Meiji Machine Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.28B
• Operating Income: ¥-257M
• Net Income: ¥-95M
• EPS: ¥-8.91

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: Weak FY2026 Q2 with continued operating losses and margin compression offset by solid liquidity and positive operating cash flow. Revenue declined 2.8% YoY to 22.76, while operating loss widened to -2.57 (YoY -14%), and ordinary loss reached -2.42 (YoY -26.8%). Net loss improved to -0.95 (+95.1% YoY), aided by tax/one-off items, but core profitability remains negative. Gross profit was 5.04, implying a gross margin of 22.2%, insufficient to cover SG&A of 7.62 (33.5% of sales), resulting in negative operating leverage. Operating margin deteriorated to -11.3% from roughly -9.6% a year ago, a compression of about 170 bps. Ordinary margin was -10.6%, and net margin -4.2%. ROE was -3.2% on a DuPont basis (NPM -4.2%, asset turnover 0.389x, leverage 1.99x), with the margin component the primary drag. Despite losses, operating cash flow was positive at 3.63, yielding implied FCF of about 0.72 after capex of 2.91; however, OCF/NI of -3.82x flags low earnings quality and heavy working-capital effects. Liquidity is strong: current ratio 202% and cash of 15.11 comfortably exceed short-term loans of 3.00; D/E at 0.99x is moderate for the sector. Interest coverage is deeply negative (-24.3x on EBITDA), highlighting earnings risk if rates rise or if refinancing is needed. ROIC is -9.3%, well below a typical 6–8% cost of capital for Japanese machinery, indicating value destruction if sustained. Financing CF was an outflow of -3.12, suggesting debt repayment and/or dividend/coupon outlays despite losses. With capex ongoing and margins negative, near-term priorities likely include cost control, pricing discipline, and order intake stabilization to restore utilization. The absence of dividend disclosures suggests a cautious stance or pending decision; any payout would need to rely on cash reserves and FCF rather than earnings. Forward-looking, margin repair and backlog visibility will be key; without improvement in gross margin and SG&A efficiency, the company risks continued negative ROIC.

Profitability Analysis

DuPont decomposition: ROE (-3.2%) = Net Profit Margin (-4.2%) × Asset Turnover (0.389x) × Financial Leverage (1.99x). The largest negative driver is Net Profit Margin, as operating losses (-11.3% OPM) and limited non-operating income overwhelmed gross profit. Asset turnover at 0.389x is low, reflecting subdued revenue against a relatively large asset base (assets 58.54 versus 1H revenue of 22.76). Leverage (1.99x) provided only minimal uplift and cannot offset negative margins. Business reason: SG&A at 7.62 (33.5% of sales) exceeded gross profit (5.04), pointing to under-absorption and fixed-cost rigidity amid slightly lower sales (-2.8% YoY). Operating margin compressed by ~170 bps YoY (from ~-9.6% to -11.3%) due to negative operating leverage and likely cost inflation in materials/services not fully passed through. Sustainability: The margin pressure appears cyclical and execution-driven rather than structural in the long term, but absent identifiable pricing or mix improvements, near-term recovery is uncertain. Concerning trends: operating expense intensity remains too high vs gross margin; ordinary loss widened (-26.8% YoY) despite modest non-operating income (0.27), implying core weakness. Monitor whether SG&A growth is outpacing revenue (data limited), as current ratios suggest costs are not flexing with sales.

Growth Assessment

Top line declined modestly (-2.8% YoY), suggesting soft demand or delivery timing effects typical in project-type machinery businesses. Profitability deteriorated faster than revenue (OI -14% YoY), indicating negative operating leverage and/or unfavorable mix. Non-operating income (0.27) helped narrow net loss to -0.95, but it is small relative to the operating gap. The improvement in net loss (+95.1% YoY) versus larger ordinary loss deterioration implies tax/one-off effects; not a basis for sustainable recovery. Revenue sustainability depends on order intake and backlog conversion; with receivables at 10.01 and inventory at 2.03, working capital appears lean, but order visibility is not disclosed. Near-term outlook hinges on raising gross margin above ~30% or reducing SG&A to restore break-even; absent that, continued losses are likely. Capex of 2.91 indicates ongoing investment; execution discipline will be needed to translate this into ROIC improvement. Key near-term catalysts would be price hikes, mix shift to higher-margin products, and utilization recovery.

