SAAF Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.68B
• Operating Income: ¥280M
• Net Income: ¥63M
• EPS: ¥2.85

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

Verdict: Solid top-line growth and sharp operating recovery, but bottom-line suppressed by an unusually high tax charge and heavy leverage keep returns modest. Revenue rose 7.0% YoY to 146.8, with operating income up 73.7% YoY to 2.80, signaling strong operating leverage despite only mid-single-digit sales growth. Gross profit was 36.56, implying a gross margin of 24.9%, while SG&A was 33.76 (22.99% of revenue), yielding an operating margin of 1.9%. Based on last year’s implied operating income of ~1.61 and revenue of ~137.1, the operating margin expanded by roughly 74 bps YoY (from ~1.17% to ~1.91%). Ordinary income surged 166.1% YoY to 2.67; the ordinary margin rose by about 109 bps YoY to 1.82% (from ~0.73%). Non-operating items netted to a slight loss (income 1.01 vs expenses 1.13), so the improvement is fundamentally operating-driven. Net income was 0.69, depressed by a very high effective tax rate of 75.0% on pre-tax profit of 2.51. Earnings quality is strong this quarter: operating cash flow was 12.05 versus net income of 0.69, an OCF/NI ratio of 17.46x, supported by non-cash D&A of 2.67 and likely working capital tailwinds. Liquidity is adequate but tight (current ratio 106.7%, quick ratio 104.9%), and leverage is high (D/E 5.01x; Debt/EBITDA 15.34x), keeping financial risk elevated. Equity is only 28.41 against total assets of 170.71, implying a calculated equity ratio around 16.6%, highlighting a thin capital buffer. Intangibles are sizable (intangible assets 20.69, including goodwill 15.67), which heightens impairment risk if growth slows. ROE is 2.4% via DuPont (NPM 0.5% × AT 0.86 × Leverage 6.01x), with low margins offset by high leverage. ROIC at 2.0% is below common cost-of-capital benchmarks, indicating capital efficiency remains a key issue. Forward-looking, sustaining operating margin gains, normalizing the tax rate, and deleveraging are crucial to lift ROE and reduce risk. Cash generation appears sufficient for ongoing operations and capex, but the balance sheet limits strategic flexibility. Overall, the quarter shows clear operational progress but underscores the need to address tax and leverage headwinds to translate into stronger shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 0.5% × Asset Turnover 0.860 × Financial Leverage 6.01x = ROE 2.4%. The most constrained component is net profit margin, reflecting a lower operating margin (1.9%) and an abnormally high effective tax rate (75.0%), which heavily diluted net income. Asset turnover at 0.86 is reasonable for a service/project-oriented business with low inventories and high receivables, and leverage is high (6.01x), propping up ROE despite thin profitability. Business driver: Operating profit grew faster than sales (+73.7% vs +7.0%) due to better cost control and operating leverage, but the benefit did not cascade to net income owing to the tax burden and interest costs (interest expense 0.85; EBITDA interest coverage 3.31x). Sustainability: The operating margin improvement looks more structural than one-off, given gross margin of 24.9% and SG&A at 23.0% of revenue; however, sustaining it will require continued discipline as scale is modest. The tax rate is likely one-time elevated and should normalize closer to statutory levels if loss carryforwards/valuation allowances and non-deductible items stabilize. Concerning trends: Financial leverage is high (D/E 5.01x; Debt/EBITDA 15.34x), and interest costs are material relative to EBITDA, capping net margin. Watch for SG&A growth outpacing revenue in subsequent quarters, as the current SG&A ratio leaves a thin operating spread.

Growth Assessment

Revenue grew 7.0% YoY to 146.8, a healthy pace for H1, indicating stable demand and/or improved pricing/mix. Operating income rose 73.7% to 2.80, with operating margin expanding by roughly 74 bps YoY to 1.91%, evidencing positive operating leverage. Ordinary income growth (+166.1%) outpaced operating growth due to a low prior-year base and better operating fundamentals; non-operating net impact was slightly negative this period (-0.12). Net income of 0.69 was held back by a 75.0% effective tax rate, which is unlikely to be recurring at that level; normalization would mechanically lift the bottom line. EBITDA was 5.47 (3.7% margin), providing some cushion for reinvestment but leaving limited room after interest. Growth sustainability will hinge on maintaining gross margin near 25% and holding SG&A at or below current ratios, while improving mix and pricing. Given the low ROIC (2.0%), incremental growth must be capital-efficient; otherwise, growth could depress value. Order intake/backlog and customer concentration are not disclosed, limiting visibility into demand durability. In the near term, we expect continued modest top-line growth and further small gains in operating margin, with net income sensitivity to tax and financing costs remaining high.

