SHINTO PAINT COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.67B
• Operating Income: ¥122M
• Net Income: ¥128M
• EPS: ¥1.47

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: Mixed quarter—topline and operating profit improved, but bottom-line collapsed due to heavy tax burden and below-the-line effects, leaving capital efficiency very weak. Revenue grew 5.3% YoY to 106.69, while operating income rose 61.1% YoY to 1.22 as gross profit reached 17.95 and SG&A was contained at 16.72. Ordinary income increased to 2.42 (+6.4% YoY), supported by sizable non-operating income of 1.64 against non-operating expenses of 0.44, yielding a net non-operating gain of 1.20. Net income dropped 69.7% YoY to 0.50, implying significant drag from a high effective tax rate of 46.7% and/or minority interests or special items not disclosed at the line-item level. Gross margin printed at 16.8%, SG&A ratio at 15.7%, and operating margin at 1.1%, underscoring a thin operating spread that remains vulnerable to input cost swings. Ordinary margin was 2.3% as non-operating gains more than offset operating weakness. Interest coverage is modest at 3.13x (operating income 1.22 vs interest expense 0.39), adequate but not comfortable in a rising-rate environment. Liquidity is tight: current ratio 105% and quick ratio 88% point to a thin buffer, with short-term loans of 50.86 a key funding pillar. Balance sheet leverage is moderate at D/E 1.21x and financial leverage 2.21x. Capital efficiency is concerning: ROE is only 0.3% and ROIC is 0.4%—well below a typical cost of capital—indicating value creation is not yet evident. Comprehensive income was negative (-0.09), suggesting valuation losses (likely in investment securities of 26.97) erased the already small net profit at the OCI level. Margin comparison: given the +61% operating profit on +5% sales, operating margin likely expanded YoY, while net margin sharply compressed given the -69.7% net income; precise basis-point changes are not computable from disclosed data. Earnings quality assessment is constrained by missing cash flow statements; OCF/NI and FCF are unavailable, and thus cash earnings conversion cannot be confirmed. Forward-looking, the company needs sustained gross margin improvement and lower effective tax drag to lift ROE/ROIC, while de-risking reliance on non-operating income. Near-term priorities should include working capital discipline to ease liquidity tightness, scrutiny of non-operating items, and progress on pricing/mix to support margins.

Profitability Analysis

DuPont decomposition: ROE (0.3%) = Net Profit Margin (0.5%) × Asset Turnover (0.332) × Financial Leverage (2.21x). The weakest component is net profit margin (0.5%), while asset turnover is low at 0.332 and leverage is moderate at 2.21x. The largest driver of the reported period's outcome is the margin side: despite an improved operating line, a high effective tax rate (46.7%) and other below-the-line effects compressed net margin to 0.5%. Business drivers: gross margin at 16.8% leaves little headroom after SG&A (15.7%), making earnings sensitive to input costs and pricing; non-operating gains (dividends 0.12, interest income 0.02, other undisclosed) were critical to lift ordinary income above operating income. Sustainability: non-operating income may be volatile (e.g., securities-related gains/losses), and the negative comprehensive income points to market-driven OCI volatility; relying on this to support profit is not sustainable. Operating leverage appears limited—revenue grew 5.3% while operating profit rose 61.1%, implying some fixed-cost absorption, but the absolute operating margin remains only 1.1%, leaving limited cushion. Potential concerns: SG&A growth vs revenue growth cannot be assessed without YoY SG&A, but the SG&A ratio at 15.7% is high relative to gross margin, constraining profitability.

Growth Assessment

Revenue growth of 5.3% YoY to 106.69 indicates modest demand resilience. Operating income rose 61.1% YoY to 1.22 on better spread management or cost control, but the base likely was low. Ordinary income increased 6.4% YoY to 2.42, heavily aided by non-operating income (1.64) that exceeded operating income, pointing to non-core contributions to growth. Net income fell 69.7% YoY to 0.50, indicating that improvements above the line did not translate to shareholders due to high tax and potentially minority interest or special items not disclosed. With a 1.1% operating margin and 0.5% net margin, growth quality is fragile—small negative shocks could erase profits. Outlook depends on sustaining gross margin through pricing and mix while tightening SG&A and normalizing the tax rate; absent this, growth may not convert to ROE/ROIC improvement. Limited visibility exists due to unreported segment and cash flow data; therefore, the durability of growth is uncertain.

