TECNISCO,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.02B
• Operating Income: ¥-100M
• Net Income: ¥-346M
• EPS: ¥-9.83

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: FY2026 Q1 was weak despite 16.8% revenue growth, with a continued operating loss and elevated leverage pressuring financial flexibility. Revenue rose to 10.18, but the company posted operating income of -1.00 and ordinary income of -0.88, indicating that higher sales did not translate into profit. Gross profit was 1.72, implying a gross margin of 16.9%, while SG&A of 3.76 (about 36.9% of sales) kept the business in the red. Operating margin was -9.8% and net margin -8.8%, underscoring insufficient operating leverage at current scale. The gap between gross profit and SG&A suggests cost intensity remains high; an implied positive "other operating income" of roughly 1.04 is necessary to reconcile gross profit minus SG&A with reported operating loss. Ordinary income (-0.88) is materially better than the simple sum of operating income plus net non-operating items, and the significantly lower profit before tax (-3.70) implies sizable extraordinary losses (~-2.82) not broken out in the data. Non-operating expenses totaled 1.74, with interest expense at 0.08; debt service capacity is weak (interest coverage -12.21x). Liquidity is moderate (current ratio 134.7%, quick ratio 127.7%), but solvency risk is elevated with D/E at 2.93x and an equity ratio of approximately 25.4% (15.84 equity / 62.27 assets). Cash and deposits of 16.70 partly offset interest-bearing borrowings of 28.52 (short-term 11.30, long-term 17.22), leaving net debt around 11.82. Retained earnings are deeply negative (-28.88) with equity supported by capital surplus (30.28), signaling constrained capacity for shareholder returns under Japan Companies Act norms. ROE is -5.7% per DuPont (NPM -8.8%, AT 0.163, leverage 3.93x), and ROIC is -3.4%, both indicating poor capital efficiency. With operating cash flow unreported, earnings quality cannot be validated; OCF/NI cannot be checked. The company must improve gross margin and right-size SG&A to restore operating profitability and strengthen interest coverage. Forward-looking, margin repair, cost containment, and addressing extraordinary losses are essential, while balance-sheet de-risking (debt reduction or equity enhancement) would lower financial risk. Absent evidence of order momentum, pricing power, or mix improvement, near-term profit recovery visibility is limited.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (-8.8%) × Asset Turnover (0.163) × Financial Leverage (3.93x) ≈ -5.7% reported ROE. The largest driver of the negative ROE is the negative net margin, stemming from operating losses and extraordinary losses. Asset turnover is low for the quarter (0.163 on a quarterly basis), consistent with subscale utilization; annualized, this implies 0.65x if revenue run-rate holds. Financial leverage at 3.93x magnifies the negative return, reflecting a thin equity base against total assets. Business drivers: gross margin (16.9%) is too low to cover SG&A at 36.9% of sales; cost inflation, price pressure, or unfavorable mix likely compressed profitability, while extraordinary losses further depressed PBT/NI. Sustainability: the high SG&A burden and interest cost are recurring; unless pricing and mix improve or costs are structurally reduced, margins may remain under pressure. Red flags: SG&A (3.76) exceeds gross profit (1.72), indicating negative operating leverage; interest coverage is deeply negative; extraordinary loss magnitude (-2.82) implies event-driven charges or valuation losses that may not recur but signal risk management issues. Overall, the net margin deterioration is the dominant factor, with leverage turning a weak core into negative equity returns.

Growth Assessment

Revenue grew 16.8% YoY to 10.18, but profitability did not follow, highlighting quality-of-growth concerns. Gross margin at 16.9% is insufficient for breakeven given current SG&A intensity; operating margin sits at -9.8%. Ordinary margin is -8.6% and net margin -8.8%, implying non-operating and extraordinary headwinds. The improvement in top line could reflect demand recovery or pricing, but absent segment data, sustainability is uncertain. Without evidence of backlog strength, ASP increases, or cost pass-through, growth durability is unclear. Extraordinary losses that widened PBT to -3.70 undermine visibility and may mask underlying operating trends. Near-term outlook hinges on: (1) gross margin repair through mix and pricing, (2) SG&A containment, and (3) stabilizing non-operating/extraordinary items. If revenue momentum continues and cost actions are executed, breakeven could be achievable; otherwise, continued losses are likely.

