SAKURA RUBBER CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.47B
• Operating Income: ¥-3M
• Net Income: ¥-9M
• EPS: ¥-4.88

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: FY2026 Q2 was a mixed quarter—topline rebounded strongly (+28.3% YoY) but profitability remained marginally loss-making at the operating and net levels, with cash generation under pressure. Revenue rose to 44.75, while gross profit was 10.12, yielding a gross margin of 22.6%. SG&A was 10.16, leaving operating income at -0.03 and an operating margin of roughly -7 bps. Ordinary income came in at -0.08 and net income at -0.09 (EPS -4.88 yen), indicating continued bottom-line softness. Non-operating income of 0.25 (including 0.09 dividends and 0.01 interest) was more than offset by 0.29 in non-operating expenses, including 0.25 of interest expense. EBITDA was 1.35 (EBITDA margin 3.0%), implying deterioration at the EBIT line primarily owing to depreciation of 1.38. Liquidity is solid with current assets of 106.71 against current liabilities of 43.43 (current ratio 245.7%, quick ratio 236.1%), and the company holds net cash of about 5.61 (cash 24.78 vs interest-bearing loans 19.17). Leverage is moderate at 0.70x liabilities-to-equity (total liabilities 63.41; equity 91.01) and 1.70x assets/equity. Operating cash flow was -1.40, substantially weaker than net income (-0.09), signaling earnings quality concerns and likely working capital consumption tied to the strong sales growth. Capital expenditures were -3.87, implying an indicative pre-financing free cash burn of approximately -5.27 (OCF – Capex), though total investing CF was unreported. Interest coverage on an EBIT basis was weak at -0.12x, but on an EBITDA basis it was roughly 5.4x (1.35/0.25), highlighting sensitivity to depreciation burden and low operating margin. Margin trend analysis in bps versus prior periods is constrained by limited disclosures; however, the current period’s operating loss is very small and near break-even, suggesting modest margin gains could turn results positive. The key achievement this quarter is the robust sales expansion and maintenance of a 22.6% gross margin that nearly covered SG&A. The key risk is that interest and non-operating expenses erode thin operating margins, while negative OCF suggests cash conversion lags accounting earnings. Looking forward, the company appears one step away from operating profitability; if revenue momentum persists and costs are contained, profitability could normalize. However, sustainability depends on improving cash conversion, managing interest burden, and preserving gross margin in the face of input cost and pricing dynamics.

Profitability Analysis

ROE decomposition: ROE (-0.1%) = Net Profit Margin (-0.2%) × Asset Turnover (0.290) × Financial Leverage (1.70x). The primary drag is the negative net margin, as asset turnover and leverage are within a typical range for a mid-sized manufacturer. The biggest change driver versus a normalized target is margin compression at the operating level, where gross profit (10.12) was slightly below SG&A (10.16), leading to a near-zero but negative EBIT. Business reason: higher fixed cost absorption and depreciation (1.38) combined with interest expense (0.25) pushed ordinary income negative despite strong revenue growth. Sustainability: the current negative margin looks cyclical/near break-even rather than structural; small improvements in price/mix, cost pass-through, or utilization could restore positive ROE. Watch-outs: SG&A grew to 22.7% of sales (10.16/44.75), and if SG&A growth outpaces revenue, operating leverage will turn adverse; at present, the revenue surge prevented deeper losses but cash conversion did not follow.

Growth Assessment

Revenue growth of +28.3% YoY indicates strong demand recovery or successful sales initiatives. Gross margin at 22.6% suggests pricing and cost pass-through are holding, but just barely sufficient to cover SG&A. Operating income remained slightly negative (-0.03), implying the incremental contribution this quarter was not enough to offset fixed costs and depreciation. Non-operating balance was slightly negative (0.25 income vs 0.29 expense), with interest expense a notable drag. Profit quality is modest: EBITDA was positive (1.35), but EBIT and net profit were negative due to depreciation and interest. Outlook: with current margins, modest incremental volume or a 30–50 bps improvement in price/mix or procurement could swing EBIT positive. However, cash flow conversion needs to improve to underpin sustainable growth, as OCF was materially negative despite only a small net loss. Near-term growth sustainability hinges on maintaining revenue momentum while tightening working capital and controlling SG&A.

