SAGAMI RUBBER INDUSTRIES CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.12B
• Operating Income: ¥161M
• Net Income: ¥-157M
• Earnings per Unit (EPU): ¥-11.64

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Mixed quarter with solid operating recovery but headline loss driven by heavy non-operating costs and an extreme tax burden. Revenue grew 3.2% YoY to 31.20, with gross profit of 8.19 and operating income up 316.6% YoY to 1.61. Operating margin improved to 5.2% from roughly 1.3% a year ago (about +388 bps), reflecting better cost control and/or pricing. However, non-operating expenses of 2.04 materially exceeded non-operating income of 0.28, swinging ordinary income to -0.14. Interest expense was 0.66, implying non-interest non-operating losses of roughly 1.38 (e.g., FX valuation, other non-recurring items). Profit before tax was positive at 0.20, but income tax of 1.77 led to net income of -1.26, an outsized effective tax rate of ~882%, suggesting one-off tax charges, valuation allowance, or jurisdictional mix effects. Cash flow was a bright spot: operating cash flow was 3.81, supported by 3.47 of depreciation, handily covering capex of 0.70. Liquidity is tight with current ratio at 0.93 and quick ratio at 0.61, and short-term loans are elevated at 53.79, indicating refinancing and maturity-mismatch risk. Leverage is moderate on a balance sheet basis (D/E 0.70x), and interest coverage at 2.44x is adequate but leaves limited cushion in a higher-rate environment. ROE calculated at -1.2% reflects the tax-driven loss, despite improved operating performance. ROIC is weak at 0.6%, highlighting continued pressure on capital efficiency. The divergence between positive OCF and negative NI flags earnings quality issues, albeit largely from tax/non-operating factors rather than core operations. Forward-looking, sustaining the higher operating margin while reducing non-operating losses and normalizing taxes would quickly restore profitability. Near-term focus should be on reducing short-term debt reliance, improving working capital (particularly inventories), and stabilizing the non-operating line. If operating momentum persists and tax effects normalize, earnings leverage is meaningful, but current liquidity metrics and funding structure pose near-term risk.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (-4.0%) × Asset Turnover (0.171) × Financial Leverage (1.70x) = ROE (-1.2%). The largest swing factor is Net Profit Margin, which is negative due to outsized non-operating losses and an abnormally high tax charge despite positive operating profit. Business drivers: improved operating results (operating income +316.6% YoY; operating margin ~5.2%) were more than offset by higher non-operating expenses (interest expense 0.66 and other non-operating costs ~1.38) and the 1.77 tax. Asset turnover is low on reported half-year data (0.171), reflecting a relatively asset-heavy base versus revenue scale and high inventories (21.77). Financial leverage at ~1.70x (Assets/Equity) is moderate and not the primary driver of ROE volatility. Sustainability: Operating margin expansion appears more sustainable (cost control/pricing, SG&A ratio ~21.1%) than the non-operating/tax headwinds, which look partly one-off; normalization of taxes would materially lift NPM. Concerning trends: non-operating expense ratio is high (~6.5% of sales), and interest coverage is only 2.44x; also, inventory intensity suggests potential future margin/working capital drag if demand softens.

Growth Assessment

Revenue rose 3.2% YoY to 31.20, suggesting steady demand recovery. Operating income surged to 1.61 (+316.6% YoY), indicating significant operating leverage and/or gross margin improvement versus the prior-year trough. Gross margin sits at 26.3%, and SG&A ratio is 21.1%, yielding a 5.2% operating margin; this is approximately +388 bps YoY improvement based on inferred prior period. The quality of growth at the operating level appears decent, but headline profits deteriorated due to non-operating losses and an exceptional tax burden, masking underlying progress. With depreciation of 3.47 supporting OCF of 3.81, cash conversion from the core looks acceptable. Outlook hinges on: 1) maintaining current operating margin via pricing, mix, and cost control; 2) reducing non-operating losses (particularly interest and other expenses); and 3) normalizing the tax rate toward statutory levels. If these occur, ordinary income and net profit could inflect positively even on modest top-line growth. Conversely, any demand softness or cost inflation would pressure the thin operating margin and could reignite losses at the bottom line.

