SEIRYO ELECTRIC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.33B
• Operating Income: ¥-58M
• Net Income: ¥-361M
• 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

For FY2026 Q2 (consolidated, JGAAP), Seiryo Electric Co., Ltd. (43410) delivered topline growth but remained loss-making at the operating level. Revenue rose 7.7% YoY to ¥8,334 million, while gross profit reached ¥2,101 million, implying a gross margin of 25.2%. Despite this margin, operating income was a loss of ¥58 million, translating to an operating margin of -0.7%, reflecting elevated SG&A and/or project timing effects. Ordinary loss narrowed to ¥41 million, and net loss was limited to ¥6 million (EPS -¥2.01), a marked YoY improvement in bottom-line terms (+97% YoY), likely aided by non-operating/extraordinary factors and tax accounting effects. The implied SG&A and other operating expenses total about ¥2,159 million, or roughly 25.9% of sales, slightly exceeding gross margin and thus compressing operating profit. DuPont metrics indicate a modest asset turnover of 1.03x and financial leverage of 1.56x; combined with the slim net margin of -0.07%, calculated ROE is -0.12%. Liquidity appears sound with a current ratio of 162.9% and quick ratio of 152.7%, while leverage is moderate with liabilities-to-equity of 1.29x; interest expense is just ¥1 million, and interest coverage is negative given the operating loss. The equity base (¥5,183 million) against total assets (¥8,099 million) implies a strong underlying equity ratio (~64%) despite the reported equity ratio field showing 0.0% (likely undisclosed in XBRL). We note an internal inconsistency where current assets (¥10,513 million) exceed total assets (¥8,099 million), suggesting presentation/classification differences in the dataset; analysis therefore emphasizes only consistent, non-zero datapoints provided. Cash flow statements are unreported (all zeros), limiting assessment of earnings-to-cash conversion and free cash flow quality this quarter. Dividend data show DPS of zero for the period presented; combined with a small net loss and unreported cash flows, the near-term payout stance appears conservative. Overall, the quarter shows healthy revenue momentum but negative operating leverage and thin profitability, with solvency and liquidity cushions intact. The primary path to sustainable profitability likely hinges on SG&A discipline, project execution, and sustaining gross margin amid mix and cost pressures. Absent cash flow detail, working-capital intensity and timing of collections remain key unknowns. We maintain a cautious interpretation of tax and below-the-line items given the net loss alongside a positive income tax expense, which points to temporary differences or extraordinary items affecting the period. Future quarters should clarify whether the revenue recovery can translate into durable operating profit as cost structure normalizes.

Profitability Analysis

ROE decomposition (3-step DuPont) reflects: net profit margin -0.07% × asset turnover 1.03× × financial leverage 1.56× = ROE -0.12%. Margins: gross margin is 25.2% (¥2,101m/¥8,334m), but the operating margin is -0.7% (operating loss ¥58m), indicating SG&A and other operating costs of approximately ¥2,159m (25.9% of sales). The ordinary margin is -0.5%, and the net margin is a razor-thin -0.07%, implying non-operating/extraordinary factors and taxes significantly affected the bottom line. The negative operating income despite higher revenue signals adverse operating leverage in the period. Given interest expense of only ¥1m, financing costs are not the driver of losses; rather, operating expense intensity and/or gross margin mix appear central. The reported effective tax rate metric is not meaningful due to the loss situation and the presence of ¥86m income tax; this suggests deferred tax and/or extraordinary item impacts. Overall, profitability quality is weak at the operating line but improving at the bottom line YoY, likely due to non-operating items rather than core earnings strength.

Growth Assessment

Revenue growth of +7.7% YoY to ¥8.33bn indicates steady demand and/or improved project delivery. However, operating income declined 17.7% YoY and remains negative, evidencing negative operating leverage during the quarter. The gross profit of ¥2.10bn (25.2% margin) is adequate, but cost inflation, mix shifts, and/or timing of high-SG&A activities offset the margin improvement potential. Net loss narrowed to ¥6m (+97% YoY), implying below-the-line support; this is not yet indicative of sustainable core profit improvement. Sustainability of revenue growth will hinge on backlog conversion, product/service mix, and the cadence of systems/integration projects where delivery timing can swing quarterly profitability. The margin outlook depends on SG&A discipline and procurement cost control; maintaining gross margin above ~25% while reducing SG&A toward the low-20s% of sales could restore operating profitability. Near-term management focus likely includes cost containment, pricing discipline, and project execution to regain positive operating leverage.

