TRANSGENIC GROUP INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.22B
• Operating Income: ¥71M
• Net Income: ¥-185M
• EPS: ¥1.77

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

TransGenic Group (23420) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line slippage and extremely thin profitability, with broadly stable operating profit year over year. Revenue was ¥6.224bn, down 1.4% YoY, while operating income held at ¥71m and net income at ¥29m, indicating limited operating leverage. Gross profit was ¥1.115bn, translating to a gross margin of 17.9%; operating margin was 1.1%, and net margin was 0.47%. Ordinary income of ¥83m exceeded operating income, suggesting a positive net non-operating balance despite ¥18.4m in interest expense. Depreciation and amortization were ¥64.4m, yielding EBITDA of ¥135.4m and an EBITDA margin of 2.2%, underscoring a narrow buffer for error. DuPont decomposition indicates an ROE of 0.60%, driven by a very low net margin (0.47%), moderate asset turnover (0.646x), and leverage of 1.98x. Liquidity is a relative bright spot: current assets of ¥6.699bn and current liabilities of ¥3.272bn produce a current ratio of 205% and a quick ratio of 164%, with working capital of ¥3.427bn. However, cash generation is weak: operating cash flow (OCF) was negative ¥421m, far below net income (OCF/NI = -14.5x), implying material working-capital outflows and/or non-cash earnings components in the period. Financing cash flow was an inflow of ¥379m, which appears to have supported liquidity amid negative OCF. The reported debt-to-equity ratio of 0.97x points to a moderate leverage profile that requires disciplined cash conversion to remain comfortable. The effective tax line shows an income tax benefit (negative tax expense), supporting bottom-line stability despite low pre-tax profitability. Several items are undisclosed in the dataset (e.g., cash and equivalents, investing cash flows, equity ratio, share count, dividend details), constraining the precision of balance sheet and per-share diagnostics. Overall, the quarter reflects stable but constrained profitability, reasonable short-term liquidity, reliance on external financing to bridge operating cash deficits, and a low ROE profile. The near-term outlook hinges on normalizing working capital, defending gross margin, and converting earnings to cash. Sustained improvements in pricing, mix, and cost control are key to lifting operating leverage from a very low base. Given the thin margins, any demand softness or cost pressure could quickly compress profits, whereas even small efficiency gains could significantly improve returns.

Profitability Analysis

ROE of 0.60% is explained by net margin of 0.47%, asset turnover of 0.646x, and financial leverage of 1.98x. The main drag is the very thin net margin; leverage is moderate and asset turnover is mid-range for a services/manufacturing blend. Gross margin sits at 17.9%, implying a modest value-add over cost of sales; operating margin of 1.1% indicates SG&A and other operating costs absorb most of the gross profit. EBITDA margin of 2.2% leaves limited room to absorb shocks and signals low operating leverage realization so far. Operating income was flat YoY despite a small revenue decline, suggesting some cost control offsetting the topline headwind but no material scale benefits yet. Interest expense of ¥18.4m is covered 3.8x by operating income, adequate but not generous given earnings volatility risk at low margins. Ordinary income (¥83m) above operating income implies positive non-operating contributions beyond interest expense (e.g., subsidies, equity-method gains, or other income), which are less reliable drivers of sustainable profitability. The negative tax expense (benefit) further supports net profit, but is unlikely to be a recurring driver of structural margin. Overall, profitability quality is fragile, with improvement dependent on better gross margin management, mix effects, and opex efficiency.

Growth Assessment

Revenue declined 1.4% YoY to ¥6.224bn, indicating soft demand or mix shifts. Operating income was flat YoY at ¥71m, reflecting limited operating leverage and effectiveness of cost controls in offsetting modest revenue pressure. Net income was also flat at ¥29m, aided by non-operating items and a tax benefit. Gross profit of ¥1.115bn suggests stable cost absorption relative to sales, but the 17.9% gross margin leaves little cushion for opex growth. The sustainability of ordinary income at ¥83m depends on the repeatability of non-operating gains that lifted it above operating income; absent these, core profit growth looks constrained. With OCF materially negative, reported accounting profits are not translating into cash, which dampens the quality of earnings and the durability of growth. Near-term growth will likely be driven by working-capital normalization, pricing discipline, and targeted efficiency gains rather than top-line acceleration. If inventories and receivables can be rotated faster, cash conversion should improve, supporting reinvestment. Outlook remains cautious, with upside contingent on margin expansion and improved cash conversion rather than volume alone.

