SHIN NIPPON BIOMEDICAL LABORATORIES,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.77B
• Operating Income: ¥49M
• Net Income: ¥1.04B
• EPS: ¥25.48

Income Statement

Balance Sheet

Cash Flow Statement

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

Verdict: Top-line growth was strong, but profitability deteriorated and reliance on non-operating gains increased, leaving earnings quality mixed and financial flexibility tight. Revenue rose 18.1% YoY to 147.66, demonstrating solid demand momentum. Gross profit reached 66.78 with a gross margin of 45.2%, but SG&A of 66.28 essentially consumed gross profit, yielding operating income of only 0.49 (-38.4% YoY). Ordinary income was 16.27 (-11.0% YoY), heavily supported by 17.39 in non-operating income (including 0.96 interest income), highlighting a shift away from core operating earnings. Net income fell 20.3% YoY to 10.61, while total comprehensive income swung negative (-9.68), implying sizable OCI losses (likely valuation/FX effects) that offset reported profit. Operating margin compressed to roughly 0.33%, down about 31 bps from an estimated ~0.64% in the prior-year period. Net margin compressed more meaningfully to 7.2%, down an estimated ~345 bps from 10.6% YoY due to heavier SG&A burden and weaker operating leverage. Operating cash flow was 18.19, exceeding net income (OCF/NI = 1.71x), which is a positive for earnings quality, but capital expenditures of -32.34 imply negative implied FCF (-14.1) for the period. Liquidity is thin with a current ratio of 110.3% and quick ratio of 65.5%; inventories of 127.35 tie up working capital and reduce financial agility. Leverage is elevated with D/E at 1.38x and interest coverage by EBIT at only 0.39x, flagging near-term debt service risk despite healthy EBITDA/interest coverage. ROE is low at 2.8% and ROIC is extremely weak at 0.1%, underscoring poor capital efficiency. The earnings mix is a concern: non-operating income (163.9% of operating income) was essential to achieving ordinary income, while the negative comprehensive income reveals balance-sheet market risk. Financing cash inflow of 22.87 indicates dependence on external funding likely to support capex and/or working capital. Forward-looking, sustaining revenue growth without reining in SG&A and improving operating margin is critical, as the current cost structure and leverage leave little room for shock absorption. Investors should monitor margin recovery initiatives, debt refinancing plans, and the drivers of OCI volatility to gauge durability of earnings into 2H and FY close.

Profitability Analysis

ROE decomposition: ROE (2.8%) = Net Profit Margin (7.2%) × Asset Turnover (0.162) × Financial Leverage (2.38x). The component most at risk is the net margin, which compressed sharply YoY as SG&A nearly matched gross profit, leaving a razor-thin operating margin (~0.33%). Business driver: elevated personnel costs (salaries & allowances 15.75) and broader SG&A escalation against revenue growth eroded operating leverage; ordinary income relied on non-operating items (interest income and other gains) to offset weak core profit. Sustainability: non-operating income is inherently volatile (interest/market-related), and total comprehensive income was negative, suggesting the uplift may not be durable; without cost control, the margin profile is vulnerable. Asset turnover (0.162) is low for the asset base (909.78), weighed by large inventories (127.35) and investment securities (195.41), dampening efficiency. Leverage (2.38x) amplifies ROE, but with EBIT/interest at 0.39x it raises financial risk rather than productive leverage. Concerning trends: SG&A growth appears to have outpaced revenue growth, given operating income declined 38.4% while revenue rose 18.1%; this points to deteriorating operating efficiency and negative operating leverage.

Growth Assessment

Revenue growth of +18.1% YoY to 147.66 is robust and suggests healthy demand for services, but the fall in operating income (-38.4% YoY) indicates that growth was not profitable under current cost structure. Operating margin compressed by an estimated ~31 bps to ~0.33%, and net margin compressed by ~345 bps to 7.2%, signaling poor conversion of incremental revenue to profit. Ordinary income (-11.0% YoY) benefitted from elevated non-operating income (17.39), which is less controllable and less repeatable than operating profit. The quality of growth is thus mixed: volume appears healthy, but cost discipline and pricing power need improvement to translate growth into earnings. Outlook hinges on SG&A normalization (especially personnel costs) and utilization gains to lift operating margin in 2H; absent that, ordinary income will remain dependent on financial/market items. With comprehensive income negative (-9.68), equity market/FX headwinds could continue to mask reported earnings progress.

