SANKO TECHNO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.27B
• Operating Income: ¥746M
• Net Income: ¥566M
• EPS: ¥70.94

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: A solid but unspectacular H1 with resilient cash generation and ordinary income growth, offset by softer net earnings and low capital efficiency. Revenue rose 2.0% YoY to 102.74, with operating income up 0.5% to 7.46 and ordinary income up a healthy 10.1% to 8.25, while net income declined 7.7% to 5.61. Gross profit reached 31.74 for a gross margin of 30.9%, indicating stable cost of sales absorption versus sales. Operating margin stands at 7.26% (7.46/102.74), and we estimate a YoY compression of roughly 11 bps based on reported growth rates. Net margin is 5.46% (5.61/102.74), implying about 57 bps YoY compression as higher taxes and non-operating items outweighed operating progress. Ordinary income margin improved by ~60 bps to 8.03% as net non-operating gains (+0.79) supplemented flat operating leverage. Earnings quality is strong with OCF of 8.46 exceeding net income (OCF/NI 1.51x), signaling good cash conversion despite inventory-heavy operations. Liquidity remains a clear strength: current ratio 505% and quick ratio 302%, with cash of 44.46 comfortably covering current liabilities of 30.86. Leverage is conservative (D/E 0.39x; interest coverage 53.8x), and near-term refinancing risk appears minimal. That said, capital efficiency is weak: ROE is 3.0% and ROIC is 3.0%, well below the 7–8% target range and flagged as a concern. The margin structure indicates limited operating leverage at current scale and mix, with SG&A of 24.28 consuming a large share of gross profit. Inventory of 62.66 (61% of H1 sales) suggests a working-capital-intensive model that dampens asset turnover (0.392). Payout discipline looks acceptable with a 59.2% payout ratio based on reported metrics, likely covered by operating cash flow and modest capex (3.09). Forward-looking, maintaining price discipline and cost control will be key to defend margins, while capital allocation should prioritize projects that lift ROIC above the cost of capital. Risks include continued net margin pressure, potential inventory normalization, and sensitivity to domestic construction/end-market demand. Overall, the company is financially sound with healthy cash flow, but the investment case hinges on lifting ROIC and asset turnover.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 5.5% × Asset Turnover 0.392 × Financial Leverage 1.39x = ROE 3.0% (matches reported). The weakest structural component is asset turnover (0.392), reflecting a working-capital-heavy balance sheet (notably inventories of 62.66 vs H1 sales of 102.74). Net margin compressed YoY (~57 bps) despite a modest revenue increase, as operating margin slipped (~11 bps) and the effective tax rate was 31.5%. Ordinary income improved (+10.1% YoY), aided by net non-operating gains (+0.79), which partially offset operating softness. Business drivers: limited operating leverage at current scale and persistent SG&A intensity (SG&A 24.28 vs gross profit 31.74) restrained margin expansion. Interest burden is small (0.14) and well-covered (53.8x), so financing costs are not the drag; rather, utilization of assets (inventory turns and receivables) and mix are the headwinds. Sustainability: the low leverage and stable gross margin are durable; however, net margin improvement depends on pricing power and further SG&A discipline. Watch for any SG&A growth outpacing revenue; given revenue +2.0% vs operating income +0.5%, near-term operating leverage is muted. Priority to improve ROE should be: 1) boost asset turnover via inventory discipline and better sales velocity; 2) protect margins through price/cost actions and productivity.

Growth Assessment

Top line grew 2.0% YoY to 102.74, indicating modest demand growth. Operating income increased 0.5% to 7.46, trailing revenue growth and signaling slight operating margin compression. Ordinary income growth (+10.1%) outpaced operating profit due to net non-operating gains, while net income fell 7.7% to 5.61 on a higher tax burden and reduced below-the-line support versus last year. Gross margin at 30.9% is adequate, suggesting input cost pass-through is holding, but SG&A absorption remains heavy. EBITDA was 9.32 (9.1% margin), reflecting limited operating leverage. Outlook hinges on sustaining price discipline, mix, and cost controls; with conservative leverage and strong liquidity, the company can prioritize growth initiatives selectively. However, low ROIC (3.0%) indicates current growth is not yet value-accretive relative to typical cost of capital. Absent a stronger demand recovery or productivity wins, profit growth likely tracks low single digits with upside from working capital efficiency.

