LEC,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥34.45B
• Operating Income: ¥2.51B
• Net Income: ¥1.12B
• EPS: ¥45.69

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

レック株式会社 (TSE:78740) reported FY2026 Q2 consolidated results under JGAAP showing solid topline growth and a pronounced recovery in profitability. Revenue grew 5.4% YoY to ¥34.45bn, while operating income surged 103.5% YoY to ¥2.506bn, indicating powerful operating leverage. Gross profit reached ¥8.40bn, equating to a gross margin of 24.4%, suggesting improved input cost dynamics and/or effective price/mix management. Operating margin expanded to 7.3%, and ordinary margin was 7.3% with minimal non-operating drag or uplift (ordinary income of ¥2.516bn). Net income came in at ¥1.488bn (+32.0% YoY), translating to a net margin of 4.32%. EBITDA totaled ¥4.092bn, with an EBITDA margin of 11.9%, underpinned by D&A of ¥1.586bn (about 4.6% of sales). DuPont metrics show ROE of 3.94% (net margin 4.32% × asset turnover 0.374 × financial leverage 2.44), a reasonable outcome for a first-half period that could annualize higher if momentum persists. Liquidity appears very strong, with a current ratio of 568% and quick ratio of 465%, supported by large working capital of ¥45.688bn; inventory is ¥10.024bn, implying roughly 75 days on hand for the half-year cost base. Solvency is stable with a debt-to-equity ratio of 1.42x; based on disclosed assets and equity, the equity ratio is approximately 41.0% (our calculation), even though the reported “Equity Ratio” item shows as 0% due to non-disclosure formatting. Cash generation was robust with operating cash flow of ¥3.757bn, yielding an OCF/Net Income ratio of 2.52, which signals strong earnings quality and favorable working capital movements. Interest expense was modest at ¥118m, and interest coverage stands at a comfortable 21.2x, lowering near-term refinancing risk. The implied effective tax rate appears low (income tax ¥214m versus pre-tax ordinary income ¥2.516bn suggests roughly 8–9%), contributing to bottom-line support. Several items (e.g., investing cash flow, cash & equivalents, DPS, equity ratio per XBRL, share counts, and book value per share) are shown as zero, which indicates they were not disclosed under the presented tags rather than actually being zero. As a result, free cash flow and dividend-related coverage ratios cannot be reliably assessed from this dataset. Overall, the company demonstrates improving profitability and strong cash conversion alongside a solid balance sheet, though data gaps limit precision on capital allocation and per-share metrics. The outlook appears constructive if cost normalization, pricing discipline, and volume resilience continue, but monitoring raw material prices, FX, and inventory management remains important.

Profitability Analysis

ROE_decomposition: ROE 3.94% = Net margin 4.32% × Asset turnover 0.374 × Financial leverage 2.44. Using reported figures: Net Income ¥1.488bn, Revenue ¥34.45bn, Total Assets ¥92.059bn, Total Equity ¥37.767bn. margin_quality: Gross margin 24.4% (¥8.40bn/¥34.45bn) indicates improved spread over cost of sales. Operating margin 7.3% (¥2.506bn/¥34.45bn) reflects significant operating leverage and likely easing input costs and/or successful pricing. Net margin 4.32% benefits from a low effective tax burden (~8–9% estimated from taxes/pretax), while non-operating items were neutral to slightly positive (ordinary ≈ operating). EBITDA margin at 11.9% suggests healthy underlying earnings capacity vs D&A of ¥1.586bn (4.6% of sales). operating_leverage: Revenue grew 5.4% YoY while operating income rose 103.5% YoY, evidencing strong operating leverage from cost control and/or fixed-cost absorption. Incremental margins appear high in this half, implying that even modest top-line growth translated into substantial profit expansion. Sustainability will hinge on maintaining gross margin gains and managing SG&A discipline.

Growth Assessment

revenue_sustainability: Top-line growth of 5.4% YoY suggests steady demand in core categories. With inventory at ¥10.024bn (~75 DIO for the half-year cost base), the supply/demand balance appears manageable, supporting fulfillment without excessive stock build. profit_quality: Net income growth (+32% YoY) lagged operating income growth (+103.5% YoY), implying some offsets below operating line (interest, tax normalization, and other items). Still, OCF/Net Income at 2.52 signals strong cash realization, enhancing confidence in the earnings quality. outlook: If gross margin stabilization persists (input cost normalization, price/mix benefits) and top-line growth remains mid-single-digit, earnings growth can outpace sales due to operating leverage. Key swing factors include raw material prices, FX (CNY/JPY, USD/JPY), logistics costs, and consumer demand elasticity.

