SOTOH CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.84B
• Operating Income: ¥104M
• Net Income: ¥391M
• EPS: ¥22.91

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

Sotoh Co., Ltd. (3571) posted FY2026 Q2 (cumulative) revenue of ¥5,837 million, up 5.1% YoY, but profitability compressed, with operating income down 30.0% YoY to ¥104 million. Gross profit was ¥673 million (gross margin 11.5%), indicating cost pressures despite higher sales. Operating margin fell to about 1.8%, while ordinary income reached ¥179 million, supported by non-operating gains versus a thin core operating contribution. Net income was ¥288 million (net margin 4.93%), down 26.3% YoY, aided by a negative tax charge (tax credit) that drove an effectively 0% tax rate. EBITDA was ¥402 million (6.9% margin), with D&A of ¥298 million highlighting a capital-intensive base relative to earnings. Cash conversion weakened; operating cash flow (OCF) was ¥143 million, only 50% of net income, implying working capital absorption and/or non-cash profit components. Balance sheet strength remains a key support: total assets were ¥20,273 million against total liabilities of ¥5,089 million, implying low leverage (Debt-to-Equity 0.33x) and an equity ratio around 75% by calculation, despite the reported 0% (likely undisclosed). Liquidity appears solid with a current ratio of 264% and working capital of ¥3,693 million; note the quick ratio equals the current ratio due to inventories showing as 0 (unreported), so true quick liquidity is likely lower. Interest burden is minimal (¥0.6 million), and interest coverage is highly comfortable at 186x, reflective of conservative funding. DuPont analysis indicates ROE of 1.88% (net margin 4.93% × asset turnover 0.288 × leverage 1.33), restrained by low turnover and very modest operating margins. The 5.1% top-line growth concurrent with a 30% operating income decline signals negative operating leverage, likely from input cost inflation and/or limited price pass-through. Ordinary income exceeding operating income suggests reliance on non-operating gains (e.g., financial income/FX), while the gap between ordinary and net income and the negative tax suggests special/one-off effects. Dividend data are not disclosed for the period (DPS 0 reported, likely placeholder), and FCF cannot be assessed due to unreported investing cash flows. Overall, the company’s financial resilience is supported by a strong balance sheet and low interest burden, but earnings quality and cash conversion appear soft this half, with margin pressure and working capital drag key themes. Data limitations (notably inventories, cash, investing CF, DPS, and shares outstanding) constrain precision; analysis is based on available, non-zero data.

Profitability Analysis

ROE_decomposition: Reported ROE is 1.88%, consistent with DuPont: Net margin 4.93% × Asset turnover 0.288 × Financial leverage 1.33. The primary drag is low asset turnover and thin operating margins. margin_quality: Gross margin at 11.5% and EBITDA margin at 6.9% indicate limited value-add relative to cost base. Operating margin near 1.8% is weak and fell YoY despite revenue growth, implying cost inflation or mix headwinds. Net margin at 4.93% is boosted by non-operating items and a tax credit; normalized net margin would be lower. operating_leverage: Revenue +5.1% YoY with operating income -30.0% YoY signals negative operating leverage. Fixed cost absorption appears weak, and pass-through of higher input/energy costs likely lagged. D&A at ¥298 million relative to EBIT (¥104 million) underscores a heavy depreciation burden on operating profit.

Growth Assessment

revenue_sustainability: Top-line growth of 5.1% YoY suggests stable demand, but without volume/price disclosure it is unclear if growth is price-led (cost pass-through) or volume-led. The sector backdrop implies sensitivity to apparel/industrial end-markets and energy costs. profit_quality: Ordinary income (¥179 million) > operating income (¥104 million) indicates reliance on non-operating gains; negative tax expense further inflated net income to ¥288 million. OCF/NI at 0.50 flags weaker earnings quality this period, likely due to working capital build and non-cash/timing effects. outlook: Near-term earnings hinge on restoring gross/operating margins via price adjustments and cost controls, and normalizing working capital. If energy/material cost pressures ease and pass-through improves, operating leverage can turn positive; absent that, EBIT recovery may lag revenue.

