Mortgage Service Japan Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.75B
• Operating Income: ¥751M
• Net Income: ¥521M
• EPS: ¥34.92

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 a solid profitability quarter with double-digit earnings growth, strong operating margin, and healthy cash conversion, albeit with modest ROE and low ROIC signaling capital efficiency headwinds. Revenue reached 37.55, while operating income rose 17.6% YoY to 7.51 and ordinary income increased 18.4% YoY to 7.57, demonstrating operating discipline. Net income was 5.13, up 16.2% YoY, translating to a net margin of 13.7%. Operating margin is robust at 20.0% (7.51/37.55), and ordinary income margin at 20.2%, indicating limited reliance on non-operating gains (non-operating income ratio 1.1%). SG&A totaled 19.47, implying an SG&A-to-sales ratio of 51.9%, which is high but consistent with service-heavy operations. Margin expansion/compression in bps cannot be quantified due to the absence of YoY revenue and gross profit disclosures; however, profit growth outpacing non-operating items suggests margin resilience. Earnings quality is strong: OCF of 7.93 is 1.54x net income, and estimated FCF (OCF minus capex of 0.03) is approximately 7.90. Liquidity is healthy with a current ratio of 179% and working capital of 82.15, though reliance on short-term loans (65.72) elevates refinancing sensitivity. Leverage versus cash generation looks tight on a Debt/EBITDA basis at 8.6x, but interest burden appears light (interest expense not disclosed; reported coverage metric not meaningful due to unreported interest). Capital efficiency is the main weak spot: ROE stands at 5.7% and ROIC at 4.6%, both below common cost-of-capital benchmarks, driven by low asset turnover (0.182). Balance sheet strength is acceptable with equity of 89.74 (calculated equity ratio ~43.5%), providing a buffer against cyclical swings. The effective tax rate is ~31%, in line with statutory norms. Dividends appear moderately aggressive with a calculated payout ratio of 63.1%, but cash coverage looks adequate given positive FCF and minimal capex. Forward-looking, sustainability hinges on maintaining operating margin, converting earnings to cash, and improving capital efficiency (ROIC and ROE) through better asset turnover or portfolio optimization. Interest rate and housing-transaction volumes will likely influence revenue trajectory and funding costs. Data gaps (gross profit, YoY sales, dividend per share, detailed interest expense) limit precision in margin trend and coverage analysis, but the available figures support a cautiously constructive view on earnings quality.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.7% = Net Profit Margin (13.7%) × Asset Turnover (0.182) × Financial Leverage (2.30x). The profile indicates profitability is primarily constrained by low asset turnover, while leverage is moderate and margins are healthy. Change attribution is limited by missing prior-period components; however, the 17.6% YoY rise in operating income alongside negligible non-operating contribution suggests margin discipline rather than leverage-driven gains. Business drivers: a 20.0% operating margin implies solid cost control versus SG&A intensity (51.9% of sales), and minimal reliance on financial income (interest income 0.05) reduces volatility. Sustainability: operating margin appears supported by core operations (ordinary income ~ operating income), but sustaining this will require stable housing market activity and controlled funding costs. Concerning trends include low asset turnover (0.182), which depresses ROE even with decent margins, and ROIC of 4.6% below typical 7–8% targets, signaling capital efficiency pressure. We cannot assess whether SG&A growth exceeds revenue growth due to missing YoY revenue; this is a monitoring point. Overall, margin quality is good, operating leverage likely positive in H1, and financial leverage is not excessive at 2.30x.

Growth Assessment

Revenue growth YoY is not disclosed, but profit growth is strong: operating income +17.6% and net income +16.2% YoY. Profit quality is high given negligible non-operating items and a 20.0% operating margin. The ordinary income margin of 20.2% corroborates that gains are largely operational, not financial. EBITDA of 8.12 yields a 21.6% margin, consistent with robust underlying earnings power. With OCF exceeding net income and capex de minimis, cash-backed growth appears credible. Outlook hinges on housing market transaction volume, mortgage origination/servicing fees, and the interest rate environment affecting both demand and funding costs. Given low asset turnover and ROIC (4.6%), incremental growth should prioritize capital-light initiatives or asset efficiency to accrete ROE. Absent gross profit and segment data, we cannot separate mix effects; continued monitoring of margin stability and any fee/pricing changes is warranted.

