7213.T

• Company Overview & Operations Structure: LECIP Group specializes in niche markets and holds leading market shares for products including bus/railway one-man operation equipment, automotive lighting, and forklift chargers. Core R&D is based in Gifu and Tokyo, with all domestic manufacturing located in Gifu; the company has group subsidiaries in the US, Singapore, and Sweden, where local subsidiaries handle procurement and manufacturing for products sold overseas. The group also includes a service/maintenance subsidiary and an independent EMS subsidiary that serves a large volume of external clients primarily in the automotive industry, centered in Japan's manufacturing-heavy Tokai region. This fiscal year is the second year of the mid-term management plan "RT2026", which ends in the 2027 March Fiscal Year.

• Second Quarter Consolidated Results: Consolidated sales for the second quarter totaled 8.286 billion yen, a 19.6% decrease year-over-year, with an operating loss of 245 million yen, ordinary loss of 276 million yen, and net loss of 224 million yen. The decline is entirely attributable to the end of the special demand from 2024 new Japanese banknote adaptation projects, which generated large volumes of high-margin revenue in the prior year. Current market conditions are improving: bus new production volumes have recovered to near pre-COVID levels, and inbound tourism-driven travel demand has increased public transport operators' willingness to invest in capital equipment. The company has an inherent industry pattern of sales concentration in the second half of the fiscal year, as major bus/railway clients use government subsidies for capital investments, and the current half-year loss is in line with management expectations.

• Capital Expenditure & R&D Planning: Full-year R&D investment is budgeted at 600 million yen, with first-half spending focused on development of cashless devices, tourism digital transformation (DX) projects, and digital signage systems. Full-year capital expenditure is budgeted at 700 million yen, with first-half spending primarily allocated to equipment for the new LECIP Electronics factory that launched operations in January 2025.

• Strategic Transformation Goal: Management expects existing domestic business revenue to decline organically following the end of the new banknote special demand, amid a long-term shrinking domestic market. The company is actively transforming its business structure to offset this decline by growing the US-focused overseas business and new businesses including tourism DX and DX solutions for bus operators, to achieve stable overall sales and profit.

• Full-year 2026 March Fiscal Year guidance is maintained at a year-over-year decrease in revenue and profit, as the large special demand from new banknote adaptation has ended. Management confirms that progress toward the full-year plan is on track.
• A full-year operating profit of 1.1 billion yen is still targeted, with the second half of the year expected to account for an even larger share of full-year profit than usual due to the planned recognition of two large US project sales.
• The two large US automatic fare collection projects are progressing as planned: the TriMet project completed acceptance in October 2025, with revenue recognition planned for the third quarter, and the Houston METRO project is scheduled for acceptance in March 2026, with revenue recognition planned for the fourth quarter.
• Management maintains a target of 20% overseas revenue share as a proportion of total full-year revenue, and will continue working toward a 10% US AFC market share target by 2030.
• The full-year dividend forecast is maintained at 13.5 yen per share, in line with the company's dividend policy of targeting a 2% or higher dividend on net equity (DOE), and management expects a gradual increasing dividend trend as net equity grows.
• The company's medium-term target is to grow the share of high-value-added solution businesses in domestic revenue to improve overall profit structure.

1. Transportation Equipment Business: In normal operations, this segment accounts for just over 70% of total revenue. In the 2026 March Fiscal Year Second Quarter, the segment reported a year-over-year revenue decrease and an operating loss. Revenue declines were driven by: large drops in new Japanese banknote adaptation-related sales of fare boxes, IC card readers, and associated system modifications in the bus and railway markets; lower sales of LED lighting fixtures for trains exported to the US in the railway market; and reduced adoption of the company's LED lighting products following a major customer's model change in the automotive market. All of these factors combined to push the segment into an operating loss. 2. Industrial Equipment (Energy Management System) Business: In normal operations, this segment accounts for less than 30% of total revenue. In the 2026 March Fiscal Year Second Quarter, the segment also reported a year-over-year revenue decrease and an operating loss. While automotive-related printed circuit board assembly (EMS) sales increased, this gain was more than offset by lower sales of battery-powered forklift chargers and discontinued LED power supply production in the power solution market, resulting in an overall revenue decline and operating loss.

• Future US projects could face higher costs from Trump-era tariffs, as precision components for fare boxes are planned to be exported from Japan. Management will adjust bid pricing to account for tariffs and review supply chains to mitigate impact, and will continue monitoring market developments.
• New domestic solution businesses such as operation optimization support systems and tourism DX are still in the upfront investment phase, with no clear timeline for full investment recovery yet.
• The US market requires large-scale project management capabilities, and building up sufficient skilled project management talent is a key challenge for the company to achieve its market share growth target.
• The long-term trend of domestic market contraction means existing business will face organic revenue decline if no corrective action is taken, requiring successful growth of new and overseas businesses to offset this drag on overall performance.

Q: What is the progress against the full-year earnings forecast after the second quarter, and what is the background for the expected large second-half recovery?

A: The first half operating loss of 245 million yen is exactly within the expected range, given the company's inherent pattern of concentrating sales and profit in the second half. Domestic demand is recovering, and the company is making progress on cost reduction and passing higher input costs through to customers, which will improve profitability in the second half. The two large US projects are progressing on schedule, with one already accepted and the second on track, so full-year progress is assessed as on track to meet the full-year 1.1 billion yen operating profit target.

Q: What is the market environment in the US AFC market, and what is LECIP's competitive advantage in this market?

A: LECIP estimates the US transit bus AFC market has a size of around 65,000 units, dominated by competitor Genfare, which primarily sells large multi-functional fare boxes with built-in cashless features. However, many US transit operators already use separate third-party cashless terminals and do not need built-in cashless functionality, which the concentrated oligopoly market does not cater to. LECIP's competitive advantage comes from its cash-specialized fare box design that fits this unmet customer need, flexible customization, and partnerships with independent cashless terminal vendors to expand its sales reach.

Q: What is the company's strategy to achieve the 10% US market share target by 2030, and what are the current progress and challenges?

A: The core strategy is to continuously participate in competitive bids, conduct active sales targeting bus fleet replacement cycles, and build reputation and experience by winning mid-sized projects before pursuing larger contracts. To support this strategy, LECIP is continuously expanding sales and development staff in both Japan and the US. The top priority for capability building is hiring and training skilled project management personnel, to successfully deliver increasingly large projects, which is the key challenge to achieving the growth target.

Q: How does LECIP plan to allocate capital and resources to hit mid-term plan targets, balancing mature domestic business with growth-focused overseas and new domestic businesses?

A: The company follows a strict "selection and concentration" strategy. Mature domestic existing business is managed as a stable cash cow, with a focus on efficiency improvement, cost control, and portfolio review to free up cash and resources. All surplus resources are prioritized for allocation to overseas business (the core growth driver) and new domestic solution businesses (the future revenue pillar). With the large US projects coming online this half, the overseas revenue share will increase significantly, and the company will continue accelerating the shift toward growth investment to meet mid-term plan targets.

Q: Will the company maintain its 2% DOE dividend policy even if full-year results come in below plan, and what is the overall capital policy?

A: The company's dividend policy prioritizes stable, consistent dividends that are not tied to short-term earnings volatility, with the 2% DOE target as a clear guideline. The current 13.5 yen full-year dividend forecast is maintained because management still expects to hit the full-year 1.1 billion yen operating profit target. The company will prioritize profit growth first, but will continue to maintain stable dividends going forward. Share buybacks will remain an option that is considered dynamically, balanced against growth investment needs, financial health, and current stock price levels.