Japan Display Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥66.43B
• Operating Income: ¥-14.43B
• Net Income: ¥-11.36B
• EPS: ¥-1.84

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

FY2026 Q2 was very weak for Japan Display, characterized by steep revenue contraction and deep operating losses. Revenue fell 35.5% YoY to 664.3, while gross profit turned negative at -29.6, implying a gross margin of -4.5% and significant underutilization and/or pricing pressure. Operating loss widened to -144.3, with an operating margin of -21.7%, and ordinary loss was -191.0, reflecting heavy non-operating expense (interest expense of 39.2 against only 7.3 of non-operating income). Net loss was -113.6 (net margin -17.1%), and total comprehensive loss was -108.2. Liquidity weakened: current ratio is 0.72 and quick ratio 0.64, with short-term loans of 650 versus cash of 372.9 and negative working capital of -413.3. Equity is negative (-40.7), driving a mechanical ROE of 279.5% that is not economically meaningful due to the negative equity base. Cash generation deteriorated, with operating cash flow of -128 versus net loss of -113.6; the reported OCF/NI ratio of 1.13x reflects both figures being negative and does not signal high quality. EBITDA was -123.4 (margin -18.6%), and interest coverage was -3.68x, underscoring debt service stress. ROIC was -61.0%, far below a 7–8% cost-of-capital benchmark, indicating value destruction. Balance sheet risk is elevated: current liabilities (1,461.9) exceed current assets (1,048.5), and refinancing needs are front-loaded with limited noncurrent liabilities (73.1). Inventory (106.4) and receivables (159.6) are modest relative to short-term obligations, constraining internal liquidity. Gross margin of -450 bps and operating margin of -2,170 bps versus sales indicate severe operating deleverage; precise basis-point YoY changes cannot be calculated due to lack of prior-period margin disclosure. With dividends unreported and negative equity, distributions appear unlikely near term. Forward-looking, the company needs decisive restructuring, capacity/utilization normalization, cost-downs, and balance-sheet remediation (refinancing, equity infusion, asset sales) to stabilize.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin = -17.1%; Asset turnover = 0.445x (Revenue 664.3 / Assets 1,494.3); Financial leverage = -36.76x (Assets / Equity with Equity negative). Calculated ROE = 279.5% is not economically interpretable because the equity base is negative; directionally, it reflects losses and capital deficiency rather than true returns. Among the components, the dominant driver of deterioration is net profit margin, given negative gross margin (-4.5%), heavy SG&A (114.7), and negative operating income (-144.3). Asset turnover of 0.445x is low, reflecting the 35.5% YoY revenue decline against a still-large asset base, compounding margin weakness. Financial leverage appears extreme solely due to negative equity; this is a capital-structure artifact, not performance improvement. Business reasons: sharp demand downturn and/or mix/price erosion in core display products likely compressed utilization and ASPs, driving negative gross margin; higher financing costs (39.2 interest expense) deepened ordinary loss. Sustainability: current margin pressure is unsustainable; recovery requires utilization normalization, cost reductions, and product-mix improvement; without these, continued losses are likely. Concerning trends include operating deleverage (SG&A of 114.7 not flexing enough against the revenue drop) and non-operating burden (net non-operating expense ~46.7).

Growth Assessment

Top-line contracted 35.5% YoY to 664.3, signaling significant end-demand weakness and/or deliberate downsizing of low-margin volumes. The negative gross margin and -21.7% operating margin indicate growth quality is poor; volume declines are not offset by cost reductions. No segment or geographic breakdown is available, limiting visibility into drivers. Revenue sustainability is fragile without evidence of design wins, technology migration (e.g., OLED/MLA/LTPS), or customer diversification. Near-term growth depends on utilization recovery, ASP stabilization, and rationalization of unprofitable lines. With ordinary loss (-191.0) exceeding operating loss, financing costs are a headwind to scaling. Outlook: absent restructuring and balance-sheet repair, growth will remain constrained; management may prioritize cash preservation over sales expansion.

