Sockets Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥530M
• Operating Income: ¥16M
• Net Income: ¥20M
• EPS: ¥8.39

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

Verdict: A mixed quarter—top-line grew and operating profit turned positive, but cash generation deteriorated and below-the-line swings drove an unusual gap between ordinary income and net income. Revenue rose 9.8% YoY to 5.30, showing solid topline momentum for a small-cap, single-entity filer. Gross profit printed at 2.10 with a 39.6% margin, while operating income reached 0.16, implying an operating margin of roughly 3.0%. Ordinary income was 0.17, close to operating profit as non-operating items were effectively nil. However, profit before tax was a notable -0.71, yet net income came in positive at 0.20, implying sizable extraordinary items not disclosed in the data. EBITDA was 0.17 and EBITDA margin 3.3%, consistent with modest operating leverage but thin profitability. ROE calculated at 3.6% reflects low leverage (1.48x) and moderate asset turnover (0.638) with a slim net margin (3.8%). Balance sheet liquidity is strong: current ratio 488% and cash of 4.65 against current liabilities of 1.43. Leverage is conservative with D/E at 0.47x (interest-bearing debt not disclosed). Earnings quality is weak this quarter: operating cash flow was -0.57 versus net income of 0.20, yielding OCF/NI of -2.87x. Working capital outflows and/or receivables timing likely drove the cash shortfall given AR of 2.07 versus small payables of 0.37. Capex of -0.34 indicates continued investment despite negative OCF, partially funded by the abundant cash buffer and small financing outflow (-0.07). Retained earnings remain negative at -1.39, highlighting a history of accumulated losses and limiting dividend flexibility despite a calculated payout ratio of 37.2%. Forward-looking, the company must convert the improving P/L into positive cash flows, stabilize below-the-line items, and lift operating margins to sustain returns. In the near term, ample liquidity mitigates solvency risk, but recurrent negative OCF would challenge dividend sustainability and growth investments.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.6% = Net Profit Margin 3.8% × Asset Turnover 0.638 × Financial Leverage 1.48x. The level of ROE is primarily constrained by a thin net margin and modest asset turnover; leverage is low by design and not the driver. The most sensitive component this quarter is the net margin, which is affected by unusual below-the-line swings (PBT -0.71 vs NI 0.20) despite non-operating items being near zero, implying extraordinary gains/losses were material. Business-wise, this suggests one-off items (e.g., impairments, disposal gains/losses) influenced reported profitability, while core operations delivered only modest operating margin (~3.0%). Sustainability: the leverage profile appears stable; asset turnover can improve with execution but is bounded by the business model scale; the current net margin may not be sustainable if extraordinary tailwinds fade or if unusual losses recur, so normalized margins could be lower/higher depending on one-off resolution. Operating expense discipline is crucial: SG&A (2.91) exceeds gross profit (2.10), indicating that current operating profit relies on other items and requires either revenue mix improvement or tighter SG&A control. We flag that SG&A growth versus revenue growth cannot be assessed given absent YoY SG&A data, but the cost envelope relative to gross profit is tight, limiting operating leverage unless gross margin lifts.

Growth Assessment

Revenue growth of +9.8% YoY to 5.30 demonstrates demand resilience, but sustainability depends on converting growth into margin expansion given SG&A exceeds gross profit. Operating income of 0.16 shows a return to/progress in profitability, yet the operating margin at ~3.0% remains thin, leaving limited buffer against volatility. Ordinary income tracked operating profit due to negligible non-operating contributions, suggesting core operations are the main engine—however, the PBT to NI gap indicates extraordinary items dominated bottom-line outcomes this quarter. With EBITDA at 0.17 (3.3% margin), incremental growth needs to come with better gross margin capture or SG&A efficiency to scale profitably. Asset turnover at 0.638 is moderate for a small service-like business; improved monetization of assets could support further growth. Given the cash outflow from operations (-0.57), growth currently leans on the cash balance rather than self-funded cash generation; sustaining growth will require a working capital reset and stronger collections. Outlook: Near-term growth visibility is modestly positive on revenue but conditional on resolving below-the-line volatility and reversing OCF weakness.

