ALMEDIO (7859) FY2026 Q3 Earnings Report

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Executive Summary

The most important point for the cumulative Q3 period is that revenue decreased 65.4% YoY, while operating income, ordinary income, and net income all turned negative. Revenue was ¥1.62B (¥4.68B in the previous year, YoY -65.4%), operating income was negative ¥0.62B (¥0.65B in the previous year, YoY -73.8%), ordinary income was negative ¥0.61B (¥0.68B in the previous year, YoY -72.8%), and net income was negative ¥0.54B (¥0.41B in the previous year). While revenue declined sharply due to a significant slowdown in project progress and demand, SG&A expenses of ¥0.99B substantially exceeded gross profit of ¥0.36B, with insufficient cost-structure absorption capacity exacerbating the loss.

Factors Driving Earnings Fluctuations

【Revenue】Revenue was ¥1.62B, down 65.4% YoY, while progress toward the full-year forecast of ¥2.55B was limited to 63.5%. This was 11.5 percentage points below the standard progress rate of 75%, requiring revenue of approximately ¥0.93B to be recognized in Q4. Although segment information has not been disclosed, the substantial slowdown in demand or project progress is considered the primary factor.

【Profit and Loss】Gross profit was ¥0.36B (gross margin of 22.4%), while SG&A expenses reached ¥0.99B (SG&A ratio of 60.8%), approximately 2.7 times gross profit. As a result, operating income was negative ¥0.62B (operating margin of -38.3%), and ordinary income was negative ¥0.61B, with the improvement from non-operating income and expenses limited to ¥0.01B. After adding an extraordinary loss of ¥0.03B from losses on the disposal and sale of fixed assets, net income attributable to owners of the parent was negative ¥0.54B. In conclusion, the company experienced lower revenue and lower earnings, with high operating leverage confirmed, whereby the decline in revenue strongly impacted profit through the burden of fixed costs.

Key Financial Indicators

【Profitability】The operating margin was negative 38.3%, and the net profit margin was negative 33.4%. Against a gross margin of 22.4%, the SG&A ratio was 60.8%, indicating that the fixed-cost burden substantially exceeded the scale of revenue. ROE was negative 7.3%; under a DuPont decomposition, it was calculated as the combination of a net profit margin of negative 33.4%, total asset turnover of 0.197x, and financial leverage of 1.10x. The low asset turnover and net loss were the primary factors behind the deterioration in ROE.【Cash Quality】Although Operating Cash Flow (OCF) has not been disclosed, DSO was approximately 237 days, DIO approximately 127 days, and CCC approximately 354 days based on accounts receivable of ¥1.40B and inventories of ¥0.23B. The lengthened working-capital cycle may be putting pressure on cash generation.【Investment Efficiency】Total asset turnover was low at 0.197x, suggesting that invested capital is not generating sufficient revenue or profit.【Financial Soundness】The Equity Ratio was high at 90.7% (84.7% in the previous year), while interest-bearing debt was ¥0.17B and the debt-to-equity ratio remained at 0.10x. Meanwhile, although the short-term debt ratio was 89.7%, indicating that most borrowings were concentrated in the short term, cash and deposits of ¥3.88B substantially exceeded current liabilities, providing ample repayment capacity.

Cash Flow Analysis

As detailed Operating Cash Flow data has not been disclosed, cash trends are analyzed based on movements in the balance sheet. Cash and deposits were ¥3.88B, largely unchanged from ¥3.88B in the previous year, while current assets were ¥6.09B against current liabilities of ¥0.40B, maintaining an extremely high current ratio. Meanwhile, accounts receivable of ¥1.40B and inventories of ¥0.23B were recorded, confirming a lengthened working-capital cycle of approximately 237 days for DSO, approximately 127 days for DIO, and approximately 354 days for CCC. Despite the substantial decline in revenue, accounts receivable and inventories may not have been reduced sufficiently. This could become a structural constraint that makes it difficult for earnings to translate into cash even after the company returns to profitability.

