SEIREN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥80.98B
• Operating Income: ¥10.26B
• Net Income: ¥8.01B
• EPS: ¥135.78

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 FY2026 Q2 with double-digit profit growth and margin expansion, albeit with softer cash conversion and weaker comprehensive income. Revenue rose 3.8% YoY to 809.8, while operating income climbed 24.8% YoY to 102.6, demonstrating healthy operating leverage. Ordinary income increased 20.4% to 109.2, supported by net non-operating income (8.37 in, 1.81 out) and strong interest income. Net income grew 18.8% YoY to 79.7, translating to EPS of 135.78 yen on 58.7 million average shares. Gross margin printed at 28.2%, and operating margin improved to 12.7%. We estimate operating margin expanded by roughly 215 bps YoY (from ~10.5% to ~12.7%), reflecting better mix/pricing and cost control. Net margin improved by about 126 bps YoY (from ~8.6% to ~9.8%). Earnings quality is mixed: operating cash flow was 58.1 versus net income of 79.7, yielding an OCF/NI of 0.73x, below the 0.8 threshold. Free cash flow before dividends was positive (OCF 58.1 minus capex 42.5 ≈ 15.6), but share repurchases of 20.5 suggest reliance on cash reserves/financing for shareholder returns. The balance sheet is exceptionally strong with a current ratio of 349% and debt-to-equity of 0.35x; cash and deposits of 387.2 exceed total interest-bearing debt by a wide margin. Comprehensive income of 49.6 lagged net income, pointing to negative OCI (likely FX or valuation losses) that partially offset book value accretion. ROE is calculated at 5.4% on net margin 9.8%, asset turnover 0.408x, and financial leverage 1.35x—profitable but below a typical 7–8% target cost of equity. ROIC of 6.5% is slightly below the 7–8% management benchmark range, suggesting continued focus on asset efficiency is warranted. Non-operating structure is favorable with interest income (4.78) well above interest expense (0.60), providing a positive carry. Liquidity headroom and low leverage mitigate near-term financial risk, supporting steady investment and shareholder returns. Forward-looking, sustaining double-digit margins will depend on demand in core end markets (apparel/auto/industrial), cost pass-through, and FX tailwinds. A key watchpoint is normalization of OCF relative to earnings as working capital unwinds in 2H. Overall, the quarter delivers quality profit growth with strong margins and balance sheet strength, tempered by cash conversion softness and OCI volatility.

Profitability Analysis

DuPont ROE decomposition: ROE (5.4%) = Net Profit Margin (9.8%) × Asset Turnover (0.408x) × Financial Leverage (1.35x). The largest YoY driver appears to be net margin expansion, given operating income outpaced revenue (+24.8% vs +3.8%), implying better operating margin and cost discipline. Asset turnover at 0.408x remains modest, consistent with a capital-intensive and working-capital-heavy materials/textiles profile. Financial leverage is conservative at 1.35x (equity/asset ratio ~74%), so leverage was not a major contributor to ROE change. Business rationale: operating leverage from SG&A containment relative to revenue, improved pricing/mix, and some tailwind from non-operating income (net interest). Sustainability: margin gains look partially sustainable if cost discipline and pricing power hold; however, cyclical demand and input cost volatility could cap further expansion. Watchpoints: if SG&A growth re-accelerates above revenue or if gross margin comes under pressure from raw material price increases, margins could compress.

Growth Assessment

Top-line growth of 3.8% is steady, with stronger profit growth (+24.8% operating, +18.8% net) driven by margin improvement rather than volume. Operating margin expanded to 12.7% (~+215 bps YoY), indicating healthy operating leverage. Non-operating income was supportive (interest income 4.78), but ordinary income growth (+20.4%) was still primarily operating driven. Comprehensive income was weaker than net income, signaling valuation/FX headwinds that could affect reported equity in future periods. Outlook: sustaining mid-teens operating margin improvement will hinge on stable end-market demand (apparel, automotive interiors, and industrial applications), ongoing cost discipline, and FX levels. Near-term, growth quality would improve if OCF catches up with NI via working capital normalization. Investment pace (capex 42.5 in 1H) suggests continued focus on upgrading production/innovation, which can support medium-term growth.

