Shinwa Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.90B
• Operating Income: ¥1.37B
• Net Income: ¥876M
• EPS: ¥64.39

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was a solid beat operationally for Shinwa (3447), with double‑digit top-line growth translating into outsized profit expansion. Revenue rose 15.9% YoY to 99.02, while operating income jumped 56.9% YoY to 13.67, evidencing strong operating leverage. Net income increased 66.0% YoY to 8.79, aided by improved operating profitability and a stable effective tax rate of 31.6%. Gross profit reached 28.16 with a gross margin of 28.4%, and operating margin improved to roughly 13.8%. Based on implied prior-period math, operating margin expanded by about 360 bps (from ~10.2% to ~13.8%) and net margin expanded by about 270 bps (from ~6.2% to ~8.9%). SG&A of 14.88 equates to ~15.0% of sales, suggesting good cost discipline relative to revenue growth. Cash generation was a highlight: operating cash flow was 15.22 versus net income of 8.79 (OCF/NI = 1.73x), indicating high earnings quality. Free cash flow was positive at 6.81 after capex of 10.01, comfortably funding the dividend (2.23) and largely covering buybacks (3.00). Leverage is manageable in balance-sheet terms (reported D/E 0.92x, equity ratio 52.0%), but high on an EBITDA basis (Debt/EBITDA ~6.5x), warranting attention if rates rise. Liquidity is adequate with cash and equivalents of 37.17 and current assets of 105.16 against short-term loans of 56.49. A key structural concern is low capital efficiency: ROE is 5.4% and ROIC is 3.4%, below typical mid-cap targets and flagged by our benchmarks. Intangible-heavy balance sheet (goodwill 122.65, ~39% of total assets) creates medium-term impairment risk if earnings falter. Dividend sustainability metrics are acceptable for now (calculated payout ~51% and FCF coverage 1.51x), supported by strong OCF. Looking ahead, operating momentum appears intact, but improving ROIC above the 5–7% range will likely require continued margin gains and better asset turnover. Overall, the quarter demonstrates healthy execution and cash conversion, with the main watchpoints being leverage on an earnings basis and capital efficiency.

Profitability Analysis

ROE (5.4%) decomposition: Net profit margin 8.9% × Asset turnover 0.317 × Financial leverage 1.92x. The largest driver of YoY improvement is margin expansion, as operating income grew 56.9% versus revenue growth of 15.9%, lifting operating margin to ~13.8% (up ~360 bps YoY by our estimate). This reflects operating leverage from revenue growth outpacing SG&A and better gross mix/pricing discipline. Asset turnover at 0.317 remains modest and likely unchanged to slightly up, while leverage (1.92x) is steady and not the main swing factor. The margin gains look partly sustainable if demand and pricing hold, but the step-up magnitude suggests some cyclical tailwind and cost timing; normalization risk exists. Watch for any period-specific factors (e.g., project mix, timing of cost recognition) that may not repeat. No red flags of SG&A growth outpacing revenue; SG&A ratio (~15.0%) appears contained, supporting operating leverage.

Growth Assessment

Top-line growth of 15.9% YoY indicates solid demand and/or pricing gains. Operating profit grew 56.9% YoY, implying mix/pricing benefits and fixed-cost absorption. Net profit up 66.0% evidences clean flow-through with a stable tax rate. Revenue quality appears healthy given OCF > NI and no reliance on reported non-operating gains. Sustainability hinges on the order pipeline and construction-related end markets; absent explicit backlog data, we assume moderate continuation into H2 with potential normalization of operating leverage. Near-term outlook: margins likely to remain above last year’s levels but may moderate from Q2 highs as costs catch up or mix shifts. Medium term, improving ROIC above 5% will require both maintaining double-digit operating margins and modest improvements in asset turnover (e.g., tighter working capital).

