SEIKAGAKU CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.91B
• Operating Income: ¥-557M
• Net Income: ¥1.93B
• EPS: ¥4.21

Income Statement

Balance Sheet

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

For FY2026 Q2 (consolidated, JGAAP), Seikagaku Corporation reported revenue of ¥17.91 billion, a 11.4% year-on-year decline, indicating top-line pressure. Despite the revenue contraction, gross profit was ¥10.72 billion, implying a robust gross margin of 59.9%, which suggests favorable product mix and/or pricing discipline. Operating income was a loss of ¥0.56 billion, albeit improving by 71.2% YoY, pointing to narrowing operating losses but still highlighting cost absorption challenges. Ordinary income was positive at ¥0.53 billion, indicating that non-operating items and/or financial income offset the operating loss. Net income came in at ¥0.23 billion, down 88.1% YoY, signaling a sharp decline in bottom-line profitability relative to the prior-year period, possibly due to one-off factors in the base period or higher taxes. The DuPont breakout provided shows a net profit margin of 1.28%, asset turnover of 0.219, and financial leverage of 1.13, yielding a calculated and reported ROE of 0.32%, which is low and reflects weak profitability rather than balance sheet constraint. Operating margin is approximately -3.1% while ordinary margin is around 3.0%, highlighting a reliance on non-operating income to remain profitable at the pre-tax level. Liquidity appears very strong with a current ratio of 501.7% and a quick ratio of 458.7%, and working capital of ¥31.73 billion, suggesting ample short-term solvency. Leverage is modest, with a debt-to-equity ratio of 0.15x and total liabilities of ¥10.69 billion against total equity of ¥72.24 billion. Interest expense was minimal at ¥2 million, consistent with low financial risk. The reported equity ratio of 0.0% is clearly not representative given the large equity base; based on disclosed totals, equity represents roughly 88% of assets (¥72.24b/¥81.93b), indicating a conservative capital structure. Cash flow data (operating, investing, financing) are undisclosed in this dataset, so free cash flow and cash balances cannot be assessed here. Dividend data are also shown as zero, which should be treated as undisclosed rather than an indication of no dividend. Overall, the company maintains a strong balance sheet and liquidity buffer, but profitability is currently subdued and reliant on non-operating items. The near-term outlook hinges on stabilizing revenue and improving operating leverage through cost control and SG&A efficiency. Data limitations (notably cash flow and dividend figures) constrain the depth of earnings quality and payout analysis, so conclusions are based on the available non-zero metrics.

Profitability Analysis

ROE of 0.32% (DuPont: 1.28% net margin × 0.219 asset turnover × 1.13 leverage) is weak and primarily constrained by margins rather than leverage or asset intensity. Gross margin at 59.9% is strong, indicating solid unit economics and pricing power in core products, but the translation to operating income is poor, with an operating margin of approximately -3.1%. The disconnect implies elevated SG&A and/or R&D burden and fixed-cost under-absorption following the revenue decline. Ordinary margin (~3.0%) exceeded operating margin due to positive non-operating contributions (ordinary income ¥0.53b vs. operating loss ¥0.56b), which is not a sustainable driver of core profitability. Net margin at 1.28% is modest, further pressured by income tax expense of ¥0.42b; the indicated effective tax rate in the summary metrics is not consistent with the reported yen figures and should be treated as unreliable. Operating leverage appears unfavorable in this half given the 11.4% revenue decline and swing to an operating loss; however, the 71.2% YoY improvement in operating income suggests cost actions are gaining traction. Interest expense of ¥2m is negligible, so financial leverage is not a determinant of earnings variability. Overall, profitability hinges on restoring positive operating margin through revenue stabilization and SG&A/R&D optimization while maintaining gross margin resilience.

Growth Assessment

Revenue decreased 11.4% YoY to ¥17.91b, indicating headwinds in demand, pricing, or product timing. The high gross margin suggests underlying product economics remain intact, implying the revenue shortfall may be volume- or mix-driven rather than structural pricing erosion. Operating income improved YoY but remained negative, pointing to sequential operational progress yet incomplete turnaround. Ordinary income was positive, hinting at contributions from non-operating income, FX, or investment-related gains; these are not typically repeatable growth drivers. Net income collapsed by 88.1% YoY, which likely reflects a tough comparison base with prior one-offs and/or higher tax burden in the current period. Sustainability of growth will depend on recovering sales volumes, new product or indication launches, and geographic expansion while controlling fixed costs. With asset turnover at 0.219 (half-year context), efficiency is low, underscoring the need for better capacity utilization. Outlook near term is cautious: margin improvement could continue if cost discipline maintains, but top-line stabilization is needed to regain operating leverage. The absence of cash flow disclosures limits visibility into reinvestment capacity, R&D intensity, and capex-driven growth. In sum, growth quality is mixed: strong gross margin supports a path back to profitability, but current dependence on non-operating items and the revenue decline temper confidence.