Financial Health

Liquidity is robust: current ratio 349%, quick ratio 304%, and working capital of 855.3 provide ample cushion; no warning on current ratio threshold. Maturity mismatch risk is low: cash and deposits (387.2) exceed short-term loans (11.0) and cover current liabilities (343.2) alongside receivables (421.6). Solvency is strong with debt-to-equity at 0.35x and long-term loans at 77.9; interest coverage stands at 171x. No off-balance sheet obligations were reported in the provided data. The equity base is sizable at 1,469.0 (owners' equity 1,460.0), implying resilience against cyclical shocks. Comprehensive income being below net income suggests accumulated OCI headwinds could dampen book value growth if continued.

Cash Flow Quality

OCF/Net Income is 0.73x, below the 0.8 benchmark, indicating softer cash conversion this half—likely due to working capital investment (details not disclosed). Free cash flow before dividends is approximately 15.6 (OCF 58.1 minus capex 42.5). Financing cash outflow of -37.8 includes share repurchases of 20.5; dividend cash was not disclosed, but a calculated payout ratio of 55.1% suggests meaningful cash distributions. Given cash on hand of 387.2 and low debt, distributions are currently supportable, but sustained OCF undershoot versus NI would be a concern if prolonged. No clear signs of working capital manipulation can be asserted from the snapshot; however, monitor inventory and receivable turns in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 55.1%, within the <60% benchmark for sustainability. While FCF coverage is not directly calculable from disclosed dividend cash, indicative FCF of ~15.6 combined with buybacks of 20.5 implies shareholder returns exceeded internally generated FCF this half, covered by the large cash buffer and modest net financing. With strong liquidity and low leverage, near-term dividend capacity is secure; medium-term sustainability depends on OCF normalization and maintenance of capex discipline. Policy outlook: absent a sharp downturn, a stable to modestly rising dividend appears consistent with financial capacity, but buyback pace may remain opportunistic and sensitive to cash generation.

Risk Assessment

Business Risks:

• End-market cyclicality in apparel, automotive interiors, and industrial materials impacting volumes and pricing
• Raw material and energy cost volatility affecting gross margin
• FX fluctuations (notably USD/JPY and EUR/JPY) impacting export competitiveness and OCI
• Product mix shifts that could compress margins if higher-margin lines soften

Financial Risks:

• OCF/NI at 0.73x indicates weaker cash conversion; prolonged working capital build would pressure FCF
• Negative OCI this period reduced comprehensive income vs net income, signaling valuation/FX sensitivity
• Shareholder returns (buybacks) exceeding FCF in 1H relying on cash balances

Key Concerns:

• Sustainability of margin expansion amid potential input cost increases
• Visibility on segment mix and R&D spend is limited due to unreported line items
• Potential slowdown in global consumer demand impacting textile-related revenues

Investment Implications

Key Takeaways:

• Margin-led profit beat: operating income +24.8% on revenue +3.8% with ~215 bps operating margin expansion
• Earnings quality mixed: OCF/NI of 0.73x below benchmark; monitor 2H cash conversion
• Balance sheet strength: current ratio 349%, D/E 0.35x, interest coverage 171x, cash 387 vs ST debt 11
• ROE 5.4% and ROIC 6.5% are respectable but below 7–8% target range; scope to improve asset efficiency
• OCI drag reduced comprehensive income vs net income, highlighting FX/valuation sensitivity

Metrics to Watch:

• OCF/Net Income and working capital turns (receivables and inventory days)
• Gross and operating margin trajectory versus input costs and FX
• ROIC progression relative to 7–8% target
• Capex-to-sales and payback on growth/integration investments
• Shareholder return mix (dividends vs buybacks) versus FCF

Relative Positioning: Within Japanese advanced materials/textiles peers, Seiren exhibits stronger-than-peer liquidity and low leverage, competitive operating margins this half, but middling ROE/ROIC; execution on cash conversion and asset efficiency will determine relative outperformance.

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