Showa Sangyo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥166.70B
• Operating Income: ¥6.05B
• Net Income: ¥7.64B
• EPS: ¥177.60

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

Showa Sangyo (2004) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥166.7bn, down 1.1% YoY, indicating a modest top-line contraction in a still-inflationary input environment. Gross profit reached ¥29.7bn, delivering a gross margin of 17.8%, which appears resilient given commodity cost volatility in grains and oils. Operating income declined 11.8% YoY to ¥6.05bn, compressing the operating margin to approximately 3.6% and signaling negative operating leverage in the half. Ordinary income of ¥7.28bn exceeded operating income, implying positive non-operating contributions (e.g., financial income or equity-method gains) that partially cushioned core pressure. Net income fell 24.0% YoY to ¥5.77bn, with EPS at ¥177.60, a sharper decline than operating income, suggesting adverse below-the-line items and/or a higher tax burden versus last year. Despite profit pressure, cash generation was solid: operating cash flow (OCF) of ¥7.71bn exceeded net income, yielding an OCF/Net Income ratio of 1.34, indicative of reasonable earnings quality. EBITDA totaled ¥11.21bn, and with D&A at ¥5.15bn, the business remains asset-intensive (D&A ≈ 46% of EBITDA). Balance sheet strength is sound: total assets were ¥261.7bn, equity ¥146.0bn, implying an equity ratio of roughly 55.8% (calculated from disclosed balances), while the provided equity ratio metric was not disclosed. Liquidity appeared healthy with a current ratio of 143.9% and quick ratio of 124.1%, supported by working capital of ¥34.4bn. Financial risk looks contained: interest expense was modest at ¥135m and interest coverage strong at 44.8x. Debt-to-equity stands at 0.80x, consistent with a conservatively leveraged profile for a staple food manufacturer. The -1.1% revenue decline versus a double-digit operating income drop reflects a margin squeeze, likely from input cost normalization lag, pricing mix, and fixed-cost absorption. Inventory stood at ¥15.5bn, about 13.8% of current assets, a manageable level for a milling and oils business but worth monitoring given commodity price swings. Dividend information and investing cash flows were not disclosed in this dataset, limiting assessment of free cash flow and shareholder return policy for the period. Overall, Showa Sangyo demonstrates solid balance sheet safety and good cash conversion in the half, but faces margin headwinds and negative operating leverage that weighed on earnings. Outlook hinges on the pace of price-cost alignment, procurement and hedging effectiveness, and volume elasticity in core food and feed channels.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.46%
• asset_turnover: 0.637
• financial_leverage: 1.79
• calculated_ROE: 3.95%
• commentary: ROE of 3.95% is driven primarily by modest asset turnover and thin net margins typical of staple food processing, with moderate leverage. Margin deterioration versus last year likely dragged ROE despite stable leverage. margin_quality:
• gross_margin: 17.8%
• operating_margin: 3.63%
• ordinary_margin: 4.37%
• EBITDA_margin: 6.7%
• interpretation: Gross margin remains acceptable for a milling/oils portfolio, but operating margin compression indicates elevated SG&A/processing costs or incomplete pass-through of input inflation. Ordinary margin above operating suggests non-operating tailwinds offset some core pressures. operating_leverage:
• assessment: Negative operating leverage evident: revenue declined 1.1% YoY while operating income fell 11.8% YoY. Implied degree of operating leverage is high (~10x for the half), underscoring sensitivity to small revenue changes amid a fixed-cost base.
• cost_structure_insight: D&A at ~46% of EBITDA indicates a capital-intensive process with meaningful fixed costs; sustaining utilization and price discipline is key to margin stability.

Growth Assessment

revenue_sustainability: Top line decreased 1.1% YoY to ¥166.7bn, implying stable but slightly softer demand or pricing normalization after prior inflation-driven price hikes. Volume/mix details are not disclosed; sustainability depends on maintaining price-cost parity and customer retention in flour and edible oils. profit_quality: Net margin at 3.46% and EPS down 24% suggest below-the-line headwinds and/or higher effective taxes relative to last year. Ordinary income exceeded operating by ¥1.22bn, indicating some reliance on non-operating gains, which may be less repeatable. outlook: Earnings trajectory will hinge on commodity input trends (wheat, corn, oilseeds), FX (USD/JPY), and the cadence of list-price adjustments. Stabilization or decline in input costs could support a margin recovery in H2; conversely, renewed commodity or FX pressures would risk further compression.

