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

Microwave Chemical Co., Ltd. (single-entity, JGAAP) reported FY2026 Q2 revenue of ¥340.0m, up 4.6% YoY, indicating incremental top-line traction amid sustained operating losses. Gross profit was ¥259.0m, producing a very high gross margin of 76.2%, which suggests a revenue mix skewed to high-margin technology/licensing, engineering services, or milestone-type income rather than productized volumes. Despite the strong gross margin, operating income remained deeply negative at -¥576.0m (flat YoY per disclosure), reflecting a heavy fixed-cost base (R&D and SG&A) and limited operating leverage at the current revenue scale. Ordinary income (-¥583.0m) and net income (-¥584.0m; EPS -¥36.88) were similarly negative, driving a net margin of -171.8%. DuPont decomposition shows the losses translating into a calculated ROE of -118.9%, driven by a very negative margin, modest asset turnover of 0.227x, and financial leverage of ~3.04x. Operating cash flow was a positive ¥49.9m despite the net loss, implying supportive non-cash items (notably ¥50.3m of D&A) and/or working capital inflows during the quarter. Investing cash flow was reported as ¥0 and financing cash flow as a small net inflow of ¥20.0m; however, items reported as zero may be undisclosed, limiting visibility on capex and liquidity. The balance sheet shows total assets of ¥1,495.0m and equity of ¥491.0m, implying an equity ratio of roughly 32.8% based on available totals, while the standalone equity ratio field shows 0.0% (likely not disclosed under this label). Liquidity appears strong with current assets of ¥1,214.3m and current liabilities of ¥426.7m, yielding a current ratio of 284.6% and working capital of ¥787.5m. Interest expense is low at ¥3.8m, and the debt-to-equity ratio is 2.16x (liabilities/equity), indicating reliance on liabilities relative to a modest equity base. EBITDA was -¥525.7m, with an EBITDA margin of -154.6%, underscoring early-stage economics and scale challenges. The company paid no dividend (DPS ¥0), which is appropriate given losses and the need to fund development. Revenue growth is positive but insufficient to offset fixed costs in the near term, so break-even visibility hinges on accelerating commercialization and disciplined opex. Overall, the quarter reflects a high-gross-margin model constrained by scale, with ample short-term liquidity but ongoing solvency risk if losses persist and external funding becomes necessary. Data gaps (zeros indicating non-disclosure) limit precision around cash balances, capex, and certain per-share metrics, so conclusions should be viewed in that context.

Profitability Analysis

ROE decomposition (DuPont): Net margin -171.8% × asset turnover 0.227× × financial leverage 3.04× yields ROE of -118.9%, driven primarily by the very negative margin. Gross margin is strong at 76.2% (gross profit ¥259.0m on revenue ¥340.0m), signaling high-value-added activities or milestone/licensing revenue. However, operating margin is approximately -169.4% (operating loss -¥576.0m), indicating that R&D and SG&A overwhelm contribution at current scale. EBITDA of -¥525.7m and an EBITDA margin of -154.6% reinforce that losses are not only due to depreciation but also to substantive cash operating costs. Ordinary margin (~-171.5%) mirrors operating weakness. Interest burden is minor (interest expense ¥3.8m), with interest coverage at -152.1x reflecting negative EBIT rather than high interest costs. Operating leverage is unfavorable near-term: revenue grew 4.6% YoY, yet operating loss was flat, implying limited flow-through as fixed costs remain high; scaling revenue materially is required for breakeven.

Growth Assessment

Revenue increased 4.6% YoY to ¥340.0m, indicating steady but modest growth. The very high gross margin suggests the current revenue mix may be episodic (e.g., milestones, engineering projects, or licensing fees) rather than recurring product revenue, which can make quarter-to-quarter growth lumpy. With operating loss unchanged YoY, incremental revenue did not translate to improved operating profit, implying that cost base reductions or stronger revenue scale are needed. D&A of ¥50.3m indicates ongoing investment in intangible/tangible assets supporting future commercialization. Given single-entity reporting and limited disclosures on backlog or pipeline, near-term growth visibility is constrained. Sustainability of revenue growth hinges on converting projects into repeatable, scalable deployments (e.g., licensing/royalty streams or standardized systems). Outlook: absent a step-up in orders/royalties or cost rationalization, losses are likely to persist; however, the high gross margin provides operating leverage potential if volumes scale. Key swing factors include customer acquisition, milestone timing, and speed of commercialization.

