VLC Security Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥612M
• Operating Income: ¥-248M
• Net Income: ¥709M
• EPS: ¥-19.74

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

VLC Security (24670) reported FY2026 Q2 consolidated results under JGAAP showing a sharp top-line contraction and continued operating losses. Revenue was ¥612.0m, down 21.4% YoY, indicating demand softness and/or order deferrals in the period. Gross profit was reported at ¥283.1m, implying a gross margin of 46.3%; this is internally consistent with the disclosed margin metric. Note that the separately listed cost of sales figure (¥496.0m) appears inconsistent with the reported gross profit; using gross profit, implied cost of sales is roughly ¥329m. Operating income was a loss of ¥248.0m, essentially flat YoY, indicating limited progress in restructuring cost base relative to the revenue decline. Ordinary loss was ¥239.0m and net loss was ¥263.0m, with EPS of -¥19.74, underscoring ongoing profitability challenges. Depreciation was modest at ¥10.4m, and EBITDA stood at -¥237.6m (margin -38.8%), highlighting that the loss is not driven by heavy non-cash charges. Interest expense was low at ¥1.9m, so financing costs are not the primary driver of losses. Operating cash flow was positive at ¥14.4m despite the sizable net loss, suggesting favorable working capital movements and non-cash items (including tax accruals). Financing cash flow was an outflow of ¥70.8m, likely reflecting debt reduction or lease/other financing outflows, as no dividends were paid. The balance sheet shows total assets of ¥1,864.0m, liabilities of ¥768.8m, and equity of ¥1,066.0m, implying a debt-to-equity of 0.72x and an ample current ratio of 2.12x. There is a modest reconciliation gap between assets and liabilities plus equity, which may be due to presentation/rounding or unreported components. Liquidity appears adequate in the near term with working capital of ¥381.0m, though recurring losses pressure medium-term solvency. Free cash flow cannot be assessed fully given unreported investing cash flows, but the positive OCF partially offsets earnings weakness. Dividends were not paid (DPS ¥0.00), which is prudent given the loss profile. Data limitations include unreported cash balance, share count, inventories, investing cash flows, and equity ratio; analysis focuses on the available non-zero items and provided calculated metrics.

Profitability Analysis

ROE_decomposition: DuPont shows net margin -42.97%, asset turnover 0.328x, and financial leverage 1.75x, yielding a calculated ROE of -24.67% (aligned with reported ROE). The negative margin is the dominant driver of weak ROE, while turnover is modest and leverage is moderate. margin_quality: Gross margin is reported at 46.3% (gross profit ¥283.1m on revenue ¥612.0m). Note: this implies cost of sales ¥329m; the separately listed cost of sales (¥496.0m) conflicts with this and likely reflects classification differences or a data extraction issue. Operating margin is deeply negative (-40.5%), indicating a high fixed/semifixed cost base relative to the current revenue scale. operating_leverage: EBITDA margin at -38.8% and limited depreciation (¥10.4m) indicate that losses are primarily at the operating cost level (personnel/SG&A). With revenue down 21.4% YoY and operating loss flat YoY, cost actions may have offset some deleverage, but not enough to restore breakeven. A modest recovery in revenue could meaningfully improve operating income if fixed costs are substantial.

Growth Assessment

revenue_sustainability: Revenue declined 21.4% YoY to ¥612.0m, pointing to demand weakness or project timing effects. Without backlog or order intake data, sustainability is uncertain, but current trajectory is negative. profit_quality: Ordinary loss (-¥239.0m) and net loss (-¥263.0m) indicate structural profitability issues rather than one-off items; interest expense is minimal, and depreciation is small, so core operations are the main drag. outlook: Short-term outlook hinges on stabilizing revenue and executing cost controls to narrow the operating loss. Given the high reported gross margin, maintaining pricing/mixture while rightsizing SG&A could improve earnings. However, absent visibility on pipeline and customer trends, a near-term return to profitability is uncertain.

