MOBCAST HOLDINGS INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.07B
• Operating Income: ¥-263M
• Net Income: ¥-54M
• EPS: ¥-4.94

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

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

FY2025 Q3 was weak with continued operating losses and negative bottom-line results, driven by SG&A exceeding gross profit despite a high gross margin. Revenue was 20.69 (100M JPY), down 11.0% YoY, indicating topline softness or delayed project timing. Gross profit was 14.65 with a gross margin of 70.8%, implying the core unit economics remain attractive at the contribution level. However, SG&A of 15.29 outpaced gross profit, leading to operating income of -2.63 and an operating margin of roughly -12.7%. Ordinary income was -2.70 and net income was -2.82, confirming broad-based losses after finance costs and taxes. Interest expense totaled 0.18, and interest coverage stood at -14.75x, underscoring weak debt-servicing capacity from operations this quarter. Asset efficiency was modest with asset turnover at 0.932, while leverage was high at 4.97x, culminating in a calculated ROE of -63.1%. ROIC was -21.2%, far below the typical 7–8% target threshold for value creation, highlighting capital inefficiency. Liquidity is mixed: the current ratio at 146.1% is borderline healthy, but the quick ratio at 90.8% is below the 1.0 comfort level due to sizable inventories (4.35). Total debt is substantial (short-term 2.10, long-term 8.85) against total equity of 4.47, and the reported D/E of 3.97x implies a leveraged balance sheet. Book value per share is thin at 7.50 JPY, reflecting accumulated losses (retained earnings -14.23). Margins likely compressed on an operating basis given lower revenue and negative operating income; precise YoY basis-point changes cannot be computed due to lack of comparable disclosed figures. Earnings quality cannot be assessed fully because operating cash flow and free cash flow were unreported. The quarter’s profile suggests near-term priorities are cost discipline (SG&A) and cash preservation, while stabilizing revenue. Forward-looking, the company must either lift revenue run-rate or execute material SG&A reductions to reach breakeven, and refinance risk management will matter given weak interest coverage. Data gaps (cash flow, segment detail, SG&A breakdown) limit deeper diagnostics, but the available metrics point to urgency in restoring profitability and improving leverage metrics.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (-13.6%) × Asset Turnover (0.932) × Financial Leverage (4.97x) = ROE of approximately -63.1%. The most impactful driver is the negative net profit margin, stemming from SG&A (15.29) exceeding gross profit (14.65) despite a high gross margin of 70.8%. Operating margin is about -12.7% (-2.63 on 20.69 revenue), with additional drag from interest expense (0.18) taking ordinary income to -2.70. Asset turnover at 0.932 is moderate and not the primary issue; leverage at 4.97x amplifies the negative margin into a deeply negative ROE. Business drivers of the margin compression likely include revenue decline (-11.0% YoY), fixed-cost burden in SG&A, and limited ability to flex expenses intra-quarter. The sustainability of this margin pressure depends on management’s ability to right-size SG&A relative to revenue and to reignite growth; absent such changes, losses could persist. Warning signs include SG&A exceeding gross profit and revenue contraction; SG&A growth versus revenue growth cannot be compared YoY due to unreported prior figures, but the level of SG&A versus GP is currently unsustainable. ROIC at -21.2% confirms earnings are not covering the cost of capital, indicating value destruction this period.

Growth Assessment

Topline declined 11.0% YoY to 20.69, indicating demand softness, project slippage, or portfolio contraction. Gross margin remains strong at 70.8%, suggesting pricing and direct cost management are intact. However, operating losses (OI -2.63) point to insufficient scale or elevated overhead. Non-operating contributions were minimal (non-op income 0.07), and interest expense (0.18) further pressured ordinary income (-2.70). There is no segment or product breakdown to assess growth drivers, mix, or one-time items. Without cash flow disclosures, it is unclear whether revenue is translating into cash or whether working capital absorbed cash. Near-term growth sustainability hinges on stabilizing the revenue base and improving utilization of fixed costs; incremental revenue would likely yield high contribution margin given the 70.8% gross margin. Outlook: absent a visible pipeline or disclosed restructuring, the base case is continued pressure on profitability until SG&A is aligned with revenue or revenue recovers. Key catalysts would include new launches, partnerships, or cost-reduction measures.

