Precision System Science Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.32B
• Operating Income: ¥55M
• Net Income: ¥-79M
• EPS: ¥2.00

Income Statement

Balance Sheet

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: FY2026 Q1 was a modestly positive quarter with double-digit topline growth and a return to operating profit, but capital efficiency remains weak and cash flow visibility is limited. Revenue rose 22.1% YoY to 13.17, indicating healthy demand recovery or improved shipment timing. Gross profit was 3.55, implying a gross margin of 26.9%. SG&A was 4.02, and operating income came in at 0.55, yielding an operating margin of about 4.2%. Non-operating items were a net drag (income 0.02 vs expenses 0.12) primarily due to interest expense of 0.05, though interest coverage is a comfortable 10.9x. Ordinary income was reported at 0.58 and net income at 0.54 (EPS 2.00 JPY), consistent with a small but positive bottom line. Asset efficiency remains a constraint with asset turnover at 0.255, contributing to a low ROE of 1.4% despite conservative leverage (1.35x). Liquidity is strong: current ratio 261%, quick ratio 223%, and cash and deposits of 10.09 versus short-term loans of 6.82. Balance sheet solvency is solid with D/E at 0.35x and a calculated equity ratio of about 74%. However, ROIC is only 1.6%, well below the 7–8% benchmark and under the 5% warning threshold, signaling subpar capital productivity. Earnings quality cannot be assessed owing to unreported operating cash flow, a key limitation for this quarter. Margin trend analysis (bps expansion/compression) is not possible due to missing prior-period margin data. There are internal data inconsistencies (e.g., gross profit minus SG&A would imply negative operating income, while reported operating income is positive; profit before tax is negative despite positive net income), which likely reflect reporting classifications or timing and should be clarified with management. Working capital is sizable (WC 21.24) with inventories at 5.06 and receivables at 7.89, supporting near-term operations but depressing asset turnover. Forward-looking, if revenue momentum holds and the company can improve gross margin and asset utilization while keeping SG&A disciplined, ROE/ROIC could gradually lift. Near-term investor focus should be on confirming operating cash flow conversion, validating margin sustainability, and clarifying the nature of the accounting line-item discrepancies.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.4% = Net Profit Margin (4.1%) × Asset Turnover (0.255) × Financial Leverage (1.35x). The most constrained component is Asset Turnover at 0.255, indicating low asset utilization is the dominant brake on ROE. The business reason likely reflects a balance sheet carrying significant cash (10.09), receivables (7.89), and inventories (5.06) relative to current revenue scale, consistent with a company in recovery or holding buffer stock. Net margin at 4.1% is modest but positive; operating margin is about 4.2%, with non-operating costs (notably interest) partially offset by small non-operating income. Financial leverage is conservative at 1.35x, contributing little to ROE, which is appropriate given earnings volatility but limits ROE uplift. Sustainability: improved net margin could be sustainable if scale benefits continue and cost control holds, but asset turnover improvement requires either stronger growth or tighter working capital management. Concerning trends: ROIC at 1.6% is weak; without higher margins or faster asset turns, returns remain below cost of capital. SG&A growth vs revenue growth cannot be assessed due to missing YoY SG&A; monitor for operating leverage going forward.

Growth Assessment

Revenue grew 22.1% YoY to 13.17, suggesting demand recovery or improved execution in shipments/projects. Operating income turned positive to 0.55, indicating early operating leverage, but absolute profitability remains small. Gross margin stands at 26.9%; we cannot determine YoY bps change due to lack of prior-period margins. Non-operating expenses (0.12) exceeded income (0.02), reflecting financing costs; interest coverage remains healthy at 10.9x, so growth is not constrained by interest burden. Asset turnover at 0.255 highlights scale inefficiency—growth must continue or working capital must be reduced to sustain profit expansion. With ROIC at 1.6%, incremental projects must be higher-return to improve overall capital productivity. Outlook: if the company can maintain >10% revenue growth while stabilizing gross margin near ~27% and restraining SG&A, operating margin could gradually expand. Risks to growth include order timing, component supply for equipment, and export FX. Absence of cash flow data limits confirmation of demand quality (cash-backed vs. accrual).

