WELLNEO SUGAR Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥57.77B
• Operating Income: ¥5.19B
• Net Income: ¥3.61B
• EPS: ¥109.34

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

Verdict: Solid top-line growth but margin compression and sub-target capital efficiency; cash generation was healthy, yet free cash fell slightly short of shareholder returns in the period. Revenue rose 19.8% YoY to 577.7, driven by strong sales expansion. Gross profit reached 114.4, implying a gross margin of 19.8%. Operating income increased 7.5% YoY to 51.9, lagging revenue growth. Net income grew 3.2% YoY to 35.7. Operating margin came in at 9.0% (51.9/577.7), down roughly 103 bps from an estimated 10.0% in the prior-year period. Net margin was 6.2%, about 98 bps lower than the prior-year's ~7.2%, indicating broader cost pressures (likely input costs or mix) and/or higher below-operating line burden. ROE was 4.7%, underpinned by modest leverage (1.38x) and asset turnover of 0.551, but constrained by a thinner net margin. ROIC was 4.0%, below the 5% warning threshold, signaling underwhelming capital efficiency despite a very strong equity ratio (72.2%). Earnings quality was good: OCF of 45.0 exceeded net income by 1.26x, and free cash flow was positive at 17.3. However, FCF did not fully cover aggregate shareholder returns in the period (dividends 18.2, buybacks 1.6). Liquidity and solvency appear conservative with D/E at 0.38x and short-term loans of 128.8 backed by sizable current assets of 399.0, though full current liabilities were not disclosed. Equity-method income was negligible (-0.04), so results were driven by the core business rather than affiliates. The effective tax rate was 30.9%, broadly in a normal range. Forward-looking, restoring operating leverage and improving ROIC above 5% will be key, likely via pricing discipline, product mix upgrades, and cost control. With healthy cash generation but high reported payout metrics, dividend policy visibility depends on sustaining OCF while moderating capex and working capital needs.

Profitability Analysis

ROE (4.7%) decomposition: Net Profit Margin (6.2%) × Asset Turnover (0.551) × Financial Leverage (1.38x). The largest driver of YoY change was the net profit margin, which compressed by roughly 98 bps (from ~7.2% to 6.2%), while sales expanded ~19.8% and leverage remained modest. Business drivers likely include input cost inflation (e.g., raw sugar/energy/freight) outpacing price adjustments and/or an unfavorable mix, evidenced by operating income growing slower than revenue (+7.5% vs +19.8%). This margin pressure seems partly cyclical and partly mix-related; sustainability depends on the company’s ability to pass through costs and improve productivity—some recovery is feasible but not assured in the near term. Asset turnover at 0.551 is moderate for a branded ingredients/food manufacturer and could improve if inventory normalization and capacity utilization advance. Watch for operating expense discipline: while SG&A was 62.1, its growth rate vs revenue isn’t disclosed; however, operating margin contraction suggests SG&A and/or COGS grew faster than sales.

Growth Assessment

Revenue growth of +19.8% YoY to 577.7 was strong, indicating robust demand and/or pricing actions. Operating income growth of +7.5% lagged, implying weaker operating leverage due to cost pressures. Net income growth of +3.2% further confirms below-the-line pressures (tax or financial items) and margin squeeze. EBITDA of 64.5 (11.2% margin) provides some buffer, but margin expansion will hinge on cost pass-through and efficiency gains. Equity-method contribution was minimal (-0.04), so growth quality is tied to core operations. With an effective tax rate of 30.9%, there is limited tax tailwind. Near-term outlook hinges on stabilizing input costs (raw sugar, energy) and disciplined pricing; if commodity costs retreat, margins could recover. Without further detail on segment mix, we assume growth is volume and price led; sustainability depends on demand elasticity to price and competitor pricing behavior.

Financial Health

Balance sheet strength is solid: equity ratio 72.2% and D/E 0.38x indicate conservative leverage. Current ratio is not computable due to missing current liabilities, but current assets are sizable at 399.0 against accounts payable of 71.8 and short-term loans of 128.8, suggesting no imminent liquidity stress. There is no explicit warning threshold breach (Current Ratio <1.0 and D/E >2.0 do not apply based on available figures). Maturity mismatch risk appears manageable given the scale of current assets versus identified short-term debt, although undisclosed current liabilities are a data limitation. Goodwill stands at 137.7, indicating acquisition history; monitor for impairment risk in downturns. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF of 45.0 exceeds net income of 35.7 (OCF/NI 1.26x), indicating good earnings quality. Free cash flow was positive at 17.3 after capex of 26.6, supporting balance sheet resilience. Working capital details (AR 92.9, inventory 175.1) are provided without prior-period comparables; thus, we cannot conclusively identify working capital release/build. There are no clear signs of manipulation; cash conversion appears sound for the period. Financing CF was -58.6, reflecting dividends (-18.2), share repurchases (-1.6), and likely debt repayment, which were funded by OCF and cash on hand (C&E 113.2).

Dividend Sustainability

Reported payout ratio is 93.6% (definition not provided) while cash dividends paid were 18.2 against net income of 35.7 (~51% cash payout on a period basis), suggesting differences due to timing/definition (interim vs annual). On a cash basis, FCF of 17.3 covered roughly 95% of dividends paid and ~90% of total shareholder returns including buybacks (19.8). Sustained dividend capacity will require maintaining OCF near current levels or moderating capex; otherwise, incremental balance sheet usage may be needed. Given conservative leverage and strong equity ratio, near-term dividend risk appears contained, but high payout metrics imply limited buffer if margins compress.

Risk Assessment

Business Risks:

• Commodity input cost volatility (raw sugar, energy, logistics) pressuring margins
• Pricing power and pass-through risk if competitive dynamics limit price increases
• Demand elasticity risk for sugar and sweetener products amid health and substitution trends
• Goodwill impairment risk if acquired businesses underperform

Financial Risks:

• ROIC at 4.0% (<5%) indicating subpar capital efficiency
• Short-term loan concentration (128.8) requires continued rollover and liquidity management
• Potential currency exposure on imported inputs affecting COGS

Key Concerns:

• Operating and net margin compression despite strong revenue growth
• FCF narrowly covering shareholder returns this period
• Limited disclosure on current liabilities and interest expense obscures liquidity and coverage analysis

Investment Implications

Key Takeaways:

• Strong top-line growth but weaker operating leverage; margins compressed ~100 bps
• Earnings quality solid with OCF/NI at 1.26x; FCF positive
• Balance sheet conservative (Equity ratio 72.2%, D/E 0.38x)
• Capital efficiency below target (ROIC 4.0% vs 5%+ desired)
• Dividend coverage close to breakeven on FCF; limited buffer if OCF softens

Metrics to Watch:

• Operating margin trajectory and gross-to-operating spread
• Input cost benchmarks (raw sugar, energy) and pricing pass-through efficacy
• Working capital turns (inventory and receivables) and cash conversion
• ROIC improvement toward >5% and ultimately 7–8%
• Capex intensity vs growth and dividend coverage
• Any increase in interest-bearing debt or changes in short-term loan reliance

Relative Positioning: Within Japanese food and ingredient peers, the company shows stronger balance sheet conservatism and healthy cash conversion this quarter but lags on capital efficiency (ROIC 4.0%) and exhibited margin compression despite robust growth.

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