Wealth Management,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.98B
• Operating Income: ¥-1.37B
• Net Income: ¥-1.40B
• EPS: ¥-73.24

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q2 was weak, marked by a small top-line increase but a sharp deterioration in profitability and cash flow, resulting in sizeable operating and ordinary losses. Revenue rose 3.7% YoY to 59.78, but gross profit was essentially breakeven at -0.02, implying minimal spread capture in the quarter. Operating income fell to -13.67 (loss widened by roughly 78.6% YoY), and ordinary income deteriorated to -19.08 (loss widened by about 233.7% YoY), reflecting heavier non-operating burdens including interest expense. Net income came in at -14.04 (loss widened by ~126.7% YoY), with a reported basic EPS of -73.24 yen. Operating margin was about -22.9%, ordinary margin -31.9%, and net margin -23.5%, pointing to broad-based margin compression versus the prior year. Gross margin was effectively -0.0%, suggesting either pass-through transactions or unfavorable pricing/mix. SG&A of 13.66 outpaced gross profit by a wide margin, driving negative operating leverage. Non-operating expenses totaled 5.50, including 4.65 of interest expense, amplifying ordinary loss. On cash flows, operating cash flow was -33.90, notably worse than net income; although the OCF/NI ratio is 2.41x, both are negative, signaling cash burn exceeding accounting losses. Liquidity at quarter-end was ample on paper (current ratio 265%), supported by current assets of 487.23 and cash of 44.54, but leverage is elevated (D/E 2.33x) and interest coverage was deeply negative (-2.94x), highlighting debt-service fragility. ROE was -8.1% (DuPont: NPM -23.5%, asset turnover 0.103, financial leverage 3.33x), with ROIC at -3.8%, both well below acceptable thresholds. Tax was a benefit (-5.05), but insufficient to offset operating losses; the effective tax rate metric is not economically meaningful given losses. With investing cash flows and dividend data unreported, free cash flow cannot be fully computed; however, OCF plus disclosed capex indicates negative internal funding capacity in the half. Near-term recovery hinges on H2 project closings and margin normalization; without a rebound in gross profit and tighter SG&A control, debt metrics could worsen. Overall, the quarter underscores heightened execution risk and the need for stronger monetization of the project pipeline to stabilize earnings and cash flows.

Profitability Analysis

ROE decomposition (DuPont): ROE (-8.1%) = Net Profit Margin (-23.5%) × Asset Turnover (0.103) × Financial Leverage (3.33x). The most negative component is the net profit margin, which overwhelmed any leverage benefit given a very low asset turnover. Business drivers: near-zero gross margin combined with fixed SG&A of 13.66 created substantial operating losses; additional non-operating expenses (notably 4.65 of interest) deepened ordinary loss. Asset turnover of 0.103 indicates a slow conversion of a sizable asset base (581.50) into revenue in the half—typical in project-based real estate businesses when closings are lumpy, but still a drag on ROE this period. The margin deterioration appears linked to mix/recognition timing and possibly project spreads; it is not necessarily structural but requires clearer evidence of H2 closings to be viewed as recoverable. Sustainability: if low gross margin stems from timing (e.g., limited closings), it could be temporary; if it reflects weaker pricing or cost overruns, weakness could persist. Warning flags: SG&A (13.66) far exceeds gross profit (-0.02), implying severe negative operating leverage; ordinary loss expansion also points to rising financing costs outpacing income generation.

Growth Assessment

Top line grew 3.7% YoY to 59.78, but quality of growth was poor with gross margin essentially zero and widening operating losses. Revenue sustainability depends on project handovers/closings and fee-based streams; the current period suggests limited monetization of the pipeline. Profit growth is negative: operating loss widened ~78.6% YoY, ordinary loss widened ~233.7% YoY, and net loss widened ~126.7% YoY. The mismatch between revenue growth and profit contraction implies adverse mix, under-recovery of fixed costs, or thin spreads. Outlook hinges on H2 conversion: if several projects close and spreads normalize, both gross margin and operating income could rebound; absent that, continued losses are likely. With ROIC at -3.8%, the company is currently destroying value; a return to ≥5% is the minimum threshold to ease concerns, with 7–8% the long-term benchmark. Non-operating burden, particularly interest, will remain a headwind unless debt is refinanced at lower rates or reduced via asset sales/proceeds from project deliveries.

