FINDEX Inc. FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 of FY2026, revenue increased but operating income declined due to higher SG&A expenses. Revenue increased modestly to ¥31.45B (+0.6% YoY), while operating income was ¥8.88B (-7.0%) and ordinary income was ¥9.22B (-6.4%). Interim net income attributable to owners of the parent was ¥5.60B (-18.2%), due to the addition of an extraordinary loss of ¥1.07B from valuation losses on investment securities. The composition of the revenue increase was characterized by moderate growth in the core Medical Business, offset by a significant decline in the Public Business and continued losses in the HealthTech Business, which pressured profits.

Factors Affecting Performance

【Revenue】Revenue was ¥31.45B, a modest increase of +0.6% YoY. By segment, the Medical Business (92.5% of total) supported the core business with revenue of ¥29.08B, up +1.8%, while the Public Business (5.5% of total) recorded revenue of ¥1.73B, down -29.1%. The HealthTech Business (2.1% of total) expanded sharply by +150.2% to ¥0.65B, although its scale remains small.

【Profit and Loss】Operating income was ¥8.88B (-7.0%). The gross margin improved by 60bp to 65.8% from 65.2% in the same period of the previous year; however, SG&A expenses increased by 9.2% to ¥11.81B, substantially outpacing revenue growth, causing the operating margin to decline by 240bp to 28.2% from 30.6%. Ordinary income declined at a nearly similar rate to ¥9.22B (-6.4%), while profit before tax was pushed down to ¥8.15B by the extraordinary loss of ¥1.07B from valuation losses on investment securities. Net income attributable to owners of the parent was ¥5.60B (-18.2%). The main causes of the decline in operating income were deteriorating profitability in the Public Business (segment profit -77.6% YoY) and continued losses in the HealthTech Business, resulting in a classification of higher revenue but lower profit.

Segment Analysis

The Medical Business generated revenue of ¥29.08B (+1.8%), segment profit of ¥9.46B (+1.0%), and a profit margin of 32.5%, serving as the core contributor to company-wide profit. The Public Business generated revenue of ¥1.73B (-29.1%) and segment profit of ¥0.28B (-77.6%); its profit margin fell sharply to 16.2% from 51.1% in the same period of the previous year, becoming the primary cause of the deterioration in the company-wide profit margin. The HealthTech Business expanded sharply, with revenue of ¥0.65B (+150.2%), but recorded a segment loss of ¥0.85B. Although the loss narrowed from ¥1.06B in the same period of the previous year, the business remains loss-making. Consolidated operating income of ¥8.88B was below the Medical Business’s standalone profit of ¥9.46B, making profitability improvement in the Public and HealthTech Businesses the key to consolidated profit growth.

Key Financial Indicators

【Profitability】Both the operating margin of 28.2% (30.6% in the same period of the previous year) and the net profit margin of 17.8% (21.9%) declined, while the gross margin improved to 65.8% (65.2%). This indicates a structure in which cost management was maintained, but higher SG&A expenses pressured margins.【Cash Flow Quality】Operating cash flow (OCF) was ¥13.04B, or 2.33 times net income attributable to owners of the parent of ¥5.60B. Cash conversion of earnings was strong, but the primary driver was a temporary working capital factor, namely a ¥6.49B decrease in accounts receivable. As DSO was 64 days, above 60 days, continued monitoring of the collection cycle is necessary.【Capital Efficiency】Annualized ROE remained high at 19.9%, with the high net profit margin supporting capital efficiency under low financial leverage.【Financial Soundness】The equity ratio was 82.1%, while the current ratio was over 420%, calculated as current assets of ¥38.84B divided by current liabilities of ¥9.24B, indicating an extremely conservative financial position. Cash and deposits were ¥24.71B, accounting for 35.7% of total assets.

Cash Flow Analysis

Operating cash flow was ¥13.04B, down 6.2% from ¥13.90B in the same period of the previous year, but remained well above net income attributable to owners of the parent of ¥5.60B. The primary driver of OCF generation was the ¥6.49B decrease in accounts receivable. Although the release of working capital boosted cash conversion, it should be noted that a DSO level of 64 days does not itself indicate an improvement in collection speed. Investing cash flow was an outflow of ¥1.68B, primarily consisting of capital expenditures of ¥0.20B and the acquisition of intangible assets of ¥1.37B; no major investments were observed. Financing cash flow was an outflow of ¥3.43B, all of which comprised dividend payments, with no share repurchases conducted. As a result, free cash flow was positive at ¥11.36B, more than sufficient to cover dividend payments and investments, and cash and deposits accumulated to ¥24.71B, an increase of +¥7.92B from the end of the same period of the previous year.