Financial Health

Liquidity: Current ratio 110.3% (thin) and quick ratio 65.5% (below benchmark) indicate limited short-term cushion; explicit warning threshold of <1.0 is avoided, but the buffer is modest. Solvency: D/E is 1.38x (upper end of comfort), with short-term loans at 142.30 and long-term loans at 234.25; interest-bearing debt total is unreported, but stated loans sum to 376.55. Debt service risk is notable with EBIT/interest at 0.39x (<2.0 warning). Maturity mismatch: Current assets 313.85 vs current liabilities 284.62 is barely positive; reliance on inventories (127.35) means liquid assets to meet short-term debt are limited, elevating refinancing risk. Off-balance sheet obligations: None disclosed in the provided data.

Cash Flow Quality

OCF/NI of 1.71x indicates solid cash conversion for the period, alleviating immediate quality concerns despite weak operating profit. However, capex of -32.34 exceeded OCF (18.19), implying an estimated negative FCF of about -14.1, suggesting external funding is needed to sustain both capex and any shareholder returns. Financing cash inflow of 22.87 supports the view that debt funding bridged cash needs. Working capital signs: large inventories relative to revenue and cash reduce flexibility; without period-to-period deltas, we cannot confirm manipulation, but the structure raises sensitivity to demand variance and cash conversion timing. Overall, while cash earnings are decent relative to NI, the investment cycle is cash-consumptive near term.

Dividend Sustainability

Dividend data (DPS and total dividends) are unreported; the calculated payout ratio of 196.2% suggests distributions exceeded earnings on a run-rate basis, which would be unsustainable if accurate. Given implied negative FCF (~-14.1), dividends (if paid at that level) would rely on balance sheet or financing cash flows, not internal generation. Policy outlook is uncertain due to missing disclosures, but prudence would imply prioritizing deleveraging and capex over elevated payouts until operating margins recover and FCF turns positive.

Risk Assessment

Business Risks:

• Margin pressure from rising personnel and SG&A costs eroding operating leverage
• Dependence on non-operating income to support ordinary profit
• Operational sensitivity to utilization and pricing in CRO/related services
• Execution risk on capex translating into future revenue and margin gains

Financial Risks:

• Interest coverage (EBIT/interest) at 0.39x indicates debt service stress
• Thin liquidity (quick ratio 0.655) and sizable short-term loans (142.30)
• Negative comprehensive income indicates market/FX valuation risks impacting equity
• Implied negative FCF necessitating continued external financing

Key Concerns:

• ROIC at 0.1% signals very weak capital efficiency
• High inventories (127.35) weigh on cash conversion and liquidity
• D/E at 1.38x elevates balance sheet risk amid tightening financial conditions
• Earnings volatility risk if non-operating gains normalize or reverse

Investment Implications

Key Takeaways:

• Strong revenue growth (+18.1% YoY) but sharp operating profit decline (-38.4%)
• Operating margin compressed to ~0.33% and net margin to 7.2%
• Ordinary income relies on sizable non-operating gains (17.39)
• Comprehensive income negative (-9.68), highlighting balance-sheet volatility
• OCF healthy vs NI (1.71x), but capex drove implied negative FCF (~-14.1)
• Debt service risk flagged with EBIT/interest at 0.39x
• Liquidity tight: current ratio 1.10, quick ratio 0.66, large inventories
• ROE low at 2.8% and ROIC extremely weak at 0.1%

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory in 2H
• EBIT/interest coverage and refinancing schedule for short-term loans
• OCF trends vs capex to assess FCF inflection
• Movements in OCI (securities/FX) and impact on equity
• Inventory levels and days on hand to gauge cash conversion
• D/E ratio and net debt changes post financing inflows

Relative Positioning: Versus domestic CRO/biotech service peers, SNBL shows stronger near-term revenue momentum but meaningfully weaker operating profitability, tighter liquidity, higher leverage, and heavier reliance on non-operating income; improving cost discipline and cash conversion will be necessary to close the gap.

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