Financial Health

Liquidity is strong: current ratio 488% and quick ratio 488%, supported by cash and deposits of 4.65 against current liabilities of 1.43. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.47x, indicating conservative leverage (interest-bearing debt not disclosed). Working capital stands at 5.54, providing a sizable cushion for short-term obligations. Maturity mismatch risk appears low given cash and receivables (6.72 combined) comfortably exceed current liabilities. Noncurrent liabilities of 1.20 are manageable relative to equity of 5.62. Off-balance sheet obligations are not disclosed; no assessment possible. Retained earnings are negative (-1.39), evidencing accumulated deficits that may constrain distributable reserves and capital policy flexibility under JGAAP.

Cash Flow Quality

OCF/Net Income is -2.87x, below the 0.8 threshold—this is a material earnings quality flag. Operating cash flow was -0.57 despite positive net income of 0.20, suggesting working capital outflows and/or timing effects; given accounts receivable of 2.07 and small payables (0.37), collections may be a swing factor. Free cash flow cannot be fully computed as investing CF is unreported; however, with capex at -0.34 and OCF at -0.57, an implied negative FCF is likely for the period. Sustainability: current dividend and capex would rely on cash on hand if OCF remains negative; this is not sustainable over multiple periods. No clear signs of deliberate working capital manipulation can be concluded from the data, but the gap warrants monitoring of AR days, billing cycles, and any prepayments.

Dividend Sustainability

The calculated payout ratio of 37.2% appears moderate relative to net income; however, negative OCF implies distributions are not covered by internally generated cash this period. DPS and total dividends paid are unreported, limiting precision. With cash and deposits of 4.65 and low leverage, the company can fund dividends in the short term, but retained earnings are negative (-1.39), which can constrain dividend capacity under corporate law depending on other capital surplus balances. FCF coverage is not calculable from disclosed data but is likely weak given negative OCF and capex outflows. Policy outlook: sustaining dividends will require a turn to positive OCF and stabilization of extraordinary items; otherwise, management may prioritize balance sheet preservation.

Risk Assessment

Business Risks:

• Thin operating margin (~3.0%) limits buffer against revenue or cost shocks.
• Dependence on extraordinary items to bridge PBT (-0.71) to positive NI (0.20) introduces volatility.
• SG&A (2.91) exceeding gross profit (2.10) suggests limited operating leverage without efficiency gains.
• Small scale (assets 8.31) increases customer concentration and execution risk (not disclosed but typical for small caps).

Financial Risks:

• Negative operating cash flow (-0.57) vs positive net income indicates weak cash conversion.
• Retained earnings deficit (-1.39) may constrain dividends and capital policy flexibility.
• Potential maturity risk if OCF remains negative and cash is drawn down, despite current liquidity strength.
• Unreported interest-bearing debt details limit visibility on true leverage and coverage.

Key Concerns:

• Large below-the-line swings not disclosed in detail (PBT negative, NI positive).
• Working capital outflows potentially tied to receivables timing.
• Sustainability of revenue growth without margin expansion.
• Data limitations on investing CF, dividends paid, and extraordinary items.

Investment Implications

Key Takeaways:

• Top-line growth (+9.8% YoY) with modest operating profit (0.16) shows progress but profitability remains thin.
• Earnings quality is weak: OCF/NI at -2.87x and implied negative FCF.
• Balance sheet liquidity is robust (current ratio 488%, cash 4.65), reducing near-term solvency risk.
• ROE at 3.6% is constrained by low margins and modest asset turnover; leverage is conservative at 1.48x assets/equity.
• Unusual gap between ordinary income (0.17) and PBT (-0.71) signals material extraordinary items not disclosed.

Metrics to Watch:

• OCF and FCF trajectory; OCF/NI ratio normalization toward >1.0.
• Receivables and payables turnover days to gauge working capital discipline.
• Operating margin and gross margin trends for evidence of operating leverage.
• Disclosure of extraordinary items and investing cash flows to clarify earnings sustainability.
• Retained earnings trend and any updates to dividend policy.

Relative Positioning: Versus typical small-cap JASDAQ/Standard issuers, the company exhibits stronger liquidity and lower leverage but weaker cash conversion and higher bottom-line volatility due to undisclosed extraordinary items; improving operating efficiency is pivotal to close the 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
• 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