Financial Health

Liquidity is weak: current ratio 0.72 and quick ratio 0.64 are below warning thresholds (<1.0), and working capital is -413.3. Short-term loans of 650 dominate the liability structure (current liabilities 1,461.9 vs noncurrent 73.1), creating a maturity mismatch versus liquid resources (cash 372.9, receivables 159.6, inventory 106.4). Total liabilities (1,534.9) exceed total assets (1,494.3), resulting in negative equity (-40.7). Debt-to-equity is not meaningful due to negative equity; in practical terms, leverage risk is extremely high. Interest coverage is -3.68x, indicating debt service is not supported by operating earnings. No off-balance sheet obligations were disclosed in the provided data. Refinancing risk is acute given the scale of short-term borrowings relative to cash and ongoing losses.

Cash Flow Quality

Operating cash flow was -128 versus net income of -113.6; the OCF/NI ratio of 1.13x is mechanically above 1.0 but not indicative of quality because both are negative. With investing and capex unreported, free cash flow cannot be derived; however, negative OCF implies internally generated cash is insufficient to cover operations. Financing cash inflow of 53.75 suggests reliance on external funding to bridge deficits. Working capital details for the period are unavailable; given the revenue decline and negative gross margin, any temporary cash relief from inventory/receivable reductions would be non-recurring. No clear signs of working capital manipulation can be confirmed from the limited data, but the dependency on short-term debt raises caution on cash management sustainability.

Dividend Sustainability

Dividends are unreported for the period, and equity is negative with substantial net and operating losses, implying capacity to pay dividends is effectively absent. Payout ratios and FCF coverage cannot be calculated due to missing FCF and DPS data. Given negative OCF and high refinancing needs, any distributions would be imprudent under current conditions; policy likely prioritizes liquidity and balance-sheet stabilization.

Risk Assessment

Business Risks:

• Severe demand and pricing pressure in small/medium display markets leading to underutilization and negative gross margins
• Product mix and technology transition risk (shift from LCD to OLED/microLED) eroding legacy revenue base
• Customer concentration risk typical for display suppliers (loss or destocking by key OEMs can materially impact sales)
• Execution risk in restructuring and cost-down programs needed to restore positive gross margin
• Supply chain and yield variability affecting costs and quality

Financial Risks:

• Liquidity shortfall: current ratio 0.72 and negative working capital of -413.3
• Refinancing risk: short-term loans of 650 vs cash 372.9 amid negative EBITDA and interest coverage of -3.68x
• Negative equity (-40.7) limiting financing flexibility and increasing counterparty risk
• Interest rate and credit spread risk increasing financing costs given weak credit metrics
• Potential going-concern uncertainty if external support or asset sales do not materialize

Key Concerns:

• Gross margin at -4.5% and operating margin at -21.7% indicate structural profitability issues
• ROIC of -61.0% signals significant value destruction
• Ordinary loss (-191.0) exceeding operating loss due to non-operating burden
• Limited visibility from unreported items (capex, investing cash flows, segment data) hampers assessment of turnaround trajectory

Investment Implications

Key Takeaways:

• Top-line down 35.5% YoY with negative gross margin; profitability under acute stress
• Operating loss -144.3 and net loss -113.6; ordinary loss deepened by interest expense
• Liquidity pressure: current ratio 0.72, working capital -413.3, short-term loans 650
• Negative equity and -61.0% ROIC indicate balance-sheet fragility and value erosion
• Cash burn (OCF -128) funded by financing inflows (53.75), not operations

Metrics to Watch:

• Gross margin recovery and utilization rates
• Operating cash flow trajectory and any disclosure on capex/FCF
• Short-term debt refinancing progress and cost of debt
• Equity remediation plans (equity issuance, asset sales, sponsor support)
• Revenue stabilization indicators (order backlog, customer/program wins, ASP/mix)
• SG&A flexibility versus revenue trend

Relative Positioning: Versus display peers, Japan Display’s margins, ROIC, liquidity, and leverage are materially weaker, with negative equity and short-term funding dependence placing it at a disadvantage; successful restructuring and technology/mix transition are prerequisites to close the gap.

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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