Financial Health

Liquidity: healthy on headline metrics (current ratio 265.2%, quick ratio 265.2%), with current assets of 487.23 well in excess of current liabilities of 183.70. Cash and deposits of 44.54 exceed short-term loans of 10.82, reducing immediate rollover pressure. Solvency: leverage is high (D/E 2.33x) — warning threshold breached — and interest coverage is negative (-2.94x), indicating debt-service stress absent earnings recovery. Long-term loans are sizable at 121.96; total interest-bearing debt is unreported, but at minimum equals the sum of reported loans. Maturity mismatch risk is moderate near term given strong current assets, but depends on the quality/liquidity of unspecified current asset components (inventories unreported). No off-balance sheet obligations were disclosed; however, the business model may involve guarantees/commitments at project SPVs, which are not visible in the data and warrant monitoring.

Cash Flow Quality

OCF was -33.90 versus net income of -14.04, yielding an OCF/NI ratio of 2.41x, which does not flag under our mechanical threshold but masks a negative reality: cash burn is materially larger than the accounting loss. The divergence suggests working capital outflows and/or cash costs not captured by accrual timing. Investing CF was unreported; capex was -2.68, implying a proxy pre-financing free cash flow (OCF - capex) around -36.58, indicating the dividend and growth capex are not internally funded this half. Financing CF was -7.15, suggesting net repayments and/or interest payments; combined with negative OCF, cash reserves likely declined. Working capital signals cannot be fully assessed due to missing inventory and detailed payables/receivables movements; no clear evidence of manipulation, but the scale of OCF outflow vs NI implies sizable build in current assets or reduced payables.

Dividend Sustainability

Dividend disclosures were unreported for the period; payout metrics are therefore not meaningful. With net income negative (-14.04) and proxy FCF deeply negative (approximately -36.58 using OCF and capex), coverage for any cash dividends would be weak this half. Balance sheet equity of 174.45 provides some buffer, but elevated leverage and negative interest coverage argue for conservation of cash until earnings normalize. Policy outlook likely hinges on H2 profitability and cash generation from project closings; a sustainable payout would require positive OCF and interest coverage trending back toward >2–3x.

Risk Assessment

Business Risks:

• Project timing risk leading to lumpy revenue and near-zero gross margins in the period
• Real estate/hospitality market sensitivity affecting pricing and spreads
• Execution risk on developments or asset turnarounds impacting cost and delivery schedules
• Dependence on H2 closings to restore profitability

Financial Risks:

• High leverage (D/E 2.33x) and negative interest coverage (-2.94x)
• Refinancing/interest rate risk on 121.96 of long-term loans and 10.82 of short-term borrowings
• Negative operating cash flow (-33.90) increasing liquidity pressure if repeated
• Potential off-balance SPV exposure/guarantees (not disclosed)

Key Concerns:

• Gross margin effectively -0.0% and operating margin -22.9% indicate severe margin pressure
• ROIC at -3.8% signals value destruction
• OCF burn exceeds accounting loss, constraining internal funding capacity
• Limited visibility due to unreported inventory and investing cash flows

Investment Implications

Key Takeaways:

• Revenue grew modestly (+3.7% YoY) but profitability deteriorated sharply across operating, ordinary, and net levels
• Operating margin (-22.9%) and ordinary margin (-31.9%) reflect both poor gross profitability and heavier financing costs
• Leverage elevated (D/E 2.33x) with negative interest coverage, increasing sensitivity to delays in project monetization
• OCF significantly negative, implying reliance on financing/asset sales absent quick turnaround
• ROE (-8.1%) and ROIC (-3.8%) below thresholds; improvement requires higher asset turnover and restored margins

Metrics to Watch:

• H2 project closings and gross margin recovery
• Operating cash flow trajectory and working capital movements
• Interest coverage and debt maturity/refinancing schedule
• ROIC trending toward ≥5% near term and ≥7–8% medium term
• SG&A discipline relative to revenue growth

Relative Positioning: Versus domestic real estate developers/asset managers, the company currently exhibits weaker profitability, lower asset turnover, and higher leverage, making it more exposed to execution and financing risks until margins and cash generation recover.

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