SOFT99corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.25B
• Operating Income: ¥1.92B
• Net Income: ¥1.27B
• EPS: ¥59.04

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: A steady FY2026 Q2 with modest topline growth and resilient operating profit, but flat margins and slightly lower net income due to below-the-line factors; capital efficiency remains a key weakness. Revenue rose 5.9% YoY to 152.5, with gross profit of 57.9 and operating income of 19.2 (+6.0% YoY). Ordinary income increased 8.4% YoY to 20.7, supported by non-operating income of 1.46 (notably dividends 0.72 and interest 0.45). Profit before tax was 18.6 and net income was 12.7 (-0.6% YoY), implying headwinds below the operating line, likely extraordinary losses and/or a higher tax burden (effective tax rate 31.7%). Gross margin printed at 37.9% and operating margin at roughly 12.6% (19.24/152.52), with EBITDA margin at 16.1%. Given operating income growth (+6.0%) tracking revenue (+5.9%), the operating margin appears broadly flat YoY, suggesting minimal basis-point change; precise bps movement cannot be confirmed from disclosed data. Non-operating income contributed 1.46, cushioning ordinary profit; with non-operating expenses unreported (0), the ordinary margin benefited slightly. Cash generation was solid: operating cash flow (OCF) of 12.9 slightly exceeded net income of 12.7 (OCF/NI 1.02x), indicating acceptable earnings quality. The balance sheet is exceptionally liquid (current ratio 732%) and conservatively financed (D/E 0.14x), underpinned by cash and deposits of 223.7. Working capital remains ample with current assets of 332.1 against current liabilities of 45.4. Capital expenditures of 11.7 were largely covered by OCF, implying roughly breakeven to slightly positive pre-dividend free cash flow; detailed investing cash flows were not disclosed. ROE is low at 2.2% and ROIC is 3.7% (below the 5% warning threshold), highlighting structural capital-efficiency challenges amid a large equity base and low leverage. Dividend payout (calculated) is elevated at 75.5%, exceeding the typical 60% sustainability benchmark; however, the large cash buffer mitigates near-term risk. Forward-looking, the key to improving returns lies in lifting margins, improving asset turnover, and disciplined capital allocation, while managing potential one-off items that affected PBT and NI this quarter. Overall, the quarter demonstrates operational steadiness and strong financial safety, but underscores the need to enhance capital efficiency to create shareholder value.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 8.3% × 0.232 × 1.14 ≈ 2.2%. The weakest link is asset intensity/low leverage: asset turnover of 0.232 (half-year) and financial leverage of 1.14x keep ROE subdued despite a decent margin profile. Operating margin is ~12.6% and gross margin 37.9%, indicating reasonable pricing/value-add but not high enough to offset low capital velocity. The component most limiting ROE is asset turnover (and, secondarily, low leverage), as the company holds substantial cash and investments relative to sales. Business drivers: a cash-rich, low-debt balance sheet and sizable noncurrent assets depress turnover; the business mix (car care/chemicals) typically yields mid-teens EBITDA margins but modest growth rates. Sustainability: margin levels appear stable (OpInc growth ≈ revenue growth), suggesting margin resilience near-term; however, improving ROE structurally will require better asset productivity (inventory/accounts efficiency, portfolio pruning) or higher-margin mix. Watch for SG&A discipline: SG&A/revenue is ~25.3% and SG&A/gross profit is ~66.8%; without YoY detail, we cannot confirm operating leverage, but flat operating margin implies SG&A growth roughly in line with revenue. One-time effects likely impacted below-the-line items, as ordinary income exceeded PBT by ~2.1, pointing to extraordinary losses that did not affect operating execution but weighed on net.

Growth Assessment

Topline growth of +5.9% YoY to 152.5 indicates steady demand across core categories. Operating income grew +6.0% YoY to 19.2, tracking sales and implying stable operating margin. Ordinary income growth (+8.4% YoY) benefited from higher non-operating income (dividends and interest totaling 1.17) and the absence of reported non-operating expenses. Net income dipped -0.6% YoY to 12.7, as PBT (18.6) came in below ordinary income (20.7), likely due to extraordinary items and a 31.7% tax rate. Revenue sustainability appears reasonable given consumer/aftermarket exposure, but acceleration likely hinges on new product momentum and channel expansion. Profit quality is acceptable: OCF/NI at 1.02x supports the earnings print. Outlook: expect stable margins near term, with upside dependent on product mix upgrades and operating efficiency; capital deployment (capex 11.7 year-to-date) suggests ongoing investment, but ROIC uplift to above 5–7% will require sharper focus on asset turns and portfolio returns.