Financial Health

liquidity: Current assets ¥721.3m vs. current liabilities ¥340.3m yield a current ratio of 2.12x (quick ratio effectively the same due to unreported inventories), and working capital of ¥381.0m, indicating near-term liquidity headroom. solvency: Total liabilities ¥768.8m vs. equity ¥1,066.0m implies a debt-to-equity ratio of 0.72x. Interest burden is low (¥1.9m), reducing near-term insolvency risk, but persistent losses will erode equity over time. capital_structure: Leverage is moderate with financial leverage at 1.75x per DuPont. Equity base remains larger than liabilities, but ongoing deficits could pressure capital adequacy if not reversed.

Cash Flow Quality

earnings_quality: OCF of ¥14.4m versus net loss of ¥263.0m (OCF/NI -0.05) indicates that accrual losses exceed cash outflows, supported by working capital release and non-cash charges. This cushions cash but does not resolve structural loss-making operations. FCF_analysis: Investing CF is unreported (shown as 0), preventing a precise free cash flow assessment. Conceptually, FCF likely approximated OCF minus maintenance capex; with low depreciation (¥10.4m), steady-state capex could be modest, but confirmation is not available. working_capital: Positive OCF amid losses implies collections and/or payables management supported cash. Sustaining positive OCF will require continued discipline on receivables/payables; any reversal could quickly turn OCF negative.

Dividend Sustainability

payout_ratio_assessment: No dividend was paid (DPS ¥0.00; payout ratio 0.0%) consistent with a net loss and the need to conserve cash. FCF_coverage: With investing CF unreported and OCF modest, there is insufficient evidence to support dividend distributions; current policy appears appropriately conservative. policy_outlook: Given negative earnings and the need to prioritize turnaround and liquidity, a resumption of dividends likely requires a demonstrable return to operating profitability and consistently positive OCF.

Risk Assessment

Business Risks:

• Demand softness and 21.4% YoY revenue decline
• Operating deleverage due to fixed/semifixed cost structure
• Potential customer concentration and contract renewals typical in security services
• Labor market tightness and wage inflation impacting margins
• Execution risk in cost reduction and productivity initiatives
• Compliance and regulatory requirements in security operations

Financial Risks:

• Sustained operating and net losses eroding equity
• Possible reversal of working capital benefits that supported OCF
• Limited visibility on cash reserves due to unreported cash balance
• Potential need for external funding if losses persist
• Data inconsistencies (e.g., cost of sales vs. gross profit) complicating analysis

Key Concerns:

• Depth and duration of the revenue contraction
• Ability to structurally lower SG&A without impairing service quality
• Maintaining gross margin near 46% amid demand pressure
• Liquidity runway absent disclosed cash and investing cash flows
• Tax expense dynamics given losses (timing and valuation allowance effects)

Investment Implications

Key Takeaways:

• Revenue fell 21.4% YoY to ¥612.0m, signaling near-term top-line pressure
• Gross margin was a solid 46.3%, but operating losses remain large (-¥248.0m)
• EBITDA margin -38.8% indicates the need for meaningful cost realignment
• OCF was positive at ¥14.4m, mitigating cash burn despite losses
• Balance sheet leverage is moderate (D/E 0.72x) with ample working capital
• Dividend suspended (DPS ¥0), appropriate given negative earnings

Metrics to Watch:

• Quarterly revenue growth and order/backlog trends
• Gross margin stability and mix/pricing effects
• Operating expense run-rate and break-even revenue level
• OCF trajectory and receivables/payables days
• Leverage (D/E) and interest coverage
• Any disclosures on cash balance and capital expenditure needs

Relative Positioning: Within Japan-listed security and services peers, VLC Security currently exhibits weaker profitability with significant operating losses but maintains moderate leverage and adequate short-term liquidity; near-term performance hinges on revenue stabilization and cost execution.

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