Financial Health

liquidity:

• current_ratio: 143.9%
• quick_ratio: 124.1%
• working_capital: ¥34.39bn
• inventories: ¥15.51bn (13.8% of current assets)
• assessment: Comfortable liquidity with ample short-term coverage and manageable inventory intensity for the sector. solvency:
• debt_to_equity: 0.80x
• interest_expense: ¥0.135bn
• interest_coverage: 44.8x
• equity_ratio_calculated: ≈55.8% (¥146.0bn equity / ¥261.7bn assets)
• assessment: Balance sheet is conservatively structured with strong interest coverage and substantial equity buffer. capital_structure: Moderate leverage predominantly supported by equity; capacity exists for measured investment without undue strain, subject to capex intensity and working capital needs.

Cash Flow Quality

earnings_quality:

• OCF: ¥7.71bn
• net_income: ¥5.77bn
• OCF_to_NI: 1.34
• interpretation: OCF exceeding net income indicates decent accrual quality and cash realization of earnings in the half. FCF_analysis:
• reported_investing_CF: Not disclosed (shown as 0)
• reported_FCF: Not disclosed (shown as 0)
• assessment: Free cash flow cannot be determined without investing cash flows/capex details. OCF is positive and could fund capex and shareholder returns, but actual coverage is unknown. working_capital_dynamics: Working capital stood at ¥34.39bn; detailed movements by receivables/payables are not disclosed, but the OCF/NI ratio suggests working capital was not a material drag in the half.

Dividend Sustainability

payout_ratio_assessment: Dividend payout information is not disclosed in this dataset (payout ratio shown as 0.0% indicates unreported). EPS of ¥177.60 would ordinarily support some distribution capacity, but policy and actual dividends cannot be assessed here. FCF_coverage: Not assessable due to lack of investing CF/capex disclosure; OCF of ¥7.71bn provides a base, but without capex we cannot determine headroom. policy_outlook: Given stable balance sheet and strong coverage metrics, the company has potential flexibility; however, absence of disclosed DPS and FCF data precludes conclusions on near-term dividend sustainability or changes.

Risk Assessment

Business Risks:

• Raw material price volatility (wheat, corn, oilseeds) affecting gross spreads
• FX fluctuations (USD/JPY) impacting import costs and procurement timing
• Energy and logistics cost inflation influencing manufacturing and distribution expenses
• Competitive pricing pressure in flour milling and edible oils markets
• Demand elasticity in B2B and retail channels amid consumer downtrading
• Regulatory and food safety compliance risks across supply chain
• Hedging effectiveness and basis risk between futures and physical procurement

Financial Risks:

• Margin compression from delayed pass-through of input cost changes
• Potential working capital swings tied to commodity prices and inventory valuation
• Capex intensity and depreciation burden weighing on EBITDA-to-FCF conversion
• Exposure to interest rate changes, albeit mitigated by strong coverage
• Tax and below-the-line volatility affecting net income visibility

Key Concerns:

• Negative operating leverage with small sales declines driving larger EBIT drops
• Visibility on FCF is limited due to undisclosed investing cash flows
• Dividend policy and capital allocation signals are unclear for the period

Investment Implications

Key Takeaways:

• Top line marginally softer (-1.1% YoY) while EBIT fell 11.8%, indicating margin pressure and negative operating leverage.
• OCF was solid at ¥7.71bn (1.34x net income), supporting earnings quality.
• Balance sheet strength is a support: equity ratio ~55.8% (calculated) and interest coverage 44.8x.
• EBITDA margin of 6.7% with high D&A intensity underscores the need for utilization and pricing discipline.
• Non-operating gains lifted ordinary income above operating, aiding but not fully offsetting core pressure.

Metrics to Watch:

• Gross margin progression versus input cost indices (wheat, corn, oilseed oils)
• Price pass-through cadence and operating margin recovery
• Working capital turns and OCF conversion (OCF/NI, inventory days)
• Investing cash flows and capex to gauge FCF and future capacity
• FX (USD/JPY) and hedging outcomes on procurement costs
• Interest coverage and debt metrics amid potential rate shifts
• Implied share count (~32.5m) consistency and any capital actions

Relative Positioning: Within Japanese staple food processors, Showa Sangyo exhibits balance sheet resilience and strong coverage metrics but currently trails on profitability momentum due to margin compression; recovery depends on commodity normalization and pricing execution.

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