Financial Health

Liquidity is tight: Current Ratio 0.93 (<1.0 warning) and Quick Ratio 0.61 indicate limited short-term cushion. Short-term loans are high at 53.79 versus current assets of 63.58, pointing to maturity-mismatch risk and refinancing dependence; cash and deposits are 20.79 and accounts receivable 8.55, leaving the company reliant on inventory (21.77) to bridge liquidity, which is less liquid. Solvency/leverage: D/E 0.70x is moderate; total liabilities 74.86 vs equity 107.52 is conservative on a long-term basis. Interest coverage at 2.44x is below comfortable levels (>5x benchmark), implying sensitivity to earnings volatility or rate increases. No off-balance sheet obligations were reported in the provided data. Explicit warnings: Current Ratio < 1.0. D/E is below the 2.0 red-flag threshold.

Cash Flow Quality

OCF/Net Income is -3.02x, which flags an earnings quality issue per the rule-of-thumb threshold; however, here it reflects positive cash generation despite an accounting loss, largely due to 3.47 of depreciation and likely working capital effects. Free cash flow (approximated as OCF minus capex) is about 3.11, indicating good internal funding capacity for maintenance investments. With financing CF at -3.03, the company appears to be reducing debt or paying interest/dividends; this is constructive if OCF remains stable. Working capital: inventories (21.77) are sizable relative to AR (8.55) and AP (2.21), suggesting potential cash tied up; improvements in inventory turns could unlock cash but pose risk if sales slow. No clear signs of aggressive working capital manipulation are visible from the limited disclosure, but the reliance on inventory for liquidity bears monitoring.

Dividend Sustainability

Dividend data are unreported for the period; the calculated payout ratio (-86.8%) is not economically meaningful due to negative net income. On cash metrics, FCF approximates 3.11, suggesting capacity to fund a modest dividend if policy so dictates. However, tight liquidity (current ratio 0.93), high short-term debt, and interest coverage of 2.44x argue for balance-sheet strengthening over higher shareholder returns until earnings normalize. Policy outlook: prudent stance likely biased toward maintaining or trimming distributions until net profit and ordinary income turn sustainably positive and short-term debt reliance is reduced.

Risk Assessment

Business Risks:

• Operating margin sensitivity to input costs (e.g., natural rubber/latex, energy) and pricing power
• Demand fluctuation risk in core consumer/medical rubber products across domestic and export markets
• Inventory risk (elevated inventories relative to sales) leading to markdowns or obsolescence
• Foreign exchange volatility affecting costs, overseas earnings translation, and non-operating items

Financial Risks:

• Liquidity risk with current ratio at 0.93 and quick ratio at 0.61
• Refinancing risk from high short-term loans of 53.79 versus cash 20.79
• Interest rate risk given interest coverage of 2.44x and rising rate environment
• Earnings volatility from non-operating losses and exceptional tax charges

Key Concerns:

• Abnormally high effective tax rate (~882%) driving net loss despite positive PBT
• Non-operating expense burden (2.04) exceeding operating profit buffer
• Low capital efficiency (ROIC 0.6%)
• Working capital concentration in inventories

Investment Implications

Key Takeaways:

• Core operations improved meaningfully: operating margin expanded ~388 bps YoY to ~5.2%
• Headline loss driven by non-operating expenses and extraordinary tax, not core deterioration
• Liquidity tight with current ratio <1.0 and heavy reliance on short-term loans
• OCF positive and covers capex; potential to delever if operating momentum holds
• Capital efficiency remains weak (ROIC 0.6%); improvement requires margin gains and better asset turns

Metrics to Watch:

• Ordinary income trajectory (non-operating income/expenses breakdown, especially interest and FX/other)
• Effective tax rate normalization versus statutory levels
• Inventory levels and turnover; working capital days
• Short-term loans and refinancing schedule; interest coverage
• Gross margin and SG&A ratio sustainability
• OCF versus NI convergence and FCF after capex

Relative Positioning: Versus small-cap peers in consumer/industrial rubber products, the company shows stronger near-term operating recovery but weaker liquidity and higher non-operating volatility; balance sheet leverage is moderate, yet dependence on short-term funding and low ROIC leave it strategically behind peers with cleaner ordinary income and stronger cash buffers.

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
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