Financial Health

Liquidity is exceptionally strong: current ratio 732% and quick ratio 672%, supported by cash and deposits of 223.7 versus current liabilities of 45.4. No warning flags on short-term solvency (Current Ratio >> 1.0). Leverage is low: total liabilities/equity ≈ 0.14x (D/E well below 2.0 threshold). Interest-bearing debt is unreported, but interest expense is 0.00, suggesting minimal to no financial debt. Maturity mismatch risk appears negligible, with current assets (332.1) far exceeding current liabilities (45.4). Off-balance sheet obligations are not disclosed in the provided data. Equity stands at 577.4 against total assets of 658.5, indicating a very conservative capital structure.

Cash Flow Quality

OCF/Net Income equals 1.02x (12.88/12.68), indicating acceptable earnings-to-cash conversion with no red flags. Using OCF minus reported capex as a proxy, pre-dividend FCF approximates +1.22; however, full investing cash flows are unreported, so true FCF may differ. Financing cash flow of -5.69 reflects shareholder returns (share repurchases of -0.69) and/or dividends (not itemized). Working capital quality appears stable: inventories at 27.5 and receivables at 37.5 are modest versus cash, and OCF roughly tracks NI, suggesting no aggressive working capital release. No signs of manipulation (e.g., OCF/NI < 0.8) are evident. Sustainability: OCF currently covers capex; sustained dividend outflows at a 75.5% payout could pressure cumulative FCF unless operating cash flow expands.

Dividend Sustainability

The calculated payout ratio is 75.5%, above the 60% benchmark for comfortable sustainability, implying a relatively high distribution level against earnings. Pre-dividend FCF (OCF - capex) is approximately +1.22, but full investing cash flows and total dividends paid are unreported, limiting precision on FCF coverage. The very strong net cash position (cash 223.7 and low liabilities) provides near-term support for dividends even if FCF is tight in some periods. Policy outlook: absent clear guidance, a stable-to-cautious stance is prudent given low ROE (2.2%) and ROIC (3.7%); improving cash returns on investment would strengthen the case for continued high payouts. Key watchpoints: actual dividend cash outflow, capex trajectory, and OCF durability.

Risk Assessment

Business Risks:

• Commodity/raw material price volatility affecting gross margin in chemical/car care products
• Demand variability in domestic aftermarket channels and export markets
• Product mix shifts potentially limiting margin expansion
• Execution risk on capex and new product introductions required to drive growth

Financial Risks:

• Low ROIC (3.7%) and ROE (2.2%) indicating capital efficiency challenges
• Potential extraordinary losses affecting PBT and NI volatility
• High payout ratio (75.5%) vs. modest FCF buffer
• Concentration of assets in cash/securities lowers asset turnover and depresses returns

Key Concerns:

• Persistent sub-5% ROIC flagged as a structural issue
• Net income marginally down YoY despite higher ordinary income, implying non-recurring losses and/or higher tax burden
• Limited disclosure on investing cash flows and dividend cash outlays hampers FCF assessment
• Dependence on non-operating income (1.46; 11.5% ratio) to support ordinary profit

Investment Implications

Key Takeaways:

• Operationally steady quarter: revenue +5.9% YoY, operating income +6.0% YoY; margins broadly flat
• Earnings quality sound with OCF/NI at 1.02x
• Very strong balance sheet liquidity and low leverage reduce financial risk
• Capital efficiency weak: ROIC 3.7% and ROE 2.2% require improvement through asset productivity and mix
• Net income softness due to below-the-line items; monitor extraordinary gains/losses and tax rate

Metrics to Watch:

• ROIC trajectory vs. 5–8% benchmarks
• Operating margin and gross margin trend (bps changes)
• Asset turnover (inventory and receivables days), working capital turns
• OCF/NI and true FCF (including full investing CF) coverage of dividends and capex
• Dividend policy and actual cash dividends paid
• Non-operating and extraordinary items' impact on PBT and NI

Relative Positioning: Within small-cap consumer/chemical peers, Soft99 exhibits superior balance sheet strength and stable margins but lags on capital efficiency and return metrics; future outperformance hinges on improving asset turnover and sustaining margin gains without relying on non-operating income.

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