Financial Health

liquidity: Current assets ¥5,939 million vs current liabilities ¥2,247 million yields a current ratio of 264% and working capital of ¥3,693 million. Quick ratio is shown as 264% because inventories are unreported (0); true quick liquidity is likely lower but still appears comfortable given the large buffer. solvency: Total liabilities ¥5,089 million vs equity ¥15,298 million (Debt-to-Equity 0.33x) indicate low leverage. Interest expense is only ¥0.6 million with coverage of 186x, suggesting negligible refinancing risk under current conditions. capital_structure: Equity constitutes roughly 75% of assets by calculation (15,298/20,273), implying a conservative structure. No details on long-term debt maturity profile are provided; however, the low ordinary interest suggests limited financial debt.

Cash Flow Quality

earnings_quality: OCF of ¥143 million is 50% of net income, indicating weak cash conversion in the period. The divergence likely reflects working capital absorption (receivables/inventories) and the impact of non-cash items (tax credit, non-operating gains). FCF_analysis: Free cash flow cannot be determined: investing cash flows are unreported (shown as 0), and capex is unknown. With D&A at ¥298 million, maintenance capex is likely material, so true FCF may be below OCF. working_capital: Working capital is ample in level terms, but OCF softness implies a build. Inventories are not disclosed; thus, the drivers (receivables, inventories, payables) cannot be decomposed. Monitoring cash conversion cycle will be key.

Dividend Sustainability

payout_ratio_assessment: Payout ratio is shown as 0.0% due to undisclosed DPS; it should not be interpreted as no dividend. EPS is ¥22.91; without DPS data, an accurate payout cannot be calculated. FCF_coverage: FCF is shown as 0 due to missing investing CF; therefore, FCF coverage of dividends cannot be assessed. policy_outlook: Given low leverage and strong equity cushion, the balance sheet could support dividends; however, current-period cash conversion is weak and earnings include non-operating/tax effects. Clarity on capex and normalized profitability will drive dividend capacity.

Risk Assessment

Business Risks:

• Input cost volatility (energy, chemicals, dyestuffs) compressing margins
• Demand cyclicality in apparel/industrial textiles leading to volume swings
• Pricing power limitations and lagged cost pass-through
• Competition from overseas processors and import pressure
• Environmental compliance costs (wastewater treatment, emissions) and potential capex
• Customer concentration risk typical in processing businesses
• FX fluctuations affecting imported inputs and export competitiveness

Financial Risks:

• Earnings dependence on non-operating gains and tax credits in the period
• Weak cash conversion (OCF/NI 0.50) indicating working capital risk
• Potential capex requirements relative to EBITDA, pressuring FCF
• Accounting timing effects that may reverse (effective tax normalization)

Key Concerns:

• Negative operating leverage despite revenue growth
• Thin operating margin (≈1.8%) and reliance on below-the-line items
• Insufficient disclosure on inventories, investing cash flows, and dividend policy
• Sustainability of net margin if tax credits and non-operating gains normalize

Investment Implications

Key Takeaways:

• Top-line growth of 5.1% YoY contrasted with a 30% YoY drop in operating income indicates cost pressure and negative operating leverage.
• Balance sheet is robust (Debt-to-Equity 0.33x; equity ≈75% of assets), providing resilience.
• Earnings quality is mixed: ordinary income exceeds operating income; negative tax boosts net income.
• Cash conversion is weak (OCF/NI 0.50), implying working capital drag and/or non-cash earnings.
• Interest burden is minimal (coverage 186x), limiting financial stress risk.
• Dividend capacity cannot be assessed without DPS and capex/FCF data.

Metrics to Watch:

• Gross and operating margins (pricing power and cost pass-through)
• OCF/Net income ratio and working capital movements
• Capex and investing cash flows (to assess true FCF)
• Ordinary vs operating income mix (quality of earnings)
• Effective tax rate normalization and any one-offs
• Order trends and backlog (volume visibility) and energy cost trajectory

Relative Positioning: The company appears conservatively capitalized with low financial risk relative to many peers in traditional processing industries, but exhibits weaker operating margins and cash conversion this half, suggesting execution on cost pass-through and working capital discipline will be key to closing the profitability 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
• 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
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