Ligua Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.29B
• Operating Income: ¥-35M
• Net Income: ¥-51M
• EPS: ¥-34.37

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 weak for Ligua (7090), with a revenue decline and an operating loss, constrained by high fixed costs and leverage. Revenue fell to 12.91 (100M JPY), down 14.7% YoY, while gross profit was 7.88, implying a solid gross margin of 61.0% but insufficient to cover SG&A of 8.24. Operating income turned negative at -0.35, and ordinary income deteriorated further to -0.58 due to non-operating expenses of 0.26 (mainly interest expense of 0.15). Net income was -0.51 (EPS -34.37 JPY), resulting in a calculated ROE of -18.8% on a thin equity base of 2.72. Operating cash flow, however, was positive at 1.46, creating a divergence versus net loss, although the OCF/NI ratio of -2.85x triggers a quality alert per benchmark rules. The operating margin for the period was approximately -2.7% (OI -0.35 / sales 12.91), while the gross margin was 61.0%, highlighting severe operating deleverage. YoY margin expansion/compression in basis points cannot be quantified due to undisclosed prior-period margin data. Financial leverage is high (D/E 9.27x) with short-term loans of 8.56 and long-term loans of 6.25 against cash and deposits of 11.83. Liquidity is adequate short term (current ratio 131%), but solvency risk is elevated given the small equity buffer and negative retained earnings (-7.39). Interest coverage is deeply negative (-2.27x), underscoring debt service strain. ROIC is -6.1%, well below the 7–8% target range for value creation. The effective tax rate appears distorted (-2205.8%) as taxation occurred despite pretax loss, likely reflecting non-recurring or valuation allowance effects under JGAAP. With revenue contracting and SG&A above gross profit, profitability depends on either top-line recovery or cost base reduction. Near-term focus should be on stabilizing sales productivity, reducing SG&A run-rate, refinancing terms for debt, and preserving liquidity. Forward-looking, any improvement hinges on re-accelerating revenue, curbing interest expense, and improving ROIC; otherwise, equity erosion and refinancing risk could intensify.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-4.0%) × 0.462 × 10.27x ≈ -18.8%. The primary driver of the negative ROE is the negative net margin, amplified by very high financial leverage; asset turnover is modest at 0.462x. Without prior-period components disclosed, we cannot quantify which factor changed the most YoY; however, the revenue decline and operating loss suggest margin deterioration and operating deleverage as the core issues. Business drivers: revenue contracted 14.7% YoY while SG&A (8.24) exceeded gross profit (7.88), indicating fixed cost pressure and possibly weaker clinic support/service volumes. Non-operating burden (interest expense 0.15) further pushed ordinary income negative. Sustainability: the negative margin appears driven by structural cost overhang relative to current scale; absent cost actions or sales recovery, current ROE is not sustainable. Concerning trends: - Operating margin approximately -2.7% despite a strong gross margin (61.0%) signals cost structure mismatch. - Ordinary loss (-0.58) larger than operating loss (-0.35) indicates interest drag. - ROIC at -6.1% indicates capital is not earning its cost. We cannot assess whether SG&A grew faster than revenue due to lack of YoY SG&A disclosure.

Growth Assessment

Revenue declined 14.7% YoY to 12.91, indicating demand softness or reduced project volumes in core services. Gross margin remained high at 61.0%, suggesting pricing and direct cost control are intact, but absolute gross profit fell below SG&A. Operating income was -0.35 and ordinary income -0.58, implying growth headwinds translated into operating deleverage. With no segment or order/backlog disclosure available, near-term growth visibility is limited. Profit quality is pressured by interest expense and negative operating margin; however, positive OCF (1.46) suggests working capital inflows or cash discipline mitigated P/L weakness this quarter. Outlook hinges on restoring top-line momentum and lowering the SG&A run-rate; given the leverage, small revenue changes can have outsized impact on profits. Monitoring sequential sales trends, churn/retention with clients, and any cost restructuring announcements will be critical. Absent evidence of re-acceleration, full-year growth targets (not provided) appear at risk.