Financial Health

Liquidity is strong: current ratio 260.8% and quick ratio 222.6%, well above benchmarks. No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.35x. Calculated equity ratio is approximately 73.9% (38.11/51.57), indicating a well-capitalized balance sheet. Maturity profile: short-term loans of 6.82 are covered by cash and deposits of 10.09 and broader current assets of 34.45; maturity mismatch risk appears low. Long-term loans are minimal at 0.25, reducing refinancing risk. Accounts payable (4.09) and receivables (7.89) are balanced relative to revenue scale, though receivables and inventory levels contribute to low asset turnover. No off-balance sheet obligations were reported; absence of disclosures limits assessment of guarantees or contingent liabilities.

Cash Flow Quality

Operating cash flow is unreported; therefore, OCF/Net Income and FCF cannot be assessed, and earnings quality cannot be validated. Without OCF, we cannot confirm whether revenue growth translated into cash or whether working capital absorbed cash. Potential areas to monitor include receivables days and inventory turns, given their size (AR 7.89; Inventories 5.06) relative to quarterly revenue, which could signal timing effects. No signs of working capital manipulation can be identified from the limited data, but absence of cash flow statements is a key limitation. Sustainability of FCF for dividends and capex is not assessable this quarter.

Dividend Sustainability

Dividend-related metrics are unreported (DPS, payout ratio, dividends paid), preventing a direct sustainability assessment. With net income at 0.54 and strong liquidity, the balance sheet could support modest distributions; however, ROIC at 1.6% and lack of OCF/FCF disclosure argue for caution. Retained earnings are 3.66, indicating limited cumulative profit buffer. Policy outlook cannot be inferred; monitor for guidance in the full-year forecast and any capital allocation commentary.

Risk Assessment

Business Risks:

• Demand volatility in life science/diagnostics equipment and consumables, affecting order timing and utilization
• Gross margin sensitivity to product mix and pricing in competitive markets
• Supply chain constraints for critical components (e.g., semiconductors, precision parts) impacting delivery and costs
• Regulatory and validation risks for instruments and reagents in target geographies

Financial Risks:

• Low ROIC (1.6%) relative to benchmarks, risking value dilution if not improved
• Asset turnover at 0.255 indicating capital inefficiency and potential inventory/AR risk
• Reliance on short-term borrowings (6.82) albeit covered by cash; exposure to interest rate changes
• Earnings sensitivity to non-operating items (interest), given modest operating margin

Key Concerns:

• Missing cash flow statements hinder assessment of earnings quality and FCF coverage
• Internal data inconsistencies between line items (e.g., operating income vs gross profit less SG&A; negative PBT with positive NI) require clarification
• Margin sustainability not verifiable due to absent prior-period margin history
• Small absolute profit base increases volatility of EPS and ROE

Investment Implications

Key Takeaways:

• Topline recovery (+22.1% YoY) with a return to operating profit (0.55) is encouraging
• Liquidity and solvency are strong (current ratio 261%, D/E 0.35x, equity ratio ~74%)
• Capital efficiency is weak (ROIC 1.6%, asset turnover 0.255) and is the main drag on ROE (1.4%)
• Non-operating drag persists but is manageable (interest coverage ~11x)
• Earnings quality cannot be validated due to missing OCF/FCF data

Metrics to Watch:

• Operating cash flow and OCF/NI conversion (>1.0 desirable)
• Gross margin trajectory and operating margin expansion (bps trends)
• Working capital turns (DSO, DIO) to lift asset turnover
• Capex and project returns to improve ROIC toward >5% near term
• Interest burden and refinancing of short-term loans

Relative Positioning: Within small-cap Japanese life science equipment peers, the company shows improving sales momentum and a de-risked balance sheet but lags on capital efficiency (ROIC) and asset utilization; visibility is further hampered by absent cash flow disclosure.

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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