SDS HOLDINGS Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥938M
• Operating Income: ¥-0
• Net Income: ¥-24M
• EPS: ¥-3.47

Income Statement

Balance Sheet

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

SDS Holdings (17110) reported FY2026 Q1 consolidated results under JGAAP with revenue of ¥938.0 million, down 9.5% YoY, indicating a soft start to the year. Gross profit is disclosed at ¥135.29 million, implying a gross margin of 14.4%, though this conflicts with the separately provided cost of sales figure; we rely on the stated gross profit and derived margin for analysis. Operating income is shown as zero (likely undisclosed), while ordinary income posted a loss of ¥26 million, reflecting negative non-operating items, including interest expense of ¥13.60 million. Net income was a loss of ¥35 million (EPS -¥3.47), consistent with the ordinary loss and a tax expense of ¥12.98 million that may reflect non-cash or structural items under JGAAP. DuPont metrics indicate a net margin of -3.73%, asset turnover of 0.196x, and financial leverage of 6.79x, resulting in an ROE of -4.96%, pointing to both profitability pressure and high leverage. The reported equity ratio is 0.0% (undisclosed), but balance sheet figures imply equity of ¥706 million against total assets of ¥4,795 million, suggesting an approximate equity ratio of about 14.7%, a modest capital buffer. Liquidity appears adequate but thin, with a current ratio of 113.4% and working capital of ¥307 million. Debt-to-equity is high at 5.62x (liabilities/equity), constraining financial flexibility if earnings softness persists. Interest coverage is shown as 0.0x due to zero operating income disclosure, indicating limited headroom for debt service absent improvement in operating earnings. Cash flow statement items are undisclosed (all zeros), limiting assessment of operating cash conversion and free cash flow. The company paid no dividend (DPS ¥0), consistent with a loss-making quarter and a cautious stance on capital allocation. Revenue contraction alongside a weak gross margin base raises questions on pricing power, mix, or project timing in Q1. The ordinary loss suggests that non-operating costs, notably interest, weigh meaningfully on quarterly performance. Asset turnover at 0.196x is low, consistent with a balance sheet-intensive business and/or early-quarter seasonality, which heightens sensitivity of ROE to margin changes. Overall, the quarter reflects margin pressure, high leverage, and limited visibility on cash generation, necessitating close monitoring of subsequent quarters for recovery in operating profit and cash flow.

Profitability Analysis

ROE_decomposition: Net profit margin -3.73% × asset turnover 0.196 × financial leverage 6.79 = ROE -4.96%. The negative margin is the dominant driver of the ROE shortfall, with low turnover and high leverage amplifying volatility to equity returns. margin_quality: Gross margin is 14.4% (¥135.29m on ¥938.0m sales). Note: disclosed cost of sales (¥901.80m) would imply a different gross profit; we rely on the stated gross profit and derived GPM. Operating income is undisclosed (0), preventing precise operating margin analysis; however, the ordinary loss (¥26m) and interest expense (¥13.60m) imply weak operating earnings after non-operating items. operating_leverage: With revenue down 9.5% YoY and gross margin in the mid-teens, small volume/mix shifts can materially impact profit given the high fixed-cost profile typical of balance-sheet-heavy businesses. Interest expense materially burdens earnings, so incremental operating profit is needed to cover fixed financial costs. Absent operating income disclosure, leverage to sales cannot be quantified, but the swing from gross profit to ordinary loss indicates limited buffer.

Growth Assessment

revenue_sustainability: Revenue declined 9.5% YoY to ¥938.0m, suggesting weaker demand, project timing slippage, or pricing pressure in Q1. The low asset turnover (0.196x) reinforces the need for steadier volume to sustain returns. profit_quality: Gross margin of 14.4% is modest; coupled with ordinary loss, this points to tight unit economics. The presence of tax expense despite a pre-tax loss suggests non-cash or structural tax items; quality of earnings cannot be validated without cash flows. outlook: To restore profitability, the company needs improved gross margins (pricing, mix, cost control) and operating scale. Interest costs (¥13.60m) require higher operating profit run-rate for breakeven at the ordinary level. Watch for seasonal recovery and backlog conversion in subsequent quarters.