Financial Health

Liquidity: Current ratio 1.05 is just over the 1.0 threshold—explicit caution warranted; quick ratio 0.88 is below 1.0, signaling reliance on inventory and/or short-term funding for liquidity. Solvency: D/E 1.21x is moderate; financial leverage (Assets/Equity) at 2.21x is acceptable but provides limited buffer given low profitability. Maturity profile: Short-term loans of 50.86 are sizable versus cash and deposits 29.52 and total current assets 123.36; current liabilities total 117.45, leaving working capital of only 5.91—indicates maturity mismatch risk if credit conditions tighten. Interest coverage at 3.13x is below the 5x comfort benchmark but above the 2x warning, warranting monitoring. Off-balance sheet: No disclosures provided; potential contingent liabilities or guarantees cannot be assessed from available data.

Cash Flow Quality

OCF/Net Income cannot be assessed due to missing cash flow statements—earnings quality is thus indeterminate. Free cash flow and capex are unreported, so coverage of any dividend or debt service cannot be evaluated. Working capital indicators suggest tight liquidity (current ratio 1.05; high short-term borrowings), which can pressure OCF if receivables (41.56) or inventories (19.96) turn slowly; however, turnover metrics are not disclosed. Non-operating gains were material (net +1.20), while comprehensive income was negative, implying market valuation effects that do not translate into cash—another reason to be cautious on cash earnings conversion. No overt signs of working capital manipulation can be concluded from the limited snapshot.

Dividend Sustainability

Dividend details (DPS, total dividends, payout) are unreported, and cash flow data are absent, preventing a direct sustainability assessment. With ROE at 0.3% and ROIC at 0.4%, internal capital generation appears weak; sustaining meaningful distributions would likely require stable OCF and restrained capex. Liquidity tightness (quick ratio 0.88) and reliance on short-term debt argue for a conservative stance until cash conversion is evidenced. Policy outlook cannot be inferred without management guidance; coverage of any dividend by free cash flow is not calculable.

Risk Assessment

Business Risks:

• Thin operating margin (1.1%) with SG&A ratio (15.7%) near gross margin (16.8%) leaves minimal buffer against input cost increases.
• Raw material price volatility (resins, solvents, pigments) could compress gross margin.
• Demand sensitivity in end-markets such as construction, industrial, and automotive coatings.
• Execution risk in pricing and mix to sustain recent operating improvement.
• Non-operating income dependence to lift ordinary income above operating income.

Financial Risks:

• Liquidity tightness: current ratio 1.05 and quick ratio 0.88; high reliance on short-term loans (50.86).
• Interest rate risk: interest coverage only 3.13x; higher rates could pressure earnings.
• Capital efficiency risk: ROIC 0.4% well below typical WACC, indicating potential value erosion.
• OCI volatility: negative total comprehensive income (-0.09) suggests exposure to market valuation losses, likely from investment securities (26.97).
• Tax rate volatility: effective tax rate 46.7% materially above statutory, depressing net income.

Key Concerns:

• Net income down 69.7% YoY despite higher operating profit, pointing to below-the-line drags (tax/minority/special items).
• Non-operating gains (1.64) larger than operating profit (1.22), raising earnings quality questions.
• Short-term funding dependence and thin working capital buffer heighten refinancing and liquidity risk.
• Low ROE (0.3%) and ROIC (0.4%) indicate insufficient returns; strategic improvement needed.
• Data gaps (cash flow, segment detail) limit visibility into sustainability.

Investment Implications

Key Takeaways:

• Topline rose 5.3% YoY with operating income up 61.1%, but net income fell 69.7% due to heavy tax and below-the-line items.
• Operating margin improved to 1.1% on the period data, but remains very thin; non-operating income was crucial to ordinary profit.
• Liquidity is tight (current ratio 1.05, quick ratio 0.88) with high short-term loans (50.86).
• Capital efficiency is poor (ROE 0.3%, ROIC 0.4%), far below cost of capital.
• Comprehensive income turned negative, hinting at market-related valuation losses.

Metrics to Watch:

• OCF and FCF conversion relative to net income (currently unreported).
• Gross margin trajectory and input cost pass-through.
• SG&A control and operating margin progression.
• Effective tax rate normalization and any non-controlling interest impact.
• Short-term debt levels, interest coverage, and refinancing terms.
• Valuation movements in investment securities and their OCI impact.
• Working capital turns (DSO, DIO, DPO) and inventory levels.

Relative Positioning: Within Japan coatings peers, the company exhibits weaker profitability and capital efficiency, higher reliance on non-operating items, and tighter liquidity than best-in-class operators that maintain higher gross margins and stronger OCF; improvements in pricing power and cash conversion are needed to narrow 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