Earnings Quality

The loss for the current period was primarily attributable to a structurally loss-making operating business. The only significant temporary factor was an extraordinary loss of ¥0.03B from losses on the disposal and sale of fixed assets, meaning that most of the loss arose from recurring business activities. Non-operating income comprised dividend income of ¥0.00B, foreign exchange gains of ¥0.01B, and other income of ¥0.01B, for a total of ¥0.03B. After deducting non-operating expenses of ¥0.01B, the net impact was limited and scarcely improved the ordinary loss from operating income. Comprehensive income was negative ¥0.74B, below net income of negative ¥0.54B, primarily due to foreign currency translation adjustments of negative ¥0.20B. Accordingly, attention is warranted because foreign exchange fluctuations in overseas assets and businesses are amplifying changes in enterprise value beyond the impact on net income. Overall, earnings quality reflects a decline in the profitability of the core operating business rather than an apparent deterioration caused by temporary gains and losses.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥2.55B (YoY -56.0%), operating income of negative ¥0.66B, ordinary income of negative ¥0.65B, net income of negative ¥0.62B, and EPS of negative ¥31.06. The cumulative Q3 progress rates were 63.5% for revenue, 93.5% for operating income, 93.1% for ordinary income, and 87.2% for net income. Compared with the standard progress rate of 75%, revenue was 11.5 percentage points behind, while the progress of losses in the profit and loss items had already exceeded the standard rate. Achieving the full-year forecast will require revenue of ¥0.93B in Q4 and a reduction in the operating loss to approximately ¥0.02B; the pace of revenue recovery will determine future progress.

Shareholder Returns

The Q2 dividend was ¥0, and the full-year forecast dividend is also ¥0, resulting in a Payout Ratio of 0%. Given the forecast full-year net loss of ¥0.62B, the no-dividend policy is consistent with the current earnings level. Even considering the financial base comprising an Equity Ratio of 90.7% and cash and deposits of ¥3.88B, the company appears to be in a phase where business rehabilitation will take priority over shareholder returns for the time being.

Risk Factors

1. Slowdown in demand and project progress: Revenue decreased 65.4% YoY, and the progress rate against the full-year forecast was also limited to 63.5%. Revenue of approximately ¥0.93B must be recognized in Q4, making the pace of recovery directly consequential to earnings.

2. Prolonged operating losses due to the fixed-cost burden: SG&A expenses of ¥0.99B substantially exceeded gross profit of ¥0.36B, and the operating margin was negative 38.3%. Without a recovery in revenue, the company has a structure that makes a return to operating profitability difficult in the short term.

3. Working capital tying up funds: The working-capital cycle has lengthened, with DSO of approximately 237 days, DIO of approximately 127 days, and CCC of approximately 354 days. Although cash and deposits of ¥3.88B provide a buffer, constraints on cash-generation capacity may continue unless collection of accounts receivable and inventory reduction progress.

Industry Benchmarks (Reference; Compiled by the Company)

Industry Benchmarks (manufacturing)

Profitability and Returns

The company's operating margin and net profit margin were substantially below the industry median, placing profitability in the bottom tier of the industry.

Growth and Capital Efficiency

Revenue growth was also substantially below the industry median, indicating an exceptional period of revenue decline within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The financial structure comprising an Equity Ratio of 90.7%, cash and deposits of ¥3.88B, and interest-bearing debt of ¥0.17B provides a certain degree of resilience against deterioration in business profitability. The risk of losses being amplified through financial leverage is limited.

2. As indicated by the operating margin of negative 38.3% and ROE of negative 7.3%, business profitability is weak. The full-year forecast also assumes an operating loss of ¥0.66B and no dividend. A return to profitability will require both a recovery in revenue and improved absorption of SG&A expenses.

3. The lengthened working-capital cycle, comprising DSO of approximately 237 days, DIO of approximately 127 days, and CCC of approximately 354 days, could constrain the normalization of cash flow through delayed cash conversion even during a recovery in revenue.

