Soiken Holdings (2385) FY2026 Q2 Earnings Report

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Executive Summary

The key feature of the current period was the turnaround to operating profitability through SG&A expense reductions despite declining revenue. Revenue was ¥2.414B (-10.0% YoY), while operating income was ¥0.230B (compared with a ¥0.203B loss in the same period of the previous year), ordinary income was ¥0.237B (compared with a ¥0.198B loss), and net income was ¥0.161B (compared with a ¥0.222B loss). The 40.5% YoY decrease in SG&A expenses was the primary factor behind the return to profitability, while the gross margin declined to 47.4% from 49.6% in the same period of the previous year.

Factors Affecting Business Performance

【Revenue】Revenue was ¥2.414B, down 10.0% YoY. By segment, FunctionalFoodRetailing was the largest and most profitable business, with revenue of ¥0.93B and an operating margin of 23.3%, followed by FunctionalCosmeticRetailing (¥0.73B, margin of 11.4%) and HealthCareSupportService (¥0.46B, margin of 16.3%). ClinicalEvidenceService (¥0.13B) and FunctionalMaterialDevelopment (¥0.18B) were smaller in scale.

【Profit and Loss】Operating income turned from a ¥0.203B loss in the same period of the previous year to a ¥0.230B profit. The primary factor was a 40.5% reduction in SG&A expenses, from ¥1.534B to ¥0.912B. Although the gross margin declined by 220bp, the operating margin improved to 9.5%. Ordinary income was ¥0.237B, approximately in line with operating income because non-operating income and expenses were nearly neutral. However, extraordinary losses of ¥0.140B, mainly consisting of ¥0.131B in business restructuring costs, exceeded extraordinary income of ¥0.096B, resulting in pretax income of ¥0.195B, 17.8% below ordinary income. In conclusion, the company achieved higher profit despite lower revenue.

Segment Analysis

Among the five segments, FunctionalFoodRetailing was the largest contributor to profit, with revenue of ¥0.93B and operating income of ¥0.22B. Its margin of 23.3% was significantly above the company-wide average. HealthCareSupportService also generated relatively high profitability, with a margin of 16.3%. In contrast, ClinicalEvidenceService (margin of 8.2%) and FunctionalMaterialDevelopment (margin of 10.5%) remained relatively less profitable. FunctionalCosmeticRetailing had a mid-range margin of 11.4% relative to its revenue scale of ¥0.73B, indicating room to improve the balance of the earnings mix. The adjustment for company-wide expenses was △¥0.196B, which was deducted from total segment profit and reflected in consolidated operating income.

Key Financial Metrics

【Profitability】The operating margin of 9.5% and net profit margin of 6.7% improved substantially from losses in the same period of the previous year. However, the gross margin declined to 47.4% from 49.6%, indicating that the improvement in profitability was driven by cost reductions.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.134B, representing only 0.83x net income of ¥0.161B. The OCF/EBITDA ratio was 0.57x, indicating room to improve cash conversion efficiency.【Investment Efficiency】Annualized ROE of 5.3% can be decomposed into net profit margin of 6.7% × total asset turnover of 0.724x × financial leverage of 1.10x. Low asset turnover and a conservative financial structure are suppressing returns.【Financial Soundness】The company has extremely strong financial capacity, with an equity ratio of 90.8%, current ratio of 1,058.6%, and debt-to-equity ratio of 0.10x. Cash and deposits account for 75.3% of total assets.

Cash Flow Analysis

Operating Cash Flow was ¥0.134B, up 36.8% YoY; however, its ratio to net income of ¥0.161B remained at 0.83x. From a working capital perspective, accounts receivable increased by ¥0.060B, accounts payable decreased by ¥0.088B, and contract liabilities decreased by ¥0.073B. These cash outflows constrained operating cash generation. Investing Cash Flow was an inflow of ¥0.071B, mainly due to the redemption of short-term investment securities, while capital expenditures were limited to ¥0.035B. Financing Cash Flow was an outflow of ¥0.139B, primarily reflecting dividend payments and other items. As a result, free cash flow remained positive at ¥0.205B, and cash and cash equivalents at the end of the period reached ¥5.024B. Although short-term financial capacity is substantial, the high work-in-process inventory ratio means that working capital cash conversion efficiency remains a future challenge.

