RIVER ELETEC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.86B
• Operating Income: ¥-169M
• Net Income: ¥-42M
• EPS: ¥-21.31

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

River Eletec (TSE:6666) delivered FY2026 Q2 consolidated results showing modest revenue growth but continued operating losses under JGAAP. Revenue was ¥2.861bn, up 4.3% YoY, but operating income remained at a loss of ¥169m (flat YoY), indicating that incremental topline was insufficient to offset fixed cost pressure. Gross profit reached ¥652m, implying a gross margin of 22.8%, which, while positive, could not cover SG&A and depreciation burden, leading to a negative EBIT margin of approximately -5.9%. Ordinary loss of ¥180m and net loss of ¥175m indicate limited non-operating swings and minimal tax effects (tax benefit of ¥2.3m). Depreciation and amortization were sizable at ¥288m (about 10% of sales), highlighting a relatively fixed-cost-intensive asset base for current scale. EBITDA turned positive at ¥119m (4.2% margin), but this level was insufficient to cover interest expense of ¥22.6m, yielding a negative EBIT-based interest coverage of -7.5x. DuPont analysis points to a net margin of -6.12%, an asset turnover of 0.282x, and financial leverage of 2.34x, culminating in a calculated ROE of -4.04%. The low asset turnover suggests underutilization of assets or subdued demand relative to installed capacity in the period. Operating cash flow was positive at ¥54.7m despite the net loss, supported by non-cash D&A, although working capital movements likely consumed cash. Liquidity appears robust with a current ratio of 226.6% and a quick ratio of 217.6%, and working capital of ¥3.586bn provides a solid buffer for near-term obligations. Leverage is moderate with liabilities-to-equity of 1.45x; total equity stands at ¥4.331bn versus assets of ¥10.136bn. The company paid no dividend (DPS ¥0) and, given the loss-making status and limited OCF, distributions appear deprioritized for now. Reported zeros (e.g., cash and cash equivalents, investing CF, equity ratio, share data) reflect non-disclosure/mapping gaps rather than true zeros; analysis focuses on available non-zero items. Overall, the quarter shows early signs of stabilization on sales but insufficient margin recovery to break even at the operating level, while liquidity remains adequate and solvency manageable. The outlook hinges on further volume/mix improvements, cost reductions, and tighter working capital discipline to convert EBITDA into sustainable free cash flow.

Profitability Analysis

ROE decomposition: net margin -6.12%, asset turnover 0.282x, financial leverage 2.34x, implying ROE of -4.04%. Gross margin was 22.8% (¥652m gross profit on ¥2.861bn sales), but operating margin was -5.9% due to SG&A and D&A overhead. EBITDA margin at 4.2% vs negative EBIT indicates non-trivial depreciation burden (¥288m; ~10% of sales). Interest expense of ¥22.6m against negative EBIT yields interest coverage of -7.5x, highlighting weak capacity to service debt from operations this period. Ordinary and net margins (-6.3% and -6.1% approximately) track operating results closely, suggesting limited non-operating volatility. Operating leverage remains unfavorable at current scale: small revenue growth did not translate to operating profit, implying either price pressure, product mix headwinds, or elevated fixed costs. The low asset turnover (0.282x on period-end assets) underscores capacity underutilization and constrains ROA; margin improvement or asset rationalization would be needed to lift returns. Effective tax impact is minimal (small benefit), consistent with loss position.

Growth Assessment

Revenue grew 4.3% YoY to ¥2.861bn, indicating some demand recovery. However, flat YoY operating loss (-¥169m) signals that growth was not accompanied by sufficient gross margin expansion or SG&A efficiency. Given EBITDA was only ¥119m, incremental contribution appears thin, pointing to pricing or mix constraints in crystal device markets. The company’s profit quality currently relies on non-cash D&A addbacks; cash conversion remains limited. Outlook depends on utilization gains, further cost downs, and potential ASP stabilization in timing/crystal components. A sustained recovery would require pushing gross margin above the mid-20s% and curbing overhead to achieve positive operating margin. With asset turnover at 0.282x, scaling revenue without incremental asset additions should be accretive to returns if margins improve. Absent disclosure on order trend/backlog, we assume growth sustainability is moderate but sensitive to global electronics cycle and FX. Near-term priority is breakeven at EBIT through volume recovery and cost actions.

