LOIVE Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.25B
• Operating Income: ¥44M
• Net Income: ¥-17M
• EPS: ¥-1.37

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: Strong top-line growth but severe margin compression and a small net loss, with liquidity and leverage risks elevated. Revenue rose 32.5% YoY to 52.52, demonstrating solid demand momentum. Gross profit reached 15.61, implying a gross margin of 29.7%. Operating income collapsed 91.6% YoY to 0.44, bringing operating margin down to 0.8%. By backsolving, prior-year operating income was roughly 5.24 on revenue of about 39.66, implying last year's operating margin near 13.2%, so operating margin compressed by around 1,237 bps. Ordinary income was -0.12 as non-operating expenses of 0.34 (including interest expense of 0.19) outweighed limited non-operating income. Net income posted a small loss of -0.17 (EPS -1.37 JPY), though this was an 82.8% YoY improvement versus a larger loss last year. Operating cash flow was positive at 3.99, aided by non-cash D&A of 1.37 and likely working capital inflows, but a capex outlay of 5.77 yields a proxy FCF of about -1.78. Liquidity is tight (current ratio 0.98, quick ratio 0.98) and leverage is high (D/E 3.19x; long-term loans 27.61), with interest coverage modest at 2.34x. Asset turnover is reasonable at 0.612, but ROE is negative at -0.9% due to the net loss and thin operating margin. Reported profit before tax (4.97) does not reconcile with ordinary income (-0.12) and net income (-0.17), suggesting unreported extraordinary items or data classification differences; we rely primarily on operating/ordinary income and net income. ROIC is very low at 1.0%, far below a typical 7–8% target, underscoring returns well under the cost of capital. Earnings quality appears mixed: OCF is positive despite the net loss, but the OCF/NI metric flags as negative due to the sign of NI, and FCF (proxy) is negative after capex. Forward-looking, restoring operating margin (via pricing, mix, or SG&A control) and strengthening liquidity (working capital and refinancing) are essential; otherwise, equity dilution or higher funding costs could constrain growth.

Profitability Analysis

DuPont ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-0.3%) × 0.612 × 4.37 ≈ -0.9%. The largest driver of deterioration is Net Profit Margin, given the 1,237 bps compression in operating margin YoY and a net loss despite strong revenue growth. Business drivers likely include higher SG&A intensity versus gross profit, and increased financing costs (interest expense 0.19) paired with non-operating losses (net -0.33). Asset turnover at 0.612 is decent and likely improved with the 32.5% revenue growth, but cannot offset margin compression. Financial leverage at 4.37x amplifies earnings volatility; with negative NPM it drags ROE further below zero. Sustainability: The NPM weakness appears cyclical/operational rather than one-time; absent evidence of extraordinary charges, recovery requires gross margin improvement or SG&A containment. Concerning trend: Operating income fell far faster than revenue grew—implying SG&A and/or cost of sales growth outpaced sales, a sign of negative operating leverage.

Growth Assessment

Revenue growth of +32.5% YoY to 52.52 is robust and suggests healthy demand or footprint expansion. However, profit quality is weak: operating income fell 91.6% YoY to 0.44 and ordinary income turned negative (-0.12), indicating cost inflation, pricing pressure, or ramp-up costs. Gross margin at 29.7% is moderate; without prior-year GPM, the main observed pressure is at the operating level (SG&A absorption). Interest expense rose to a material 0.19 relative to operating income, compressing pretax earnings. Outlook hinges on restoring operating margin via price/mix, cost control, and potentially rationalizing low-return investments; otherwise high leverage could cap growth despite revenue momentum.

Financial Health

Liquidity is tight: current ratio 0.98 and quick ratio 0.98 are below 1.0 (warning). Working capital is slightly negative at -0.52. Cash and deposits are 15.20 versus current liabilities of 29.72, indicating reliance on ongoing cash generation or refinancing to meet near-term obligations. Solvency risk is elevated: D/E at 3.19x exceeds the 2.0x warning level; long-term loans are 27.61, and total liabilities 62.56 against equity of 19.64. Interest coverage is modest at 2.34x; any earnings shortfall or rate increase could pressure coverage. Maturity mismatch risk: current assets (29.19) are slightly below current liabilities (29.72), implying a narrow liquidity buffer; short-term borrowings are unreported, so the exact rollover risk is unclear. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF was positive at 3.99 while net income was -0.17, resulting in an OCF/NI metric of -23.46x (flagged by the benchmark due to the negative denominator). Qualitatively, cash conversion appears better than accrual earnings, aided by D&A of 1.37 and likely working capital inflows. Capex was -5.77; using OCF - capex as a proxy, FCF is around -1.78, indicating external funding or cash reserves were needed to cover investments. Financing CF was positive at 3.62, consistent with leveraging to fund capex and liquidity. Potential working capital manipulation signs are not evident from the limited disclosure; however, the reliance on financing and negative FCF (proxy) suggest cash generation is not yet covering growth investments.

Dividend Sustainability

Dividend information is unreported; we assume no explicit payout guidance for the period. With net income negative (-0.17) and proxy FCF negative (-1.78), capacity to sustain cash dividends appears constrained absent a near-term earnings and FCF recovery. Leverage is high (D/E 3.19x), and interest coverage is modest (2.34x), which would typically prioritize deleveraging over distributions. Policy outlook likely skews toward balance sheet stabilization and reinvestment until operating margins normalize.

Risk Assessment

Business Risks:

• Margin pressure from SG&A and/or input costs leading to negative operating leverage
• Execution risk in scaling operations to match revenue growth with profitability
• Potential pricing pressure or unfavorable sales mix compressing operating margin

Financial Risks:

• High leverage (D/E 3.19x) and modest interest coverage (2.34x)
• Tight liquidity (current ratio 0.98) and slight negative working capital
• Negative proxy FCF (-1.78) requiring external funding for capex

Key Concerns:

• ROIC at 1.0% is far below the cost of capital, risking value dilution
• Inconsistency between reported profit before tax (4.97) and ordinary/net income suggests classification or data issues; limited visibility on extraordinary items
• Sensitivity to interest rate increases given leverage and thin operating margin

Investment Implications

Key Takeaways:

• Revenue momentum is strong (+32.5% YoY), but profitability collapsed (operating margin ~0.8%).
• Net loss narrowed YoY to -0.17, yet leverage and liquidity remain pressure points.
• OCF positive (3.99) but proxy FCF negative (~-1.78) due to capex outlays.
• High D/E (3.19x) and current ratio below 1.0 elevate near-term financial risk.
• ROIC at 1.0% underscores sub-par capital efficiency; margin recovery is critical.

Metrics to Watch:

• Operating margin recovery versus prior-year ~13.2% level
• SG&A as a percentage of sales and cost discipline
• OCF trend and FCF after capex; working capital movements
• Interest coverage and refinancing terms; debt mix and maturities
• ROIC progression toward >5% medium term

Relative Positioning: Within peers, LOIVE exhibits strong top-line growth but weaker profitability, tighter liquidity, and higher leverage; near-term positioning is defensive until operating margin and cash generation improve.

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