W-SCOPE Corporation FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.69B
• Operating Income: ¥-4.33B
• Net Income: ¥715M
• EPS: ¥-156.66

Income Statement

Balance Sheet

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

For FY2026 Q3 (consolidated, JGAAP), W-SCOPE (6619) reports a severe contraction in activity with revenue of 26.94 (100M JPY), down 91.2% YoY, and a deep operating loss of -43.33. Net income is -86.04, equating to a net margin of -319.4% and a DuPont-based ROE of -19.9% driven by extremely weak margins, very low asset turnover (0.050x), and modest leverage (1.25x). Liquidity is tight: current ratio 79.6%, quick ratio 58.4%, and negative working capital of -17.31, underpinned by low cash (2.62) and heavy short-term borrowings (75.06). Solvency appears adequate on book equity (total equity 431.65; D/E 0.24x), but the asset base is dominated by investment securities (383.34, ~71% of assets), raising questions about earnings sustainability and cash convertibility. Interest coverage is deeply negative at -14.84x, reflecting loss-making operations versus interest expense of 2.92. Reported cost structure and profits exhibit internal inconsistencies: gross profit (26.83) implies a 99.6% gross margin, at odds with the disclosed cost of sales (280.16), and ordinary income (-85.76) does not reconcile with operating income and non-operating items. Profit before tax is positive at 7.47 despite negative ordinary income, implying large undisclosed extraordinary gains, yet net income remains -86.04, suggesting additional below-PBT items or reconciliation effects not disclosed. EPS is mixed (basic -156.66 JPY, diluted 4.86 JPY), indicating the presence of dilutive instruments and non-recurring items affecting the period. The balance sheet shows significant capital surplus (431.97) offset by negative retained earnings (-156.93), signaling cumulative losses despite equity infusions. Asset efficiency has deteriorated alongside the revenue collapse, and operating leverage is high, magnifying losses on lower volume. With operating and cash flow statements unreported, earnings quality and cash generation cannot be independently validated this quarter. Overall, the profile reflects stressed operations, thin liquidity, reliance on short-term funding, and a balance sheet supported by financial assets rather than cash. Data limitations and classification differences (especially around COGS and extraordinary items) materially constrain precision, so conclusions focus on trends evident in the disclosed non-zero figures.

Profitability Analysis

ROE of -19.9% decomposes into net margin -319.4%, asset turnover 0.050x, and financial leverage 1.25x; the dominant driver is the severe negative margin. Operating income is -43.33 on revenue of 26.94, indicating a highly negative operating margin despite a reported gross margin of 99.6%, which likely reflects reclassification or missing cost items rather than true unit economics. Ordinary income (-85.76) is much weaker than operating income, suggesting additional non-operating burdens net of income (+7.85) and expenses (8.93) plus other items not detailed. Interest expense of 2.92 against negative EBIT yields an interest coverage of -14.84x. High operating leverage is evident: a 91.2% YoY revenue decline cascades into large operating losses, implying a cost base that did not flex with volume. The quality of the reported gross margin is questionable given the disclosed cost of sales; margin interpretation should be anchored on operating loss rather than gross profit this quarter. Non-operating income includes 0.89 of interest income, modest relative to interest expense, providing little offset.

Growth Assessment

Top-line contracted 91.2% YoY to 26.94, indicating a sharp slowdown in demand, capacity constraints, or deliberate volume curtailment. The magnitude suggests a structural or operational disruption rather than normal cyclicality. Profitability deteriorated with operating income at -43.33 and ordinary income at -85.76, highlighting both operating and non-operating drags. Given asset turnover of 0.050x, utilization of the asset base is very low. The positive profit before tax of 7.47 implies large extraordinary gains, likely from financial asset transactions, but these did not translate to bottom-line improvements (net income -86.04), pointing to poor profit quality and/or other charges. Without cash flow data, it is difficult to verify whether any growth investments are ongoing or curtailed. Near-term outlook depends on restoring shipments/revenue, normalizing cost absorption, and reducing reliance on extraordinary items; current data show no evidence yet of stabilization in core profitability.