Financial Health

Liquidity is strong: current ratio 226.6% (¥6.418bn CA vs ¥2.832bn CL) and quick ratio 217.6% (low inventories of ¥255m relative to CA). Working capital stands at ¥3.586bn, providing ample short-term cushion. Solvency appears manageable: liabilities-to-equity (proxy for D/E) is 1.45x (¥6.292bn / ¥4.331bn). While the reported equity ratio is shown as 0% in the dataset, using available figures implies ~42.7% equity-to-assets, indicating a moderate capital base. Interest burden is not excessive in absolute yen terms (¥22.6m for the half), but negative EBIT renders coverage weak this period. Total assets are ¥10.136bn, suggesting capacity headroom; however, low turnover depresses ROA. No detail on cash and cash equivalents is available (reported as 0, i.e., undisclosed), so the precise liquidity mix (cash vs receivables) cannot be assessed. Overall balance sheet resilience is adequate, but sustained losses would gradually erode equity if not addressed.

Cash Flow Quality

Operating CF was ¥54.7m, positive despite a net loss of ¥175m, driven by ¥288m of D&A addbacks. The OCF/NI ratio of -0.31 reflects positive cash generation against negative earnings; however, the modest absolute OCF versus sizable D&A suggests working capital outflows or other non-cash items offsetting addbacks. Free cash flow is not computable from the dataset because investing cash flows and cash balances are undisclosed (shown as 0 by convention here). Earnings quality is mixed: accounting losses with small positive OCF indicate some resilience, but cash conversion is weak relative to EBITDA. Working capital discipline will be key; inventories are low (¥255m), implying receivables or other current assets comprise most of CA—collection efficiency and payables management will influence OCF trajectory. Without capex detail, we cannot gauge maintenance vs growth investment needs; given D&A scale, underlying capex requirements could be material to sustaining assets.

Dividend Sustainability

DPS is ¥0.00 with a payout ratio of 0.0%, aligning with a loss-making period and the need to preserve cash. Free cash flow coverage of dividends is not assessable due to undisclosed investing cash flows; however, given negative EBIT and modest OCF, reinstating dividends would require clear profitability and cash generation. Balance sheet capacity (equity ~¥4.33bn; working capital ¥3.59bn) provides flexibility, but capital should likely be directed toward margin recovery and utilization rather than distribution in the near term. Future dividend policy will depend on achieving sustained positive EBIT and robust OCF after capex.

Risk Assessment

Business Risks:

• End-market cyclicality in electronics and industrial demand affecting crystal device volumes and pricing
• ASP pressure and mix shifts toward lower-margin products
• Capacity underutilization leading to unfavorable operating leverage
• Supply chain and component availability risks impacting lead times and costs
• FX volatility (JPY vs USD/EUR/CNY) influencing export competitiveness and margins
• Technological competition in frequency control devices from domestic and Asian peers

Financial Risks:

• Negative EBIT and weak interest coverage (-7.5x) constrain financial flexibility
• Low asset turnover (0.282x) depresses ROA and could erode equity if losses persist
• Working capital swings can dilute cash conversion from EBITDA
• Potential capex needs (implied by D&A ¥288m) without clear FCF visibility
• Reliance on external financing if cash generation lags (financing CF reported but details undisclosed)

Key Concerns:

• Sustained operating losses despite revenue growth
• Margin recovery insufficient to cover fixed costs
• Incomplete disclosure on cash, investing CF, and share data limits precise FCF and per-share analyses

Investment Implications

Key Takeaways:

• Topline grew 4.3% YoY to ¥2.861bn, but operating loss remained at ¥169m
• Gross margin 22.8% and EBITDA margin 4.2% are not yet adequate for break-even EBIT
• OCF positive at ¥54.7m, but cash conversion is weak relative to D&A
• Liquidity is strong (current ratio 226.6%, quick ratio 217.6%); leverage moderate (liabilities/equity 1.45x)
• ROE -4.04% driven by negative margin and low asset turnover (0.282x)

Metrics to Watch:

• Gross margin progression toward mid-to-high 20s%
• Operating margin/EBIT breakeven timing
• Order intake, backlog, and utilization rates
• Working capital turns: receivables days, inventory days, and payables days
• Capex versus D&A to infer maintenance burden and FCF potential
• Interest coverage and net debt trajectory
• FX sensitivity and hedging impact on margins

Relative Positioning: Within Japanese frequency-control/electronic component peers, River Eletec shows improving sales but lags on profitability and asset efficiency; balance sheet liquidity is comparatively solid, yet operating leverage and cash conversion need to normalize to close the gap with more profitable peers.

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