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This report is an earnings analysis document automatically generated by AI through analysis of 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was severely weak, with a sharp sales contraction converting the prior-year profit into a substantial operating and net loss. Cumulative revenue fell 65.4% year on year to ¥1.62bn. Operating income swung from a ¥648m profit to a ¥621m loss. Net income attributable to owners swung from a ¥408m profit to a ¥542m loss. The gross profit margin compressed to 22.4% from 36.1% a year earlier, a deterioration of approximately 1,370bp. The operating margin deteriorated to -38.3% from 13.8%, a decline of approximately 5,210bp. Gross profit declined 78.5% to ¥364m, materially faster than the 5.4% reduction in SG&A expenses to ¥986m. This indicates that the cost base did not adjust sufficiently to the abrupt revenue decline. The Q3 net loss margin was -33.4%, compared with an 8.7% net margin in the prior-year period. Ordinary loss of ¥607m was modestly narrower than operating loss because net non-operating income was positive. Foreign-exchange gains of ¥7m, subsidy income of ¥4m and interest income of ¥5m were not material enough to alter the underlying operating outcome. A ¥30m loss on sales and retirement of non-current assets further reduced pre-tax earnings, although the scale was modest relative to the operating loss. The tax benefit of ¥93m limited the net loss, resulting in a 14.7% effective tax rate on the pre-tax loss. Comprehensive loss was ¥745m, exceeding the net loss because of a ¥202m negative foreign-currency translation adjustment. Financial resilience remains comparatively strong, supported by ¥3.88bn of cash, a 1,526.1% current ratio, and only ¥167m of interest-bearing debt. The full-year forecast implies that management expects Q4 revenue of approximately ¥933m and a materially reduced quarterly operating loss of approximately ¥43m. At Q3, revenue progress is 63.5% of the full-year forecast, below the standard 75% progress rate, while 93.5% of the forecast full-year operating loss has already been incurred. The central forward issue is whether the anticipated Q4 revenue recovery can be achieved without further gross-margin pressure or fixed-cost absorption losses.

Profitability Analysis

Annualized DuPont ROE is -9.7%, comprising a -33.4% net profit margin, 0.263x asset turnover, and 1.10x financial leverage. The negative net margin is the principal driver of the negative return on equity, while leverage is low and therefore is neither amplifying returns nor creating a material solvency burden. Asset turnover is also weak, reflecting revenue of only ¥1.62bn against total assets of ¥8.23bn. The largest year-on-year change was margin deterioration: gross margin fell about 1,370bp and operating margin fell about 5,210bp. Revenue decreased by ¥3.22bn, whereas SG&A declined by only ¥57m, demonstrating substantial negative operating leverage. Cost of sales represented 77.6% of revenue, compared with 63.9% in the prior-year period, indicating weaker sales mix, pricing, production utilization, or some combination of these factors. SG&A rose to 60.8% of revenue from 22.3% in the prior-year period, despite being lower in absolute yen terms. The resulting EBIT margin of -38.3% is materially below the 5% caution threshold and is the root cause of the low-operating-efficiency alert. The -18.8% ROIC alert similarly reflects loss-making operations and low revenue productivity relative to the capital employed. The interest burden factor of 1.023x shows that non-operating income slightly exceeded financing costs; however, this does not mitigate the underlying EBIT loss. The tax burden factor of 0.853 reflects recognition of a tax benefit rather than a high recurring tax burden. Margin recovery will require a meaningful rebound in sales volume and/or gross-margin normalization because modest SG&A reductions alone are insufficient to restore profitability.

Growth Assessment

Revenue declined 65.4% year on year to ¥1.62bn, indicating that the earnings shortfall is primarily driven by a severe contraction in business volume rather than a marginal cost overrun. The decline in gross profit of ¥1.33bn exceeded the ¥1.10bn reduction in SG&A and produced the operating loss. The full-year revenue forecast is ¥2.55bn, equivalent to a 56.0% year-on-year decline. Q3 cumulative revenue represents 63.5% of the forecast, 11.5 percentage points below the standard Q3 progress rate of 75%. Achieving the forecast requires Q4 revenue of roughly ¥933m, compared with an average of roughly ¥540m per quarter over the first nine months. Full-year operating loss guidance is ¥664m, so only about ¥43m of additional operating loss is implied for Q4 after the ¥621m Q3 cumulative loss. Full-year net loss guidance is ¥622m, implying an approximately ¥80m Q4 net loss after the ¥542m Q3 cumulative loss. This forecast profile embeds a substantial sequential improvement in Q4 operating performance. The improvement is plausible only if sales recovery, product mix, capacity utilization, or cost absorption improves materially. Manufacturing working-capital indicators remain elevated, with annualized DSO of 237 days, DIO of 127 days, and a 354-day cash conversion cycle. These indicators point to slow conversion of production and receivables into cash and make revenue recovery quality an important monitoring issue. Finished goods of ¥228m, raw materials of ¥196m, and work in process of ¥158m show inventory distributed across production stages, but the high DIO signals that inventory velocity needs improvement. Property, plant and equipment of ¥1.92bn, equal to 23.3% of assets, leaves profitability sensitive to production utilization. Foreign-exchange gains were only ¥7m and were immaterial to the operating loss, limiting the significance of currency effects in the reported earnings result.