Financial Health

Liquidity is solid: current ratio 162.9% and quick ratio 152.7%, with reported working capital of ¥4,058m, indicating headroom to manage short-term obligations. Solvency appears strong: total liabilities of ¥6,706m vs. equity of ¥5,183m yields liabilities-to-equity of 1.29x; implied equity ratio is about 64% using total assets ¥8,099m, despite the equity ratio field being unreported. Interest expense is minimal (¥1m), suggesting low financial risk from debt servicing. We note a data inconsistency where current assets exceed total assets; this likely reflects reporting classification in the dataset rather than an underlying balance sheet weakness. Absent detailed debt maturity schedules and cash balances (unreported), we infer low refinancing risk from the light interest burden and substantial equity base.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported this period, so OCF/NI and FCF-based diagnostics cannot be relied upon. Earnings quality assessment must therefore rely on accrual indicators: the combination of negative operating income and narrowing net loss suggests non-operating or tax effects dominated the bottom line, not core cash earnings. Working capital details are limited; inventories stand at ¥653m (~7.8% of revenue for the period), which appears reasonable for a distribution/systems mix but lacks turnover context without beginning/ending averages. With revenue growth and an operating loss, the risk is that receivables and unbilled work could have expanded, delaying cash conversion; confirmation awaits OCF disclosure. Free cash flow cannot be assessed given unreported capex and OCF.

Dividend Sustainability

Annual DPS is shown as ¥0.00 for the period, and payout ratio is 0.0%; this suggests either a suspended/interim non-payment or simply no dividend declaration within the reporting window. With a small net loss and absent cash flow data, immediate payout capacity is unclear, though the equity base appears strong and leverage modest. Sustainable dividends would require restored operating profitability and positive, recurring free cash flow; near-term policy likely remains conservative pending improved earnings visibility. FCF coverage cannot be calculated due to unreported OCF and capex; investors should monitor forthcoming disclosures and management guidance on payout policy.

Risk Assessment

Business Risks:

• Negative operating leverage despite revenue growth, indicating cost structure rigidity or mix headwinds
• Project timing and execution risk affecting quarterly margins and cash collection
• Gross margin sensitivity to input costs and pricing in competitive bids
• Potential reliance on non-operating/extraordinary items to support bottom line
• Customer concentration or sector cyclicality typical for equipment/system integration businesses

Financial Risks:

• Unreported cash flow statements limit visibility on cash generation and working-capital usage
• Tax expense dynamics amid a net loss suggest potential volatility from deferred taxes or special items
• Balance sheet presentation inconsistency (current assets exceeding total assets) complicates ratio analysis
• Potential near-term liquidity swings if receivables and unbilled revenues increased alongside sales

Key Concerns:

• Sustained operating losses if SG&A is not aligned with revenue scale
• Unclear cash conversion with OCF unreported
• Dependence on below-the-line items to bridge from operating loss to near-break-even net income

Investment Implications

Key Takeaways:

• Topline grew 7.7% YoY to ¥8.33bn, but operating income remained negative at -¥58m
• Gross margin 25.2% is offset by SG&A at ~25.9% of sales, yielding an operating margin of -0.7%
• Calculated ROE is -0.12% driven by a thin net margin and modest leverage and turnover
• Liquidity and solvency appear sound (current ratio 163%, liabilities/equity 1.29x), with minimal interest burden
• Cash flow and equity ratio data are unreported in places, limiting cash-based analysis

Metrics to Watch:

• SG&A ratio trajectory and underlying cost actions
• Order backlog and book-to-bill to validate revenue sustainability
• Gross margin by segment/product mix and procurement cost trends
• Operating cash flow, DSO/DIO/DPO to assess working-capital intensity
• Non-operating items and tax effects that may distort net income
• Capex and maintenance spending to gauge FCF capacity

Relative Positioning: Within Japan’s systems/equipment integration and distribution peers, the company shows decent revenue momentum but lags on operating profitability this quarter; balance sheet resilience is a relative strength, while cash flow transparency is a relative weakness until OCF is disclosed.

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