Financial Health

Liquidity: Current ratio is not reported, but current assets (105.16) exceed short-term loans (56.49), suggesting acceptable short-term coverage; no explicit warning triggered. Solvency: Reported D/E is 0.92x (within our conservative threshold <1.5x), and equity ratio is 52.0%, indicating a balanced capital structure. However, Debt/EBITDA of ~6.46x is elevated for an industrial company, highlighting sensitivity to earnings volatility. Maturity mismatch: short-term loans (56.49) are sizable versus cash (37.17), but are covered by broader current assets; monitor refinancing risk and interest costs given limited disclosed interest coverage. Off-balance obligations: none disclosed in provided data. Balance sheet quality: goodwill of 122.65 and total intangibles of ~136.8 constitute a high share of assets, posing impairment risk if profitability declines.

Cash Flow Quality

Earnings quality is strong with OCF/Net Income at 1.73x (>1.0 threshold), indicating profits are backed by cash conversion. Free cash flow of 6.81 after capex of 10.01 is positive and recurring if OCF remains robust; no signs of aggressive working capital pull-forward are evident in the disclosed snapshot, though detailed WC movements are not provided. FCF supported both dividends (2.23) and most of buybacks (3.00); aggregate shareholder returns were largely covered by FCF. No red flags such as OCF/NI <0.8 or heavy reliance on asset sales are present in the reported items. Monitor inventory (25.48) and receivables (41.04) relative to sales to ensure continued cash conversion into H2.

Dividend Sustainability

Calculated payout ratio is 51.3%, within our sustainable range (<60%). FCF coverage is reported at 1.51x; on a dividend-only basis, FCF coverage is ~3.1x (6.81 / 2.23), indicating ample headroom. OCF of 15.22 comfortably covers dividends and routine capex, supporting continuity of the policy. Balance-sheet capacity exists but is constrained by elevated Debt/EBITDA; thus, large dividend hikes or outsized buybacks would be better justified by sustained earnings and OCF. With EPS at 64.39 and BVPS at 1,198.63, payout remains prudent relative to equity base. Absent guidance, we assume a stable-to-modestly rising dividend trajectory contingent on maintaining double-digit operating margins.

Risk Assessment

Business Risks:

• End-market cyclicality in construction/steel-related demand impacting volumes and pricing.
• Input cost volatility (steel and materials) potentially compressing gross margin.
• Project/mix risk causing quarter-to-quarter margin variability.
• Execution risk on cost control as activity scales (risk of SG&A creep).

Financial Risks:

• Elevated Debt/EBITDA (~6.5x) increases sensitivity to earnings downturns.
• Interest rate risk on significant short-term loans (56.49), with refinancing exposure.
• High goodwill (122.65) raises impairment risk if profitability weakens.
• Liquidity concentration: cash (37.17) below short-term loans, requiring stable OCF and bank lines.

Key Concerns:

• Low ROIC (3.4%) vs. typical 7–8% targets indicates capital efficiency shortfall.
• Asset turnover of 0.317 is modest, limiting ROE uplift absent higher margins.
• Interest coverage not disclosed; inability to assess cushion against rate/credit shocks.
• Data gaps (non-operating items, current liabilities breakdown) limit full risk visibility.

Investment Implications

Key Takeaways:

• Strong operating leverage: operating profit +56.9% on revenue +15.9%.
• Margins expanded materially; operating margin ~13.8% and net margin 8.9%.
• High cash conversion: OCF/NI 1.73x and positive FCF despite solid capex.
• Balance sheet appears sound by D/E (0.92x) but EBITDA leverage is high (~6.5x).
• Capital efficiency remains the primary overhang (ROIC 3.4%, ROE 5.4%).
• Goodwill intensity (~39% of assets) adds medium-term impairment risk.

Metrics to Watch:

• Operating and gross margin trend (bps change vs. prior year/quarter).
• OCF/NI and working capital turnover (DSO/DIO/DPO if disclosed).
• Debt/EBITDA and interest coverage once interest expense is disclosed.
• Capex discipline vs. growth returns (ROIC trajectory toward >5–7%).
• Goodwill impairment testing disclosures and segment profitability.
• Short-term debt refinancing schedule and average interest rate.

Relative Positioning: Versus Japan mid-cap industrial peers, Shinwa’s growth and cash conversion this quarter are above average, but ROE (5.4%) and ROIC (3.4%) lag typical peer ranges, and EBITDA leverage is on the high side; equity cushion is decent (52% equity ratio), positioning the company as operationally improving yet still capital-efficiency constrained.

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