MegaChips Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.33B
• Operating Income: ¥1.03B
• Net Income: ¥3.07B
• EPS: ¥24.04

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

MegaChips (TSE: 6875) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥21.33bn, down 14.2% YoY, reflecting a softer demand environment and/or product mix normalization. Gross profit was ¥4.83bn, translating to a gross margin of 22.6%, which is modest for a fabless/asset-light semiconductor model and suggests pricing pressure and/or an unfavorable mix. Operating income declined 42.2% YoY to ¥1.03bn, with operating margin at about 4.8%, indicating negative operating leverage as revenue contracted faster than costs adjusted. Ordinary income was ¥0.71bn, implying limited non-operating contributions and negligible interest burden. Net income fell sharply to ¥0.40bn (-87.0% YoY), driving a thin 1.87% net margin and underscoring the earnings sensitivity to revenue and mix. EPS printed at ¥24.04 on the period basis provided. DuPont analysis shows ROE of 0.23% (Net margin 1.87% × asset turnover 0.090 × financial leverage 1.40), a very low return profile relative to the company’s sizable equity base. Asset turnover at 0.090 indicates underutilized assets or timing effects from using period-end balances versus average balances. On liquidity, current ratio is a strong 547.6% and quick ratio 518.1%, pointing to ample near-term coverage of obligations. The balance sheet remains conservative with debt-to-equity at 0.19x and total liabilities of ¥31.70bn against equity of ¥169.64bn. Despite solid liquidity, operating cash flow was negative at -¥5.38bn, yielding an OCF/Net Income ratio of -13.51, which highlights poor cash conversion in the period, likely from working capital swings. EBITDA was ¥1.35bn (margin 6.3%), with interest expense of only ¥0.64m and interest coverage of 1,598.8x, confirming minimal financial risk from borrowing. Reported income tax was ¥2.00bn, but the calculated effective tax rate metric shows 0.0%; given mixed signals, tax line items likely include JGAAP-specific deferred effects or non-recurring adjustments. No dividend is indicated for the period (annual DPS 0.00; payout ratio 0.0%), but dividend data may be timing-dependent; we treat zeros as unreported unless clearly stated. Several items are unreported in XBRL (e.g., cash and cash equivalents, investing cash flows, share counts), so some per-share and free cash flow analyses are constrained. Overall, the quarter reflects pressured profitability, weak cash conversion, and low ROE, but supported by strong liquidity and a conservative balance sheet.

Profitability Analysis

ROE_decomposition: ROE 0.23% = Net Margin 1.87% × Asset Turnover 0.090 × Financial Leverage 1.40. The very low ROE is driven primarily by depressed net margin and very low asset turnover, with modest leverage providing little amplification. margin_quality: Gross margin at 22.6% is subdued for the business model and downtrend in revenue suggests pricing/mix pressure. Operating margin of ~4.8% indicates limited operating efficiency gains; SG&A and R&D likely did not flex down fully with revenue. Net margin at 1.87% is thin; non-operating items were modestly negative relative to operating profit (ordinary income below operating income) and tax effects appear noisy. operating_leverage: With revenue -14.2% YoY and operating income -42.2% YoY, the business exhibited negative operating leverage. Fixed cost absorption appears to have worsened as volumes declined, magnifying the profit contraction relative to revenue.

Growth Assessment

revenue_sustainability: Revenue of ¥21.33bn declined 14.2% YoY, pointing to cyclical softness or product lifecycle headwinds. Asset turnover at 0.090 implies subdued utilization, suggesting demand normalization versus prior peaks. profit_quality: EBITDA margin of 6.3% and operating margin of ~4.8% are modest; net margin at 1.87% reflects limited pricing power in the period and a heavier fixed cost drag. Ordinary income below operating income indicates non-operating headwinds (e.g., FX, equity method, or other expenses) albeit small. outlook: Absent evidence of a near-term volume/mix recovery, profitability likely remains constrained. However, the strong balance sheet gives capacity to sustain R&D and customer programs. Monitoring order trends, inventory levels (¥2.34bn) and customer demand in key end-markets will be critical to assessing a rebound in H2.