Quality of Earnings

The decline in the net profit margin for the current period (410bp YoY) includes the impact of the temporary extraordinary loss of ¥1.07B from valuation losses on investment securities and should be distinguished from the 240bp decline in operating-level profitability. Non-operating income was small at ¥0.33B, including foreign exchange gains of ¥0.09B, and had a limited impact on company-wide profit and loss; the majority of earnings was derived from the core business. The fact that OCF reached 2.33 times net income indicates strong cash generation capacity. However, because the main factor behind this increase was a working capital movement arising from the decrease in accounts receivable, the strength of cash flow in this period should not be equated with a structural improvement in sustainable earnings power from an accrual perspective. Evaluation should incorporate future trends in accounts receivable and DSO.

Earnings Forecast and Guidance

Progress against the full-year company plan was 50.7% for revenue, 48.6% for operating income, and 48.8% for ordinary income, slightly below the standard 50% progress level. Progress for profit attributable to owners of the parent was 43.0%, lower than the other indicators, primarily due to the temporary factor of the ¥1.07B valuation loss on investment securities incurred in the first half. The full-year plan calls for revenue of ¥62.09B (+1.6% YoY), operating income of ¥18.29B (+2.2%), and ordinary income of ¥18.89B (+2.6%); neither the earnings forecast nor the dividend forecast has been revised. In the second half, recovery in the profitability of the Public Business and a reduction in losses in the HealthTech Business will be key to achieving the full-year plan.

Shareholder Returns

The Q2 (interim) dividend was ¥13.00 per share, and the payout ratio for the first half was 61.8% based solely on dividends (total dividends of ¥3.43B ÷ net income attributable to owners of the parent of ¥5.60B). Dividend coverage against free cash flow of ¥11.36B was 3.28 times, indicating that dividends were sufficiently funded by internally generated cash. No share repurchases were conducted during the first half. The full-year dividend forecast is ¥27.00 per share. The forecast payout ratio calculated using the full-year EPS forecast of ¥53.34 is approximately 50.6%, expected to decline from the first-half actual level.

Risk Factors

1. Deteriorating profitability in the Public Business: Revenue declined -29.1% YoY and segment profit declined -77.6%, causing the profit margin to fall to 16.2% from 51.1% in the same period of the previous year. If changes in project mix and acceptance timing continue, this could pose a risk to achieving the full-year operating income plan.

2. Concentration of profit in the Medical Business: Segment profit of ¥9.46B in the Medical Business exceeded consolidated operating income of ¥8.88B, indicating a high degree of dependence on a single business. Demand fluctuations and changes in the competitive environment in this business would directly affect consolidated performance.

3. Monitoring the accounts receivable collection cycle: DSO was 64 days, exceeding the general benchmark of 60 days. Although the accounts receivable balance declined -38.5% YoY, this was primarily due to progress in collections and does not indicate an improvement in the number of days itself. The impact of future working capital movements on OCF requires close monitoring.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

Both profitability metrics substantially exceeded the industry median, positioning the company among the higher-ranking companies in the industry.

Growth and Capital Efficiency

The revenue growth rate was substantially below the industry median, positioning the company in the lower tier of the industry from a growth perspective.

※Source: Company research

Key Points from the Earnings Results

1. The operating margin of 28.2% and annualized ROE of 19.9% both remained at high levels. However, the operating margin declined by 240bp and the net profit margin declined by 410bp YoY, indicating from the earnings data that the profitability trend is deteriorating.

2. The decline in net income (-18.2%) exceeded the decline at the operating level (-7.0%), with the difference attributable to the temporary factor of the ¥1.07B valuation loss on investment securities. When evaluating core earnings power, changes based primarily on operating income and ordinary income should be referenced.

3. OCF remained high at 2.33 times net income, but its primary driver was a working capital factor arising from the decrease in accounts receivable. Given the DSO level of 64 days, future trends in accounts receivable represent a structural monitoring point that will determine the quality of cash flow.

Theoretical Share Price (Reference Value)

Sensitivity: ¥322–¥341 for cost of equity ±1%, and ¥329–¥335 for ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual income model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it 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 earnings analysis document automatically generated by AI based on XBRL earnings summary 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, with consultation with a professional as necessary.

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