LEADER ELECTRONICS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.89B
• Operating Income: ¥-46M
• Net Income: ¥-49M
• EPS: ¥-14.31

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

Verdict: FY2026 Q2 was weak, with a small operating loss and negative net income despite modest top-line growth and healthy liquidity. Revenue grew 2.4% YoY to 18.88, but gross profit of 12.84 could not cover SG&A of 13.31, resulting in operating income of -0.46. Gross margin was strong at 68.0%, yet operating margin slipped to -2.4% as overheads outpaced gross profit. Ordinary income was -0.11 after net non-operating gains of +0.34 (0.40 income and 0.06 expenses), indicating financial gains partly cushioned the operating shortfall. Net income came in at -0.48, implying a net margin of -2.5% and EPS of -14.31 JPY. The gap between gross margin (68.0%) and operating margin (-2.4%) was roughly 7,040 bps, underscoring elevated SG&A intensity (~70.5% of sales). Interest coverage was weak at -9.03x, but balance sheet liquidity was strong (current ratio 338.6%, quick ratio 276.2%) with net cash of about 3.48 (cash 7.56 minus interest-bearing debt ~4.08). Asset turnover was low at 0.415, and leverage modest at 1.48x, yielding a calculated ROE of -1.6%. ROIC was -1.7%, below the 5% warning line, highlighting value creation pressure. The effective tax rate was an abnormal -328.9%, with a tax expense despite a pretax loss, likely due to non-deductible items or valuation allowance dynamics. Equity remains solid at 30.64 (equity ratio ~67.4%), providing a capital buffer despite earnings pressure. Operating cash flow was not disclosed, preventing quality-of-earnings triangulation against net loss. Dividend data were not reported; the calculated payout ratio of -141.1% is not reliable without confirmed DPS or cash flows. Forward-looking, margin recovery hinges on SG&A containment and monetization of the high gross margin profile, alongside stabilization of demand in core test/measurement markets. With strong liquidity and low leverage, the company has room to execute cost measures and product initiatives, but persistent low asset turnover and negative ROIC are key drags to watch.

Profitability Analysis

ROE decomposition (DuPont): ROE (-1.6%) = Net Profit Margin (-2.5%) × Asset Turnover (0.415) × Financial Leverage (1.48x). The dominant drag is the negative net profit margin, driven by SG&A exceeding gross profit despite a robust 68.0% gross margin. Asset turnover at 0.415 indicates modest efficiency, typical of a niche hardware/instrumentation business with sizable working capital and intangibles. Financial leverage is conservative at 1.48x, so leverage provides little boost to ROE (which is prudent given earnings volatility). The largest changing component vs a healthy profile is margin, not leverage, given current operating loss and the 7,040 bps gap from gross to operating margin. Business driver: elevated SG&A (70.5% of sales) likely reflects fixed cost burden and investment in product development/market expansion against modest revenue scale. Sustainability: without revenue acceleration or SG&A reduction, negative operating leverage could persist; however, the high gross margin suggests earnings can swing positive with better cost absorption. Concerning trend: SG&A growth likely outpacing revenue (revenue only +2.4% YoY while SG&A already exceeds gross profit), indicating operating deleverage risk.

Growth Assessment

Top-line grew 2.4% YoY to 18.88, but growth was insufficient to cover fixed costs and lift operating income into positive territory. Gross margin at 68.0% signals continued product value-add/pricing, but scale remains the constraint. Profit quality is weak this quarter: operating loss (-0.46) was only partially offset by non-operating gains (+0.34), leaving ordinary loss (-0.11). With no cash flow data, we cannot validate whether working capital supported or hindered growth. Outlook depends on orders and backlog conversion in core markets (broadcast/test equipment), normalization of component costs, and SG&A discipline. If revenue growth improves and SG&A is contained, the business can quickly leverage its high gross margin; otherwise, negative ROIC (-1.7%) will persist.

Financial Health

Liquidity is strong: current ratio 338.6% and quick ratio 276.2%, with working capital of 23.31. No warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.48x. Maturity profile: short-term loans of 4.05 are well covered by liquid assets (cash 7.56, receivables 10.43), implying low near-term refinancing risk. Long-term loans are minimal at 0.03. Equity ratio is approximately 67.4% (equity/total assets), providing a solid buffer. Interest coverage is weak at -9.03x due to operating loss, but net cash position (~3.48) mitigates immediate debt service stress. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not reported, so we cannot compute OCF/Net Income or assess cash conversion. As such, we cannot apply the OCF/Net Income < 0.8 screen this quarter. Given the operating loss, sustainable FCF coverage of dividends and capex cannot be confirmed. Working capital signals: receivables (10.43) and inventories (6.09) are sizable relative to sales scale; without OCF we cannot detect pull-forward of receivables, delayed payables, or inventory build as drivers of earnings. No explicit signs of working capital manipulation can be assessed due to data gaps.

Dividend Sustainability

Dividend data were not disclosed. The calculated payout ratio of -141.1% is not reliable without confirmed DPS and cash flow disclosure and is not meaningful with negative earnings. With net loss and unknown FCF, we cannot confirm coverage. Balance sheet strength (net cash, high liquidity) could support dividends near-term if policy prioritizes stability, but sustainability would ultimately depend on restoring positive operating cash flow and curbing SG&A.

Risk Assessment

Business Risks:

• Demand cyclicality in broadcast/test and measurement end-markets affecting order timing and utilization
• High SG&A intensity (70.5% of sales) creating negative operating leverage at current scale
• Product roadmap and R&D execution risk given high gross margin but weak operating income
• Inventory risk (6.09) relative to sales, potential for write-downs if demand weakens
• FX exposure (exports and component sourcing), impacting margins and translation

Financial Risks:

• Negative operating income leading to weak interest coverage (-9.03x)
• Reliance on short-term borrowings (4.05) despite net cash; rollover risk if conditions tighten
• Abnormal effective tax expense with pretax loss (-328.9%), indicating potential non-deductible items or valuation allowance adjustments
• Low asset turnover (0.415) limiting returns on capital and depressing ROIC (-1.7%)

Key Concerns:

• Operating margin -2.4% despite 68.0% gross margin, implying overhead burden
• ROE -1.6% and ROIC -1.7% below acceptable thresholds
• Data limitations: no cash flow statement to validate earnings quality or dividend coverage

Investment Implications

Key Takeaways:

• Top-line grew modestly (+2.4%), but SG&A exceeded gross profit, resulting in operating loss (-0.46)
• Gross margin remains high at 68.0%, indicating product value; scale and cost control are the bottlenecks
• Liquidity is ample (current ratio 338.6%, net cash ~3.48), cushioning near-term risk despite poor coverage
• Capital efficiency is weak: ROE -1.6%, ROIC -1.7%, asset turnover 0.415
• Non-operating gains (+0.34) partially mitigated operating loss, but not enough to reach profitability

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• Order backlog and book-to-bill to gauge near-term revenue scale
• Operating cash flow and free cash flow once disclosed
• Inventory turnover and receivables collection period
• Gross margin stability amid FX and component cost movements
• Interest coverage normalization as operating income recovers

Relative Positioning: Versus small-cap Japanese electronics/test-equipment peers, liquidity and equity ratio are strong, but profitability and capital efficiency are weaker this quarter due to negative operating leverage; recovery hinges on scaling revenues and SG&A discipline to leverage an otherwise solid gross margin.

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