Financial Health

Liquidity is strong: current assets 34.81 versus current liabilities 17.22 imply a current ratio of 202.1% and quick ratio of 190.4%, comfortably above benchmarks. Cash and deposits of 15.11 exceed short-term loans (3.00) and cover 88% of total annualized interest expense proxy (interest expense 0.11 for the half; actual maturities not disclosed). Solvency: total liabilities/equity at 0.99x is moderate; loans total 12.64 (short-term 3.00, long-term 9.64). No explicit warning triggers: Current Ratio ≥ 1.0 and D/E < 2.0. Maturity mismatch risk appears limited near term given cash on hand and manageable short-term borrowings, but negative operating earnings keep refinancing sensitivity elevated. Off-balance sheet obligations are not disclosed. Equity remains solid at 29.41 with retained earnings of 20.64, providing buffer against interim losses.

Cash Flow Quality

OCF was positive at 3.63 despite a net loss of -0.95, yielding an OCF/NI ratio of -3.82x; this triggers a quality flag, as cash generation is driven by working-capital release and non-cash items rather than sustainable profitability. Depreciation of 0.76 supports OCF, but the magnitude suggests additional WC tailwinds (details not disclosed). Implied FCF of approximately 0.72 (OCF 3.63 minus capex 2.91) indicates the company covered investment needs this period; however, with EBITDA negative (-1.81) and interest coverage deeply negative, sustaining FCF depends on continued WC management, which may not be repeatable. No signs of aggressive WC manipulation can be concluded from static balances, but vigilance is warranted given the reliance on receivable collections. Financing CF outflow (-3.12) hints at debt repayment and/or interest/dividend payments; absent investing CF details, full cash bridge cannot be reconciled.

Dividend Sustainability

Dividend data are unreported; the calculated payout ratio of -72% is not decision-useful due to negative earnings. With net losses and negative EBITDA, dividends (if any) would rely on cash reserves (15.11) and FCF rather than earnings. Implied FCF was positive (~0.72) this period, but sustainability is uncertain given working-capital dependence and ongoing capex (2.91). Policy outlook likely conservative until operating profitability returns; maintaining or initiating payouts risks crowding out deleveraging or reinvestment. Monitoring guidance, historical policy, and upcoming board resolutions is essential before inferring payout continuity.

Risk Assessment

Business Risks:

• Demand cyclicality and order timing volatility in capital goods leading to revenue swings and negative operating leverage
• Pricing power constraints and cost inflation pressure on gross margins
• Execution risk in project delivery impacting receivable collection and margins
• Product mix shifts toward lower-margin offerings

Financial Risks:

• Negative EBITDA and operating losses resulting in poor interest coverage (-24.3x) despite adequate liquidity
• ROIC at -9.3% indicating value destruction if sustained
• Dependence on working-capital release to fund FCF; potential reversal could compress cash generation
• Refinancing sensitivity given cumulative losses, despite moderate D/E (0.99x)

Key Concerns:

• Operating margin at -11.3% with ~170 bps YoY compression
• SG&A exceeding gross profit, indicating insufficient scale or cost rigidity
• Ordinary loss widening (-26.8% YoY), suggesting core weakness beyond accounting items
• Limited disclosure on investing CF, dividends, and equity-method impacts reduces visibility

Investment Implications

Key Takeaways:

• Core profitability deteriorated with negative operating leverage; margin repair is the primary near-term imperative
• Liquidity cushion is strong (cash 15.11; current ratio 202%) mitigating immediate solvency concerns
• Earnings quality is weak as cash generation depends on WC; interest coverage remains deeply negative
• ROIC of -9.3% underscores urgency for restructuring, pricing, or mix improvements

Metrics to Watch:

• Order intake, backlog, and book-to-bill to gauge revenue visibility
• Gross margin progression versus SG&A ratio (target: SG&A < gross profit)
• Operating margin and EBITDA turning positive; interest coverage trend
• OCF versus NI reconciliation and durability of FCF after capex
• Debt maturity schedule and refinancing terms
• Capex discipline and returns on invested capital

Relative Positioning: Versus small-cap Japanese machinery peers, 明治機械 shows weaker profitability (negative OPM/EBITDA) and significantly lower ROIC, but maintains stronger near-term liquidity and only moderate leverage. Recovery hinges on restoring gross margins and flexing SG&A; until then, earnings risk remains elevated.

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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