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

AI Fusion Capital Group (254A0) reported FY2026 Q2 consolidated IFRS results characterized by strong gross profitability but insufficient scale to cover elevated SG&A, resulting in losses at the operating and net levels. Revenue was 11.14, with gross profit of 6.44, implying a high gross margin of 57.8%, consistent with a service/solutions or asset-light model. SG&A of 9.47 exceeded gross profit, driving operating income to -3.61 and underscoring a scale and cost-discipline challenge. Net income was -1.91 and total comprehensive income was -2.99, indicating additional other comprehensive losses (likely valuation/FX effects) beyond the income statement. DuPont decomposition shows net margin of -17.1%, low asset turnover of 0.127, and modest leverage of 1.35x, resulting in an ROE of -3.0%. Despite losses, the balance sheet remains conservative: equity ratio is 64.2% and debt-to-equity is 0.30x, suggesting ample solvency headroom. Cash and equivalents of 33.28 provide liquidity support even as operating cash flow was negative at -5.11. Free cash flow was -13.15, driven by both operating cash burn and investing outflows of -8.04, with financing inflows of 15.51 bridging the gap. EBITDA was -2.60 (margin -23.3%), highlighting limited operating leverage at current scale; however, high gross margin suggests profitability could inflect with disciplined SG&A and revenue growth. Accounts receivable of 2.70 and minimal inventories (0.02) point to low working-capital intensity, consistent with the business mix; equity-method income of 0.45 indicates some contribution from affiliates. EPS (basic and diluted) was -22.58 yen, while BVPS is 745.17 yen, reflecting solid net asset backing relative to market share count. Effective tax rate is shown as 8.9%, but given losses and a tax benefit (-0.29), this should be interpreted cautiously. Interest-bearing debt is unreported; thus, interest coverage cannot be assessed from the data, though overall leverage looks modest on a total-liabilities basis. The company appears to have relied on external financing (likely equity or mix of equity/debt) to fund negative FCF in the period. Overall, results indicate a growing platform with robust gross economics but still subscale overhead, adequate capital strength, and reliance on financing while investments and operating losses continue. Data gaps (ordinary income, interest, current liabilities detail, dividend data) limit granularity, but the directional picture is clear: profitability hinges on scaling revenue and tightening operating costs while preserving liquidity.

Profitability Analysis

ROE decomposition: ROE -3.0% = Net margin (-17.1%) x Asset turnover (0.127) x Financial leverage (1.35x). The negative net margin is the dominant driver; asset turnover is low, and leverage is modest, limiting both downside and upside magnification. margin_quality: Gross margin at 57.8% indicates strong unit economics or high-value-added services. However, SG&A of 9.47 exceeds gross profit (6.44), producing an operating margin of approximately -32.4% (operating loss -3.61 / revenue 11.14). EBITDA margin of -23.3% corroborates limited operating efficiency at current scale. operating_leverage: The large SG&A base relative to sales suggests high potential operating leverage: incremental revenue growth at similar gross margins could materially narrow losses. Current negative operating income indicates the breakeven point has not been reached. other_notes: Equity-method income of 0.45 partly offsets operating losses, but ordinary income details are unreported. Total comprehensive loss larger than net loss signals OCI headwinds (valuation/FX), which can add earnings volatility.

Growth Assessment

revenue_sustainability: Revenue of 11.14 with high gross margins suggests the offering has pricing power. Low inventories and moderate receivables support a services/solutions revenue mix. YoY context is unreported, limiting trend assessment. profit_quality: Operating losses persist due to SG&A scale; gross profit quality looks solid, but conversion to operating profit is weak. Equity-method gains (0.45) improve reported profit but are non-core and potentially volatile. outlook: Path to profitability depends on scaling revenue while containing SG&A growth. If gross margin remains near 58% and SG&A intensity eases, operating leverage could drive margin inflection. OCI volatility (seen in comprehensive loss) and ongoing investment needs may weigh on near-term net results.

