StemCell Institute (7096) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3 FY2026, the most important point is the delay in progress toward the full-year profit plan despite higher revenue. Revenue was ¥21.4B (71.5% progress against the full-year forecast of ¥30.0B), Operating Income was ¥2.2B (48.4% progress), Ordinary Income was ¥2.3B (50.7% progress), and Net Income attributable to owners of the parent was ¥1.4B (45.6% progress). While maintaining high value-added operations with a gross profit margin of 61.7%, SG&A expenses accounted for 51.5% of revenue and weighed on earnings. Accordingly, the plan requires earnings improvement equivalent to an Operating Income margin of 27.1% in Q4.

Factors Affecting Performance

【Revenue】Revenue was ¥21.4B, representing 71.5% progress against the full-year forecast of ¥30.0B, which is nearly in line with the standard quarterly progress rate of 75%. The Company operates a single segment, the Cell Banking Business, and factors behind changes by segment have not been disclosed. Revenue of approximately ¥8.6B must be added in Q4.

【Profit and Loss】Operating Income was ¥2.2B (Operating Income margin of 10.2%), Ordinary Income was ¥2.3B, and Net Income was ¥1.4B. Although the Company has a highly profitable structure with a gross profit margin of 61.7%, SG&A expenses of ¥11.0B accounted for 51.5% of revenue and suppressed profit margins. Ordinary Income was boosted by ¥0.2B in non-operating income, primarily interest income, which exceeded ¥0.1B in non-operating expenses. Extraordinary gains and losses consisted only of a ¥0.01B gain on the sale of fixed assets, resulting in a minimal impact from Ordinary Income to income before taxes. Income taxes of ¥0.8B (effective tax rate of 36.9%) significantly reduced Net Income from income before taxes. While revenue is progressing close to plan, earnings progress is substantially below plan, indicating a performance structure characterized by higher revenue but lower earnings.

Segment Analysis

The Company operates only the Cell Banking Business as a single segment and omits disclosure of segment revenue and Operating Income/Loss, deeming them immaterial.

Key Financial Metrics

【Profitability】The Operating Income margin of 10.2% and Net Income margin of 6.8% are both at favorable levels, reflecting the high value-added structure represented by the gross profit margin of 61.7%. Meanwhile, the SG&A expense ratio of 51.5% is constraining the expansion of profit margins.【Cash Flow Quality】Accounts receivable of ¥22.9B accounted for 28.6% of total assets, while annualized DSO reached 293 days and annualized CCC reached 300 days, highlighting the long period from revenue recognition to cash collection.【Investment Efficiency】Annualized ROE of 6.3% is explained through a DuPont decomposition as Net Income margin of 6.8% × total asset turnover of 0.356x × financial leverage of 2.63x, with low total asset turnover being the primary constraint on ROE.【Financial Soundness】The Equity Ratio was 38.1% and the current ratio was 122.2%. Interest-bearing debt consisted primarily of ¥3.9B in long-term borrowings, resulting in a Debt/Capital ratio of 11.4%. Interest coverage was high, indicating a light debt burden.

Cash Flow Analysis

Although a detailed cash flow statement has not been disclosed, fund movements can be inferred from the balance sheet structure. Cash and deposits of ¥30.3B covered 68.2% of current liabilities of ¥44.4B, while most current liabilities consisted of contract liabilities corresponding to future service provision, including advance payments of ¥40.5B. Meanwhile, accounts receivable of ¥22.9B accounted for 28.6% of assets, and the long cash retention period represented by annualized DSO of 293 days and annualized CCC of 300 days indicates that slow conversion of revenue into cash is a challenge for capital efficiency. Although advance payments provide upfront funding and support short-term liquidity, delays in collecting accounts receivable are the primary area to monitor for improving capital efficiency.

Earnings Quality

Ordinary Income was ¥2.3B, compared with Operating Income of ¥2.2B, after ¥0.2B in non-operating income, primarily interest income, boosted earnings and ¥0.1B in non-operating expenses was deducted. Dependence on non-operating income and expenses was limited to approximately 0.7% of revenue, indicating that most earnings were generated by the core business. Extraordinary income consisted only of a ¥0.01B gain on the sale of fixed assets, while extraordinary losses also remained at approximately the same level, resulting in a minimal impact from one-time factors on performance. Income taxes of ¥0.8B (effective tax rate of 36.9%) were incurred against income before taxes of ¥2.3B, leaving a conversion rate to Net Income of approximately 63.8%. The prolonged retention of accounts receivable (annualized DSO of 293 days) indicates an accrual factor involving a time lag between revenue recognition and cash collection, warranting caution regarding the conversion of reported earnings into cash.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was 71.5% for revenue, 48.4% for Operating Income, 50.7% for Ordinary Income, and 45.6% for Net Income. Revenue progress was close to the standard progress rate of 75% and was not significantly delayed, but Operating Income, Ordinary Income, and Net Income were each 24~29 points below the standard progress rate. Achieving the full-year Operating Income forecast of ¥4.5B requires ¥2.3B in Q4, equivalent to an Operating Income margin of 27.1%, requiring a substantial improvement from the cumulative Operating Income margin of 10.2%.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0, indicating a no-dividend plan for the current fiscal year. As the dividend for the same period of the previous year was ¥25 per share, the Company is expected to reduce its dividend from the previous year. The capital allocation policy does not include dividend payments, resulting in a Payout Ratio of 0%. The Company holds ¥2.0B in treasury shares; however, as acquisition results for the current fiscal year are not specified in the disclosed data, the Total Return Ratio is not evaluated.

Risk Factors

1. Prolonged collection of accounts receivable: Annualized DSO is long at 293 days, and accounts receivable of ¥22.9B account for 28.6% of total assets. If collection delays continue, they could lead to reduced flexibility in cash management and increased bad debt risk.

2. Risk of missing the full-year earnings plan: Progress rates for Operating Income and Net Income were only 48.4% and 45.6%, respectively. Achieving the Operating Income plan requires an Operating Income margin equivalent to 27.1% in Q4, necessitating a substantial improvement from the cumulative rate of 10.2%.

3. Concentration in a single business: The Company operates a single segment, the Cell Banking Business, creating a structure with relatively high sensitivity to demand fluctuations, the competitive environment, customer continuation rates for storage services, and quality and regulatory compliance.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing the Company in a relatively favorable position within the industry in terms of profitability.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. The gross profit margin of 61.7% and Operating Income margin of 10.2% indicate profitability above the industry median; however, progress toward the full-year earnings plan was only 48.4% for Operating Income and 45.6% for Net Income, resulting in progress under a plan heavily weighted toward profit recognition in Q4.

2. The prolonged retention of working capital, represented by annualized DSO of 293 days and annualized CCC of 300 days, is a capital efficiency challenge contrasting with the high gross profit margin and is the primary factor suppressing ROE of 6.3% (total asset turnover of 0.356x).

3. Financial soundness is favorable, with low interest-bearing debt and high interest coverage. However, the current fiscal year's dividend forecast is ¥0, representing an expected reduction from ¥25 in the previous year, and capital allocation appears to be focused on achieving the earnings plan and managing working capital.

Theoretical Share Price (Reference Value)

Sensitivity: ¥296–¥313 at ±1% cost of equity, ¥304–¥304 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing discrepancy with the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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; this 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 release 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 discretion and responsibility, after consulting professionals as necessary.

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