Techno Medica Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.10B
• Operating Income: ¥266M
• Net Income: ¥203M
• EPS: ¥29.31

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: Soft topline with notable margin compression, but exceptionally strong cash conversion and a fortress balance sheet define FY2026 Q2 for Technomedica (standalone, JGAAP). Revenue was essentially flat at 41.04, down 0.3% YoY, while operating income fell 12.6% YoY to 2.66, indicating cost pressure against stable sales. Gross profit was 20.79, implying a solid gross margin of 50.6%, consistent with a differentiated product mix. Operating margin declined to 6.5% (2.66/41.04), down roughly 90 bps YoY from an estimated ~7.4% last year. Net income decreased 8.4% YoY to 2.03, with net margin at 5.0%, about 45 bps lower than the prior-year implied ~5.4%. Ordinary income was 2.94 (-1.4% YoY), suggesting limited contribution from non-operating items relative to core operations. SG&A of 17.74 consumed roughly 43.2% of revenue, a key driver of the operating margin squeeze. DuPont results show a low 1.4% ROE, driven by modest 5.0% net margin, very low asset turnover (0.248x), and conservative leverage (1.17x). Cash conversion was outstanding: operating cash flow reached 14.27, or 7.0x net income, implying strong cash realization and/or working capital release. The balance sheet remains exceptionally strong, with a current ratio of 479%, quick ratio of 412%, and net cash of 90.61 in cash and deposits versus total liabilities of 35.50. Capital intensity remains low with depreciation of 0.49 and minimal capex (-0.09), supporting cash generation. However, ROIC is weak at 3.9% (below the 5% warning threshold), reflecting underutilized assets relative to earnings. Dividend visibility is limited from disclosures, but a calculated payout ratio of 293.4% appears high and likely not sustainable absent special factors. Profitability hinges on SG&A discipline and product mix pricing, given flattish sales and high fixed cost absorption. Forward-looking, focus should be on stabilizing operating margin, improving asset turnover by optimizing inventory/receivables, and clarifying capital allocation to lift ROIC while preserving cash strength.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.4% = Net Profit Margin (5.0%) × Asset Turnover (0.248x) × Financial Leverage (1.17x). The component that changed most YoY is the Net Profit Margin, inferred from operating income down 12.6% versus revenue down 0.3%, implying margin compression (~90 bps at the operating level and ~45 bps at the net level). Business driver: SG&A intensity (17.74; 43.2% of sales) weighed on operating leverage while sales were flat, suggesting cost creep (personnel, logistics, or selling expenses) outpaced limited revenue growth. Asset turnover remains structurally low due to a sizable cash position (90.61) and sizeable working capital (AR 32.83, inventory 21.82) relative to mid-sized sales, dampening ROE despite low leverage. Financial leverage is conservative (1.17x), offering little ROE amplification—appropriate for risk but limiting returns. Sustainability: The net margin pressure appears cyclical/operational rather than one-off; absent cost controls or stronger mix/pricing, current margin levels could persist. Conversely, low leverage and cash-rich balance sheet are likely sustainable and could improve ROE if capital is redeployed. Concerning trend flags: operating income declining faster than sales suggests SG&A growth likely exceeded revenue growth; if sustained, this will cap operating leverage and ROIC.

Growth Assessment

Revenue was essentially flat (-0.3% YoY to 41.04), indicating stable demand but limited growth momentum. Operating income declined 12.6% YoY to 2.66, evidencing negative operating leverage. Ordinary income (-1.4% YoY to 2.94) and net income (-8.4% YoY to 2.03) were more resilient than operating profit, but still down, pointing to core margin pressure. Gross margin remains strong at 50.6%, implying product differentiation remains intact; the issue is SG&A intensity rather than gross profit degradation. With minimal capex (-0.09) and adequate depreciation (0.49), growth investments appear modest; near-term revenue acceleration may depend more on sales execution and product launches than capacity expansion. Estimated DSO and DIO are elevated (DSO ~146 days; DIO ~195 days using annualized figures), which could constrain incremental growth if not optimized. Outlook hinges on cost containment, pricing/mix, and working capital discipline; absent these, profits may track sideways with flattish sales. Given the strong cash platform, targeted investments in higher-margin lines or automation could improve growth quality and ROIC.