Financial Health

liquidity: Current ratio 547.6% and quick ratio 518.1% indicate substantial liquid asset coverage of short-term liabilities (current liabilities ¥7.96bn vs current assets ¥43.60bn). Working capital stands at ¥35.64bn, providing cushion for volatility. solvency: Debt-to-equity is 0.19x, and total liabilities are modest (¥31.70bn) relative to equity (¥169.64bn), indicating low structural leverage. Interest coverage at 1,598.8x confirms minimal debt-service risk. capital_structure: Financial leverage in DuPont (1.40x) is low, reflecting a balance sheet tilt toward equity funding. This de-risks the company but limits ROE enhancement. The reported equity ratio field shows 0.0%, which we treat as unreported rather than an actual metric.

Cash Flow Quality

earnings_quality: OCF/Net Income of -13.51 signals poor cash conversion this period, likely driven by working capital outflows and/or timing of tax and supplier payments. Given net income of ¥0.40bn vs OCF -¥5.38bn, accruals expanded materially. FCF_analysis: Free cash flow is reported as 0 due to unreported investing cash flows; therefore, true FCF cannot be determined. With negative OCF, underlying FCF was likely negative unless offset by net inflows from investing activities. working_capital: Inventories at ¥2.34bn appear small relative to revenue, but changes in receivables/payables (not disclosed) likely drove OCF weakness. Monitoring days sales outstanding and payables terms will be key to normalizing cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is shown as 0.00 and payout ratio 0.0%; this may reflect no dividend for the period or unreported data. With net income positive but cash flow negative, a conservative stance on cash distributions is prudent. FCF_coverage: FCF coverage is shown as 0.00x because FCF is unreported; thus, coverage cannot be reliably assessed. Based on negative OCF, organic dividend coverage would be weak absent cash on hand (cash balance not disclosed). policy_outlook: Given low ROE (0.23%), thin margins, and negative OCF, near-term capacity for higher shareholder returns appears constrained. Any dividend policy actions will likely track visibility on earnings recovery and cash conversion.

Risk Assessment

Business Risks:

• Demand cyclicality in semiconductor and consumer electronics end-markets affecting volumes and pricing
• Product mix shifts and ASP pressure compressing gross margins
• Customer concentration risk typical in specialized IC businesses
• Supply chain constraints or component lead-time volatility impacting delivery and costs
• Technological obsolescence and R&D execution risk in transitioning product roadmaps

Financial Risks:

• Negative operating cash flow indicating working capital and accrual risk
• Low asset turnover and underutilization weighing on ROE
• Potential FX exposure in non-operating income given global customers and procurement
• Tax line volatility under JGAAP (deferred tax effects) creating earnings noise
• Limited disclosure of cash and investing cash flows restricting FCF visibility

Key Concerns:

• Sustained margin pressure with operating income down 42.2% YoY
• Weak cash conversion (OCF/NI -13.51) despite positive earnings
• Very low ROE (0.23%) relative to equity base and cost of capital

Investment Implications

Key Takeaways:

• Revenue declined 14.2% YoY with negative operating leverage; operating margin ~4.8%
• Net margin compressed to 1.87%, driving ROE to 0.23%
• Strong liquidity (current ratio 547.6%, quick 518.1%) and low leverage (D/E 0.19x)
• Operating cash flow -¥5.38bn signals poor cash conversion in the period
• EBITDA margin 6.3% and interest burden de minimis (coverage ~1,599x)
• Several items unreported (cash, investing CF, share data), limiting FCF and per-share analyses

Metrics to Watch:

• Bookings/backlog and revenue trajectory into H2
• Gross margin trend and mix/ASP developments
• Operating cash flow and changes in receivables/payables
• Inventory levels and turns relative to sales
• Ordinary income drivers (FX, non-operating items) and tax normalization
• ROE recovery via margin improvement and asset turnover

Relative Positioning: Balance sheet strength compares favorably to peers, but current profitability and cash conversion lag, leaving the company defensively positioned but dependent on a demand and mix recovery to close performance gaps.

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