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

Welneo Sugar (21170) reported FY2026 Q2 consolidated results under IFRS showing solid top-line momentum with revenue of 577.72 billion yen-equivalent (100M JPY units; 577.72) up 19.8% YoY, while profit growth was more moderate. Gross profit was 101.73, implying a gross margin of 17.6%, and operating income reached 51.90 (+7.5% YoY) with an operating margin of roughly 9.0%. Net income was 35.73 (+3.2% YoY), reflecting a higher tax burden (effective tax rate 28.8%) and limited non-operating contribution, as profit before tax (52.24) was only slightly above operating income. EBITDA of 63.64 (11.0% margin) highlights a reasonable cash earnings base for a commodity-linked food ingredients business. DuPont analysis indicates a calculated ROE of 4.7%, driven by a 6.2% net margin, asset turnover of 0.551, and modest financial leverage of 1.38x, consistent with a relatively conservative balance sheet. The equity ratio is a high 72.2%, and debt-to-equity sits at 0.48x, underscoring strong solvency despite material short-term loans (158.10). Cash generation was healthy: operating cash flow (OCF) of 39.80 was 1.11x net income, and free cash flow (FCF) was 26.80. Investing outflows of -13.00 likely reflect maintenance growth capex and/or portfolio investments, though capex details were unreported. Financing CF was -33.57, including dividends paid of -18.32; the remainder likely reflects net debt service or other shareholder returns, though specifics were not disclosed. Inventory (211.08) and receivables (90.35) remain sizable, consistent with the working-capital-intensive nature of sugar and sweetener supply chains. The reported payout ratio is 93.6%, signaling an aggressive return stance relative to earnings; the provided FCF coverage metric of 0.80x suggests dividends exceeded FCF on the definition used, although the cash flow statement shows dividend outflows below FCF for the period. Overall, revenue growth appears price/mix driven with some volume support, but margin expansion is constrained by input costs and the timing of pass-through to customers. The company’s strong equity base and moderate leverage provide resilience against commodity volatility and interest-rate risk. Key near-term swing factors include raw sugar and energy prices, FX for imported raw materials, and inventory valuation impacts. Data limitations (notably ordinary income, interest expense, current liabilities, and detailed cash/capex disclosure) constrain precision in certain ratios, but the available figures point to stable operations, solid cash conversion, and a conservative financial structure.

Profitability Analysis

ROE at 4.7% decomposes into a 6.2% net margin, 0.551x asset turnover, and 1.38x financial leverage, pointing to profitability driven primarily by margin preservation rather than high asset intensity or leverage. Operating margin is approximately 9.0% (51.90/577.72), indicating decent operating efficiency for a commodity-adjacent food producer; EBITDA margin of 11.0% provides an additional buffer. Gross margin at 17.6% suggests cost pass-through is functioning, but the spread between gross and operating margins (about 8.6pp) reflects meaningful SG&A and fixed cost absorption. SG&A was 54.04, about 9.3% of sales, modestly dilutive to margins but consistent with scale and brand/customer service needs. The limited gap between operating income (51.90) and PBT (52.24) implies minimal net non-operating effects in the half. Effective tax rate of 28.8% is broadly in line with domestic norms under IFRS. Margin quality is acceptable: OCF/NI at 1.11x indicates earnings are backed by cash. Operating leverage appears positive but measured: revenue grew 19.8% YoY while operating income grew 7.5% YoY, implying some cost inflation and/or lag in price pass-through reduced incremental margins in the period. Continued focus on procurement optimization and energy cost management will be critical to protect the spread in a volatile input environment.

Growth Assessment

Revenue growth of +19.8% YoY is strong and likely reflects a combination of price/mix adjustments and potentially stable-to-improving volumes. Operating income growth of +7.5% YoY and net income growth of +3.2% YoY lag top-line expansion, indicating pressure from input costs and SG&A or adverse mix in the interim. Gross profit growth (not directly provided YoY) appears healthy in absolute terms, but the 17.6% gross margin suggests pricing is offsetting much of cost inflation without driving substantial expansion. With asset turnover at 0.551x for the period, efficiency is adequate, though the business remains working-capital heavy. Profit quality is supported by OCF exceeding net income (1.11x), indicating limited accrual build in the half. Equity-method income contribution was modest at 1.00, not a major driver of growth. Outlook hinges on raw sugar/feedstock prices, energy and logistics costs, and FX (imported inputs); if cost pressures stabilize, incremental margins could improve in H2. Product portfolio mix (including alternative sweeteners or higher value-added products) could provide additional margin resilience. Given the conservative balance sheet, the company is positioned to invest selectively in productivity and product development when opportunities arise. Absent disclosure on R&D and capex, we assume maintenance-level reinvestment and incremental growth initiatives. Overall, revenue momentum looks sustainable near term with normalization of growth rates likely as price effects annualize.

