TechMatrix Q2 FY2027: Record first-half sales and profit, outlook unchanged

TechMatrix reported revenue of ¥38,999.73 million, operating profit of ¥3,507.94 million and interim net income attributable to owners of the parent of ¥2,373.04 million for April-September 2026. The figures were up 16.8%, 10.5% and 12.7%, respectively, from a year earlier, setting first-half records in all three categories.

• Gross profit: ¥11,517.32 million, up 9.8% year on year as revenue expanded.
• Selling, general and administrative expenses: ¥8,037.71 million, up 9.7%. Higher personnel costs and other expenses tempered profit growth.
• Interim earnings per share: ¥59.14, up from ¥52.40 a year earlier.

Record first-half revenue and profit reflected stronger demand for cloud-based security products in the Information Infrastructure Business. Companies sought protection against cyberattacks and safeguards for their use of generative AI, while subscription revenue also grew in the Application and Services Business. With SG&A rising as the company adds staff, the focus is on whether revenue growth can translate into improved margins.

Information Infrastructure Business generated revenue of ¥28,872.83 million and operating profit of ¥3,220.58 million, up 19.2% and 10.0%, respectively, from a year earlier. New orders and large renewals for cloud-based security products remained solid, and cross-selling advanced for an AI-powered solution that automates security operations center work. Adoption also increased for email security and vulnerability management products.

Application and Services Business revenue rose 15.7% to ¥5,458.64 million, while operating profit swung to ¥206.89 million from a loss of ¥53.51 million a year earlier. New CRM orders, accumulated recurring fees, demand for software testing and contract wins through bidding contributed to the improvement. Adoption of the Tsumugino school administration system progressed, but investment in development and staffing widened operating losses in the education business.

Medical Systems Business revenue increased 5.3% to ¥4,668.25 million, while operating profit fell 73.3% to ¥80.47 million. Recurring revenue grew as more facilities contracted for medical image management systems, but orders declined against the previous year's large AI-related contracts. Investment at Medmain, which became a subsidiary, also weighed on profit.

Total assets stood at ¥128,060.25 million at the end of September, up 5.4% from the previous fiscal year-end. Cash and cash equivalents fell by ¥8,488.71 million over the same period to ¥27,313.09 million, while the equity ratio attributable to owners of the parent declined to 20.6% from 21.7%.

• Dividend: The full-year dividend forecast is ¥56 per share, up ¥4 from the previous year's actual ¥52. The forecast year-end dividend is ¥32.
• Cash flow: The interim operating, investing and financing cash flows cannot be confirmed from the figures presented in the earnings summary, so the breakdown of the change in cash cannot be determined.

The share buyback was carried out under a July 31 board resolution. While returning capital to shareholders, TechMatrix has also increased investment and goodwill following the consolidation of Medmain. Its equity ratio declined as total assets expanded. Advances paid and contract liabilities also increased, making it important to monitor both the funding needs of its growing recurring-revenue businesses and its financial flexibility.

TechMatrix left unchanged its FY2027 forecasts, first announced on May 8, 2026. It expects revenue to rise 14.0% from the previous year, operating profit to increase 5.7% and net income attributable to owners of the parent to grow 3.9%.

The approximate previous-year actuals are reverse-calculated from the current forecasts and the year-on-year growth rates in the earnings summary. First-half revenue was about 47.7% of the full-year forecast, operating profit about 42.8% and net income attributable to owners of the parent about 44.1%. Although first-half results set records, meeting the full-year operating profit target will require growth in the second half. Sustained security demand and the ability to absorb investment costs in the medical business will be key.

The order backlog totaled ¥120,262 million at the end of the first half, most of it in the Information Infrastructure Business. Revenue from ongoing contracts also totaled ¥27,826 million, with recurring revenue accounting for 83.5% of the total.

In the Information Infrastructure Business, new orders and renewals, alongside the backlog, are supporting revenue. A high recurring revenue ratio makes earnings more predictable, while the pace at which the backlog converts to sales and contracts are renewed will influence the durability of growth.

TechMatrix made Medmain, a developer of AI tools for pathology diagnosis, a consolidated subsidiary on April 30, 2026. Its voting rights stake, including its previously held shares, is 72.05%. The consideration was approximately ¥3,002.93 million, and goodwill arising from the acquisition was approximately ¥2,625.24 million.

• Strategic rationale: TechMatrix plans to combine Medmain's pathology AI with PSP's cloud-based PACS and remote image diagnosis technologies to develop and commercialize a digital pathology platform.
• Near-term earnings impact: Since the acquisition, Medmain has contributed revenue of ¥63.02 million and an interim loss of ¥148.59 million.
• Next steps: The company aims to prepare for medical device approval as it pursues clinical use of pathology AI, and to make digital pathology data available for medical research.

TechMatrix aims to broaden the scope of its Medical Systems Business and build a service platform connecting image diagnosis with pathology diagnosis. Development and launch costs are likely to weigh on earnings in the near term, making customer adoption and growth in service revenue important measures of the investment's returns.

Growing demand for cybersecurity is a tailwind, but investors should also watch external uncertainty, personnel costs and the burden of growth investments.

• Economy, prices and interest rates: Inflation driven by higher oil prices and a weaker yen, rising interest rates, and volatility in overseas economies and financial markets could affect corporate investment decisions and alter the timing or volume of IT orders.
• Cyberattacks and AI response: More sophisticated attacks, misuse of AI, and the need to protect confidential information and establish AI governance as companies use generative AI are customer concerns. TechMatrix's ability to respond through its products and services, and the speed of development, are also competitive challenges.
• Personnel costs and upfront investment: SG&A rose 9.7% year on year, reflecting higher personnel costs and other factors. Product development and staffing in education, as well as new-business investment in healthcare, could weigh on profit before revenue catches up.
• Commercialization of Medmain: Clinical use and regulatory approval for pathology AI may take time. If adoption and monetization do not progress as expected, the recovery in Medical Systems Business profit could be delayed.