Financial Health

liquidity: Current assets ¥2,596.9m vs current liabilities ¥2,289.6m yields a current ratio of 113.4% and working capital of ¥307.3m, indicating adequate but thin short-term coverage. Quick ratio is the same (inventories undisclosed). solvency: Total liabilities ¥3,966.9m vs equity ¥706.0m implies liabilities/equity of 5.62x. The reported equity ratio is undisclosed (0.0%), but implied equity/asset ratio is about 14.7% using balance sheet totals. High leverage elevates refinancing and covenant risks if losses persist. capital_structure: Balance sheet is liability-heavy with limited equity buffer, increasing sensitivity to earnings volatility. Interest burden of ¥13.60m per quarter (assuming steadiness) is material relative to gross profit.

Cash Flow Quality

earnings_quality: Operating CF is undisclosed; OCF/NI ratio shown as 0.00 is not informative. With a net loss and no CF data, we cannot corroborate earnings quality or non-cash adjustments. FCF_analysis: Free cash flow is undisclosed (0 placeholder). Capex and working capital movements are unknown, preventing assessment of cash burn or self-funding capacity. working_capital: Working capital stands at ¥307.3m; detailed composition (inventories, receivables, payables turns) is not available, limiting analysis of cycle efficiency and cash conversion.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 with a quarterly net loss (EPS -¥3.47), resulting in no payout. A payout ratio is not applicable in a loss-making quarter. FCF_coverage: FCF is undisclosed, so coverage metrics (e.g., dividends/FCF) cannot be computed. Given losses and leverage, preserving liquidity appears prudent. policy_outlook: With negative earnings and high leverage, dividend policy is likely conservative until consistent positive operating and free cash flows are demonstrated.

Risk Assessment

Business Risks:

• Revenue volatility from project timing or demand softness (Q1 -9.5% YoY).
• Low gross margin base (14.4%) limiting cushion against cost inflation.
• Potential pricing pressure and unfavorable mix impacting margins.
• Operational leverage risk if fixed costs are high relative to revenue.
• Limited visibility on cash conversion due to undisclosed cash flows.

Financial Risks:

• High leverage (liabilities/equity 5.62x) and modest implied equity ratio (~14.7%).
• Weak interest coverage (operating income undisclosed; ordinary loss and ¥13.60m interest expense).
• Refinancing/covenant risk if losses persist.
• Tax expense despite loss, indicating potential non-cash adjustments affecting net income volatility.

Key Concerns:

• Ordinary loss of ¥26m and net loss of ¥35m in Q1.
• Interest burden relative to earnings capacity.
• Inconsistency between disclosed cost of sales and gross profit; reliance on stated gross profit for margin assessment.
• Lack of cash flow disclosure (OCF/FCF) inhibiting assessment of liquidity trajectory.

Investment Implications

Key Takeaways:

• Revenue decline of 9.5% YoY with modest gross margin (14.4%).
• ROE of -4.96% driven by negative margin and high leverage (6.79x).
• Ordinary loss (¥26m) underscores pressure from non-operating costs, notably interest (¥13.60m).
• Liquidity adequate but thin: current ratio 113.4%, working capital ¥307.3m.
• High balance sheet leverage (liabilities/equity 5.62x) with implied equity ratio around 14.7%.
• Cash flow data absent; unable to verify earnings-to-cash conversion.
• Dividend suspended (DPS ¥0) consistent with loss-making quarter.

Metrics to Watch:

• Quarterly operating income and ordinary income trajectory.
• Gross margin progression (pricing, cost control, mix).
• Revenue backlog conversion and order intake to stabilize top line.
• Interest coverage (EBIT/interest) and net debt metrics when disclosed.
• Operating cash flow and free cash flow once reported.
• Working capital turns (DSO/DPO/DIO) when available.

Relative Positioning: The company appears more leveraged and currently less profitable than a typical mid-tier Japanese industrial/engineering peer, with lower asset turnover and a thinner equity cushion, making near-term performance more sensitive to margin recovery and cash generation.

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