Financial Health

Liquidity is strong on reported balance-sheet measures. Current assets of ¥6.09bn exceed current liabilities of ¥399m by ¥5.69bn, producing working capital of ¥5.69bn and a current ratio of 1,526.1%. The quick ratio of 1,468.9% confirms that liquidity is principally supported by cash and receivables rather than inventories. Cash and deposits of ¥3.88bn cover short-term loans of ¥150m by 25.84x. Total interest-bearing debt is only ¥167m, equivalent to a 0.10x debt-to-equity ratio and 2.2% debt-to-capital ratio. Total liabilities are 9.3% of total assets and total equity is ¥7.46bn, supporting a 90.7% capital adequacy ratio. Short-term debt comprises 89.7% of interest-bearing debt, which is the root cause of the refinancing-risk alert. In context, the maturity concentration is mitigated by the large cash position and low absolute debt, but it leaves funding administration dependent on periodic short-term facilities rather than long-dated financing. Interest coverage of -135.62x triggers the debt-service alert because negative EBIT cannot cover interest expense through operating earnings. The practical impact is limited at present by annualized interest expense of only ¥5m cumulative and substantial cash, but coverage would become more relevant if losses persist or financing needs increase. Short-term loans decreased ¥350m, or 70.0%, year on year to ¥150m, reducing leverage and refinancing exposure. Long-term loans declined ¥12m, or 41.0%, to ¥17m. Accounts payable declined ¥70m, or 60.0%, to ¥47m, consistent with a lower procurement or production level and reducing supplier-credit funding. Accounts receivable declined ¥1.11bn, or 44.3%, to ¥1.40bn, less than the revenue decline, contributing to the elevated annualized DSO. Inventories declined ¥83m, or 26.6%, to ¥228m, also less than the sales contraction and consistent with the elevated DIO. Equity fell ¥745m year on year, reflecting the ¥542m net loss and ¥202m negative translation adjustment, while retained earnings declined ¥543m to ¥3.13bn.

Notable B/S Changes

Accounts receivable: -¥1.11bn (-44.3%) to ¥1.40bn - declined less rapidly than revenue, consistent with elevated annualized DSO of 237 days and requiring monitoring of collection quality. Short-term loans: -¥350m (-70.0%) to ¥150m - substantially reduced leverage and refinancing exposure, although short-term debt remains 89.7% of total interest-bearing debt. Accounts payable: -¥70m (-60.0%) to ¥47m - lower supplier financing is consistent with reduced purchasing or production activity and contributes to the long operating cash cycle. Inventories: -¥83m (-26.6%) to ¥228m - inventory reduction lagged the sales decline, consistent with annualized DIO of 127 days and a need to monitor turnover and obsolescence risk. Long-term loans: -¥12m (-41.0%) to ¥17m - reinforces the low-leverage capital structure. Total equity: -¥745m (-9.1%) to ¥7.46bn - reflects the ¥542m net loss and ¥202m negative foreign-currency translation adjustment. Retained earnings: -¥543m (-14.8%) to ¥3.13bn - principally reflects the current-period net loss and reduces the accumulated earnings buffer. Intangible assets: -¥2m (-64.1%) to ¥1m - immaterial relative to total assets and not a material balance-sheet risk.

Cash Flow Quality

The balance-sheet working-capital profile indicates a long operating cash conversion cycle. Annualized DSO of 237 days exceeds the 60-day warning threshold and is the root cause of the high-receivable-days alert. The high DSO is especially notable because receivables fell only 44.3% while revenue fell 65.4%, implying collections have not contracted proportionately with sales. This may reflect customer payment timing, a sales mix with longer credit terms, or slower collections; in each case, it raises the importance of receivable realization for liquidity quality. Annualized DIO of 127 days exceeds the 90-day warning threshold and is the root cause of the high-inventory-days alert. Inventory has declined in absolute yen terms, but not at the rate of revenue, which suggests lower inventory turnover during the sales downturn. The annualized cash conversion cycle of 354 days exceeds the 120-day warning threshold and is the root cause of the long-CCC alert. The combination of high DSO and high DIO indicates capital remains tied up in the operating cycle for an extended period. The impact on the investment thesis is that the substantial cash balance provides a buffer, but future operating recovery should be assessed alongside normalization of collections and inventory turnover. A reduction in receivable days and inventory days would strengthen the quality of any revenue rebound. The ¥3.88bn cash balance remains the principal near-term liquidity protection against a prolonged working-capital cycle.