Financial Health

Liquidity: Current ratio 146.1% (borderline healthy) and quick ratio 90.8% (below 1.0) indicate reliance on inventories and potential short-term liquidity tightness. Working capital is 3.63, with cash and deposits at 3.04 and accounts receivable at 2.52. Solvency: Total liabilities 17.74 vs total equity 4.47 yield an equity ratio of roughly 20.1% (thin capital buffer). Reported D/E is 3.97x, a high leverage flag. Interest coverage is -14.75x, indicating operating earnings are insufficient to service interest in this quarter. Debt structure: short-term loans 2.10 and long-term loans 8.85; current liabilities 7.86 are covered by current assets 11.49, but low quick ratio implies some maturity-mismatch risk if inventories are less liquid. No off-balance sheet obligations were disclosed in the provided data. Explicit warning: D/E > 2.0 (3.97x) is a concern; current ratio is above 1.0 but quick ratio below 1.0 warrants caution.

Cash Flow Quality

Operating cash flow (OCF), free cash flow (FCF), and cash movements were not disclosed, so OCF/Net Income and FCF coverage cannot be assessed. Earnings quality flags cannot be confirmed; however, negative operating income alongside high inventories raises the need to watch for potential working capital build. With interest expense present and weak coverage, internal cash generation is a key uncertainty. Sustainability of FCF for dividends or capex cannot be evaluated due to missing data. No clear signs of working capital manipulation can be inferred without OCF and detailed balance sheet line movements; monitor changes in receivables, payables, and inventories when available.

Dividend Sustainability

Dividend data were not disclosed. Given negative net income (-2.82) and unreported OCF/FCF, payout capacity cannot be calculated. With ROE at -63.1%, ROIC at -21.2%, and high leverage, prioritizing balance sheet stability over cash distributions would be typical in such conditions, but no policy change was disclosed. Until profitability and cash flow visibility improve, dividend sustainability cannot be assessed.

Risk Assessment

Business Risks:

• Revenue contraction (-11.0% YoY) indicating demand/pipeline risk
• High SG&A relative to gross profit leading to sustained operating losses
• Execution risk in cost restructuring needed to reach breakeven
• Dependence on content performance and hit-driven dynamics (industry typical)
• Potential impairment risk on intangibles if underperformance persists

Financial Risks:

• High leverage (reported D/E 3.97x) and thin equity buffer (~20% equity ratio)
• Weak interest coverage (-14.75x) raising refinancing and covenant risks
• Liquidity pressure indicated by sub-1.0 quick ratio (90.8%)
• Concentration of current assets in inventories (4.35), potentially lower liquidity
• Sensitivity to interest rate increases given debt load

Key Concerns:

• Negative ROE (-63.1%) and ROIC (-21.2%) indicating value destruction
• Retained earnings deficit (-14.23) constraining financial flexibility
• Limited non-operating income to offset core losses
• Data gaps in cash flow obscuring earnings quality and runway
• Potential need for external financing amid operating losses

Investment Implications

Key Takeaways:

• Core unit economics look solid (70.8% gross margin), but scale/overhead misalignment drives losses
• Topline decline and SG&A level are the main drags on profitability
• Leverage and interest coverage are the most acute financial constraints
• Liquidity is adequate on a current basis but less comfortable on a quick basis due to inventories
• Restoring positive operating margin is critical to de-risk the balance sheet and improve ROE/ROIC

Metrics to Watch:

• Operating cash flow and free cash flow (timing of disclosure)
• SG&A run-rate versus revenue trajectory (operating leverage)
• Debt maturities, refinancing terms, and interest cost trends
• Inventory and receivable turnover (cash conversion)
• Gross margin stability and revenue pipeline visibility

Relative Positioning: Within small-cap Japanese content/entertainment peers, the company exhibits weaker profitability (negative OI/NI), higher leverage, and inferior interest coverage, partially offset by a strong gross margin that could provide operating leverage if revenue rebounds or costs are reduced.

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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