Financial Health

Liquidity is weak: current assets 67.61 vs current liabilities 84.92 yield a current ratio of 79.6% and quick ratio of 58.4%. Working capital is negative at -17.31, and cash and deposits are only 2.62, implying dependence on short-term funding and timely collections. Short-term loans are 75.06 and long-term 8.07; the reported D/E is 0.24x, but the burden is front-loaded in the near term. Total equity of 431.65 supports solvency on a book basis (financial leverage 1.25x), but retained earnings are negative (-156.93), reflecting cumulative losses. The asset base is concentrated in investment securities (383.34, ~71% of total assets), with noncurrent assets at 533.17 and current assets only 67.61, which constrains liquidity despite headline equity. Accounts payable are low (1.53), reducing trade financing flexibility. Overall, the capital structure looks underlevered on paper but strained in liquidity and refinancing risk due to low cash and heavy short-term debt.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, preventing direct assessment of OCF, capex, or FCF. Earnings quality appears weak given the mismatch between operating and ordinary income and the reliance on extraordinary items to lift PBT. Interest coverage is negative, implying operating cash burn absent working-capital release. The dominance of investment securities on the balance sheet raises questions about the convertibility of assets into cash and whether gains are recurring. With inventories at 18.05 and minimal payables (1.53), working capital dynamics likely consume cash unless inventory is reduced. Without OCF and capex data, FCF coverage cannot be computed, but the negative operating result suggests FCF pressure unless offset by asset sales.

Dividend Sustainability

Dividend data are unreported; payout ratios and FCF coverage cannot be calculated. Given net losses (-86.04), negative retained earnings (-156.93), and liquidity stress (current ratio 79.6%, cash 2.62), capacity to sustain cash dividends appears constrained under a conservative policy framework. The capital structure is supported by capital surplus rather than internally generated retained earnings, implying future distributions would likely depend on external funding or asset monetization, which is not prudent amid operating losses. Until profitability and positive OCF are restored, dividends are unlikely based on typical Japanese corporate policy norms for loss-making periods.

Risk Assessment

Business Risks:

• Severe demand/volume contraction (-91.2% YoY revenue) indicating potential structural or operational disruption
• High operating leverage leading to outsized losses on low volume
• Potential product/capacity ramp or yield issues that depress utilization and margins
• Dependence on non-recurring/extraordinary items to support PBT

Financial Risks:

• Tight liquidity: current ratio 79.6%, quick ratio 58.4%, cash 2.62 vs short-term loans 75.06
• Negative working capital (-17.31) and negative interest coverage (-14.84x)
• Asset concentration in investment securities (383.34), with uncertain cash convertibility and valuation volatility
• Cumulative losses (retained earnings -156.93) increasing risk of covenant or refinancing pressure

Key Concerns:

• Inconsistencies between reported cost of sales, gross profit, and operating results, complicating margin analysis
• Ordinary income (-85.76) vs PBT (7.47) suggests large undisclosed extraordinary items; bottom line still negative
• Lack of cash flow disclosure obscures OCF and FCF sustainability
• Short-term refinancing reliance amid weak fundamentals

Investment Implications

Key Takeaways:

• Core operations are loss-making with extreme negative net margin (-319.4%) and negative EBIT
• Liquidity is the near-term pressure point given low cash (2.62) and heavy short-term debt (75.06)
• Balance sheet solvency appears adequate on book equity, but quality is skewed to investment securities
• Earnings quality is low; extraordinary items likely influenced PBT, yet net income remained deeply negative
• Asset turnover collapse (0.050x) highlights underutilization; recovery in shipments is critical

Metrics to Watch:

• Quarterly revenue trajectory and order/run-rate recovery
• Operating margin and EBITDA (once disclosed) to gauge cost normalization
• Operating cash flow, capex, and free cash flow when available
• Cash balance vs short-term debt and refinancing progress
• Changes in investment securities balance and any realized gains/losses
• Working capital components (inventories, receivables, payables) for cash conversion

Relative Positioning: Weaker profitability and liquidity versus TSE electronic materials/components peers; equity base appears solid due to capital surplus, but cash generation and operational resilience lag sector norms.

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
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