Dividend Sustainability

The company reported a Q2 dividend per share of ¥0 and forecasts a full-year dividend per share of ¥0. Accordingly, there is no current cash dividend commitment against the FY2026 loss. The dividend payout ratio is not meaningful because earnings per share are negative at ¥27.07 for Q3 and forecast at negative ¥31.06 for the full year. The absence of dividends preserves capital during a period of operating losses and reduces near-term demands on cash. Equity of ¥7.46bn and cash of ¥3.88bn provide balance-sheet capacity, but a resumption of dividends would depend on a sustainable restoration of operating profitability and improved working-capital conversion. Treasury shares of 770,737 are outstanding, while treasury stock remained unchanged year on year at ¥286m; no total return ratio is calculated.

Risk Assessment

Business risks include Demand and utilization risk: the 65.4% revenue decline has exposed a fixed-cost structure that produced a -38.3% operating margin; a slower-than-forecast Q4 revenue recovery would pressure full-year results., Manufacturing working-capital risk: annualized DSO of 237 days and DIO of 127 days are above warning thresholds, creating a 354-day cash conversion cycle and raising the risk of delayed cash realization or inventory obsolescence., Margin and product-mix risk: the gross margin fell about 1,370bp to 22.4%, suggesting that volume, pricing, mix, or production absorption must improve for earnings to normalize., Foreign-currency risk: comprehensive income included a ¥202m negative foreign-currency translation adjustment, demonstrating that currency translation can affect equity even when the period's reported FX gain in non-operating income is small., Asset-utilization risk: PPE totals ¥1.92bn, including ¥979m of machinery, and weak revenue generation against this installed asset base can prolong negative returns on invested capital..

Financial risks include Debt-service risk: interest coverage is -135.62x because EBIT is negative. Although debt is low, sustained operating losses would weaken the ability to service financing from operations., Refinancing concentration risk: 89.7% of interest-bearing debt is short term. The risk is currently moderated by cash equal to 25.84x short-term loans, but the maturity profile should remain under review., Capital erosion risk: total equity declined ¥745m year on year to ¥7.46bn, driven by the net loss and negative currency translation adjustment., Forecast-execution risk: Q3 revenue progress of 63.5% trails the standard 75% rate, while 93.5% of the planned full-year operating loss has already been incurred..

Key concerns include High likelihood/high impact: failure to deliver the implied Q4 sales acceleration of approximately ¥933m and operating-loss reduction to approximately ¥43m., High likelihood/medium impact: continued slow collection and inventory turnover, as signaled by the 237-day DSO, 127-day DIO, and 354-day cash conversion cycle., Medium likelihood/high impact: persistent underutilization of the manufacturing asset base, which would keep ROIC negative at -18.8% and delay margin recovery., Low likelihood/medium impact: liquidity stress in the near term, mitigated by ¥3.88bn cash, a 1,526.1% current ratio, and low leverage..

Investment Implications

Key takeaways include The earnings reversal is operationally driven: revenue fell ¥3.22bn year on year and the resulting gross-profit decline far exceeded the reduction in SG&A., The balance sheet is conservatively financed, with 0.10x debt-to-equity, 2.2% debt-to-capital, and ¥3.88bn cash, providing time to execute a recovery., The principal operational evidence to seek is a Q4 improvement in revenue, gross margin, and fixed-cost absorption consistent with full-year guidance., Working-capital normalization is important because slow receivable collection and inventory turnover weaken the cash quality of future sales growth., No dividend is planned, preserving financial flexibility while the company remains loss-making..

Metrics to watch include Q4 revenue versus the approximately ¥933m implied by full-year guidance, Operating loss versus the approximately ¥43m Q4 loss implied by guidance, Gross margin recovery from 22.4%, SG&A as a percentage of revenue, currently 60.8%, Annualized DSO of 237 days, DIO of 127 days, and cash conversion cycle of 354 days, Cash and deposits of ¥3.88bn relative to continuing losses, Equity and foreign-currency translation adjustments.

Regarding relative positioning, The company combines a stressed earnings profile, negative -18.8% ROIC, and inefficient working-capital metrics with unusually strong reported liquidity and very low leverage. Relative to a financially leveraged distressed manufacturer, balance-sheet risk is limited; relative to a healthy manufacturer, the revenue collapse, negative operating margin, and extended cash conversion cycle are significant operational disadvantages.