Financial Health

Liquidity is very strong: current ratio 505.1% and quick ratio 302.1%; no warning on liquidity thresholds. Cash and deposits (44.46) exceed current liabilities (30.86), and short-term loans are minimal (0.40), indicating low maturity mismatch risk. Working capital is ample at 125.04, though inventory-heavy, which pressures turns but not solvency. Solvency: D/E 0.39x (conservative) with long-term loans of 27.71 making up the majority of interest-bearing debt; interest coverage is robust at 53.77x. There is no indication of off-balance sheet obligations in the provided data. Overall balance sheet resilience is high, with no red flags on leverage or near-term refinancing.

Cash Flow Quality

OCF of 8.46 exceeds net income of 5.61 (OCF/NI 1.51x), indicating good earnings quality and cash conversion. Capex of 3.09 implies a proxy free cash flow (OCF - capex) of about 5.37, before other investing flows (not disclosed). Financing CF of -3.86 likely reflects dividends and/or debt service; given OCF strength, dividend and interest outflows appear covered. Working capital: inventories (62.66) are sizable relative to H1 sales, but positive OCF suggests net collections and/or inventory management supported cash in the period; no clear signs of aggressive working-capital manipulation from available figures. Absent full investing CF details, FCF sustainability appears adequate given modest capex and robust operating cash generation.

Dividend Sustainability

The calculated payout ratio is 59.2%, near the upper end of a sustainable range but acceptable. Using reported net income of 5.61 (≈¥5.61bn) and a 59.2% payout implies dividend cash out around ¥3.32bn, which is covered by OCF of ¥8.46bn (2.5x) and by proxy FCF (¥5.37bn). Dividends paid and DPS are unreported; thus, we infer sustainability based on payout ratio and coverage metrics rather than disclosed cash distributions. Balance sheet strength (low leverage, ample liquidity) further supports dividend stability. Policy outlook: with ROIC at 3.0%, incremental buybacks or higher payout may be constrained until returns improve; maintaining a stable dividend covered by cash flow is the most likely stance.

Risk Assessment

Business Risks:

• Margin pressure if input costs rise faster than pricing (operating margin ~7.26% with slight YoY compression).
• Demand softness in core end-markets (construction/industrial fasteners/tools) could limit operating leverage.
• High inventory (62.66) relative to H1 sales (61%) risks obsolescence or write-downs if demand weakens.
• Execution risk in SG&A efficiency given high SG&A-to-gross-profit ratio.

Financial Risks:

• Low capital efficiency: ROIC 3.0% and ROE 3.0% below cost of capital.
• Net margin compression YoY (~57 bps) despite ordinary income growth.
• Interest rate risk on long-term loans (27.71) if rates rise, albeit mitigated by strong coverage.
• Potential cash flow volatility from working capital swings due to inventory intensity.

Key Concerns:

• Sustained improvement in asset turnover is needed; inventory reduction without harming service levels is critical.
• Reliance on non-operating contributions to lift ordinary income; core operating leverage remains limited.
• Effective tax rate at 31.5% constrains net income growth.

Investment Implications

Key Takeaways:

• Operationally steady quarter with solid cash conversion (OCF/NI 1.51x) and strong ordinary income growth.
• Margins are broadly stable to slightly softer; operating margin compressed by ~11 bps and net margin by ~57 bps YoY.
• Balance sheet is very strong (current ratio 505%, D/E 0.39x), minimizing financial risk.
• Capital efficiency is the primary weakness: ROIC 3.0% and asset turnover 0.392.
• Dividend appears covered by OCF and proxy FCF, though exact DPS and cash outlays are undisclosed.

Metrics to Watch:

• Asset turnover and inventory turns (inventory-to-sales ratio currently ~61%).
• Operating margin trajectory and SG&A growth vs revenue.
• OCF/NI and working capital movements, particularly receivables and inventory.
• ROIC improvement from mix, pricing, or productivity gains.
• Effective tax rate and non-operating income/expense balance.

Relative Positioning: Financially conservative with superior liquidity and coverage versus typical small-mid industrial peers, but lagging on capital efficiency and structural ROIC; near-term performance resilience is underpinned by cash flow strength rather than operating leverage.

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