Financial Health

Liquidity is solid: current ratio 179.3% and working capital 82.15 indicate ample short-term coverage. Quick ratio equals current ratio due to unreported inventories; true quick liquidity may be lower, but cash (47.94) plus receivables (5.98) cover roughly 52% of current liabilities (103.54), with the remainder supported by other current assets. Solvency: D/E is 1.30x (moderate), and the calculated equity ratio is ~43.5% (89.74/206.11), providing balance sheet resilience. No explicit warning triggers: Current Ratio > 1.0 and D/E < 2.0. Maturity profile risk: short-term loans are sizable at 65.72 versus long-term loans of 4.08, indicating refinancing exposure; however, current assets of 185.68 mitigate near-term risk. Interest expense is unreported, so interest coverage metrics are not reliable; nonetheless, leverage vs EBITDA (8.6x) is elevated and should be watched. No off-balance-sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 1.54x, indicating high-quality earnings with strong cash conversion. Estimated FCF is approximately 7.90 (OCF 7.93 minus capex 0.03), suggesting ample capacity to fund operations and shareholder returns. Working capital movements are not disclosed in detail; however, the positive OCF alongside rising profits suggests no evident aggressive working capital pull-forward. With minimal capex needs, recurring FCF appears structurally strong, subject to stability in operating margin and loan funding conditions. We cannot evaluate OCF seasonality or one-offs due to limited detail; monitor receivables and other current assets in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 63.1%, slightly above the 60% benchmark for comfort but potentially manageable given FCF strength. DPS and total dividends paid are unreported, limiting precision on cash payout coverage; however, estimated FCF of ~7.90 appears to cover likely dividends if payout aligns with net income. Balance sheet flexibility (equity ratio ~43.5%) offers some buffer, but elevated Debt/EBITDA (8.6x) and low ROIC (4.6%) argue for disciplined capital returns to avoid constraining reinvestment or deleveraging. Policy outlook depends on management’s stance toward ROIC improvement and balance sheet optimization; maintaining or modestly adjusting payout to align with cash flows would be prudent. Monitor declared DPS, buyback activity (unreported), and OCF trajectory.

Risk Assessment

Business Risks:

• Housing market volume and mortgage origination activity sensitivity impacting fee income
• Interest rate environment shifts affecting demand and client behavior (prepayments, refinancing)
• Regulatory changes in mortgage/financial services potentially altering economics
• Competition compressing fee rates and margins
• Execution risk in cost control given SG&A intensity (~52% of sales)

Financial Risks:

• High Debt/EBITDA of 8.6x increases vulnerability to earnings volatility
• Refinancing risk due to concentration in short-term loans (65.72) vs long-term (4.08)
• Potential interest expense escalation as rates normalize (interest expense unreported)
• Low ROIC (4.6%) below typical targets implies value creation headwinds
• Asset turnover of 0.182 constraining ROE (5.7%)

Key Concerns:

• Capital efficiency is weak (ROE 5.7%, ROIC 4.6%) despite healthy margins
• Data gaps (gross profit, detailed interest expense, DPS) limit assessment of margin trends and coverage
• Reliance on non-disclosed components within current assets for liquidity coverage

Investment Implications

Key Takeaways:

• Strong operating performance: operating margin 20.0%, net margin 13.7%, profit growth >16% YoY
• High-quality cash flow: OCF/NI 1.54x and estimated FCF ~7.90 with minimal capex
• Balance sheet adequate: equity ratio ~43.5%, D/E 1.30x, but leverage vs EBITDA is high at 8.6x
• Capital efficiency is the main drag: ROE 5.7% and ROIC 4.6% reflect low asset turnover
• Dividend affordability appears acceptable but payout ratio (~63%) is on the high side relative to benchmarks

Metrics to Watch:

• Revenue trajectory and operating margin trend (bps) as more YoY data becomes available
• OCF/Net income and working capital movements (receivables, other current assets)
• Short-term loan balances and effective interest cost as rates evolve
• ROIC improvement and asset turnover enhancement initiatives
• Dividend declarations (DPS) and any share repurchases
• Debt/EBITDA and net debt dynamics

Relative Positioning: Versus Japanese financial-services peers, the company exhibits stronger operating margins and cash conversion but lags on capital efficiency (ROE/ROIC) with relatively high leverage to EBITDA; liquidity is solid, and earnings quality is above average, yet sustainable value creation will require improving asset turnover and moderating leverage.

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