The Lead Co.,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.78B
• Operating Income: ¥-218M
• Net Income: ¥-203M
• EPS: ¥-78.85

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: Weak quarter with sales contraction and a swing to operating and net losses, partially cushioned by non-operating gains but overshadowed by leverage and coverage concerns. Revenue fell to 17.83 (−12.2% YoY), with gross profit of 2.19 and gross margin at 12.3%. SG&A of 2.97 exceeded gross profit, driving operating income to −2.18 (operating margin −12.2%). Non-operating income of 0.67 (including dividend income of 0.19) narrowed ordinary loss to −1.89, but bottom line remained negative at net income −2.03 (EPS −78.85 yen). The SG&A ratio rose to 16.7% of sales, indicating negative operating leverage amid a sales decline. Interest expense was 0.19, and interest coverage was deeply negative at −11.22x, highlighting pressure from financing costs. Liquidity is tight with current ratio at 102.1% and quick ratio at 102.1%, barely above the 1.0x warning threshold. Balance sheet leverage is elevated: total liabilities/equity at 2.14x, while interest-bearing debt to equity is approximately 1.40x (short-term loans 16.25; long-term loans 18.26 vs equity 24.72). Operating cash flow was positive at 0.97 despite the net loss, but this is insufficient against capital expenditures of 3.51, implying an estimated negative FCF around −2.54. ROE is −8.2% per DuPont (NPM −11.4%, asset turnover 0.207, leverage 3.48x), and ROIC of −4.9% indicates value destruction versus typical cost of capital. OCF/Net Income is −0.48x, reflecting a large divergence in direction between cash and earnings and flagging earnings quality concerns. Equity ratio (calculated) is about 28.7% (24.72 equity / 86.03 assets), offering a limited buffer under ongoing losses. With sales down double digits, margin compression and weak coverage suggest near-term earnings recovery requires either a demand rebound or cost base realignment. Forward-looking, the company must restore gross margin and right-size SG&A to regain breakeven, while refinancing risk rises if losses persist and rates remain elevated.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (−11.4%) × 0.207 × 3.48 ≈ −8.2%. The primary drag is the net profit margin, which is deeply negative due to gross margin compression (12.3%) and SG&A (16.7% of sales) exceeding gross profit. Asset turnover at 0.207 is low, reflecting subdued volume on a relatively large asset base (assets 86.03 vs H1 revenue annualized run-rate ~35.7). Financial leverage at 3.48x amplifies losses into negative ROE. The component that changed most is likely the margin, given revenue declined 12.2% YoY and the company posted an operating loss; however, lack of prior-period margin data limits precise attribution. Business drivers include weak demand/pricing and under-absorption of fixed costs, pushing operating margin to −12.2%. Non-operating income (0.67, including dividends 0.19) softened ordinary loss but is insufficient to offset operating weakness. Sustainability: without a sales mix or cost base improvement, negative margin appears persistent; non-operating gains are less controllable and may not repeat. Concerning trends: SG&A outpacing gross profit (2.97 > 2.19) and likely exceeding revenue decline, indicating negative operating leverage. Monitoring required: gross margin recovery, order backlog/booking trends, and SG&A flexibility.

Growth Assessment

Top-line contracted 12.2% YoY to 17.83, indicating demand softness. Gross margin is thin at 12.3%, suggesting pricing pressure and/or unfavorable mix. Operating loss (−2.18) and ordinary loss (−1.89) confirm weak core profitability; contributions from non-operating income (0.67) are supportive but non-recurring by nature. EBITDA is slightly negative at −0.54 (margin −3.0%), pointing to low capacity utilization or under-absorption. Revenue sustainability is uncertain absent visibility on backlog or customer orders; single-entity results can be more volatile. Profit quality is weak as SG&A exceeds gross profit, requiring either material revenue recovery or cost realignment to break even. Outlook: cautious, as leverage and negative coverage constrain flexibility; any macro or sectoral rebound could help, but base case requires self-help on costs and working capital discipline.

