SHIN NIPPON BIOMEDICAL LABORATORIES,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.77B
• Operating Income: ¥49M
• Net Income: ¥1.31B
• 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

Shin Nippon Biomedical Laboratories (SNBL, 2395) reported FY2026 Q2 consolidated results under JGAAP showing robust top-line momentum but significant margin compression and weak cash conversion. Revenue grew 18.1% YoY to ¥14.77bn, indicating healthy demand across its service lines. Despite a high reported gross margin of 44.2%, operating income fell 38.4% YoY to ¥49m, compressing the operating margin to 0.3% and highlighting cost pressure and/or mix effects. Ordinary income was much stronger at ¥1.63bn, far exceeding operating income and implying material non-operating contributions (e.g., FX gains, investment/equity-method income, or interest income). Net income declined 20.3% YoY to ¥1.06bn, with a reported net margin of 7.19%, suggesting that headline profitability was supported by non-operating items rather than core operations. DuPont analysis yields an ROE of 2.78% based on a net margin of 7.19%, asset turnover of 0.162x, and financial leverage of 2.38x; however, the mid-year nature of revenue vs. period-end assets likely depresses turnover and makes ROE non-annualized. Cash flow quality is weak: operating cash flow was ¥232m, only 0.22x net income, indicating significant working capital absorption or timing effects. The balance sheet shows moderate leverage (assets ¥90.98bn, equity ¥38.23bn, liabilities ¥52.33bn; D/E 1.37x) and tight liquidity (current ratio 112.6%, quick ratio 69.5%), implying reliance on inventory and external financing. Interest coverage is thin at 0.5x on an EBIT basis, highlighting sensitivity to financing costs amid subdued operating profit. Inventories are sizable at ¥12.62bn within current assets of ¥32.94bn, which likely contributed to cash conversion pressure. Financing cash inflow of ¥7.66bn suggests fresh borrowings or other financing to support growth and working capital, though cash and investing cash flow data were not disclosed in the XBRL mapping. The reported equity ratio is shown as 0.0% due to non-disclosure in this dataset; using the provided totals implies an equity ratio near 42%. Depreciation and amortization of ¥1.08bn points to a capital-intensive base in facilities/equipment, consistent with CRO operations, but investing cash flows are unreported. No dividends were paid (DPS ¥0, payout 0%), consistent with preserving liquidity during an investment and scaling phase. Overall, sales growth appears healthy, but the deterioration in operating margin, weak cash conversion, and thin interest coverage temper the quality of earnings. The reliance on non-operating gains to support ordinary income raises the need to scrutinize the sustainability of profits. Data limitations (several items reported as zero due to non-disclosure) warrant caution in interpreting certain derived metrics.

Profitability Analysis

ROE_decomposition: DuPont ROE of 2.78% = Net margin 7.19% × Asset turnover 0.162 × Financial leverage 2.38. Note that turnover is based on interim revenue and period-end assets, so the ROE is not annualized and may understate full-year potential; leverage (A/E) aligns with balance sheet totals (¥90.98bn/¥38.23bn ≈ 2.38). margin_quality: Gross margin is reported at 44.2% (gross profit ¥6.52bn on revenue ¥14.77bn). Operating margin is very low at 0.3% (¥49m), indicating higher SG&A, cost inflation, project mix, ramp-up/idle costs, or pricing pressure. Ordinary income margin is much higher at 11.0% (¥1.63bn), implying material non-operating gains. Net margin is 7.19%. The divergence between operating and ordinary income underscores limited quality of core earnings this quarter. operating_leverage: Revenue grew 18.1% YoY while operating income fell 38.4% YoY, evidencing negative operating leverage in the period. With D&A at ¥1.08bn and EBITDA margin at 7.6%, fixed-cost absorption appears challenged; incremental revenue did not translate to operating profit, suggesting transient cost overruns or a mix shift toward lower-margin programs.

Growth Assessment

revenue_sustainability: Top-line +18.1% YoY to ¥14.77bn indicates solid demand and potential backlog conversion. Sustainability depends on repeat business, utilization, and capacity; the scale-up implied by inventories and financing suggests ongoing growth initiatives. profit_quality: Operating earnings weakened materially despite revenue growth, and ordinary income strength appears non-operating. This reduces profit quality and visibility. The OCF/NI ratio of 0.22 highlights weak cash realization and likely working capital drag. outlook: If cost normalization and utilization improve in 2H, operating leverage could recover. However, reliance on non-operating items to support ordinary income is unlikely to be a durable earnings driver. Monitoring project mix, pass-through costs, and pricing will be key to margin recovery. Given interim timing effects, margins could improve seasonally, but evidence is pending.

