S E Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.80B
• Operating Income: ¥-43M
• Net Income: ¥-56M
• EPS: ¥-1.88

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: Soft quarter with revenue contraction and a small operating loss, but liquidity remained solid and operating cash flow turned positive. Revenue declined 8.9% YoY to 108.01, with gross profit of 29.88 and SG&A at 30.32 resulting in an operating loss of -0.43. Ordinary loss was -0.22 and net loss widened to -0.56, implying EPS of -1.88 yen. Gross margin stood at 27.7%, while operating margin settled at roughly -0.4% (about -40 bps), and SG&A ratio was elevated at 28.1% of sales. Margin change in basis points versus last year is not disclosed, but the combination of an 8.9% revenue decline and a 40.3% deterioration in bottom line suggests margin compression YoY. Non-operating items were mildly positive (income 0.57 vs expenses 0.35), but not enough to offset the operating shortfall. The effective tax rate was a negative 165.3% (tax expense despite a pretax loss), which exacerbated the net loss and is likely non-recurring in nature. Despite the loss, operating cash flow was positive at 5.25, outpacing net income and indicating favorable working capital movements or non-cash charges (depreciation 3.61). EBITDA was 3.18, implying modest cash earnings capacity even with an operating loss. Liquidity is healthy with a current ratio of 175.7% and quick ratio of 164.8%, and cash of 39.48 exceeds total loans of 31.56, indicating a net cash position. Leverage is moderate with D/E at 1.14x and financial leverage (DuPont) at 2.14x. ROE was -0.5%, driven by a small negative net margin and soft asset turnover (0.466) rather than excessive leverage. ROIC printed at -0.4%, below the 5% warning threshold, pointing to under-earning relative to capital deployed in the period. Financing cash flow was -11.50 (likely debt repayment or reduced borrowings), while capital expenditures of -5.14 were broadly covered by OCF, implying near-breakeven free cash flow. Forward-looking, stabilizing SG&A and restoring revenue growth are key to returning to positive operating margin, while the solid liquidity position provides the runway to execute near-term plans without undue balance sheet strain.

Profitability Analysis

ROE decomposition (DuPont): ROE (-0.5%) = Net Profit Margin (-0.5%) × Asset Turnover (0.466) × Financial Leverage (2.14x). The most influential component is the net profit margin turning slightly negative, as revenues fell 8.9% while SG&A stayed high at 28.1% of sales, overwhelming gross profit. Asset turnover at 0.466 is soft, reflecting lower sales against a relatively stable asset base of 231.63. Financial leverage is not excessive at 2.14x, so leverage was not the primary driver of ROE weakness. Business reasons: weaker demand or project timing likely reduced top line, while fixed SG&A did not flex down, pushing operating margin to roughly -0.4%. Sustainability: the negative margin appears cyclical and potentially reversible with cost discipline and revenue normalization; non-operating income/expense was close to neutral, so the recurring core remains the key swing factor. Concerning trends: SG&A ratio (28.1%) exceeds gross margin carryover, implying negative operating leverage; if SG&A growth outpaced revenue (not disclosed), it would be a red flag to monitor closely.

Growth Assessment

Revenue fell 8.9% YoY, indicating pressure in core demand or timing of deliveries. Operating income declined to -0.43 (-44.6% YoY), evidencing negative operating leverage as SG&A absorption worsened at lower volume. Ordinary income and net income declined 37.3% and 40.3% respectively, with taxes amplifying the net loss due to an unusual negative effective tax rate (-165.3%). Gross margin at 27.7% suggests product/service economics remain intact, but the SG&A ratio at 28.1% is the primary headwind. EBITDA of 3.18 indicates the cost structure has cash components that can cover interest (on an EBITDA basis) and some investment needs, but not yet enough to ensure margin recovery without revenue stabilization. The period’s positive OCF (5.25) despite a net loss likely benefited from non-cash depreciation (3.61) and working capital release; sustainability depends on maintaining receivables discipline and inventory control. Outlook hinge points: recovering sales run-rate, SG&A normalization, and avoidance of further non-recurring tax charges. Near term, the company’s healthy liquidity provides a buffer to execute commercial recovery plans; medium term, improving asset turnover and trimming SG&A intensity are required for ROE normalization.