Financial Health

Liquidity: Current ratio 1.02x and quick ratio 1.02x are barely above 1.0; explicit warning threshold is only narrowly avoided. Working capital is minimal at 0.53. Cash and deposits 14.36 compare with short-term loans 16.25 and accounts payable 2.92; near-term refinancing needs are material, though cash plus receivables (5.60) roughly cover short-term borrowings. Solvency: Total liabilities/equity is 2.14x (warning: >2.0), and interest-bearing debt/equity is ~1.40x, indicating elevated leverage. Equity ratio is approximately 28.7%, providing limited loss-absorbing capacity. Debt service: Interest coverage is −11.22x due to operating loss, implying heightened covenant and refinancing risk if losses persist. Maturity mismatch: reliance on short-term loans (16.25) versus modest current assets (25.69) and thin buffer raises rollover risk; noncurrent liabilities are also sizable (27.66). No off-balance sheet obligations were reported.

Cash Flow Quality

OCF of 0.97 versus net income of −2.03 yields OCF/NI of −0.48x, flagging a significant divergence in direction; positive OCF amid net losses likely reflects working capital release and non-cash D&A (1.64). With capex at 3.51, an estimated proxy FCF (OCF − capex) is around −2.54, indicating internal cash generation is insufficient to fund investment without external financing or cash drawdown. Sustainability: absent margin recovery, positive OCF may not persist if working capital normalizes; watch for any stretch in payables or receivables. No clear signs of working capital manipulation are identifiable from disclosed aggregates, but the combination of positive OCF with operating losses warrants monitoring of inventory and receivable turns when disclosed.

Dividend Sustainability

Dividend disclosures are unreported; payout ratio calculated (−13.0%) is not meaningful under negative earnings. Given negative net income, weak EBITDA, and estimated negative FCF, the capacity to fund dividends from organic cash generation appears limited. Policy outlook likely prioritizes liquidity and balance sheet stability over distributions until profitability normalizes. Coverage from OCF is insufficient after capex, and leverage/coverage metrics argue for conservatism.

Risk Assessment

Business Risks:

• Demand softness and order volatility leading to under-absorption and thin gross margins (12.3%).
• Pricing pressure or unfavorable product mix compressing margins.
• Execution risk on cost reduction as SG&A (16.7% of sales) exceeds gross profit.
• Customer concentration risk typical for precision equipment/electronics suppliers (not disclosed but pertinent).
• Supply chain and lead-time disruptions affecting deliveries and working capital.

Financial Risks:

• High leverage: total liabilities/equity 2.14x; interest-bearing debt/equity ~1.40x.
• Debt service stress: interest coverage −11.22x.
• Liquidity tightness: current ratio 1.02x and minimal working capital.
• Refinancing and rollover risk given short-term loans 16.25 vs cash 14.36.
• Potential covenant pressure if losses persist and EBITDA remains negative.

Key Concerns:

• Negative ROE (−8.2%) and ROIC (−4.9%) indicate value destruction.
• OCF/Net Income at −0.48x signals earnings quality concerns.
• Capex (3.51) exceeding OCF (0.97) driving estimated negative FCF.
• Equity buffer limited (equity ratio ~28.7%) amid ongoing losses.
• Absence of detailed segment and SG&A breakdown limits cost-control visibility.

Investment Implications

Key Takeaways:

• Sales down 12.2% YoY with operating margin at −12.2% and net margin at −11.4%.
• SG&A (16.7% of sales) exceeds gross profit, necessitating cost actions or revenue recovery.
• Positive OCF (0.97) but insufficient versus capex, implying estimated FCF of about −2.54.
• Leverage elevated (liabilities/equity 2.14x) with negative interest coverage (−11.22x).
• ROE −8.2% and ROIC −4.9% indicate sub-WACC returns.

Metrics to Watch:

• Order intake/backlog and book-to-bill for revenue traction.
• Gross margin trajectory and utilization rates.
• SG&A run-rate versus quarterly revenue (breakeven point).
• OCF sustainability and working capital turns (AR, inventory, AP).
• Net debt and short-term debt rollover, interest costs and covenants.

Relative Positioning: Within Japan small-cap industrial/electronics peers, the company currently sits in the weaker cohort on profitability and coverage, with higher-than-average balance sheet leverage and tighter liquidity; near-term performance hinges on demand recovery and cost restructuring.

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