Microwave Chemical Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥340M
• Operating Income: ¥-576M
• Net Income: ¥-584M
• EPS: ¥-36.88

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: FY2026 Q2 was weak with deep operating and net losses despite modest top-line growth and high gross margin. Revenue grew 4.6% YoY to 3.40, while cost of sales was 0.66, yielding a strong gross profit of 2.59 and gross margin of 76.2%. However, SG&A of 4.59 exceeded gross profit by 2.0, driving operating loss to -5.76 and ordinary loss to -5.83. Net loss was -5.84 (EPS -36.88 JPY), implying a net margin of -171.8%. Operating cash flow was positive at 0.50 despite the large net loss, indicating a significant divergence between earnings and cash. Operating margin for the quarter stood at -169.4%, and EBITDA was -5.26 (EBITDA margin -154.6%). Asset turnover remained low at 0.227, consistent with an early-scale or R&D-heavy business model. Financial leverage was elevated at 3.04x assets/equity, contributing to a very negative ROE of -118.9% (DuPont: NPM -171.8% × AT 0.227 × Leverage 3.04x). Liquidity looks adequate with current ratio 284.6% and cash of 5.07 covering current liabilities of 4.27, but solvency risk is non-trivial with D/E at 2.16x and retained earnings of -23.81. The bridge from operating/ordinary loss (-5.8) to pretax loss (-2.03) suggests undisclosed extraordinary gains (+3.8), which complicates earnings quality assessment. ROIC was very weak at -170.7%, pointing to underutilized invested capital and/or heavy upfront costs. Working capital appears sizable with receivables of 5.99 relative to revenue, which may explain the positive OCF via collections or other WC swings. Near-term focus is likely on SG&A control, milestone-based revenue conversion, and cash runway management. Forward-looking, the company needs either a step-up in commercialization and order intake or a material cost reset to approach breakeven; otherwise, funding actions (debt or equity) may be needed. Data gaps (no detailed SG&A breakdown, investing CF, or extraordinary items) limit precision but do not change the overall conclusion of pressure on profitability and returns. Overall, the quarter underscores a scale/operating leverage challenge rather than a demand collapse, given the slight revenue growth and high gross margin.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-171.8%) × 0.227 × 3.04 ≈ -118.9%. The largest driver of the weak ROE is the severely negative net margin, stemming from SG&A (4.59) that materially exceeds gross profit (2.59), yielding operating margin of -169.4%. Asset turnover at 0.227 is low, reflecting limited revenue scale relative to asset base (typical for early-stage or platform-scale-up models). Leverage at 3.04x amplifies the negative margin effect on equity returns. Business reason: revenue grew modestly (+4.6% YoY) but operating expenses did not flex down, suggesting ongoing investment in commercialization, R&D/engineering, or capacity that has not yet translated into sales scale. Sustainability: the margin pressure appears structural near term unless a revenue inflection occurs; some SG&A may be semi-fixed and reducible, but commercialization timing is the key swing factor. Watch-outs: SG&A growth versus revenue growth is not disclosed, but the ratio SG&A/revenue at ~135% indicates adverse operating leverage; any delay in project wins or milestones will sustain losses.

Growth Assessment

Revenue increased 4.6% YoY to 3.40, but scale remains too small to absorb fixed cost base. Gross margin was strong at 76.2%, suggesting attractive unit economics on recognized revenue, but volume and utilization are insufficient. Operating losses (-5.76) highlight negative operating leverage; turning points require either a step-change in orders/licensing revenue or SG&A rationalization. The improvement from ordinary loss (-5.83) to pretax loss (-2.03) implies non-recurring or non-operating positives (likely extraordinary gains), which do not improve recurring earnings power. With AR at 5.99, conversion of backlog/receivables to cash is important for sustaining operations while scaling. Outlook hinges on commercialization progress of microwave chemical processes, customer adoption timelines, and any milestone/license revenues; current metrics indicate execution risk until scale is achieved.

Financial Health

Liquidity is adequate: current ratio 284.6% and quick ratio 284.6% (no inventories reported), with cash 5.07 exceeding current liabilities 4.27. Solvency is pressured: D/E is 2.16x (warning threshold >2.0), and retained earnings are -23.81, indicating accumulated losses. Interest-bearing debt detail is limited, but long-term loans are 3.54 within noncurrent liabilities of 6.34; interest expense is modest at 0.04, yet interest coverage is deeply negative due to operating loss. Maturity mismatch risk appears manageable near term given cash plus receivables relative to current liabilities, but sustained losses could erode buffers. No off-balance sheet obligations are disclosed in the provided data. Note: balance sheet subtotals as presented (current + noncurrent assets) do not reconcile to total assets, indicating data limitations in the extract; conclusions rely only on the reported non-zero line items.

Cash Flow Quality

OCF was +0.50 versus net loss of -5.84, yielding OCF/NI of -0.09 (flagged). The positive OCF despite large losses likely reflects working capital inflows (e.g., receivable collections or payables timing) and does not evidence underlying profitability. Capex was 0.94, implying inferred FCF of approximately -0.44 (OCF 0.50 minus capex 0.94), which would not support dividends or debt reduction without external funding. With EBITDA at -5.26 and interest expense 0.04, debt service is currently reliant on cash reserves rather than operating cash generation. No clear signs of working capital manipulation can be identified from limited disclosures, but the large AR (5.99) relative to revenue merits monitoring for collection risk.

Dividend Sustainability

No dividends are reported for the period, and payout ratios are not calculable. Given negative net income (-5.84) and inferred negative FCF (~-0.44), there is no capacity for distributions without drawing on cash or incremental financing. Policy-wise, the company appears to be in investment/scale-up mode, making near-term dividends unlikely until consistent positive OCF and operating profit are achieved.

Risk Assessment

Business Risks:

• Commercialization and scale-up risk: revenue growth (+4.6% YoY) is insufficient to cover SG&A; timing of customer adoption is uncertain.
• Execution risk on project milestones/licensing critical to bridge to profitability.
• Technology adoption risk specific to microwave chemical processes vs incumbent methods.
• Customer concentration risk is possible but undisclosed; small revenue base heightens sensitivity.
• Commodity/inputs and energy cost variability could affect unit economics despite high gross margin.

Financial Risks:

• High leverage: D/E 2.16x and negative retained earnings increase refinancing/dilution risk.
• Weak interest coverage (-152x) means debt service depends on cash reserves.
• Sustained operating losses risk covenant pressure (if any) and shorten cash runway.
• Working capital risk: large receivables (5.99) relative to revenue could stress cash if collections delay.

Key Concerns:

• Severely negative ROE (-118.9%) and ROIC (-170.7%) indicate poor capital efficiency.
• Operating margin -169.4% with SG&A exceeding gross profit by ~2.0.
• Quality of earnings: positive OCF driven by working capital while profits are deeply negative.
• Unspecified extraordinary items likely bridged ordinary loss to pretax loss, clouding recurring earnings visibility.
• Data gaps (no SG&A breakdown, investing CF, or detailed non-operating/extraordinary items) limit transparency.

Investment Implications

Key Takeaways:

• Top-line grew modestly, and gross margin is strong, but fixed-cost absorption is poor.
• Operating and net losses are deep, making near-term profitability unlikely without a scale inflection.
• Liquidity is sufficient in the short term, but solvency/leverage metrics are stretched.
• Cash generation is not yet supporting investment needs; inferred FCF is negative.
• Any extraordinary gains this quarter are one-off and do not improve core earnings.

Metrics to Watch:

• Order backlog and conversion to revenue (visibility into scale-up).
• SG&A trajectory vs revenue growth (evidence of operating leverage).
• Operating cash flow and AR collections (DSO, cash conversion).
• Cash runway months (cash + undrawn facilities vs burn rate).
• ROIC/ROE trend and capex discipline.
• Disclosure of extraordinary items and investing cash flows.

Relative Positioning: Relative to domestic specialty/advanced-chemistry peers, the company appears earlier-stage with lower scale, higher operating losses, and higher leverage; the strong gross margin is a positive differentiator, but overall return metrics and cash generation lag more established peers.

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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