Financial Health

liquidity: Current ratio 568% and quick ratio 465% point to strong short-term liquidity. Working capital is sizable at ¥45.688bn, and inventories of ¥10.024bn look proportional to the half-year cost base. Note that cash & equivalents were not disclosed in this dataset. solvency: Debt-to-equity is 1.42x (total liabilities ¥53.669bn / equity ¥37.767bn). Based on provided totals, the equity ratio is approximately 41.0% (equity ¥37.767bn / assets ¥92.059bn), despite the reported field displaying 0% due to non-disclosure. capital_structure: Leverage is moderate and supported by strong interest coverage (21.2x). The limited non-operating gap between operating and ordinary income indicates manageable financial and other non-operating exposures.

Cash Flow Quality

earnings_quality: OCF/Net Income of 2.52 (¥3.757bn / ¥1.488bn) indicates high-quality earnings with favorable working capital contribution and limited accrual stretch. FCF_analysis: Investing cash flow is not disclosed (shown as 0), so Free Cash Flow cannot be reliably derived. EBITDA of ¥4.092bn and strong OCF imply capacity for positive FCF assuming ordinary capex, but this remains unverified due to missing data. working_capital: Large working capital (¥45.688bn) and inventory of ¥10.024bn (~75 DIO vs half-year COGS) suggest adequate buffer. Sustained OCF will depend on maintaining disciplined receivables and inventory turns.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed (zeros indicate non-reporting). EPS for the period is ¥45.69, but without DPS and share count, we cannot assess payout quantitatively. FCF_coverage: FCF coverage cannot be assessed because investing cash flow is undisclosed; therefore, FCF is indeterminable from this dataset. policy_outlook: Given the strong OCF and improving profitability, capacity to fund dividends appears supported operationally; however, absence of DPS and historical policy details in this dataset prevents drawing firm conclusions.

Risk Assessment

Business Risks:

• Raw material price volatility (e.g., resins, chemicals, packaging).
• FX fluctuations impacting imports and overseas production (JPY/CNY, JPY/USD).
• Consumer demand softness in domestic household goods and potential downtrading to private labels.
• Competitive pricing pressure from global and domestic peers and retailers’ private brands.
• Logistics and freight cost variability.
• Execution risk around price revisions and maintaining gross margin gains.
• Supply chain concentration and geopolitical risks (e.g., China exposure).
• Natural disasters and operational disruptions affecting manufacturing and distribution.

Financial Risks:

• Moderate leverage (D/E 1.42x) could amplify earnings volatility if margins compress.
• Interest rate risk on floating-rate borrowings (coverage currently strong at 21.2x).
• Working capital swings affecting cash conversion despite strong current period OCF.
• Tax rate variability (observed effective tax below statutory) potentially normalizing higher.
• Limited visibility on capex and investment outflows due to undisclosed investing CF.

Key Concerns:

• Sustainability of margin expansion after a sharp YoY profitability rebound.
• Dependence on input cost normalization and pricing discipline to sustain OPM.
• Data gaps (cash balance, investing CF, DPS, share counts) limiting capital allocation assessment.

Investment Implications

Key Takeaways:

• Top-line growth of 5.4% YoY combined with 103.5% YoY operating income growth reflects strong operating leverage.
• Gross margin at 24.4% and operating margin at 7.3% indicate improved cost/pricing balance.
• ROE at 3.94% for the period could trend higher if current operating momentum continues.
• Cash conversion is robust (OCF/NI 2.52), supporting balance sheet resilience.
• Liquidity is ample (current ratio 568%, quick ratio 465%), while leverage is moderate (D/E 1.42x).
• Interest coverage of 21.2x reduces near-term financial risk.
• Incomplete disclosure on cash, investing CF, and dividends constrains FCF and payout analysis.

Metrics to Watch:

• Gross and operating margins (pricing vs input costs).
• OCF/Net Income and working capital turns (inventory days, receivable days).
• Capex and investing cash flows (for FCF visibility).
• FX rates (USD/JPY, CNY/JPY) and resin/raw material indices.
• Revenue mix (price/mix versus volume) and category-level growth.
• Leverage metrics (D/E, interest coverage) and equity ratio.
• Tax rate normalization versus statutory levels.

Relative Positioning: Within Japanese household goods/consumer products peers, the company currently exhibits improving margins and strong cash conversion with moderate leverage; sustained advantage will depend on maintaining cost discipline, pricing power, and stable demand relative to peers facing similar input cost and FX dynamics.

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