Financial Health

Total assets are ¥9.642bn against total equity of ¥4.86bn, implying assets-to-equity of ~1.99x and moderate leverage. Total liabilities are ¥4.730bn; with current liabilities at ¥3.272bn, the current ratio is a strong 205% and the quick ratio 164%, indicating ample near-term liquidity buffers. Working capital is ¥3.427bn, providing flexibility to manage operations and inventory. The reported debt-to-equity ratio of 0.97x suggests a material, but not excessive, leverage load that requires consistent interest coverage and cash conversion to remain comfortable. Interest coverage (operating income/interest) is 3.8x, acceptable but not robust for a low-margin business. Financing cash inflow of ¥379m during the period offset negative OCF, signaling some dependence on external funding to maintain liquidity. Several balance sheet line items (e.g., cash and equivalents, equity ratio) are undisclosed, limiting a fuller solvency appraisal. Overall, short-term liquidity is sound, solvency is acceptable, but the balance sheet would benefit from stronger internally generated cash.

Cash Flow Quality

Operating cash flow was -¥421m versus net income of ¥29m (OCF/NI = -14.5x), indicating very poor cash conversion in the period. Drivers likely include working capital outflows (e.g., inventory build and/or receivables growth) and non-cash items supporting earnings; precise attribution is constrained by limited disclosures. EBITDA of ¥135m provides a limited starting point for cash generation; with negative OCF, working capital movements overwhelmed operating earnings. Investing cash flow is undisclosed, preventing a reliable free cash flow (FCF) computation; the provided FCF figure should be treated as not assessable rather than a true zero. Financing cash inflow of ¥379m helped bridge the operating cash deficit, implying reliance on debt/equity financing to fund operations in the half. Sustainability requires OCF normalization through better collections, inventory turns, and procurement terms. Earnings quality is currently weak given the divergence between accrual profits and cash flow.

Dividend Sustainability

Annual DPS and payout ratio are shown as 0.00, which should be interpreted as undisclosed in this dataset rather than confirmed zeros. With thin profitability (net margin 0.47%), low ROE (0.60%), and negative OCF, capacity to fund dividends from internally generated cash appears limited at present. FCF is not assessable due to undisclosed investing cash flows; therefore, FCF coverage of dividends cannot be reliably evaluated. Given reliance on financing inflows this period, prioritization of balance sheet strength and cash conversion over distributions would be prudent from a sustainability standpoint. Dividend policy outlook cannot be confirmed without management guidance and full cash data.

Risk Assessment

Business Risks:

• Thin gross and operating margins increase sensitivity to input cost inflation and pricing pressure.
• Revenue decline (-1.4% YoY) suggests demand/mix headwinds that could persist.
• Dependence on non-operating items and tax benefits to support net income reduces earnings quality.
• Potential inventory and receivables risks implied by negative OCF and sizable inventories.

Financial Risks:

• Negative operating cash flow requiring financing inflows heightens liquidity management risk.
• Moderate leverage (D/E ~0.97x) combined with low margins constrains financial flexibility.
• Interest coverage of 3.8x leaves limited buffer if operating income weakens.
• Undisclosed cash and investing cash flows limit visibility into true liquidity and FCF.

Key Concerns:

• Sustained negative OCF versus positive net income indicates weak earnings-to-cash conversion.
• Low ROE (0.60%) signals subpar capital efficiency.
• Operating margin at 1.1% offers minimal cushion against shocks.
• Reliance on financing cash flows to offset operating deficits.

Investment Implications

Key Takeaways:

• Stable but very low profitability: operating income flat YoY, net margin 0.47%.
• Liquidity appears adequate (current ratio 205%, quick ratio 164%), but cash generation is poor.
• ROE at 0.60% is primarily constrained by a very low net margin.
• Financing inflows offset negative OCF, underscoring execution risk on working capital.
• Non-operating support and tax benefits buoyed net results; sustainability uncertain.

Metrics to Watch:

• Operating cash flow and OCF/NI conversion ratio
• Gross margin trajectory and operating margin progression
• Inventory and receivables turnover days
• Ordinary income composition (recurring vs. non-operating items)
• Interest coverage and net debt trends (once cash disclosed)

Relative Positioning: Within low-margin, asset-light-to-moderate businesses on the TSE, the company demonstrates adequate short-term liquidity and moderate leverage but lags on cash conversion and ROE. Near-term competitiveness hinges on improving working-capital efficiency and margin resilience.

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