Financial Health

Liquidity: current ratio 134.7% and quick ratio 127.7% indicate adequate short-term coverage, albeit below the 1.5x comfort benchmark. Cash and deposits of 16.70 cover short-term loans of 11.30, mitigating immediate refinancing risk. Working capital stands at 9.53. Receivables (11.39) meaningfully exceed payables (0.62), so cash conversion relies on collections; inventories are modest (1.91). Solvency: D/E is 2.93x (warning >2.0), equity ratio ~25.4%, and interest coverage -12.21x—all pointing to elevated financial risk. Total interest-bearing debt is approximately 28.52 versus equity of 15.84, yielding net debt of ~11.82 after cash. Maturity mismatch risk is moderate: current assets (36.98) cover current liabilities (27.45), but ongoing losses could erode this buffer. No off-balance sheet obligations were disclosed in the data provided. Explicit warnings: D/E > 2.0 and interest coverage < 2.0.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed, so OCF/Net Income and FCF cannot be assessed. Earnings quality flags: inability to reconcile ordinary income to PBT without large implied extraordinary losses (~-2.82) suggests non-core volatility. With operating losses and negative interest coverage, internally funded capex and dividends would be challenged absent positive OCF. Working capital observations are limited, but high receivables relative to payables may create timing risk if collections slow. Given the negative ROIC (-3.4%), incremental investment is currently value-destructive unless tied to margin-accretive projects.

Dividend Sustainability

Dividend metrics were unreported. Given net loss (-0.90), negative retained earnings (-28.88), and weak interest coverage, capacity to pay dividends appears constrained under typical Japanese capital policy norms (dividends require distributable profits). FCF coverage cannot be evaluated without cash flow and capex data. Unless profitability and OCF recover, sustaining or initiating dividends would likely require drawing on capital surplus and board approval within legal limits, which may not be prudent amid elevated leverage.

Risk Assessment

Business Risks:

• Low gross margin (16.9%) versus high SG&A (36.9% of sales) leading to persistent operating losses
• Potential price/mix pressure and cost inflation limiting pass-through
• Execution risk in cost restructuring required to reach breakeven
• Dependence on extraordinary items volatility affecting bottom line

Financial Risks:

• High leverage (D/E 2.93x) with negative interest coverage (-12.21x)
• Refinancing risk if lenders tighten terms amid losses; covenant risk possible
• Negative retained earnings (-28.88) limiting shareholder return flexibility
• Non-operating and extraordinary losses (implied ~-2.82) impacting capital base

Key Concerns:

• Ordinary income (-0.88) diverges from operating income plus non-operating items, and PBT (-3.70) indicates significant unitemized extraordinary losses
• ROIC (-3.4%) below cost of capital, signaling value destruction
• Liquidity adequate but not robust (current ratio 1.35x) if losses persist
• Visibility limited due to missing cash flow disclosures

Investment Implications

Key Takeaways:

• Top-line growth (+16.8% YoY) did not translate into profit; operating margin -9.8%
• Cost structure misalignment: SG&A exceeds gross profit, requiring structural action
• Balance sheet risk elevated: D/E 2.93x; equity ratio ~25%
• Extraordinary losses (~-2.82 implied) materially worsened PBT/NI
• ROE -5.7% and ROIC -3.4% reflect poor capital efficiency

Metrics to Watch:

• Gross margin progression (bps) and SG&A ratio
• Order backlog and book-to-bill (if disclosed) to gauge demand durability
• Operating cash flow and working capital turns (DSO/DPO/inventory days)
• Interest coverage and net debt trajectory
• Extraordinary items and non-operating gains/losses disclosure
• ROIC versus management hurdle rates

Relative Positioning: Versus small-cap industrial peers on TSE, Technisco exhibits weaker profitability (negative operating and ordinary margins), higher leverage, and below-average earnings visibility due to large extraordinary items and absent cash flow disclosure; liquidity is adequate but less comfortable than peers with >1.5x current ratios.

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
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