MEDINET (2370) FY2026 Q1 Earnings Report

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Executive Summary

Although revenue declined 11.4% year on year, the operating loss and net loss narrowed slightly due to the control of selling, general and administrative expenses; however, the earnings structure remains unable to absorb fixed costs. Revenue was ¥1.8B (¥2.0B in the previous year, YoY -11.4%), operating income was ¥-3.7B (¥-3.8B in the previous year, YoY +2.9%), ordinary income was ¥-3.4B (¥-3.5B in the previous year, YoY +3.7%), and net income was ¥-3.4B (¥-3.5B in the previous year, YoY +1.7%). The narrowing of losses was mainly attributable to a reduction in SG&A expenses (approximately 3.4% lower than the previous year) and non-operating income (including gains on the operation of investment business partnerships), which did not fully offset the impact of the revenue decline.

Factors Affecting Earnings

【Revenue】Revenue was ¥1.8B, down 11.4% year on year. By segment, ContractCellManufacturing (contract cell manufacturing) accounted for the majority of revenue at ¥1.8B, while CellularAndTissueBasedProduct was nearly immaterial (¥0.0B). Both segments reported operating losses, and no revenue growth drivers were identified.

【Profit and Loss】Against cost of sales of ¥1.6B and a gross margin of 12.6% (roughly flat year on year), SG&A expenses amounted to ¥3.9B, approximately 17 times gross profit, resulting in an operating loss of ¥3.7B (operating margin of -205.0%). Year on year, the approximately 3.4% decrease in SG&A expenses contributed to a slight improvement in the operating loss; however, the rate of decline was lower than the rate of revenue decline, indicating that operating leverage has instead deteriorated. The ordinary loss was ¥0.3B smaller than the operating loss, with non-operating income, including ¥0.3B in gains on the operation of investment business partnerships, making up the difference. Net income was approximately at the same level as ordinary income, and the impact of income taxes was limited. In conclusion, the company experienced lower revenue and lower earnings (although losses narrowed, structural profitability deteriorated).

Segment Analysis

ContractCellManufacturing (contract cell manufacturing) generated revenue of ¥1.8B and an operating loss of ¥1.3B (margin of -69.9%), recording a substantial loss despite being the primary source of revenue. CellularAndTissueBasedProduct (cell- and tissue-related products) generated only immaterial revenue (on the scale of several tens of thousands of yen) and recorded an operating loss of ¥0.9B, indicating that commercialization of the business has made little progress. Company-wide expenses (adjustments) amounted to ¥-1.6B, with general and administrative expenses not attributable to reportable segments accounting for a substantial portion of the overall loss.

Key Financial Indicators

【Profitability】The operating margin was -205.0%, while the net profit margin was -187.3% (deteriorating from approximately -169.1% in the same period of the previous year), indicating the continued structural imbalance in which SG&A expenses are excessive relative to the 12.6% gross margin. 【Cash Quality】Against accounts receivable of ¥2.6B, annualized DSO was 131 days and the CCC was 142 days, both extended levels; work in progress was ¥0.3B, an approximately 45.5% increase year on year. 【Investment Efficiency】Annualized ROE was -39.6%, indicating that the company has not achieved returns exceeding its capital costs. 【Financial Soundness】The equity ratio remained high at 86.7%, and the current ratio was also well above 100%, indicating a conservative level of short-term financial resilience. However, retained earnings deteriorated to ¥-17.0B, confirming the gradual erosion of capital due to continuing losses.

Cash Flow Analysis

As cash flow statement figures are outside the disclosed scope, cash trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥3.2B from ¥21.7B in the same period of the previous year to ¥18.5B, while short-term investment securities remained at ¥10.0B. Net assets decreased by ¥3.5B from ¥37.8B to ¥34.3B, broadly consistent with the recognition of a Q1 net loss of ¥3.4B. Liquid assets, comprising cash and deposits and short-term investment securities, totaled ¥28.5B and provide a certain degree of capacity to absorb the current-period operating loss of ¥3.7B. However, continued losses would gradually reduce both cash and equity, which warrants close monitoring.