Financial Health

Liquidity is strong: current ratio 245.7% and quick ratio 236.1%, with cash of 24.78 covering all short-term loans of 10.80. No warning on liquidity thresholds (Current Ratio >> 1.0). Solvency is moderate: total liabilities/equity is 0.70x; assets/equity is 1.70x. Interest-bearing debt totals 19.17 (ST 10.80, LT 8.37), implying net cash of ~5.61, which provides some buffer. Interest coverage on EBIT is weak (-0.12x), so debt service relies on EBITDA and cash reserves; this is a key watch point. Maturity mismatch risk appears manageable given high current assets (106.71) versus current liabilities (43.43); receivables (28.15) and cash (24.78) comfortably exceed short-term debt. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF was -1.40 versus net income of -0.09, resulting in OCF/NI of +15.56x (mathematically positive due to both being negative), but qualitatively this indicates cash burn far exceeding the accounting loss—an earnings quality concern. Likely drivers include working capital build (receivables and possibly inventory) linked to the sharp sales increase; exact components are unreported. Capex was -3.87; using OCF – Capex implies an indicative pre-financing FCF of about -5.27, signaling that internal cash generation did not cover investment needs this period. With financing CF at -1.24, the company likely repaid debt or paid dividends (dividends unreported), further reducing cash. Sustainability: until OCF turns positive, dividends and capex depend on cash on hand and potential borrowing capacity. No explicit signs of working capital manipulation are visible, but the divergence (negative OCF vs small net loss) merits monitoring of collections and inventory turns.

Dividend Sustainability

Dividend data were not disclosed this quarter. The calculated payout ratio of -1461.8% is not meaningful due to negative earnings and lack of reported dividends. Given OCF (-1.40) and indicative negative FCF (~-5.27), coverage for any dividend would rely on cash reserves (24.78) and net cash position (~5.61). Policy outlook cannot be inferred from the data provided; sustainability hinges on restoring positive OCF and EBIT. If profitability normalizes near break-even and working capital unwinds, dividend capacity could recover, but visibility is currently low.

Risk Assessment

Business Risks:

• Thin operating margins near break-even; small shocks to pricing or volume could revert to losses.
• Input cost volatility (rubber, petrochemical derivatives) may compress the 22.6% gross margin.
• Demand cyclicality in end markets (likely automotive/industrial) could pressure utilization.
• Execution risk in SG&A control; fixed cost base nearly equals gross profit.

Financial Risks:

• Weak EBIT-based interest coverage (-0.12x) despite EBITDA cushion, raising sensitivity to rate increases.
• Negative operating cash flow (-1.40) and indicative negative FCF (~-5.27) increase reliance on cash reserves.
• Potential working capital strain from rapid sales growth (receivables build).
• Refinancing risk if profitability does not recover, though mitigated by net cash position.

Key Concerns:

• Earnings quality: cash burn exceeding accounting loss indicates poor cash conversion.
• Ordinary income negative (-0.08) as non-operating expenses offset non-operating income.
• Depreciation burden (1.38) converts positive EBITDA (1.35) into negative EBIT, limiting flexibility.
• Data limitations: lack of segment data, investing CF breakdown, and dividend details may hide additional risks.

Investment Implications

Key Takeaways:

• Strong revenue rebound (+28.3% YoY) but profitability still slightly negative at operating and net levels.
• Gross margin 22.6% nearly covers SG&A; company is at the cusp of break-even EBIT.
• EBITDA positive (1.35) but depreciation (1.38) and interest (0.25) push earnings negative.
• Liquidity robust (current ratio 2.46x, net cash ~5.61), partially offsetting weak interest coverage.
• Cash conversion is the weak link: OCF -1.40 with indicative FCF around -5.27.

Metrics to Watch:

• Operating margin in bps (target: move from -7 bps to sustained positive territory).
• OCF and working capital turns (DSO, inventory days) to confirm cash conversion.
• Gross margin stability versus input cost trends.
• Interest coverage (EBIT and EBITDA based) and debt maturity profile.
• Capex intensity relative to EBITDA to assess FCF inflection.

Relative Positioning: Within small-cap Japanese industrial/rubber peers, the company shows stronger liquidity and a net cash buffer but lags on cash conversion and EBIT margin. It appears operationally close to breakeven, so incremental volume or cost control could improve relative standing; however, current interest coverage and negative OCF keep it in the lower-middle tier on earnings quality.

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