Techno Smart Corp. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.55B
• Operating Income: ¥2.39B
• Net Income: ¥1.52B
• EPS: ¥132.55

Income Statement

Balance Sheet

Cash Flow Statement

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: A strong topline and profit expansion in FY2026 Q2, but cash conversion deteriorated, creating a mixed quality profile. Revenue rose 66.6% YoY to 125.47, with operating income up 63.2% YoY to 23.86 and ordinary income up 60.9% YoY to 23.95. Net income increased 53.4% YoY to 15.22, translating to a net margin of 12.1% and ROE of 7.3% on the DuPont basis provided. Reported gross margin is 16.2%, and operating margin calculates to about 19.0%, implying margin expansion versus prior year given the strong operating leverage (exact prior-year margins not disclosed). The combination of revenue scale and disciplined SG&A (5.71) supported profitability, while non-operating effects were small (net +0.27). Liquidity remains robust with a current ratio of 249.8% and working capital of 151.21. Leverage is conservative; cash and deposits (68.96) exceed interest-bearing debt (approx. 58.33), suggesting a net cash position despite a reported D/E of 0.62x. ROIC is cited at 8.0%, at the upper end of common targets, indicating improving capital efficiency. Earnings quality is the primary concern: operating cash flow of -1.95 yields an OCF/NI ratio of -0.13, well below the >1.0 high-quality threshold, likely reflecting receivables growth (AR 145.57) tied to the revenue surge. Financing cash outflows of -19.39 were driven by sizable share repurchases (-14.37), with capex at a manageable -5.06. The calculated payout ratio is 70.1%, above typical sustainability benchmarks (<60%), implying elevated distribution intensity when combined with buybacks. Several line-item inconsistencies suggest classification differences (e.g., operating income exceeding reported gross profit; profit before tax vs. net income mismatch), so interpretation should rely on the more coherent operating/ordinary profit and net profit lines. Forward-looking, the company appears well positioned to benefit from demand strength given capacity for growth and a solid balance sheet, but sustaining cash conversion and calibrating shareholder returns to internal cash generation will be key. Short-term debt is sizable (45.00), but covered by liquidity and receivables; maturity management bears monitoring. Overall, momentum is positive, but the near-term focus should be on normalizing working capital, maintaining ROIC at or above 8%, and aligning payouts with free cash flow.

Profitability Analysis

DuPont decomposition (ROE = Net Profit Margin × Asset Turnover × Financial Leverage): 12.1% × 0.339 × 1.78x = 7.3% (matches reported). The largest driver this quarter is margin strength, with net margin at 12.1% supported by operating margin of ~19.0% and minimal non-operating drag. Asset turnover at 0.339 remains modest, consistent with project- and equipment-heavy businesses where receivables and work-in-process elevate assets. Financial leverage at 1.78x is moderate and not the main ROE driver. Business explanation: strong revenue growth (+66.6% YoY) and disciplined SG&A (5.71) enhanced operating leverage, while low interest expense preserved ordinary income. Sustainability: margin gains appear volume-driven and could sustain if mix and pricing hold; however, the reported gross profit figure (16.2% gross margin) vs. higher operating margin indicates classification differences or one-off operating gains, warranting caution in extrapolation. Watch for cost inflation and project execution, which could compress margins if pricing power fades. Flags: the surge in AR suggests revenue recognition ahead of cash, which can reverse margins if collection costs or credit losses emerge; also, shareholder return intensity (buybacks) did not contribute to ROE uplift this quarter but reduces equity base over time, potentially mechanically supporting ROE if profits are stable.

Growth Assessment

Topline growth was robust at +66.6% YoY to 125.47, with operating income up +63.2% and ordinary income +60.9%, indicating mostly volume-driven growth and positive operating leverage. Net income rose +53.4% to 15.22 despite a 33.4% effective tax rate. Non-operating contributions were modest (net +0.27), implying earnings were primarily operational. Backlog/order intake is not disclosed; the surge in AR (145.57) vs. revenue suggests deliveries and billing outpaced cash collection, compatible with strong order execution. EBITDA of 24.99 implies an EBITDA margin of 19.9%, supporting the view of improved scale efficiency. Sustainability hinges on demand continuity and project timing; without disclosed segment/mix data, assume normalization from the unusually strong growth rate. Near-term outlook: focus on converting AR to cash, maintaining pricing and cost control, and aligning capex with order visibility. Watch for any slowdown in customer capex cycles, which could temper the revenue run-rate.