Financial Health

Liquidity: current assets ¥1,214.3m vs. current liabilities ¥426.7m yields a current ratio of 284.6% and working capital of ¥787.5m, indicating solid short-term liquidity. Quick ratio equals current ratio due to inventories reported as zero (likely undisclosed), so actual quick liquidity is not precisely known but appears ample given the magnitude of current assets. Cash and equivalents are not disclosed (reported as zero), limiting visibility on the liquidity mix (cash vs. receivables vs. other). Solvency: total liabilities ¥1,060.5m vs. equity ¥491.0m implies debt-to-equity of 2.16x; implied equity ratio from totals is ~32.8%. Interest expense is low (¥3.8m), suggesting limited financial cost pressure, but sustained losses erode equity over time. Capital structure is moderately leveraged by liabilities relative to equity for an early-stage loss maker, raising medium-term recapitalization risk if cash burn continues. No detail on long-term vs short-term borrowings or covenants was provided, so assessment is constrained.

Cash Flow Quality

Earnings quality: OCF of ¥49.9m versus net loss of -¥584.0m yields an OCF/NI ratio of -0.09, indicating positive cash generation despite accounting losses, likely driven by non-cash D&A (¥50.3m) and favorable working capital movements. This positive OCF may not be durable if working capital normalizes or if collection cycles lengthen. Free cash flow is reported as ¥0; with investing CF undisclosed (0), true FCF cannot be confidently assessed. The absence of disclosed capex is a key limitation; D&A magnitude suggests underlying asset base that may require ongoing capex to sustain or scale operations. Financing CF of ¥20.0m indicates minor external funding during the period. Overall, cash flow quality is mixed: supportive non-cash add-backs help, but core cash earnings remain negative when adjusting for potential capex and working capital normalization.

Dividend Sustainability

The company paid no dividend (DPS ¥0; payout ratio 0%), consistent with reported losses and the need to preserve cash for growth and R&D. With negative net income and uncertain free cash flow (FCF reported as 0 due to undisclosed investing cash flows), there is no coverage for distributions. Policy outlook likely favors reinvestment and liquidity preservation until sustained profitability and clearer FCF generation are achieved. Any future dividend would require a durable shift to positive operating profit and visibility on capex requirements.

Risk Assessment

Business Risks:

• Commercialization risk for microwave chemical processes and timetable to scale deployments
• Revenue concentration and milestone timing risk leading to lumpiness
• Scale-up and manufacturing/engineering execution risk for customer implementations
• Dependence on R&D outcomes and protection of intellectual property
• Customer adoption cycles and potential delays in orders
• Regulatory and safety compliance in chemical processing environments
• Competitive technologies that may offer lower-cost or simpler alternatives

Financial Risks:

• Ongoing operating losses leading to equity erosion and potential need for external financing
• Dilution risk if additional equity is raised on the Growth market
• Working capital volatility affecting OCF sustainability
• Limited transparency on cash balance and capex, complicating liquidity planning
• Potential covenant or refinancing risk if borrowings have terms not disclosed
• Sensitivity to project delays that defer cash receipts

Key Concerns:

• Persistent negative operating and net margins despite growth
• Low asset turnover and high financial leverage amplifying ROE negativity
• Uncertain FCF due to undisclosed investing cash flows and capex needs
• Reliance on high-margin but potentially episodic revenue streams
• Finite equity base (¥491m) relative to sustained losses

Investment Implications

Key Takeaways:

• Top-line grew 4.6% YoY to ¥340m, but losses remained substantial and flat YoY
• Exceptionally high gross margin (76.2%) points to valuable IP/know-how but insufficient scale
• Operating leverage not yet materializing; EBITDA margin -154.6%
• Liquidity currently adequate (current ratio ~2.85x), but solvency pressure builds if losses persist
• OCF positive due to non-cash and working capital factors; durability uncertain without capex visibility

Metrics to Watch:

• Order backlog, pipeline conversion, and timing of milestone/royalty revenues
• Operating expense trajectory and breakeven revenue level
• Cash balance and monthly burn rate (OCF excluding working capital swings)
• Capex and investing CF disclosure to assess true FCF
• Gross margin stability as revenue mix evolves
• Receivables collection and working capital turns
• Equity ratio and liabilities trend (leverage) over coming quarters

Relative Positioning: Among early-stage, deep-technology peers on the TSE Growth segment, the company exhibits above-average gross margins but weaker operating leverage, with adequate short-term liquidity yet heightened medium-term funding risk if commercialization does not accelerate.

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
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis