Microwave Chemical (9227) FY2026 Q3 Earnings Report

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Executive Summary

The current period resulted in a significant expansion of the operating loss, as a decline in revenue coincided with a sharp deterioration in the gross profit margin. Revenue was ¥5.6B (¥6.8B in the same period last year, YoY -17.9%), Operating Income was ¥-6.8B (¥-1.5B in the same period last year), Ordinary Income was ¥-7.0B (¥-1.5B in the same period last year), and Net Income was ¥-7.0B (¥-1.5B in the same period last year, YoY -361.2%). The sharp decline in the gross profit margin from 78.6% to 18.1% was the primary driver of the expanded loss, indicating that profitability deteriorated on a scale exceeding the decline in revenue.

Factors Driving Earnings Fluctuations

【Revenue】Revenue was ¥5.6B, down 17.9% year on year. Accounts receivable declined 80.8% from ¥6.0B to ¥1.2B, suggesting progress in the collection of trade receivables or a change in the composition of revenue recognized from projects. Meanwhile, contract liabilities increased 71.6% from ¥1.3B to ¥2.2B, indicating that advance-payment projects are accumulating but have not yet been recognized as revenue.

【Profit and Loss】Gross profit was limited to ¥1.0B, and the gross profit margin declined sharply to 18.1% (78.6% in the same period last year). SG&A expenses were ¥7.9B, up 15.4% year on year, and the SG&A-to-revenue ratio reached 141.5% (100.7% in the same period last year), indicating that gross profit was insufficient to absorb SG&A expenses. The operating margin deteriorated to -123.2% (-22.0% in the same period last year), while non-operating expenses, primarily interest expense, also slightly increased the loss. Non-recurring income and expenses were limited in scale, with income of ¥0.01B and loss of ¥0.03B; therefore, the primary cause of the net loss was the deterioration in core operating profitability rather than non-recurring items. In conclusion, the Company recorded lower revenue and lower profit.

Key Financial Indicators

【Profitability】The operating margin was -123.2% and the net profit margin was -126.1%, both significantly worse than in the same period last year (operating margin of -22.0% and net profit margin of -22.5%). The gross profit margin of 18.1% was substantially below the SG&A-to-revenue ratio of 141.5%, indicating that expenses could not be absorbed.【Cash Flow Quality】Cash and deposits were ¥3.8B, down 25.4% from ¥5.1B in the same period last year, indicating continued cash outflows associated with the recognition of losses.【Investment Efficiency】ROE was -236.6%, while the total asset turnover ratio was approximately 0.479x, indicating limited revenue-generating capacity relative to the asset base.【Financial Soundness】The equity ratio declined to 25.5% (50.1% in the same period last year), and net assets contracted 62.9% to ¥4.0B (¥10.6B in the same period last year). Although the current ratio was approximately 124.7% and working capital remained positive, liabilities were approximately 2.9 times equity.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, an examination of cash trends based on changes in the balance sheet shows that cash and deposits were ¥3.8B, down ¥1.3B from ¥5.1B in the same period last year. Net assets declined by ¥6.7B, with most of the decrease attributable to deterioration in retained earnings resulting from the recognition of the current-period net loss (from ¥-23.8B to ¥-30.8B). Accounts payable increased from ¥0.7B to ¥1.8B, potentially indicating that the use of payment terms partially restrained cash outflows. Accounts receivable declined substantially from ¥6.0B to ¥1.2B, reflecting progress in collections, while the limited recognition of new revenue also affected cash trends. The declining trend in cash and deposits amid continued losses is an important point to monitor when assessing future financial flexibility.

Earnings Quality

The current-period loss was primarily attributable to deteriorating profitability at the operating level. The impact of non-recurring income and expenses (income of ¥0.01B and loss of ¥0.03B) was extremely limited, with virtually no earnings boost or drag from temporary factors. Non-operating expenses were ¥0.1B, most of which comprised interest expense, and financial costs under loss-making conditions slightly expanded the loss. The sharp decline in the gross profit margin (78.6%→18.1%) is considered to reflect not only the decline in revenue but also changes in project mix, cost incurrence, and the timing of revenue recognition. Accordingly, the quality of operating earnings is highly dependent on project progress. Work in progress was ¥0.8B and accounted for most of inventories, creating a structure in which future inspection and revenue-recognition progress will determine earnings quality.

Earnings Forecasts and Guidance

The full-year Company forecast is revenue of ¥16.1B, Operating Income of ¥-8.5B, and Net Income of ¥-8.8B. The revenue progress rate was 34.5% (¥5.6B/¥16.1B), substantially below the 75% implied by a simple time-apportionment basis, implying that approximately ¥10.6B of revenue would need to be recognized in Q4. Meanwhile, the progress rate for the operating loss had reached approximately 80.3% (¥6.8B/¥8.5B), indicating that the full-year forecast assumes a sharp increase in revenue but does not anticipate a return to profitability for the full year. The concentration of revenue recognition and trends in the gross profit margin will be key points for assessing consistency with the full-year forecast.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year Company dividend forecast is also ¥0, with the Company continuing to pay no dividends. Given the capital position of a current-period net loss of ¥7.0B and net assets of ¥4.0B, securing retained funds is considered to be the priority at this stage. Treasury shares are negligible, and no share repurchases of a meaningful scale as a shareholder return measure have been identified. The payout ratio is not applicable because no dividends are paid.

Risk Factors

1. Revenue Progress and Achievement of Full-Year Forecast: The revenue progress rate remained at 34.5%, and achieving the full-year forecast will require revenue recognition of approximately ¥10.6B in Q4, substantially exceeding the level in the same period last year. If project inspections are delayed, the gap from the full-year plan could widen.

2. Sharp Decline in Gross Profit Margin: The gross profit margin declined sharply from 78.6% in the same period last year to 18.1%, failing to absorb the SG&A-to-revenue ratio of 141.5%. Fluctuations in project profitability, cost management, and project mix will have a significant impact on future earnings.

3. Financial Leverage and Financial Flexibility: The equity ratio declined to 25.5%, while liabilities reached approximately 2.9 times net assets. Cash and deposits also decreased 25.4% year on year, making it necessary to monitor financial flexibility while losses continue.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability was substantially below the industry median and was at a level positioned near the bottom of the industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, and the Company’s revenue decline stood out in an industry primarily characterized by revenue growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The deterioration in profitability exceeded the scale of the decline in revenue, with the combination of a gross profit margin of 18.1% and an SG&A-to-revenue ratio of 141.5% resulting in an operating loss margin of -123.2%. A structural concern is that the expense growth rate (+15.4%) exceeded the revenue growth rate (-17.9%).

2. Achieving the full-year forecast will require revenue recognition of approximately ¥10.6B in Q4, meaning that earnings are heavily dependent on the timing of project inspections and revenue recognition at the end of the quarter.

3. The capital position, characterized by an equity ratio of 25.5% and net assets of ¥4.0B (down 62.9% year on year), indicates a need to closely monitor future capital and funding trends in conjunction with the progress of future project fulfillment signaled by the increase in contract liabilities (up 71.6% year on year).

Theoretical Share Price (Reference Value)

Sensitivity: -¥28 to -¥28 for a ±1% change in the cost of equity, and -¥28 to -¥28 for a ±0.1 change in ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a slightly higher level.

(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 forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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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