Financial Health

liquidity: Current ratio 112.6% and quick ratio 69.5% reflect tight liquidity; inventory (¥12.62bn) is a large component of current assets (¥32.94bn). Working capital is positive at ¥3.68bn but not ample relative to scale. solvency: Debt-to-equity is 1.37x (using total liabilities as proxy for debt), and financial leverage is 2.38x. Interest coverage is thin at 0.5x (EBIT/interest), indicating sensitivity to rates and requiring operating profit recovery to maintain comfort. capital_structure: Total assets ¥90.98bn vs. equity ¥38.23bn imply an equity ratio around 42% (despite a reported 0.0% due to non-disclosure). Financing CF of ¥7.66bn suggests additional borrowings or other financing sources to fund growth and working capital.

Cash Flow Quality

earnings_quality: OCF of ¥232m versus net income of ¥1,061m (OCF/NI 0.22x) indicates low cash conversion, likely driven by working capital expansion (e.g., inventories/receivables) and timing of billings/collections. FCF_analysis: Investing CF is undisclosed in this dataset (reported as zero due to non-disclosure), so Free Cash Flow cannot be reliably computed. Given D&A of ¥1.08bn and the industry's capex needs, true capex is likely meaningful; thus, economic FCF is likely below OCF. working_capital: Inventories are sizable at ¥12.62bn. The combination of revenue growth and inventory intensity suggests cash tied up in project execution and capacity build. Improving DSO/DIO and project milestone billing would be critical to OCF normalization.

Dividend Sustainability

payout_ratio_assessment: No dividend declared (DPS ¥0, payout 0%). With operating profitability compressed and OCF weak, a conservative distribution stance is consistent with balance sheet preservation. FCF_coverage: FCF coverage cannot be assessed due to unreported investing cash flows; using OCF alone would not support distributions comfortably given low OCF/NI. policy_outlook: Until operating margins recover and cash conversion improves, distribution capacity remains constrained. Policy may prioritize reinvestment and balance sheet strength over near-term payouts.

Risk Assessment

Business Risks:

• Margin pressure from cost inflation, project mix, and utilization volatility
• Execution risk in scaling capacity and delivering complex CRO projects
• Client budget timing and cancellation risk affecting backlog conversion
• Reliance on non-operating gains to support ordinary income
• Foreign exchange exposure if overseas operations and contracts are material
• Regulatory and quality/compliance risks inherent to preclinical/clinical services

Financial Risks:

• Thin interest coverage (0.5x EBIT/interest) amid higher rates
• Tight liquidity with quick ratio below 1.0x
• Working capital intensity leading to weak cash conversion
• Increased leverage and dependence on external financing (FinCF ¥7.66bn inflow)
• Potential covenant headroom pressure if operating recovery lags

Key Concerns:

• Sustainability of earnings given the gap between operating and ordinary income
• Low OCF relative to net income (0.22x) indicating weak cash quality
• Operating margin at 0.3% despite strong revenue growth

Investment Implications

Key Takeaways:

• Strong revenue growth (+18.1% YoY) but negative operating leverage
• Operating margin compressed to 0.3% and interest coverage at 0.5x
• Ordinary income supported by non-operating factors; quality of earnings mixed
• OCF weak at ¥232m (0.22x NI), pointing to working capital drag
• Leverage moderate-to-high (D/E 1.37x); liquidity tight (quick ratio 69.5%)

Metrics to Watch:

• Operating margin recovery and SG&A ratio trajectory
• Cash conversion (OCF/NI) and working capital turns (DSO/DIO/DPO)
• Interest coverage and financing dependence
• Backlog, utilization rates, and project mix/margin by segment
• Capex and investing cash flows to assess true FCF

Relative Positioning: Within Japan-listed CROs/biomedical service peers, SNBL shows competitive top-line growth but currently lags on operating margin resilience and cash conversion; balance sheet leverage and liquidity appear tighter than best-in-class peers, increasing the need for disciplined execution in 2H.

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