SEIRYO ELECTRIC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.33B
• Operating Income: ¥-58M
• Net Income: ¥-6M
• EPS: ¥-2.01

Income Statement

Balance Sheet

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: FY2026 Q2 was a mixed quarter with solid topline growth but persistent operating losses, culminating in a small net loss due to an unusually heavy tax burden. Revenue rose 7.7% YoY to 83.34, demonstrating demand resilience. Gross profit was 24.31, implying a gross margin of 29.2% on the higher revenue base. SG&A expenses reached 24.90, exceeding gross profit and driving operating income to a loss of -0.58. Non-operating items netted a modest +0.18 (income 0.22 minus expenses 0.04), narrowing the loss at the ordinary level to -0.41. Profit before tax turned slightly positive at 0.25, but an effective tax rate of 124.0% (tax 0.31) swung the quarter back to a net loss of -0.06. Operating margin was -0.7%, ordinary margin -0.5%, and net margin -0.1%. Margin comparison in basis points versus prior periods is not possible with the disclosed data, but the negative operating margin indicates cost absorption pressure despite revenue growth. Earnings quality assessment is constrained by the lack of cash flow disclosure; OCF/NI cannot be calculated, so we cannot confirm whether the operating loss translated into cash outflow or was cushioned by working capital movements. Liquidity remains robust with a current ratio of 242.6% and cash/deposits of 13.80 against short-term loans of 9.00. Leverage is moderate with a debt-to-equity ratio of 0.56x, though interest coverage is weak at -58.0x given the operating loss. Comprehensive income was positive at 0.05, implying 0.11 of other comprehensive gains that partially offset the net loss. Book value per share is a healthy 1,581 JPY, supported by total equity of 51.83. ROE was slightly negative at -0.1%, driven by a thin negative net margin while asset turnover (1.03x) and modest leverage (1.56x) were not the main culprits. ROIC registered -0.6%, indicating capital inefficiency in the half. Forward-looking, the company needs to either lift gross margin or reduce SG&A to restore operating profitability, and to normalize the tax rate to avoid disproportionate erosion of bottom-line results. The strong liquidity cushion provides time to execute cost and mix improvements, but sustained losses would pressure interest coverage and ROIC if unaddressed.

Profitability Analysis

ROE decomposition (DuPont): ROE (-0.1%) = Net Profit Margin (-0.1%) × Asset Turnover (1.029x) × Financial Leverage (1.56x). The dominant driver of the weak ROE is the slightly negative net profit margin, as both asset turnover and leverage are within normal ranges for a small systems/equipment distributor/integrator. Business reason: SG&A (24.90) exceeded gross profit (24.31), generating an operating loss (-0.58) despite a 29.2% gross margin and 7.7% YoY revenue growth; the high effective tax rate (124%) further depressed net income despite positive PBT. Sustainability: The negative net margin appears driven by cost structure and tax effects; cost actions and mix shifts could sustainably improve it, but tax normalization is critical and may be partly one-off (deferred tax adjustments) though details are undisclosed. Asset turnover at ~1.0x is stable and likely to move with revenue execution; leverage at 1.56x is modest and not a major ROE lever currently. Concerning trends: SG&A intensity is elevated as SG&A > gross profit in the period; without YoY SG&A detail we cannot confirm SG&A growth outpacing revenue, but the absolute level is pressuring operating leverage.

Growth Assessment

Revenue grew 7.7% YoY to 83.34, indicating stable demand or good order conversion in core businesses. However, growth did not translate to operating profit due to cost absorption; operating income declined 17.7% YoY to -0.58 and ordinary income fell 9.7% YoY to -0.41. Net loss narrowed substantially (+97.0% YoY), but it remains a loss and the improvement is partially obscured by the 124% effective tax rate. Non-operating income (0.22) provided a limited cushion; recurring business health depends on operating profit improvement rather than non-operating items. With gross margin at 29.2%, upside will require either higher-margin mix or SG&A control to achieve positive operating leverage. Outlook hinges on cost discipline, project margin management, and potential normalization of tax effects; absent these, growth is unlikely to materially lift earnings. Data gaps (no backlog/segment disclosure) limit visibility on sustainability.