Financial Health

The balance sheet is conservative with total assets of ¥81.93b and total equity of ¥72.24b; liabilities are modest at ¥10.69b. Based on these figures, the implied equity ratio is approximately 88%, despite the reported metric showing 0.0% (treated as undisclosed). Liquidity is ample: current assets ¥39.63b vs. current liabilities ¥7.90b yields a current ratio of 501.7% and a quick ratio of 458.7%. Working capital stands at ¥31.73b, providing a substantial buffer for operations and inventory cycles (inventories ¥3.40b). Debt burden is low with a debt-to-equity ratio of 0.15x and minimal interest expense (¥2m), implying low refinancing and interest-rate risk. Solvency risk is limited given the large equity cushion and small liability base. The strong liquidity and low leverage provide resilience during periods of earnings volatility and enable continued investment in R&D or capex without significant external financing. However, the absence of cash and cash flow disclosures prevents a precise appraisal of near-term cash coverage and funding flexibility.

Cash Flow Quality

Operating, investing, and financing cash flows are shown as zero in this dataset and should be treated as undisclosed rather than actual zeros. Consequently, OCF/Net income, free cash flow, and cash balance cannot be analyzed from the provided figures. Earnings quality assessment must therefore rely on the P/L structure: positive ordinary income despite an operating loss suggests reliance on non-operating items, which typically reduces the quality of earnings from a sustainability standpoint. Working capital appears manageable given inventories of ¥3.40b relative to revenue and a large working capital buffer, but without period-to-period changes in receivables, payables, and inventory, we cannot quantify cash conversion. Depreciation and amortization are also undisclosed, which limits the ability to estimate EBITDA and capital intensity. Overall, cash flow quality cannot be determined from this dataset; additional disclosure of OCF, capex, and non-operating cash items is required to assess true FCF generation and earnings-to-cash conversion.

Dividend Sustainability

Dividend per share and payout ratio are listed as zero and should be treated as undisclosed. With EPS at ¥4.21 for the period and no dividend data available here, we cannot compute payout or free cash flow coverage. The balance sheet strength (equity ¥72.24b, low leverage, minimal interest expense) suggests capacity for distributions in general, but sustainability depends on consistent positive operating cash flow, which is not provided. Policy outlook cannot be inferred from the dataset; historical dividend policy, target payout ratios, and management guidance would be necessary to evaluate dividend stability. Until OCF and capex are disclosed, dividend affordability and coverage cannot be assessed.

Risk Assessment

Business Risks:

• Revenue decline of 11.4% YoY indicating demand, mix, or timing headwinds
• Operating loss (-¥0.56b) despite high gross margin, reflecting fixed-cost under-absorption
• Dependence on non-operating income to achieve positive ordinary income
• Potential pricing and reimbursement pressures typical in healthcare-related markets
• Regulatory and quality compliance risks affecting production and product approvals
• Product concentration risk if a limited number of SKUs drive the majority of sales
• Foreign exchange volatility if exports or overseas revenues are material

Financial Risks:

• Earnings volatility with low ROE (0.32%) and thin net margin (1.28%)
• Tax expense volatility; reported yen amounts imply high tax burden vs. ordinary income
• Limited visibility on cash flow due to undisclosed OCF and capex
• Potential working capital swings affecting cash conversion in a lower-revenue environment

Key Concerns:

• Sustainability of ordinary income absent improvements in operating margin
• Ability to restore positive operating income amid declining sales
• Lack of disclosed cash flow data impeding assessment of FCF and dividend capacity

Investment Implications

Key Takeaways:

• Top line contracted 11.4% YoY to ¥17.91b; recovery is needed to restore operating leverage
• Gross margin remains strong at 59.9%, a key pillar for future margin repair
• Operating loss improved but persists; cost discipline must continue
• Ordinary income positive due to non-operating items; quality of earnings is mixed
• Balance sheet is very strong with implied ~88% equity ratio and minimal interest burden
• Cash flow and dividend data are undisclosed, limiting FCF and payout analysis

Metrics to Watch:

• Operating margin trajectory and SG&A/R&D as a percentage of sales
• Composition of ordinary income (recurring vs. one-off, FX, investment gains)
• Revenue growth by product and geography to assess volume recovery
• Inventory days and receivable/payable turns to gauge cash conversion
• Capex and D&A once disclosed to evaluate capital intensity and EBITDA
• Effective tax rate normalization and drivers of tax expense

Relative Positioning: Financially conservative with high equity and liquidity relative to many domestic peers, but currently weaker on core operating profitability with reliance on non-operating income; improving operating leverage and stabilizing revenue are key to closing the gap on profitability metrics.

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