SHOWA PAXXS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.97B
• Operating Income: ¥819M
• Net Income: ¥700M
• EPS: ¥148.33

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: Solid top-line and operating recovery with margin expansion, but bottom-line declined year-on-year due to below-the-line factors, leaving capital efficiency still subdued. Revenue grew 3.2% YoY to 119.72, while operating income rose 20.3% YoY to 8.19, indicating improved gross-to-operating conversion. Gross profit reached 21.96 with a gross margin of 18.3%, and SG&A was 13.76 (11.5% of sales), supporting operating leverage. Ordinary income increased 13.9% YoY to 9.31, aided by non-operating income of 1.26, mainly dividend income (1.00) and interest income (0.19). Despite stronger operating and ordinary results, net income declined 15.7% YoY to 6.51, implying an unfavorable shift below operating income versus the prior year (likely non-recurring items and/or changes in minority interests). Operating margin improved to 6.8% from an estimated 5.9% a year ago (about +97 bps), while net margin compressed to 5.4% from an estimated 6.7% (about -123 bps) due to weaker non-recurring effects. Cash generation was robust with operating cash flow of 14.14 (OCF/NI 2.17x), comfortably exceeding depreciation (3.63) and estimated capex (6.32). Balance sheet strength is notable with current ratio at 272%, quick ratio at 253%, and debt-to-equity at 0.38x; cash and deposits (93.69) exceed total borrowings (~12.23), implying a sizable net cash position. Interest coverage is very strong at 89.5x, confirming low financial risk. However, ROE is a modest 2.6% and ROIC is 3.7%, both below typical cost of capital benchmarks, signaling under-utilized balance sheet capacity and room for efficiency improvement. Non-operating income remains meaningful (non-operating income ratio 19.4%), with sensitivity to dividend income from investment securities. Effective tax rate was 24.1%, not a major driver of the net income decline, reinforcing the view that one-off items likely explain the YoY bottom-line softness. Working capital appears well-controlled (accounts receivable 63.98, inventories 13.64, accounts payable 29.60) and supported OCF. Free cash flow is positive on our estimate, supporting the indicated payout ratio of 27.3% despite the lower net income. Looking ahead, sustaining operating margin gains while lifting ROIC above 5% will be key, likely via mix upgrade, price pass-through of raw materials, and disciplined capex. Overall, the quarter shows operational improvement and strong cash/financial footing, but improving capital efficiency and stabilizing below-the-line variability remain priorities.

Profitability Analysis

DuPont decomposition: ROE (2.6%) = Net Profit Margin (5.4%) × Asset Turnover (0.346) × Financial Leverage (1.38x). The component that changed the most YoY appears to be the net profit margin: operating margin expanded roughly 97 bps (to 6.8% from ~5.9%), but net margin compressed by about 123 bps (to 5.4% from ~6.7%) due to weaker below-the-line contributions versus the prior year. Business drivers: (1) better operating efficiency (gross-to-operating conversion improved; SG&A at 11.5% of sales); (2) non-operating reliance remains material (dividend and interest income totaling 1.19) but did not offset what seems like the absence of prior-year one-offs; (3) effective tax rate is stable at 24.1%, so tax is not the culprit. Asset turnover at 0.346 is low for packaging/industrial peers, reflecting a sizeable asset base and conservative balance sheet (net cash), and leverage is modest at 1.38x, limiting ROE amplification. Sustainability: operating margin gains look more sustainable if driven by pricing/mix and cost control; the reduction in net margin likely reflects non-recurring normalization, thus not structurally negative. Watchpoints: ensure SG&A growth does not outpace revenue; for this period, operating income grew faster than sales (+20.3% vs +3.2%), indicating favorable operating leverage. Overall, to raise ROE, the company needs to raise asset turnover and/or accept higher leverage, but the preferable path is improving ROIC via margin and asset efficiency.

Growth Assessment

Top-line growth of 3.2% YoY (to 119.72) was modest but positive, likely supported by pricing and stable volumes in core packaging. Operating income grew 20.3% to 8.19, indicating improved conversion and cost discipline. Ordinary income rose 13.9% to 9.31 on the back of steady non-operating income (dividends 1.00, interest 0.19). However, net income fell 15.7% to 6.51, implying the prior-year baseline benefited from non-recurring items not repeated this year, or changes in extraordinary items/minority interests. EBITDA reached 11.82 (9.9% margin), underscoring healthy cash earnings. The growth quality is good at the operating level; the divergence at the net level appears largely one-time in nature. Outlook hinges on sustaining margin improvements, maintaining raw material price pass-through, and executing capex (6.32 in the period) toward higher-value products. With a strong balance sheet, the company has capacity to pursue selective growth investments or bolt-ons, but ROIC at 3.7% must improve toward >5% to create shareholder value. Near term, we expect stable-to-gradual revenue growth and continued focus on mix/efficiency to defend margins.