Financial Health

Liquidity is strong: current ratio 242.6% and quick ratio 224.3%, with cash/deposits at 13.80, receivables 19.62, and inventories 4.89 comfortably covering current liabilities of 26.76. No warning thresholds triggered (Current Ratio well above 1.0; D/E at 0.56x is below 2.0). Maturity mismatch risk appears manageable: short-term loans of 9.00 are covered by cash and liquid working capital; accounts payable (11.86) are matched by receivables and inventory levels. Total liabilities are 29.15 versus equity of 51.83, indicating a solid equity buffer. Interest-bearing debt split between short and long term is partially undisclosed (long-term loans unreported), but the disclosed short-term debt is not excessive relative to liquidity. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be assessed; we therefore cannot validate accrual-to-cash conversion. The negative operating income and weak interest coverage suggest potential pressure on operating cash unless working capital released cash in the period. With strong working capital (38.16) and high receivables (19.62), timing of collections could materially affect OCF; without cash flow data, signs of working capital manipulation cannot be assessed. Dividend and capex cash commitments are unreported, preventing a sustainability check of dividends or growth investments against FCF.

Dividend Sustainability

Dividend-related figures are largely unreported; the calculated payout ratio of -1341.7% is not meaningful with negative net income and absent cash flow data. Without DPS or total dividends paid, we cannot assess policy adherence or coverage. Given the operating loss and unreported FCF, prudence would dictate that any dividend commitments be evaluated against liquidity (which is ample) rather than earnings, but the sustainability of payouts cannot be confirmed.

Risk Assessment

Business Risks:

• Cost structure risk: SG&A (24.90) exceeding gross profit (24.31) keeps operating margin negative.
• Project execution/margin risk: 29.2% gross margin may be vulnerable to mix and pricing pressure.
• Tax rate volatility: 124% effective tax rate turned a small pre-tax profit into a net loss.
• Customer concentration and order timing risk typical for systems/equipment integrators (not disclosed but industry-relevant).

Financial Risks:

• Earnings coverage risk: interest coverage -58.0x due to operating loss.
• Potential cash flow pressure if receivables (19.62) collections are delayed; OCF unreported.
• Short-term funding reliance: 9.00 short-term loans require ongoing liquidity management (though currently covered by cash).

Key Concerns:

• Persistent negative operating margin despite revenue growth.
• Negative ROIC (-0.6%), indicating capital inefficiency.
• Limited disclosure of cash flows and SG&A breakdown reduces transparency and hampers quality assessment.

Investment Implications

Key Takeaways:

• Topline grew 7.7% YoY, but operating loss widened to -0.58 with operating margin at -0.7%.
• SG&A exceeded gross profit, highlighting the need for cost actions or margin uplift.
• Tax burden (124% effective rate) was the decisive swing factor from PBT +0.25 to NI -0.06.
• Liquidity is strong (current ratio 242.6%, quick 224.3%) and leverage moderate (D/E 0.56x), providing cushion.
• Interest coverage is weak at -58.0x; restoring operating profit is urgent.
• ROE (-0.1%) and ROIC (-0.6%) reflect margin issues rather than asset turnover or excessive leverage.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio each quarter
• Gross margin by project/product mix
• Effective tax rate normalization drivers
• OCF and working capital movements (DSO, DPO, inventory days) once disclosed
• Interest coverage recovery
• Order backlog and book-to-bill (if disclosed)

Relative Positioning: Within small-cap Japanese electronics/system integrators, the company shows healthier liquidity and moderate leverage but weaker operating profitability and earnings quality transparency this quarter; improving cost structure and tax normalization are prerequisites to closing the gap to peers with positive operating margins.

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