Financial Health

Liquidity is sound: current ratio 175.7% and quick ratio 164.8% exceed healthy thresholds; no warning on Current Ratio (<1.0) is triggered. Cash and deposits (39.48) exceed total loans (short-term 2.00, long-term 29.56) implying a modest net cash position (~7.9), and D/E is 1.14x, within conservative bounds (<1.5). Interest coverage based on EBIT is -1.56x (warning), but on an EBITDA basis it is comfortably positive (~11.8x vs interest 0.27), mitigating near-term debt service risk. Maturity mismatch risk appears low: current assets (137.26) comfortably exceed current liabilities (78.13), and short-term loans are modest (2.00). Off-balance sheet obligations are not disclosed in the data provided; none can be assessed. Equity stands at 108.00 with book value per share ~358 yen, providing capital cushion against near-term earnings volatility.

Cash Flow Quality

OCF/Net Income is -9.37x, which mechanically flags as a risk, but the ratio is distorted by negative net income; qualitatively, positive OCF (5.25) vs a small net loss (-0.56) indicates better cash earnings than accounting profit this quarter. Free cash flow (calculated) is approximately +0.11 (OCF 5.25 minus Capex 5.14), suggesting maintenance-level investment was essentially covered by internal cash generation. OCF benefitted from non-cash depreciation (3.61) and likely working capital release (receivables/inventory dynamics), though the detailed working capital breakdown within cash flow is not disclosed. No obvious signs of working capital manipulation can be confirmed from the available data; however, continued reliance on receivables collection to fund OCF would be a watch item. Financing cash flow was -11.50, likely reflecting debt repayment (and/or dividend payments not disclosed), which reduced financial risk but drew on liquidity.

Dividend Sustainability

Dividend data (DPS and total dividends paid) are unreported; the provided payout ratio figure (-725.6%) is not reliable for assessment given the period loss and lack of DPS detail. Capacity-wise, calculated FCF was roughly breakeven (+0.11), which would only support a minimal dividend in the near term without drawing on cash. The net cash position (~7.9) and strong liquidity could support modest dividends temporarily, but sustainable payouts require restoring positive operating margins. Policy outlook cannot be inferred without management guidance; near-term prudence would suggest aligning dividends to normalized FCF rather than current-period earnings volatility.

Risk Assessment

Business Risks:

• Revenue decline (-8.9% YoY) indicating demand softness or project timing risk
• Negative operating leverage with SG&A at 28.1% of sales
• Potential pricing pressure or mix shifts impacting margins (gross margin 27.7%)
• Execution risk in receivables collection given large AR base (49.67) relative to sales

Financial Risks:

• EBIT-based interest coverage negative (-1.56x) despite positive EBITDA coverage
• Unfavorable tax expense despite pretax loss (effective tax rate -165.3%)
• ROIC at -0.4% (<5% warning), indicating under-earning on capital
• Dependence on working capital release to sustain OCF in the face of losses

Key Concerns:

• Sustained SG&A intensity could keep operating margin negative if sales do not rebound
• If revenue softness persists, asset turnover (0.466) may not recover, weighing on ROE
• Limited visibility on investing CF and dividend outflows (unreported) obscures cash commitments
• Potential tightening of credit terms could pressure cash conversion

Investment Implications

Key Takeaways:

• Top-line contraction and elevated SG&A drove a small operating loss; core profitability needs revenue stabilization and cost discipline
• Cash generation was better than accounting profit (positive OCF; near-breakeven FCF), aided by non-cash depreciation and working capital
• Balance sheet resilience (high liquidity, net cash vs loans) provides a cushion to navigate near-term weakness
• Return metrics (ROE -0.5%, ROIC -0.4%) are below acceptable thresholds, necessitating improvement in margin and asset turnover

Metrics to Watch:

• SG&A ratio versus sales and progress on fixed cost reduction
• Order backlog and revenue run-rate for signs of recovery
• Receivables days and cash conversion cycle to validate OCF sustainability
• Operating margin (targeting return to positive territory) and EBITDA trend
• Tax normalization after this quarter’s negative effective rate
• Capex discipline relative to OCF to sustain positive FCF

Relative Positioning: Within small-cap industrial peers, the company shows weaker near-term profitability but stronger liquidity than average; recovery depends on restoring operating leverage while maintaining cash discipline.

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