SRE Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.10B
• Operating Income: ¥309M
• Net Income: ¥724M
• EPS: ¥1.62

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

SRE Holdings (2980) reported FY2026 Q2 consolidated results under JGAAP showing a pronounced slowdown and sharp profit compression. Revenue declined 20.3% YoY to ¥8.095bn, reflecting softer demand and/or project timing shifts. Despite a reported gross profit of ¥4.458bn and an implied gross margin of 55.1%, operating income dropped 76.0% YoY to ¥309m as fixed costs and growth investments weighed on profitability. Ordinary income was ¥185m and net income was ¥26m, translating to a very thin net margin of 0.32%. DuPont analysis indicates ROE of 0.18%, driven by low net margin (0.32%), low asset turnover (0.226x), and moderate financial leverage (2.52x). Cash conversion deteriorated materially: operating cash flow was negative ¥3.854bn, and financing inflows of ¥4.409bn were used to support operations and working capital. The OCF/Net Income ratio of -148.23x highlights poor cash earnings quality in the period, likely driven by inventory and receivables build. The balance sheet shows total assets of ¥35.804bn with current assets of ¥24.492bn, including a large inventory balance of ¥13.809bn, which elevates working capital risk. Liquidity ratios appear strong (current ratio 353.5% and quick ratio 154.2%), but the heavy inventory component tempers the quality of that liquidity. Interest coverage is 4.6x, suggesting manageable interest burden despite earnings pressure. Reported effective tax rate appears inconsistent with the disclosed tax expense (¥453m) and very small net income, indicating tax timing/deferred items or data labelling effects; this adds volatility to bottom-line interpretation. No dividend was declared (DPS ¥0), in line with weak earnings and negative operating cash flow. There are internal data inconsistencies between cost of sales and gross profit, and some zero values are unreported rather than actual zeros; analysis focuses on non-zero data provided. Segment mix (AI solutions vs real estate-related) and project recognition timing likely influenced both revenue decline and cash flow. Overall, the quarter reflects a demand/timing slowdown, margin compression, elevated working capital needs, and reliance on external financing to bridge cash burn. Outlook hinges on normalization of project deliveries, inventory turnover, and stabilization of margins while maintaining adequate financing capacity.

Profitability Analysis

ROE_decomposition: Reported ROE is 0.18%, derived from Net Profit Margin 0.32% × Asset Turnover 0.226 × Financial Leverage 2.52. The principal drag is profitability (near-breakeven net margin), with low asset turnover also suppressing returns despite moderate leverage. margin_quality: Gross margin is reported at 55.1% (gross profit ¥4.458bn on revenue ¥8.095bn). Operating margin compressed to ~3.8% (¥309m/¥8.095bn), reflecting operating cost rigidity and/or higher SG&A relative to revenue. Net margin of 0.32% was additionally affected by non-operating items and tax effects. operating_leverage: A 20.3% revenue decline led to a 76.0% drop in operating income, indicating negative operating leverage. Fixed cost absorption was weak, and the EBITDA margin of 6.2% (¥501m) underscores limited buffer after gross profit.

Growth Assessment

revenue_sustainability: Revenue fell 20.3% YoY to ¥8.095bn. The scale of decline suggests softness in deal flow or project delivery timing, and possibly segment mix shifts. Sustainability will depend on backlog conversion and new bookings in 2H. profit_quality: Operating income decline (-76.0% YoY) outpaced revenue, pointing to pressure from fixed costs and/or increased investment. Ordinary income (¥185m) and net income (¥26m) indicate weak bottom-line resilience. Large tax expense vs small earnings implies timing or deferred tax swings, adding volatility. outlook: Recovery requires stabilization in demand and improved execution on deliveries. Key to 2H will be inventory monetization, expense discipline, and any mix shift toward higher-margin AI/solution offerings. Financing access appears adequate for now but dependent on restoring cash generation.