Financial Health

Liquidity: strong. Current ratio 249.8% and quick ratio 249.8% (inventories unreported) indicate ample short-term coverage; no warning triggers (Current Ratio well >1.0). Working capital is 151.21. Solvency: reported D/E of 0.62x is conservative; cash (68.96) exceeds short- and long-term loans (≈58.33), implying net cash and low interest burden. Interest coverage is reported as extremely high due to negligible interest expense; treat with caution. Maturity mismatch: short-term loans of 45.00 are sizable but are offset by cash and AR, reducing refinancing risk; still, monitor rollover exposure if credit markets tighten. Off-balance sheet obligations: none reported; no information on guarantees/leases provided. Equity base is solid at 208.32, with retained earnings of 155.27 supporting future resilience.

Cash Flow Quality

OCF/Net Income is -0.13x (<0.8), a clear earnings quality warning this half. The most likely driver is working capital absorption, particularly receivables growth (AR 145.57) given the revenue surge; inventories are unreported, limiting full diagnosis. Free cash flow cannot be fully calculated due to missing investing CF details, but capex was modest at -5.06; nevertheless, negative OCF means internally generated cash did not cover capex plus shareholder returns this period. No obvious signs of aggressive working capital manipulation are evident from disclosed data, but the gap between NI and OCF should normalize in subsequent quarters via collections; failure to do so would elevate risk. Financing CF of -19.39 was driven by buybacks (-14.37), amplifying net cash outflow when OCF was negative.

Dividend Sustainability

The calculated payout ratio is 70.1%, above the <60% benchmark for comfortable sustainability, especially in a period of negative OCF. Dividends paid are unreported; buybacks were sizable at -14.37, making total shareholder returns high relative to internal cash generation. Near-term sustainability is supported by a net cash position and strong liquidity, but continuation at this intensity would rely on OCF recovery and/or balance sheet drawdown. Policy outlook: absent disclosed guidance, a balanced approach—moderating buybacks until OCF normalizes—would better align with FCF. Monitor: OCF rebound, AR collections, and any full-year DPS guidance.

Risk Assessment

Business Risks:

• Cyclical demand and project timing risk in capital goods impacting order intake and revenue visibility
• Potential margin volatility from cost inflation and pricing competition
• Execution risk on large projects leading to cost overruns or delivery delays
• Customer concentration risk (not disclosed) commonly present in equipment businesses

Financial Risks:

• Earnings quality risk from negative OCF vs. positive NI driven by receivables build
• Refinancing/rollover risk on short-term loans (45.00), albeit mitigated by liquidity
• Potential FX exposure on export sales (not disclosed), affecting both margins and working capital
• High shareholder returns (buybacks) during a negative OCF period increasing cash burn

Key Concerns:

• OCF/NI of -0.13 indicates weak cash conversion this half
• Payout ratio at 70.1% and substantial buybacks not covered by OCF
• Data inconsistencies across some income statement lines (e.g., gross profit vs. operating income; PBT vs. NI), reducing clarity
• AR elevation (145.57) increases collection and credit risk if sustained

Investment Implications

Key Takeaways:

• Strong YoY growth with operating leverage: revenue +66.6%, OI +63.2%, NI +53.4%
• Healthy balance sheet with net cash and a 249.8% current ratio
• ROE at 7.3% and ROIC at 8.0% indicate acceptable capital efficiency
• Cash conversion is the weak link this quarter (OCF/NI -0.13)
• Shareholder returns were high due to buybacks despite negative OCF

Metrics to Watch:

• OCF/NI ratio and AR turnover to confirm cash conversion
• Operating and gross margins to validate sustainability of operating leverage
• Order intake/backlog (if disclosed) to gauge revenue durability
• Short-term debt rollover and net cash position
• ROIC relative to 8% target and capex discipline
• Payout actions (DPS, buybacks) vs. FCF coverage

Relative Positioning: Versus domestic machinery peers, the company shows above-peer growth momentum and solid liquidity with moderate leverage, but trails best-in-class names on cash conversion this period; profitability metrics are competitive, while shareholder return intensity is on the higher side given near-term cash generation.

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