Quality of Earnings

The conversion from operating income to ordinary income was favorable, with non-operating income of ¥0.007B and non-operating expenses of ¥0.000B, resulting in an almost neutral impact. However, extraordinary income of ¥0.096B and extraordinary losses of ¥0.140B, including ¥0.131B in business restructuring costs, were recognized, resulting in pretax income of ¥0.195B, 17.8% below ordinary income. Net income of ¥0.161B includes the impact of these temporary restructuring-related expenses and should be evaluated separately from recurring earnings power. The accrual ratio is small, with no excessive accumulation of accrual-based earnings observed. Nevertheless, the OCF/net income ratio of 0.83x warrants attention as an indicator of earnings quality in terms of cash conversion.

Earnings Forecasts and Guidance

Against the full-year revenue forecast of ¥4.000B, cumulative Q2 revenue was ¥2.414B, representing progress of 60.4% and exceeding the standard progress level of 50%. Against the full-year operating income forecast of ¥0.050B, cumulative Q2 operating income was ¥0.230B, representing progress of 460.0%. Against the full-year ordinary income forecast of ¥0.055B, cumulative Q2 ordinary income was ¥0.237B, representing progress of 430.9%. Against the full-year net income forecast of ¥0.030B, cumulative Q2 net income was ¥0.161B, representing progress of 536.7%. In each case, cumulative first-half results substantially exceeded the full-year forecast. This divergence suggests that declining revenue, additional expenses, and one-off factors may be incorporated into the second-half outlook. Whether the company revises its earnings forecasts will be a key point to monitor.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥10 per share. Based on 26,158 thousand shares outstanding, the annual dividend payout is estimated at approximately ¥0.262B, resulting in a payout ratio of approximately 872% against the full-year net income forecast of ¥0.030B. This level is difficult to regard as sustainable based solely on the earnings plan. However, the company’s substantial financial foundation, including cash and deposits of ¥5.024B, net assets of ¥6.059B, and a debt-to-equity ratio of 0.10x, provides short-term payment capacity. Dividend sustainability will depend on the achievement of the full-year earnings forecast and operating cash flow in the second half.

Risk Factors

1. Cost-driven return to profitability amid declining revenue: While revenue declined 10.0% YoY, the return to operating profitability is highly dependent on a 40.5% reduction in SG&A expenses. If the decline in revenue continues, it will become difficult to maintain profit margins through cost reductions alone.

2. Work-in-process inventory levels and cash conversion efficiency: The work-in-process inventory ratio was high at 56.4%, while OCF/EBITDA remained at 0.57x. Changes in working capital, including the increase in accounts receivable (+26.9%) and decrease in accounts payable (-46.1%), are constraining the conversion of improved earnings into cash.

3. Significant divergence between earnings forecasts and actual results: Cumulative Q2 operating income had already reached ¥0.230B against a full-year forecast of ¥0.050B, representing progress of 460.0%. Expenses and losses incorporated into the second half and the possibility of forecast revisions will be key areas of focus.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Although the company returned to profitability, its profitability remained below the industry median.

Growth and Capital Efficiency

Revenue growth was substantially below the industry median, highlighting that the company is not currently in a growth phase relative to its industry peers.

※Source: Company compilation

Key Points in the Earnings Results

1. Operating income turned from a ¥0.203B loss in the same period of the previous year to a ¥0.230B profit. However, the primary driver was cost-structure reform through a 40.5% reduction in SG&A expenses, while revenue declined 10.0%. The gross margin also declined by 220bp, and the sustainability of the profit improvement depends on a recovery in the top line.

2. Cumulative Q2 operating income and net income progress against the full-year forecasts were substantially above plan at 460.0% and 536.7%, respectively. Additional expenses and one-off factors incorporated into the second half, as well as the possibility of earnings forecast revisions, will be key points of focus.

3. Although the financial foundation is extremely strong, with cash and deposits of ¥5.024B, a current ratio of 1,058.6%, and a debt-to-equity ratio of 0.10x, the OCF/net income ratio of 0.83x, OCF/EBITDA ratio of 0.57x, and work-in-process inventory ratio of 56.4% warrant attention in terms of cash generation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥167–¥176 at cost of equity ±1%; ¥169–¥172 at ω±0.1.

Notes:

• Because net income progress against the full-year forecast (537%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of plan tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated solely from publicly disclosed data; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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