Financial Health

Liquidity: Current ratio 131.1% and quick ratio 131.1% indicate adequate short-term coverage; no warning for current ratio (<1.0) is triggered. Cash and deposits of 11.83 cover 63% of current liabilities (18.72), and short-term loans total 8.56, implying near-term refinancing dependence but manageable with current cash if collections (A/R 2.85) remain stable. Solvency: Debt-to-equity is 9.27x (warning threshold >2.0), signaling high leverage on a thin equity base (total equity 2.72). Total liabilities are 25.21 vs total assets 27.94, leaving limited buffer; retained earnings are negative (-7.39), constraining capital flexibility. Maturity mismatch: Short-term debt (8.56) is materially lower than current assets (24.54), reducing immediate rollover risk, but recurring ordinary losses and negative interest coverage elevate refinancing risk over time. Interest coverage is -2.27x, indicating debt service strain from operating cash earnings perspective. Off-balance sheet obligations: Not disclosed; no information on guarantees or leases beyond what is embedded in SG&A. Conclusion: Liquidity is acceptable near term, but solvency and interest burden are key risks that require deleveraging or profit turnaround.

Cash Flow Quality

OCF was positive at 1.46 despite net income of -0.51, resulting in an OCF/NI ratio of -2.85x, which triggers a quality flag under the benchmark rule; interpretation is nuanced as losses with positive OCF often reflect favorable working capital timing or non-cash charges (D&A 0.21). Investing CF was unreported; CapEx was modest at -0.03, implying low capital intensity. Proxy FCF (OCF - CapEx) is approximately 1.43, indicating the period’s cash generation covered minimal investment needs; however, financing CF was -2.80, suggesting debt repayment or interest outflows exceeded cash generation. Sustainability: Given negative operating margin and reliance on working capital for OCF, cash generation may not be durable without profit recovery. Working capital: A/R stands at 2.85; inventories not disclosed; no explicit signs of manipulation can be inferred, but the positive OCF amid losses implies working capital release—monitor receivable days and payables given low accounts payable (0.08). Overall, earnings-to-cash conversion is unstable until operating profits turn positive.

Dividend Sustainability

Dividend data is unreported for the period. With net loss (-0.51), negative retained earnings (-7.39), ROE -18.8%, and high leverage (D/E 9.27x), capacity for cash dividends appears constrained. Proxy FCF of ~1.43 (OCF 1.46 minus CapEx 0.03) exists this quarter, but priority should logically be liquidity preservation and debt service, given negative interest coverage (-2.27x). Without a stated dividend policy, and given equity of only 2.72, any cash distribution would be difficult to justify sustainably. Conclusion: Dividend sustainability is low under current fundamentals; visibility will depend on restoring profitability and deleveraging.

Risk Assessment

Business Risks:

• Revenue decline of 14.7% YoY indicates demand softness or client churn risk.
• High fixed SG&A (8.24) relative to gross profit (7.88) creates operating deleverage risk.
• Execution risk in cost restructuring necessary to restore operating margin.
• Dependence on service volumes and utilization; any further volume decline worsens losses.

Financial Risks:

• High leverage: D/E 9.27x with equity only 2.72 and retained earnings -7.39.
• Debt service strain: interest coverage -2.27x; ordinary loss larger than operating loss due to interest.
• Refinancing risk: short-term loans 8.56 require ongoing access despite negative profits.
• Tax charge despite pretax loss (effective tax rate -2205.8%) adds cash flow unpredictability.

Key Concerns:

• ROIC -6.1% signals destruction of value and challenges to fund growth internally.
• Positive OCF alongside net loss (OCF/NI -2.85x) suggests reliance on working capital; may not be repeatable.
• Thin liquidity buffer vs obligations if cash declines (cash 11.83 vs current liabilities 18.72).
• Limited equity cushion heightens sensitivity to further losses.

Investment Implications

Key Takeaways:

• Top line contracted 14.7% YoY; scale fell below SG&A breakeven.
• Operating loss (-0.35) and ordinary loss (-0.58) highlight cost and interest burden.
• Liquidity is acceptable short term (current ratio 131%), but solvency risk is high (D/E 9.27x).
• Positive OCF (1.46) provides near-term relief, but earnings quality flagged by OCF/NI metric.
• ROIC -6.1% and ROE -18.8% underline urgent need for turnaround.
• Negative retained earnings (-7.39) constrain shareholder return capacity.

Metrics to Watch:

• Sequential revenue growth and order/run-rate indicators.
• Operating margin trajectory and SG&A run-rate vs gross profit.
• Interest coverage and average borrowing rate/refinancing terms.
• Working capital metrics: receivable collection and payables trends.
• Equity level and any capital actions (debt refinancing, equity raise).

Relative Positioning: Within small-cap service peers, Ligua’s gross margin profile is healthy, but its operating efficiency and capital structure are weaker, with higher leverage, negative operating margin, and subpar ROIC versus typical 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