Financial Health

Liquidity: Current ratio 106.7% and quick ratio 104.9% indicate adequate but tight short-term liquidity; warning threshold (<1.0) not breached. Solvency: Debt-to-equity 5.01x is high (warning), and calculated equity ratio is ~16.6% (28.41/170.71), indicating a thin capital base. Maturity profile: Short-term loans are 52.10 versus cash 40.88 and receivables 52.91; current assets (109.63) exceed current liabilities (102.77), but rollover risk remains if lenders tighten. Interest coverage is modest at 3.31x EBITDA/interest, below the 5x comfort benchmark. Net debt is approximately 42.97 (debt 83.85 minus cash 40.88), implying leverage constraints. Asset quality: Intangibles total 20.69 (goodwill 15.67), a sizeable share of equity, creating potential impairment risk. No off-balance sheet obligations were reported; disclosures on guarantees/contingencies are not provided. Explicit warnings: D/E > 2.0 is a risk; current ratio is above 1.0 so no immediate liquidity red flag.

Cash Flow Quality

OCF/Net Income is 17.46x, indicating very high cash conversion this period, supported by D&A of 2.67 and likely working capital inflows. Operating cash flow of 12.05 comfortably covers reported capex of 1.48 and financing outflows of 1.11, suggesting positive cash generation capacity despite low net income. Free cash flow cannot be precisely computed as total investing CF is unreported; however, OCF minus capex implies an indicative FCF of ~10.57 before other investing items. Earnings quality appears high for the quarter, but the large gap versus NI may not be recurring if working capital reverts. No obvious signs of working capital manipulation are evident from the limited data, though receivables are sizable (52.91) relative to sales; collection discipline should be monitored. Dividend cash requirements are unreported; current cash (40.88) provides flexibility but must be balanced against debt service.

Dividend Sustainability

Dividend data are unreported, so payout and coverage cannot be calculated. From a capacity perspective, OCF of 12.05 and modest capex of 1.48 suggest room for a conservative dividend, but high leverage (D/E 5.01x, Debt/EBITDA 15.34x) argues for prioritizing deleveraging over distributions. EPS is 2.85 JPY on average shares of 24.41 million (NI ~0.69), implying limited distributable profit this period after tax. Without a stated policy, we assume a cautious stance until net margins and ROIC improve and the tax rate normalizes. If dividends are reinstated or maintained, sustainability should be assessed against OCF and required debt amortization.

Risk Assessment

Business Risks:

• Margin sensitivity: Thin operating margin (~1.9%) leaves limited buffer against input cost inflation or pricing pressure.
• Execution risk in project/service delivery, with high receivables (52.91) indicating working capital dependence on timely collections.
• Intangible asset concentration (goodwill 15.67) raises impairment risk if performance underwhelms.
• Tax rate volatility (effective 75.0%) can materially swing net income.

Financial Risks:

• High leverage: D/E 5.01x and Debt/EBITDA 15.34x elevate refinancing and interest burden risks.
• Tight liquidity: Current ratio 1.07; reliance on short-term loans (52.10) creates rollover exposure.
• Interest rate risk: Rising rates would further compress coverage (currently 3.31x).
• Low ROIC (2.0%) below cost of capital risks value dilution if growth is debt-funded.

Key Concerns:

• Sustainability of operating margin gains amid only modest revenue growth.
• Normalization path of the effective tax rate and its drivers (valuation allowances, non-deductibles).
• Potential goodwill impairment impacting equity given low equity ratio (~16.6%).
• Dependence on working capital inflows to support cash generation in future periods.

Investment Implications

Key Takeaways:

• Operational recovery is evident: operating income +73.7% YoY and ~74 bps operating margin expansion.
• Bottom-line is constrained by a 75.0% tax rate and interest costs, keeping NPM at 0.5% and ROE at 2.4%.
• Balance sheet risk is elevated with D/E 5.01x and Debt/EBITDA 15.34x; equity ratio ~16.6%.
• Cash generation is strong this quarter (OCF/NI 17.46x), providing headroom for capex and debt service.
• ROIC at 2.0% underscores the need for margin and capital efficiency improvements.

Metrics to Watch:

• Operating margin trajectory (target >2.5% near term) and SG&A ratio control.
• Effective tax rate normalization toward statutory levels.
• Net debt/EBITDA and interest coverage (>5x desired).
• Receivables days and cash conversion to validate OCF sustainability.
• Goodwill impairment testing outcomes and equity ratio improvement.
• ROIC progression toward >5% medium term.

Relative Positioning: Within small-cap Japanese service/project-oriented peers, the company shows better-than-expected operating rebound but lags on capital structure discipline and capital efficiency; financial risk (high leverage, thin equity buffer) offsets the improved earnings momentum.

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