SEC CARBON,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.30B
• Operating Income: ¥1.58B
• Net Income: ¥3.56B
• EPS: ¥81.51

Income Statement

Balance Sheet

Cash Flow Statement

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

SEC Carbon (TSE: 5304) reported FY2026 Q2 consolidated results under JGAAP showing a sharp year-on-year deceleration from an exceptionally strong prior-year base, but with balance sheet resilience and robust operating cash generation. Revenue was ¥10.30bn (-37.1% YoY), and operating income was ¥1.58bn (-65.5% YoY), indicating significant operating deleverage as volumes and/or pricing normalized. Net income was ¥1.63bn (-54.1% YoY), translating to a net margin of 15.9% and an EPS of ¥81.51 for the period. DuPont analysis points to ROE of 2.14%, driven by low asset turnover of 0.118 and modest financial leverage of 1.14, despite a healthy net margin for the period. Operating cash flow was strong at ¥5.64bn, implying OCF/Net Income of 3.45x, which signals conservative revenue recognition and favorable working capital flows during the period. The company remains very lightly leveraged with total liabilities of ¥7.59bn against total equity of ¥76.39bn (equity-to-asset ratio approximately 87.8% calculated from the balance sheet, despite the equity ratio field showing 0% as undisclosed). Liquidity is ample: current assets of ¥45.82bn vs current liabilities of ¥3.45bn yields a current ratio of about 1,330% and working capital of ¥42.38bn. EBITDA of ¥2.20bn implies an EBITDA margin of 21.4%, which remains respectable even after the sharp YoY slowdown in sales. There is a noted inconsistency between the reported cost of sales (¥9.59bn) and gross profit (¥6.79bn) versus revenue (¥10.30bn); the implied gross margin of 66.0% aligns with the disclosed gross profit but not with the reported cost of sales, suggesting mapping/classification issues in interim disclosures. Interest expense is shown as zero (likely undisclosed rather than truly zero) and the effective tax rate metric is also shown as 0% despite a sizable income tax line; hence, tax and interest-based ratios should be interpreted cautiously. Financing cash outflows of ¥1.99bn indicate distributions or debt reduction; however, DPS and FCF are undisclosed, limiting dividend analysis. Inventories appear low at ¥1.90bn relative to sales, suggesting either lean inventory management or reporting scope differences; additional detail on work-in-process and raw materials would help. Overall, the company remains financially robust with substantial equity and liquidity buffers, but profitability has normalized sharply, pressuring ROE via low asset turnover and reduced operating leverage. Outlook hinges on demand trends in graphite/specialty carbon applications and the cadence of high-margin orders through H2. Data limitations (several zero/undisclosed fields and mismatches in gross profit vs cost of sales) constrain precision in some ratio analyses.

Profitability Analysis

ROE (2.14%) reflects: Net profit margin 15.87% × Asset turnover 0.118 × Financial leverage 1.14. The primary drag is low asset turnover, which depresses returns despite a solid period net margin. Operating margin for the period is approximately 15.3% (¥1.58bn / ¥10.30bn), indicating material operating deleverage versus the prior year given the 37.1% revenue decline. EBITDA margin of 21.4% shows that the business retains healthy gross profitability and cost structure flexibility, although fixed costs amplified the YoY profit contraction. The disclosed gross margin of 66.0% is strong but conflicts with the reported cost of sales; using the disclosed gross profit and revenue implies cost of sales around ¥3.51bn rather than ¥9.59bn. Margin quality appears supported by favorable non-cash items (D&A ¥0.62bn) and limited financing burden, while ordinary income (¥2.28bn) exceeds operating income, suggesting positive non-operating contributions (e.g., FX, equity method, or other income). Overall operating leverage remains high: a 37% revenue drop flowed through to a 66% decline in operating profit, underscoring sensitivity to volume/mix.

Growth Assessment

Revenue contracted 37.1% YoY to ¥10.30bn, likely reflecting normalization from peak conditions in specialty graphite markets and/or softer end-demand in certain applications. Profitability fell faster than sales (OP -65.5% YoY), signaling operating deleverage and less favorable mix or pricing. Net income declined 54.1% YoY to ¥1.63bn, mitigated versus OP by supportive non-operating items. The period net margin of 15.9% remains respectable, but sustainability depends on H2 order intake and pricing discipline. With asset turnover at 0.118, capacity may be underutilized relative to the current demand environment. The solid OCF suggests underlying earnings quality remains intact, lending confidence that the decline is demand/mix-driven rather than receivables or inventory issues. Outlook hinges on the recovery pace in semiconductor, EV, and industrial markets that consume specialty carbon products; visibility is typically limited in mid-cycle. Absent disclosed guidance, a cautious stance on near-term growth is warranted, with potential stabilization in H2 if orders re-accelerate.