Financial Health

Liquidity is very strong: current ratio 272.3% and quick ratio 253.3% (both comfortably above benchmarks). No warning flags (Current Ratio < 1.0: No). Solvency is conservative with debt-to-equity at 0.38x and interest coverage at 89.5x; cash and deposits (93.69) exceed total borrowings (short-term 11.74 + long-term 0.49 ≈ 12.23), implying robust net cash. Maturity mismatch risk is low: short-term debt is small relative to current assets (195.79) and cash, and accounts receivable (63.98) further support coverage of payables (29.60). Total equity is 251.00 vs total assets 345.77, yielding financial leverage ~1.38x, consistent with a conservative capital structure. Off-balance sheet obligations are not disclosed in the provided data; none identified.

Cash Flow Quality

OCF/Net Income at 2.17x signals high earnings quality and good working capital discipline. Operating cash flow of 14.14 exceeded depreciation (3.63) and estimated capex (6.32), implying positive estimated free cash flow of about 7.82. Financing cash flow was a small outflow (-0.80), consistent with conservative leverage management. Working capital appears supportive (AR 63.98, inventories 13.64, AP 29.60), and there are no signs of aggressive working capital reduction to inflate OCF in this snapshot. With net cash and positive FCF, the company has ample flexibility to fund dividends and reinvestment.

Dividend Sustainability

The calculated payout ratio is 27.3%, which is conservative and within sustainable bounds (<60%). Although total dividends paid are unreported, applying the payout ratio to net income (6.51) implies dividends of roughly 1.8, which are comfortably covered by estimated FCF (~7.8). Balance sheet net cash further supports dividend stability even through cyclical softness. Policy details are not disclosed, but current coverage suggests room to maintain or modestly grow dividends if operating trends hold. Key sensitivities include variability in non-operating income (dividends from securities) and sustaining operating margin gains.

Risk Assessment

Business Risks:

• Raw material price volatility (e.g., resins/chemicals) impacting gross margins and requiring timely price pass-through.
• Customer demand cyclicality in industrial and consumer end-markets affecting volumes.
• Product mix risk: limited penetration of higher-value packaging could cap margin expansion.
• Operational execution risk in capex projects aimed at upgrading capacity/efficiency.

Financial Risks:

• Capital efficiency risk: ROIC at 3.7% (<5% warning) indicates low returns on invested capital.
• Earnings volatility from non-operating income (dividends/interest) influencing ordinary income.
• Small-cap liquidity risk potentially increasing cost of capital and limiting market access (equity).
• Currency exposure on imported raw materials affecting costs (if hedging insufficient).

Key Concerns:

• Net income decline (-15.7% YoY) despite stronger operating profit suggests prior-year one-offs and highlights sensitivity to below-the-line items.
• Sustained low asset turnover (0.346) and modest leverage (1.38x) constrain ROE to 2.6%.
• Need to improve ROIC above 5% to cover cost of capital and support valuation.

Investment Implications

Key Takeaways:

• Operating momentum is positive with OPM expansion (~+97 bps YoY) and strong OCF.
• Bottom-line decline is likely driven by non-recurring normalization rather than core weakness.
• Balance sheet is robust with significant net cash and ample liquidity.
• Capital efficiency remains the key overhang (ROIC 3.7%, ROE 2.6%).
• Non-operating income remains a meaningful profit contributor; stability of dividend income matters.

Metrics to Watch:

• Operating margin trajectory and SG&A ratio vs sales.
• ROIC progression toward >5% and drivers (pricing/mix, asset utilization).
• Free cash flow after capex vs dividends (coverage and consistency).
• Raw material cost trends and price pass-through timeliness.
• Non-operating income (dividend income from securities) volatility.

Relative Positioning: Versus domestic packaging peers, the company shows stronger balance sheet conservatism (net cash, low D/E) and healthy cash conversion, but trails on capital efficiency (low ROIC/ROE) and scale. Execution on mix upgrade and asset efficiency is needed 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