and D/E of 0.35x, offering cushion to absorb near-term losses. ROE is -3.0% and ROIC is -5.1%, reflecting sub-par capital efficiency and underutilized assets (asset turnover 0.127). We cannot quantify YoY or sequential margin changes due to limited disclosures, but current cost structure is clearly misaligned with revenue scale (SG&A > gross profit). The earnings mix includes some equity-method contribution, but operating profitability is the key drag and appears structurally negative at current run-rate. Earnings quality is pressured as OCF is more negative than NI, implying working capital and/or cash expenses not fully reflected in accrual earnings. Goodwill at 17.10 (about 19-20% of assets) introduces impairment risk if profitability does not improve. Forward-looking, the company must either scale revenue or reduce SG&A to approach breakeven; liquidity looks adequate for now, but sustained cash burn would necessitate ongoing external funding. Overall, the quarter underscores execution risk on operating leverage and capital efficiency despite a healthy capital structure.

Profitability Analysis

ROE decomposition: ROE (-3.0%) = Net Profit Margin (-17.1%) × Asset Turnover (0.127) × Financial Leverage (1.35x). The margin component is the primary detractor: an operating loss of -3.61 on 11.14 revenue yields roughly -32.4% operating margin, which flows to a -17.1% net margin after modest non-operating support and an 8.9% effective tax benefit. Asset turnover at 0.127 indicates low utilization of the 87.54 asset base to generate revenue. Financial leverage at 1.35x is conservative and does not amplify returns meaningfully. The largest negative change driver is margin, driven by SG&A (9.47) exceeding gross profit (6.44), implying insufficient scale or heavy upfront cost structure. Business reasons likely include investment in growth (personnel, platform, integration after acquisitions) and consolidation effects (goodwill 17.10 pointing to recent M&A). Sustainability: absent rapid revenue scaling or cost rationalization, the current margin shortfall is not sustainable; however, if investments yield revenue growth, some operating leverage may materialize. Concerning trends: SG&A exceeds gross profit and likely outpaced revenue growth (YoY not disclosed), and EBITDA is negative (-2.60), signaling limited near-term operating cash generation.

Growth Assessment

Revenue is modest at 11.14 with no disclosed YoY, restricting visibility on growth trajectory. Gross margin at 57.8% suggests a value-added or service-heavy mix, leaving room for positive operating leverage if scale is achieved. Equity-method income (0.45) contributes to earnings resilience but is insufficient to offset operating losses. The investing outflow (-8.04) and elevated goodwill (17.10) suggest acquisitive growth, but integration costs and amortization/impairment risks could weigh on near-term profits. EBITDA (-2.60) and operating loss (-3.61) indicate negative underlying run-rate profitability; without SG&A optimization or stronger topline momentum, near-term growth is unlikely to translate to profits. Outlook hinges on cost discipline and monetization of acquired assets; absent data on backlog/pipeline, we assume cautious near-term growth with priority on breakeven. Key monitorables: quarterly revenue trajectory, SG&A run-rate normalization, and incremental contribution from equity-method investees.

Financial Health

Liquidity: Current ratio cannot be calculated due to missing current liabilities; working capital equals current assets (49.30) given undisclosed current liabilities, so we cannot assess near-term coverage. Solvency: Equity ratio is 64.2% and D/E is 0.35x, indicating a conservatively leveraged balance sheet. No explicit warning on Current Ratio < 1.0 or D/E > 2.0 applies based on available data. Maturity mismatch risk cannot be fully assessed as short-term borrowings are undisclosed; accounts payable is low at 0.79, which is a mild positive. Cash and equivalents at period-end are 35.63, providing a buffer against OCF burn. Off-balance sheet obligations are not disclosed; no guarantees or contingencies can be assessed from the data provided.

Cash Flow Quality

OCF/Net Income is 2.68x, but both are negative (OCF -5.11 vs NI -1.91), so the ratio is not a sign of quality; rather, cash burn exceeds accounting loss, a quality concern. Free cash flow is -13.15, driven by operating losses and sizable investing outflows. Capex was modest (-0.62), implying the investing cash drain stems from acquisitions or financial asset purchases (consistent with goodwill 17.10 and investment securities 3.36). Working capital details are limited, but OCF more negative than NI suggests either growth-related working capital build or cash items not capitalized. Dividend and buyback outflows are undisclosed; financing inflow of 15.51 bridges the FCF gap, but durability depends on continued access to capital. Overall, earnings quality is weak near term with limited cash conversion.

Dividend Sustainability

Dividend data are not disclosed; we assume no dividend for the period. With negative NI (-1.91) and negative FCF (-13.15), any cash distribution would be unsustainable without external funding. Equity ratio is healthy, but policy prudence dictates retention until operating cash flow improves. Coverage of hypothetical dividends from FCF would be inadequate at current burn rates. Until visibility on recurring positive OCF emerges, dividend initiation or increases appear unlikely.

Risk Assessment

Business Risks:

• Operating loss and negative EBITDA indicating insufficient scale and execution risk on cost control
• High SG&A intensity (9.47 vs gross profit 6.44) delaying breakeven
• Goodwill concentration (17.10, ~19-20% of assets) creating impairment risk if acquisitions underperform
• Dependence on financing inflows (15.51) to fund negative FCF
• Integration and realization risk from recent investments/acquisitions suggested by investing CF and goodwill

Financial Risks:

• Negative OCF (-5.11) and FCF (-13.15) requiring ongoing external funding
• Limited visibility on debt structure and maturities; short-term liquidity cannot be assessed due to undisclosed current liabilities
• Potential interest rate exposure if financing inflows included new debt (interest expense not disclosed)
• Asset utilization risk (asset turnover 0.127) leading to continued low returns on capital

Key Concerns:

• Capital efficiency below benchmark (ROIC -5.1%)
• Persistent operating loss with non-operating items insufficient to offset
• OCF more negative than NI, pointing to weak cash conversion
• Potential volatility in equity-method income (0.45) with limited disclosure
• Data gaps (revenue YoY, current liabilities, debt details) limiting risk quantification

Investment Implications

Key Takeaways:

• Core profitability is negative with operating margin around -32% despite a strong gross margin
• Cash burn is significant; FCF (-13.15) was funded by financing inflows (15.51)
• Balance sheet remains a relative strength with equity ratio 64.2% and D/E 0.35x
• ROE (-3.0%) and ROIC (-5.1%) signal sub-par returns and underutilized assets
• Goodwill is sizable, elevating impairment sensitivity if performance does not improve

Metrics to Watch:

• Quarterly revenue growth and gross margin stability
• SG&A trajectory and EBITDA breakeven progress
• Operating cash flow trend and working capital movements
• Composition of financing CF (debt vs equity) and any changes in leverage
• Impairment tests on goodwill and changes in investment securities
• Equity-method income stability and contribution to PBT

Relative Positioning: Within small-cap IFRS peers, the company exhibits a stronger equity cushion but weaker operating leverage and cash conversion, with higher integration and impairment risk due to recent investment/goodwill build.

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