Financial Health

liquidity: Cash and equivalents of 33.28 provide a buffer. Operating CF is negative (-5.11), and current ratio/quick ratio are not calculable due to missing current liabilities; working capital is presented as 45.56 but is constrained by data gaps. solvency: Equity ratio is 64.2% (equity 64.85 / assets 87.54). Debt-to-equity is 0.30x using total liabilities, indicating modest leverage. Interest-bearing debt details and interest expense are unreported, limiting a full solvency stress test. capital_structure: Assets/Equity leverage is 1.35x, conservative. Financing CF of 15.51 suggests reliance on external funding (likely equity issuance or new borrowings) to cover negative FCF and/or investments.

Cash Flow Quality

earnings_quality: OCF/Net income is 2.68x, but both are negative; the ratio indicates cash burn exceeded accounting losses, suggesting working-capital outflows or non-cash gains offsetting losses. D&A of 1.01 provides some non-cash add-back but not enough to offset operating losses. FCF_analysis: Free cash flow was -13.15 (OCF -5.11 + Investing -8.04), indicating cash consumption both from operations and investments. Without capex disclosure, investing CF likely includes capex and possibly financial investments or intangibles. working_capital: Receivables are modest at 2.70 and inventories are negligible at 0.02, consistent with a low WC business model. Current liabilities are unreported, so the magnitude and direction of WC changes cannot be fully analyzed.

Dividend Sustainability

payout_ratio_assessment: Dividend data are unreported and EPS is negative (-22.58 yen), implying no sustainable capacity for cash dividends from earnings in the period. FCF_coverage: FCF is negative (-13.15), so any hypothetical dividend would not be covered by internally generated cash. policy_outlook: Given losses and investment needs (negative OCF and investing CF), priority is likely on reinvestment and liquidity preservation over shareholder distributions. Formal policy remains unknown due to disclosure gaps.

Risk Assessment

Business Risks:

• Execution risk in scaling revenue to cover a large SG&A base
• Margin compression risk if pricing power weakens, given reliance on high gross margins
• Dependence on non-core contributions (equity-method income) which can be volatile
• OCI volatility affecting total comprehensive income (valuation/FX sensitivity)
• Client concentration or project timing risk typical of services/solutions models (not disclosed but consistent with profile)

Financial Risks:

• Sustained negative FCF requiring ongoing external financing
• Dilution risk if financing is equity-funded (financing CF +15.51)
• Refinancing/interest rate risk if financing includes debt (interest-bearing debt unreported)
• Working-capital swing risk given negative OCF despite modest receivables
• Asset valuation risk in affiliates or financial assets (details unreported)

Key Concerns:

• Operating losses despite strong gross margins indicate insufficient scale or cost discipline
• Negative OCF and investing CF imply dependence on external funding to sustain operations and growth
• Data gaps (ordinary income, interest expense, current liabilities, dividends) limit precision of ratio analysis and coverage assessments

Investment Implications

Key Takeaways:

• High gross margin (57.8%) but negative operating margin (~-32%) due to elevated SG&A
• ROE -3.0% driven by negative net margin; leverage remains modest at 1.35x
• Negative FCF (-13.15) funded by financing inflows (15.51); cash balance 33.28 provides near-term buffer
• Equity ratio 64.2% and D/E 0.30x indicate balance sheet resilience despite losses
• Total comprehensive loss (-2.99) larger than net loss (-1.91), highlighting OCI headwinds

Metrics to Watch:

• SG&A-to-sales ratio and operating margin trajectory
• Revenue growth and asset turnover improvement
• Operating cash flow trend and FCF burn rate
• Cash balance and composition of financing inflows (equity vs. debt)
• OCI components and equity-method income volatility

Relative Positioning: Relative to small/mid-cap TSE peers in asset-light services or investment platforms, the company exhibits stronger gross margins and a conservative balance sheet, but lags on operating profitability and cash self-sufficiency, relying more on external financing to fund growth and investments.

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