WirelessGate,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥6.11B
• Operating Income: ¥143M
• Net Income: ¥158M
• EPS: ¥14.59

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Soft quarter with significant margin compression and heavy reliance on non-recurring gains to support bottom line. Revenue declined 4.4% YoY to 61.06, while operating income fell 53.4% YoY to 1.43, indicating sharp deterioration in core profitability. Gross profit was 32.08, yielding a gross margin of 52.5%, but SG&A of 28.99 (47.5% of sales) left only a 2.3% operating margin. Ordinary income was 1.44, but profit before tax was notably higher at 3.19, implying material extraordinary gains not captured in non-operating income, and the effective tax rate was 1.4%, both of which boosted net income. Net income declined 49.5% YoY to 1.58, equating to a 2.6% net margin. Operating margin contracted by approximately 247 bps YoY (from ~4.8% to ~2.3%), and net margin compressed by roughly 231 bps (from ~4.9% to ~2.6%). DuPont shows ROE of 10.7% driven by high asset turnover (2.192x) and moderate leverage (1.89x) offsetting very low net margin. Liquidity is sound with a current ratio of 168.7% and cash of 18.30 versus current liabilities of 16.66, indicating a likely net cash position even after short-term loans of 3.00. However, retained earnings remain negative (-3.64), highlighting a thin capital buffer and accumulated losses despite current positive equity. Earnings quality is questionable this quarter given the divergence between operating results and PBT, alongside a very low tax rate; cash flow data are unreported, preventing confirmation via OCF. With revenue softness and SG&A density, further operating leverage is constrained unless costs are reduced or top-line stabilizes. Forward-looking, the company must improve cost efficiency and stabilize ARPU/subscriber trends to defend margins. The exceptionally low tax burden and extraordinary items are unlikely to be recurring tailwinds. Balance sheet liquidity provides time to execute restructuring, but capital efficiency remains weak. Overall, the quarter underscores pressure on the core business and a dependency on non-recurring gains to sustain net profit.

Profitability Analysis

ROE (10.7%) = Net Profit Margin (2.6%) × Asset Turnover (2.192x) × Financial Leverage (1.89x). The largest adverse change appears in the net profit margin, inferred from a 231 bps YoY contraction to 2.6%, driven by a steep drop in operating income (-53.4%) on a modest revenue decline (-4.4%). Business driver: SG&A intensity at 47.5% of sales limited the ability to translate a 52.5% gross margin into operating profit; price competition and/or subscriber/ARPU pressure likely weighed on revenue while fixed/semi-fixed costs kept SG&A elevated. Asset turnover remains a relative strength (2.192x), suggesting efficient use of an asset-light base, while leverage (1.89x) provides a moderate ROE boost. The uptick from ordinary income to PBT signals extraordinary gains, masking weaker operating profitability at the net level. Sustainability: the margin compression is a concern unless structural cost actions are taken; extraordinary gains and a 1.4% tax rate are unlikely to be durable supports. Concerning trends include SG&A growing as a share of sales versus gross profit, and operating income falling much faster than revenue, indicating negative operating leverage.

Growth Assessment

Revenue declined 4.4% YoY to 61.06, indicating top-line softness likely from competitive pricing and/or subscriber attrition in core connectivity services. Operating income fell 53.4% YoY to 1.43, evidencing pronounced negative operating leverage as fixed/semi-fixed SG&A outpaced gross profit contraction. Net income decreased 49.5% YoY to 1.58 despite non-recurring support (extraordinary gains implied by PBT > ordinary income and a very low tax rate). Near-term growth sustainability is weak without cost realignment; the current 2.3% operating margin leaves little buffer for further revenue declines. Outlook hinges on stabilizing ARPU and churn, upselling value-added services, and executing SG&A discipline. Given the absence of disclosed R&D/CapEx, growth investments and future product pipeline visibility are limited in the data.

Financial Health

Liquidity is healthy: current ratio 168.7% and quick ratio 168.7%, with cash and deposits of 18.30 versus current liabilities of 16.66. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.14x, a moderate level. Short-term loans of 3.00 are well covered by cash, minimizing near-term maturity risk; working capital is positive at 11.44. There is a minor balance sheet inconsistency (current assets 28.10 vs total assets 27.85), likely rounding/classification; it does not change the liquidity conclusion. Retained earnings are negative (-3.64), signaling historical losses and a thinner equity cushion despite total equity of 14.72. Long-term debt is unreported; interest cost is very small (0.02) and interest coverage is strong at 79.0x, suggesting low financial strain. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF is unreported; therefore OCF/Net Income and FCF cannot be assessed, which is a key limitation. Earnings quality flags: (1) PBT (3.19) substantially exceeds ordinary income (1.44), implying extraordinary gains that are non-recurring; (2) effective tax rate is abnormally low at 1.4%, which may not persist. Absent OCF, we cannot validate whether working capital releases or other cash items supported earnings. With cash exceeding short-term debt, liquidity is currently adequate, but sustainability of free cash flow for dividends or reinvestment cannot be judged from the data.

Dividend Sustainability

Dividend metrics are unreported, so payout ratio and FCF coverage cannot be calculated. Given negative retained earnings and compressed operating margin (2.3%), internal capacity to fund stable dividends depends on underlying OCF generation, which is undisclosed. If dividends are paid, sustainability would require low payout and continued positive OCF; reliance on extraordinary gains would not be a sound basis for payouts. Policy outlook cannot be inferred without guidance.

Risk Assessment

Business Risks:

• Price competition and ARPU pressure in MVNO/connectivity services leading to persistent margin compression
• Subscriber churn and customer acquisition costs elevating SG&A intensity
• Dependence on extraordinary gains to sustain net income amid weak operating profit
• Regulatory changes (MIC policies on wholesale access/fees) impacting cost structure and pricing
• Potential customer concentration in enterprise/retail channels (not disclosed) increasing volatility

Financial Risks:

• Negative retained earnings (-3.64) indicating thin capital buffer despite current profitability
• Very low effective tax rate (1.4%) likely to normalize, reducing net income
• Short-term funding reliance (short-term loans 3.00), albeit currently covered by cash
• Absence of OCF data prevents verification of earnings-to-cash conversion

Key Concerns:

• Operating margin contraction of ~247 bps YoY to 2.3%
• PBT significantly higher than ordinary income, implying non-recurring gains
• Revenue decline of 4.4% YoY with SG&A at 47.5% of sales
• Capital efficiency weakness despite reported ROE boosted by turnover and leverage

Investment Implications

Key Takeaways:

• Core operations weakened: operating income down 53.4% on a 4.4% revenue decline, compressing operating margin to ~2.3%
• Net income benefited from extraordinary items and a very low tax rate; sustainability questionable
• Balance sheet liquidity is solid with net cash likely positive; provides runway for restructuring
• ROE of 10.7% is driven by high asset turnover and moderate leverage, not by margin strength
• Negative retained earnings underscore a need to rebuild equity through consistent cash profits

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio
• Subscriber counts, ARPU, and churn (not disclosed here)
• OCF and OCF/Net Income once available
• Any disclosure on extraordinary gains and normalized tax rate trajectory
• Cash balance versus short-term debt and changes in working capital (AR/AP)
• Gross margin stability amid pricing competition

Relative Positioning: Versus domestic MVNO/telecom peers, the company exhibits weaker operating profitability but stronger near-term liquidity; capital efficiency appears soft, and earnings are more reliant on non-recurring items this quarter.

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