Financial Health

liquidity: Current assets ¥24.492bn vs current liabilities ¥6.929bn yield a current ratio of 353.5% and quick ratio of 154.2%. However, inventories are ¥13.809bn (a large share of current assets), diluting immediate liquidity quality. solvency: Total liabilities are ¥16.124bn vs total equity ¥14.233bn; reported debt-to-equity is 1.13x (debt detail not disclosed). Interest coverage of 4.6x suggests manageable debt service at current earnings, but a further earnings decline would pressure coverage. capital_structure: Leverage (DuPont 2.52x) indicates moderate use of liabilities to fund assets. Equity ratio is shown as 0.0% but is unreported; based on totals provided, equity represents a meaningful share of capitalization. Financing CF inflow (¥4.409bn) shows reliance on external funding during the cash burn.

Cash Flow Quality

earnings_quality: OCF/Net Income of -148.23x highlights poor cash conversion. The gap between accounting profit (¥26m) and OCF (-¥3.854bn) likely reflects working capital build (notably inventory) and project timing. FCF_analysis: Investing CF is unreported (shown as 0). With OCF negative, underlying free cash flow was very likely negative despite lack of capex data. Financing inflows (¥4.409bn) covered the operating shortfall. working_capital: Working capital is ¥17.564bn, driven by large inventories (¥13.809bn). Inventory monetization is critical; elevated inventories tie up cash and increase risk if sell-through slows.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 with payout ratio 0.0%, consistent with minimal net income (¥26m) and negative operating cash flow. Given current profitability and cash generation, distributions are constrained. FCF_coverage: FCF coverage is shown as 0.00x and investing CF is unreported; with negative OCF, organic funding capacity for dividends is currently insufficient. policy_outlook: Resumption or initiation of dividends would likely require sustained positive OCF, improved earnings visibility, and a reduction in working capital intensity.

Risk Assessment

Business Risks:

• Revenue timing risk from project-based recognition and backlog conversion
• Segment mix risk between AI/solutions and real estate-related activities affecting margins
• Competitive pressure in proptech/AI solutions impacting pricing and win rates
• Inventory sell-through risk and potential impairments if market conditions weaken
• Macroeconomic and interest-rate sensitivity in real estate markets

Financial Risks:

• Negative operating cash flow requiring continued access to financing
• Elevated inventories increasing working capital and liquidity risk
• Earnings sensitivity to tax items and non-operating gains/losses
• Potential pressure on interest coverage if operating income falls further
• Data limitations on debt composition and cash balances

Key Concerns:

• 20.3% YoY revenue decline with 76.0% YoY drop in operating income
• OCF of -¥3.854bn and reliance on ¥4.409bn financing inflow
• ROE at 0.18% driven by very low net margin (0.32%) and low asset turnover (0.226x)
• Large inventory balance of ¥13.809bn within current assets
• Inconsistencies between reported cost of sales and gross profit, and tax expense vs effective tax rate metric

Investment Implications

Key Takeaways:

• Sharp profit compression with operating margin ~3.8% and net margin 0.32%
• Negative cash conversion; OCF materially below earnings due to working capital
• Moderate leverage with 4.6x interest coverage, but cushion could narrow if profits weaken
• Large inventories drive liquidity optics; quality of liquidity depends on turnover
• Execution on backlog and segment mix shift will determine margin and cash recovery

Metrics to Watch:

• Order intake/backlog and revenue growth trajectory in 2H
• Gross margin trend and segment mix between AI/solutions and real estate-related
• Operating expense run-rate and EBITDA margin recovery
• Inventory turnover days and overall working capital intensity
• Operating cash flow and external financing dependence
• Interest coverage and any changes in borrowing levels or terms

Relative Positioning: Compared with domestic real estate and proptech peers, SRE currently exhibits weaker cash conversion and lower ROE, offset by a seemingly ample current ratio driven by inventories; sustained improvement in turnover and margin mix would be required 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
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