M・H・GROUP LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥456M
• Operating Income: ¥-14M
• Net Income: ¥-9M
• EPS: ¥-1.29

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 operating and net losses amid a small revenue decline and thin gross margin, with leverage remaining elevated. Revenue was 4.56 (100M JPY), down 4.2% YoY, indicating modest top-line pressure. Gross profit was 1.30, translating to a gross margin of 28.5%, which was insufficient to cover SG&A of 1.39, resulting in an operating loss of -0.14. Operating margin stood at -3.1%, ordinary income was -0.13, and net income was -0.15 (EPS -1.29 JPY), reflecting negative profitability at all levels. Non-operating items were small (income 0.04, expenses 0.01), narrowing the operating loss only slightly. Current margin comparisons in basis points versus prior periods are not determinable due to unreported YoY margin data; current gross margin is 28.5% and operating margin is -3.1% (YoY bps change: N/A). The effective tax rate is negative (-32.4%), reflecting tax expense despite a pre-tax loss, likely due to non-deductible items or minimum taxes. Liquidity is adequate with a current ratio of 133.2% and cash of 5.65 versus short-term loans of 1.00, but leverage is high with a D/E of 2.41x. ROE is -3.0% on a DuPont basis, driven by a -3.3% net margin, low asset turnover of 0.266, and high financial leverage of 3.41x. ROIC is deeply negative at -27.9%, signaling poor capital efficiency in the quarter. Cash flow from operations was unreported, so we cannot confirm earnings quality or FCF coverage; this is a key limitation. With SG&A exceeding gross profit, further cost actions or mix improvements are needed to restore operating breakeven. Balance sheet cash provides near-term flexibility, but sustained losses could pressure equity and covenants given high leverage. Forward-looking, stabilization of revenue and gross margin improvement, alongside SG&A discipline, will be critical to regain positive operating income and protect solvency.

Profitability Analysis

ROE decomposition (DuPont): ROE (-3.0%) = Net Profit Margin (-3.3%) × Asset Turnover (0.266) × Financial Leverage (3.41x). The primary drag is the negative net margin, as operating losses drove the consolidated bottom line into the red. Asset turnover of 0.266 is low for a service-oriented, asset-light profile, suggesting either subdued sales or underutilized assets this quarter. Financial leverage at 3.41x is high; while leverage can amplify returns, here it amplifies losses and heightens risk. Business driver: gross margin at 28.5% could not cover SG&A (1.39 vs gross profit 1.30), implying operating deleverage—likely higher fixed costs relative to a softer revenue base (-4.2% YoY). Sustainability: without cost reduction or revenue recovery, the negative operating margin appears persistent rather than one-off. Concerning trend flags: SG&A growth vs revenue growth cannot be assessed due to missing YoY SG&A, but SG&A > gross profit is structurally problematic; negative effective tax rate with losses may persist due to tax items; reliance on non-operating items (albeit small) to narrow losses is not a durable profit driver.

Growth Assessment

Top-line declined 4.2% YoY to 4.56, indicating soft demand or pricing pressure. Profit quality is weak this quarter: operating loss (-0.14) and net loss (-0.15) despite modest non-operating gains. With gross margin at 28.5% and SG&A exceeding gross profit, operating leverage is negative; incremental revenue recovery or cost cutting is needed to restore breakeven. No disclosure on segment or customer mix limits visibility on sustainability of revenues. Absence of D&A and capex data prevents assessing organic vs investment-led growth. Outlook hinges on near-term cost rationalization and gross margin protection; even small revenue declines materially impact earnings at this scale, so execution on cost flexibility is critical.

Financial Health

Liquidity: Current assets 14.55 vs current liabilities 10.93 yield a current ratio of 133.2% (above 1.0 but below the 1.5 comfort benchmark). Quick ratio is also 133.2%, helped by cash and deposits of 5.65. Solvency: Total liabilities 12.12 and equity 5.02 imply D/E of 2.41x—warning level (>2.0). Interest-bearing debt disclosed includes short-term loans 1.00 and long-term loans 0.13; interest expense is near zero this quarter, but interest coverage is reported at -32.94x due to negative EBIT (metric distorted by tiny interest). Maturity mismatch risk: short-term loans (1.00) are covered by cash (5.65) and working capital is positive at 3.62, so near-term rollover risk is manageable. However, high total liabilities vs equity constrain financial flexibility if losses persist. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF was unreported, so OCF/Net Income and free cash flow cannot be assessed—this is the key limitation for earnings quality analysis. With net loss and SG&A > gross profit, near-term OCF risk is elevated unless working capital releases offset losses. Dividend, capex, and financing CF are unreported; FCF coverage of any shareholder returns is therefore indeterminable. No explicit signs of working capital manipulation can be inferred: receivables are 1.11 vs payables 0.30, but inventory data is unreported, limiting analysis.

Dividend Sustainability

Dividend data is largely unreported; the calculated payout ratio appears negative (-38.8%) due to negative earnings and is not economically meaningful. With net loss and unknown OCF/FCF, dividend sustainability cannot be confirmed. If dividends are being paid despite losses, coverage likely relies on existing cash balances, which is not sustainable long term without a return to positive OCF.

Risk Assessment

Business Risks:

• Revenue decline of 4.2% YoY suggests demand or pricing softness.
• Gross margin (28.5%) insufficient to cover SG&A, creating structural operating losses.
• Negative ROIC (-27.9%) indicates poor capital efficiency and value destruction in the period.
• Execution risk on cost reductions and mix improvements needed to regain breakeven.

Financial Risks:

• High leverage: D/E 2.41x exceeds warning threshold (>2.0).
• Interest coverage reported at -32.94x due to negative EBIT, highlighting earnings vulnerability to any increase in financing costs.
• Potential covenant or refinancing risk if losses persist and equity erodes.
• Tax expense despite pre-tax loss (effective tax rate -32.4%) could continue to burden cash flow.

Key Concerns:

• Persistent operating losses with SG&A exceeding gross profit.
• Limited disclosure: OCF, capex, and dividend cash flows unreported, obscuring cash generation and capital allocation.
• Low asset turnover (0.266) alongside negative margins magnifies ROE downside via leverage.
• Dependence on small non-operating items to narrow losses is not a durable earnings driver.

Investment Implications

Key Takeaways:

• Soft quarter with operating margin -3.1% and net margin -3.3% on revenue down 4.2% YoY.
• Gross margin 28.5% could not cover SG&A (1.39 > gross profit 1.30), driving losses.
• Leverage elevated (D/E 2.41x); liquidity adequate near term (current ratio 133.2%, cash 5.65 vs ST loans 1.00).
• ROE -3.0% and ROIC -27.9% underscore weak returns; improvement requires margin recovery and cost control.
• Earnings quality indeterminable due to missing OCF; monitor cash burn closely.

Metrics to Watch:

• Quarterly gross margin and SG&A-to-sales ratio (target: SG&A below gross profit).
• Operating income trajectory and operating margin inflection back to positive.
• OCF and FCF once disclosed; OCF/Net Income ratio (>1.0 desired).
• Leverage metrics (D/E, net debt/cash) and any covenant disclosures.
• Revenue trend and asset turnover (sales/total assets) to assess utilization.
• Tax cash outflows vs losses (effective tax rate normalization).

Relative Positioning: Within small-cap service peers, the company currently exhibits weaker profitability and capital efficiency, offset by adequate near-term liquidity but constrained by higher 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