Financial Health

Total assets were 1,048.72 with total liabilities of 359.98 and total equity of 757.58, yielding an equity ratio of 72.2%, a strong solvency profile. Debt-to-equity is 0.48x, and short-term loans total 158.10; long-term loan data are unreported, but leverage appears moderate. Cash and equivalents were 154.45 at period-end (from cash flow disclosure), providing liquidity, though current liability details are unreported, preventing calculation of current and quick ratios. Accounts payable were 109.40, receivables 90.35, and inventories 211.08, highlighting a sizable working capital base typical of the sector. The proximity of PBT to operating income suggests interest expense is modest, but lack of disclosure prevents an interest coverage calculation. Capital structure is conservative, with ample equity and manageable financial debt, supporting flexibility amid commodity and FX volatility. Financing CF of -33.57 indicates active balance sheet management (dividends and potential net debt changes). Overall, liquidity and solvency appear sound, with no evident stress signals in the disclosed data.

Cash Flow Quality

OCF was 39.80 versus net income of 35.73, yielding OCF/NI of 1.11x, which supports the quality of earnings and indicates non-cash items and working capital movements did not unduly inflate earnings. EBITDA of 63.64 provides a healthy cash earnings base relative to operating income (51.90), consistent with moderate D&A (11.74). FCF was 26.80, after investing CF of -13.00; capex specifics were not reported, so the split between maintenance and growth capex is unclear. Working capital remains material given inventories (211.08) and receivables (90.35); the OCF/NI ratio suggests working capital did not deteriorate significantly in the half. The minimal gap between operating income and PBT indicates limited non-operating drag on cash generation. Cash and equivalents of 154.45 provide a cushion to fund seasonal working capital needs. Absent detailed capex and current liabilities disclosure, we treat cash flow quality as solid but with some uncertainty around capital intensity and timing effects.

Dividend Sustainability

The reported payout ratio is 93.6%, indicating a high proportion of earnings returned to shareholders for the period. The provided FCF coverage ratio is 0.80x, implying dividends exceeded free cash flow on the definition used, which would not be sustainable if persistent. The cash flow statement shows dividends paid of -18.32 in the period, but total dividend figures and DPS by quarter are unreported; therefore, exact annualized payout and coverage cannot be confirmed. Given OCF/NI of 1.11x and FCF positive at 26.80, dividend affordability near term appears manageable provided no step-up in capex or adverse working capital swings. However, with net income growth lagging revenue growth and input cost volatility, maintaining a near-100% payout could constrain reinvestment capacity. Balance sheet strength (equity ratio 72.2%) mitigates short-term risk, but structurally sustainable dividends would benefit from improved FCF consistency and clearer capex visibility. Policy outlook likely prioritizes stable dividends, but the capacity for increases may depend on margin stabilization and capital spending needs.

Risk Assessment

Business Risks:

• Raw sugar and feedstock price volatility affecting gross margins
• Energy and logistics cost inflation impacting production and distribution costs
• FX fluctuations on imported inputs and procurement
• Demand softness from health-conscious consumers and sugar substitution
• Competitive pricing pressure in commoditized sweeteners
• Inventory valuation and timing risk given large inventories
• Customer concentration and contract renegotiation risk in B2B channels
• Regulatory and tax changes related to sugar, health policy, and trade

Financial Risks:

• Reliance on short-term loans (158.10) introduces refinancing and interest-rate risk
• Limited disclosure of current liabilities and interest expense constrains liquidity and coverage analysis
• High payout ratio (93.6%) may pressure retained earnings if earnings soften
• Working-capital intensity (inventories 211.08, receivables 90.35) exposes cash flow to demand and price swings
• Potential mismatch between FCF and dividends (provided FCF coverage 0.80x) if maintained

Key Concerns:

• Margins lagging revenue growth; incremental margin compression in the half
• Sustainability of high payout ratio amid cost volatility
• Visibility on capex and current liabilities is limited, complicating liquidity assessments

Investment Implications

Key Takeaways:

• Healthy top-line growth (+19.8% YoY) with moderate profit growth; margin expansion constrained by input costs
• Solid operating margin (~9.0%) and EBITDA margin (11.0%) for the sector
• Strong balance sheet: equity ratio 72.2%, D/E 0.48x, ample financial flexibility
• Cash generation supports earnings quality (OCF/NI 1.11x) and positive FCF (26.80)
• Dividend policy appears aggressive (payout 93.6%); sustainability hinges on FCF consistency
• High inventories (211.08) and receivables (90.35) underscore working-capital management importance

Metrics to Watch:

• Gross margin and operating margin trajectory versus input cost trends
• OCF/NI and FCF sustainability, including working capital movements
• Capex intensity and clarity on investing CF components
• Leverage mix and interest costs; any shift from short-term to long-term debt
• Dividend payout and FCF coverage alignment
• Inventory turnover and pricing spread (sales price vs. raw sugar and energy)

Relative Positioning: Within Japanese sugar and sweetener peers, Welneo Sugar exhibits above-average balance sheet strength and respectable operating margins, with profit growth currently trailing revenue due to cost pressures; cash conversion is sound, but the elevated payout ratio places a premium on sustaining FCF amid commodity and FX volatility.

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