Financial Health

Liquidity is very strong: current assets ¥45.82bn vs current liabilities ¥3.45bn (current ratio ~13.3x), and working capital ¥42.38bn. The quick ratio of 12.7x indicates ample liquid resources even excluding inventories. Solvency is robust with total liabilities ¥7.59bn and total equity ¥76.39bn, implying a calculated equity ratio of ~87.8% and a low debt-to-equity ratio of 0.10x. Interest expense is undisclosed (listed as zero), but leverage appears minimal, reducing refinancing risk. The balance sheet can comfortably absorb earnings volatility and support required investment. Cash and equivalents are undisclosed; however, the magnitude of current assets and OCF indicates sufficient liquidity. No near-term covenant or maturity risks are evident from the available data.

Cash Flow Quality

Operating cash flow of ¥5.64bn vs net income of ¥1.63bn yields an OCF/NI ratio of 3.45x, a strong indicator of earnings quality and favorable working capital movements. EBITDA of ¥2.20bn and D&A of ¥0.62bn support a healthy non-cash component, consistent with cash-generative operations. Investing cash flow is undisclosed for the period, preventing calculation of true free cash flow; the reported FCF of 0 should be treated as not available rather than zero. Financing cash flow of -¥1.99bn suggests distributions (dividends/share buybacks) and/or debt reduction, consistent with the company’s strong capital position. Working capital appears well-managed given the OCF strength and low reported inventories; however, further detail on receivables and payables would clarify sustainability. Overall, cash generation quality in H1 is strong relative to accounting earnings.

Dividend Sustainability

Dividend per share and payout ratio are undisclosed for the period (reported as 0, which indicates not reported). As such, payout sustainability cannot be quantified this quarter. Coverage from free cash flow cannot be assessed due to undisclosed investing cash flows. Balance sheet strength (calculated equity ratio ~87.8%) and robust OCF provide capacity for distributions if policy allows, but the sharp YoY decline in profits argues for prudence. Historical policy details are not provided here; absent that, we assume a conservative approach aligned with earnings volatility in specialty materials. We will revisit payout sustainability once full-year DPS and capex/FCF are disclosed.

Risk Assessment

Business Risks:

• Demand cyclicality in specialty graphite/carbon end-markets (semiconductor, EV, industrial).
• Pricing pressure and mix deterioration during downcycles, amplifying operating deleverage.
• Customer concentration risk typical in niche materials supply chains.
• Raw material cost volatility and energy cost pass-through risk.
• Capacity utilization swings impacting margins and ROE via fixed-cost absorption.

Financial Risks:

• Potential working capital swings (receivables and inventories) as volumes normalize.
• Limited visibility on cash balances and investing cash flows due to undisclosed items.
• Non-operating income reliance (ordinary income > operating income) potentially volatile.

Key Concerns:

• Large YoY declines in revenue (-37.1%) and operating income (-65.5%) indicate pronounced operating deleverage.
• Low asset turnover (0.118) materially constrains ROE (2.14%).
• Inconsistencies between cost of sales and gross profit imply data classification/mapping issues that obscure gross margin analysis.
• Effective tax rate and interest burden cannot be reliably assessed due to undisclosed fields.

Investment Implications

Key Takeaways:

• Sharp normalization from prior-year peak: revenue ¥10.30bn (-37.1% YoY), OP ¥1.58bn (-65.5% YoY).
• ROE 2.14% driven by low asset turnover (0.118) despite solid net margin (15.9%).
• Strong cash generation: OCF ¥5.64bn, OCF/NI 3.45x.
• Balance sheet strength: calculated equity ratio ~87.8%, working capital ¥42.38bn.
• Margin analysis constrained by gross profit vs COGS inconsistency; reported gross margin 66% may be more representative than the COGS line.
• Dividend and FCF currently not assessable due to undisclosed DPS and investing cash flows.

Metrics to Watch:

• Order backlog and H2 revenue trajectory to gauge utilization and asset turnover recovery.
• Gross margin disclosure reconciliation (confirm COGS and mix) and operating margin trend.
• Working capital components (AR, AP, inventory) to validate OCF sustainability.
• Capex and investing cash flows to assess true FCF and dividend capacity.
• Composition of non-operating income driving the gap between ordinary and operating income.

Relative Positioning: Within Japanese specialty carbon/advanced materials peers, SEC Carbon appears conservatively capitalized with superior balance sheet strength and liquidity, but current profitability is pressured by volume/mix normalization, yielding below-peer ROE due to low asset turnover and high operating leverage.

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