Earnings Quality

The ordinary loss (¥-3.4B) was smaller than the operating loss (¥-3.7B), with the difference arising from ¥0.4B in non-operating income, including ¥0.3B in gains on the operation of investment business partnerships and ¥0.03B in interest income. This non-operating income does not indicate an improvement in the profitability of the core business; rather, it is strongly temporary in nature as income associated with investment management and should be evaluated separately from improvements in operating results. Income taxes were immaterial at approximately ¥0.01B, and there was almost no difference between profit before tax and net income. Work in progress increased 45.5% year on year, while the accounts receivable collection period (annualized DSO of 131 days) also lengthened. From an accrual perspective, the accumulation of work in progress and the lengthening collection period amid declining revenue are points to consider when assessing earnings quality.

Earnings Forecasts and Guidance

The full-year company forecast calls for revenue of ¥9.4B (up +16.4% year on year), an operating loss of ¥14.5B, and a net loss of ¥14.5B. Q1 revenue achieved 19.2% of the full-year forecast, 5.8pt below the 25% implied by assuming an even quarterly progression. To achieve the second-half-weighted plan, revenue of approximately ¥7.6B must be accumulated during the remaining period. Meanwhile, loss progression was broadly in line with the plan, with 25.5% for the operating loss and 23.3% for the net loss, and no significant deviation from company forecasts was observed on the loss side. The core issue for the full-year plan is not loss containment, but the feasibility of achieving revenue growth primarily in the second half.

Shareholder Returns

The full-year dividend forecast is ¥0 per share, with no revision to the dividend forecast for the current quarter. Given the Q1 net loss of ¥3.4B and the full-year forecast net loss of ¥14.5B, the company lacks profits available for distribution, and there are no dividends subject to calculation of the payout ratio or total return ratio. The no-dividend policy is consistent with maintaining available liquidity and equity during a period of expanding accumulated losses.

Risk Factors

1. Feasibility of revenue growth: Revenue declined 11.4% year on year, and Q1 progress against the full-year revenue forecast was 19.2%, below the 25% implied by an even progression. If the second-half-weighted plan falls short, the operating loss could expand due to insufficient absorption of fixed costs.

2. Low gross margin and high fixed-cost structure: The gross margin remained at 12.6%, while SG&A expenses of ¥3.9B substantially exceeded gross profit of ¥0.2B. Unless profitability per project and cost management improve in addition to revenue expansion, the operating deficit is expected to continue.

3. Working capital efficiency: Work in progress increased approximately 45.5% year on year, while annualized DSO was 131 days and the CCC was 142 days, both extended levels. Delays in project progress could lead to prolonged cost recovery and valuation risks.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The company's profitability indicators are substantially below the industry median and are at a significantly underperforming level even within the industry.

Growth and Capital Efficiency

While many companies in the industry secured revenue growth, the company experienced declining revenue and also ranks behind its industry peers in terms of growth.

※Source: Compiled by the company

Key Takeaways from the Financial Results

1. Although the operating loss improved by ¥0.1B year on year, the operating margin deteriorated to -205.0%, and the slight narrowing of the loss does not signify an improvement in the earnings structure. The excessive level of SG&A expenses relative to the 12.6% gross margin remains a structural issue.

2. Financial soundness, including cash and deposits of ¥18.5B, short-term investment securities of ¥10.0B, and an equity ratio of 86.7%, supports the ability to absorb losses for the time being. However, retained earnings have deteriorated to ¥-17.0B, and the gradual decline in capital resources in the event of continuing losses is a key monitoring point.

3. The 19.2% progress rate against the full-year revenue forecast is below the benchmark for even progression, making the feasibility of revenue growth in the second half the pivotal factor in achieving the full-year plan. Working capital indicators, including an accounts receivable collection period of 131 days and a rising work-in-progress ratio, should also be monitored when assessing cash-generation capacity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2–¥2 at cost of equity ±1%, and ¥2–¥2 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document produced by AI analysis of XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional where necessary.

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