Financial Health

Liquidity is very strong: current ratio 478.7% and quick ratio 412.1% signal ample short-term coverage; no warning thresholds breached. Solvency appears conservative with debt-to-equity at 0.25x (based on total liabilities/equity); interest-bearing debt is unreported, but cash and deposits (90.61) exceed total liabilities (35.50), implying net cash. Maturity mismatch risk is low: current assets 156.78 vs current liabilities 32.75 provide a large cushion. Equity ratio implied by leverage is high (~85%), consistent with total equity 141.49 versus total assets 165.58. Off-balance sheet obligations are not disclosed; no guarantees/lease commitments are reported here, so we cannot assess those. No explicit red flags on liquidity or leverage.

Cash Flow Quality

OCF/Net Income is 7.03x, an excellent result indicating strong cash conversion and/or working capital release. With capex at just 0.09, a proxy for FCF (OCF - capex) is approximately 14.18, comfortably covering typical cash needs. Working capital quality: AR and inventory are sizable relative to sales (estimated DSO ~146 days, DIO ~195 days using annualized denominators), but OCF strength suggests favorable collections or payables timing in the period; without prior-period comparatives, sustainability is uncertain. No clear signs of aggressive working capital manipulation are evident from the limited disclosures, but monitoring inventory and receivables trends is warranted. Financing CF was -4.70, consistent with shareholder returns or liability reductions; dividends and buybacks are unreported, limiting attribution. Overall earnings quality appears high this quarter given cash realization far exceeds accounting earnings.

Dividend Sustainability

DPS and total dividends paid are unreported; however, a calculated payout ratio of 293.4% signals potential unsustainability on earnings alone unless it reflects special dividends or timing effects. On a cash basis, proxy FCF (~14.18) far exceeds net income (2.03), implying capacity to fund ordinary dividends; nevertheless, sustaining a payout near 300% would likely require drawing down cash or recurring special distributions. Balance sheet strength (net cash) provides flexibility for distributions in the short term, but from a policy standpoint, a sustainable payout would typically be <=60% of earnings through the cycle. Absent explicit guidance, assume a more moderate payout trajectory is prudent to raise ROIC by funding growth or buybacks. Visibility is limited due to unreported DPS and dividend amounts.

Risk Assessment

Business Risks:

• Operating margin pressure from SG&A intensity amid flattish sales
• Product mix and pricing risk in medical devices impacting gross margin
• Regulatory/reimbursement changes affecting hospital purchasing behavior
• Supply chain and component cost inflation that may not be fully passed through
• Lengthy receivables collection cycles with public hospitals

Financial Risks:

• Low ROIC at 3.9% suggests capital inefficiency and potential value drag
• Potentially elevated payout ratio (calculated 293.4%) may be unsustainable without special factors
• Working capital embedded in AR and inventory could tie up cash if growth slows

Key Concerns:

• ROIC below 5% warning threshold
• Operating margin compression (~90 bps YoY) despite flat revenue
• Asset turnover of 0.248x reflecting underutilized asset base and large cash balances
• Data gaps in dividend and debt disclosures limit full assessment

Investment Implications

Key Takeaways:

• Stable revenue but weaker operating leverage; cost control is the immediate lever
• Cash generation is very strong; balance sheet is overcapitalized with net cash
• ROIC of 3.9% highlights a need for better capital deployment or efficiency gains
• Payout optics look stretched on earnings; sustainability depends on policy and special items

Metrics to Watch:

• Operating margin trajectory and SG&A ratio vs revenue
• Gross margin mix and procurement cost trends
• Working capital metrics (DSO, DIO, payables) and their impact on OCF
• ROIC improvement via margin/turnover or capital allocation actions
• Clarity on dividend policy and any special distributions

Relative Positioning: Versus typical Japanese medtech peers, Technomedica shows stronger liquidity and cash conversion but lower ROIC and weaker operating leverage this quarter; execution on SG&A control and working capital optimization will be key to closing the ROIC gap while preserving its balance sheet strength.

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