SHINTO COMPANY LIMITED FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.08B
• Operating Income: ¥-20M
• Net Income: ¥-8M
• Earnings per Unit (EPU): ¥-12.35

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: A weak FY2026 Q1 with revenue contraction, negative operating income, and negative net income, alongside tight liquidity and poor interest coverage. Revenue declined 10.5% YoY to 10.80, with gross profit of 2.34 and gross margin at 21.7%. SG&A was 2.06 (19.1% of sales), resulting in operating income of -0.20 and an operating margin of -1.9%. Ordinary income improved YoY (+19.9%) but remained negative at -0.11, highlighting limited earnings resilience from non-operating items (non-op income 0.03 vs non-op expenses 0.04). Despite these, profit before tax was reported positive at 0.31, suggesting unreported extraordinary gains between operating and ordinary lines; however, net income printed a loss of -0.08, implying additional below-the-line pressures not disclosed. Interest expense was 0.03, yielding a very weak interest coverage ratio of approximately -7.05x, which is a notable credit-quality concern. On margins, the quarter’s gross margin stood at 21.7%, SG&A ratio at 19.1%, and operating margin at -1.9%; without prior-period comparables by line item, basis-point expansion/compression cannot be reliably quantified, but the negative operating margin signals compression at the operating level. Earnings quality cannot be evaluated due to unreported cash flows; OCF/NI and FCF are not available, a material limitation. Balance sheet shows total assets of 63.28 and equity of 32.41 (D/E 0.92x), with current ratio at 103.2% and quick ratio at 44.4%, indicating tight short-term liquidity backed heavily by inventories (14.94). Short-term loans of 18.83 dominate the liability structure, raising refinancing risk. DuPont ROE was -0.2% (NPM -0.7%, asset turnover 0.171x, leverage 1.95x), with negative margin being the main driver of weak returns. Reported ROIC at -0.3% is below the 5% warning threshold, reinforcing poor capital efficiency this quarter. The effective tax rate was 34.4%, but bottom-line loss suggests either asymmetrical tax effects or unreported special items. Forward-looking, cost control, inventory discipline, and restoring positive operating margins are critical, and the company’s ability to roll over short-term debt at reasonable rates will influence near-term stability. Absent cash flow disclosure and dividend information, visibility into dividend capacity and internal funding of capex is low. Overall, the quarter reflects operational softness, thin margin headroom, and elevated financial risk from weak coverage and reliance on short-term borrowings.

Profitability Analysis

ROE decomposition (DuPont): ROE (-0.2%) = Net Profit Margin (-0.7%) × Asset Turnover (0.171x) × Financial Leverage (1.95x). The most impactful driver is the negative net profit margin, given asset turnover and leverage are within a typical low-turnover manufacturing range, while margin dipped into loss territory. Operating underperformance is evident: gross margin 21.7% versus SG&A ratio 19.1% left a narrow 2.6% operating spread before other operating items, yet other operating expenses turned OI to -1.9% of sales. Non-operating results were roughly neutral (0.03 income vs 0.04 expenses), insufficient to offset operating weakness. Ordinary income improved YoY despite remaining negative, indicating some stabilization below the operating line; however, sustainability is questionable absent a turnaround in core operations. Business reason: lower sales (-10.5% YoY) likely reduced scale efficiency, while fixed-cost absorption and possibly higher energy/material costs compressed operating profit. This appears cyclical/operational rather than one-off; unless volumes recover or costs are reduced, losses may persist. Red flags on operating leverage: SG&A at 19.1% of sales is high relative to a 21.7% gross margin, leaving little buffer; growth in SG&A versus revenue cannot be assessed due to missing YoY SG&A data, but the structure looks tight.

Growth Assessment

Top line contracted 10.5% YoY to 10.80, indicating demand softness or pricing pressure. Gross profit of 2.34 implies limited pricing power or cost inflation relative to revenue. Operating loss of -0.20 suggests negative operating leverage as lower volumes failed to cover fixed costs. Ordinary income improved YoY but remained negative; any improvement seems driven by below-operating items rather than core recovery. Profit before tax was reported positive (0.31) but net income was negative (-0.08), pointing to unreported special factors or tax asymmetries; growth quality is therefore unclear. With asset turnover at 0.171x, capital intensity is high and revenue growth alone may not translate into strong ROE without margin repair. Outlook hinges on restoring operating margin above zero via cost control, mix improvement, and inventory normalization. Absent cash flow and order/backlog data, sustainability of any recovery cannot be confirmed.

Financial Health

Liquidity is tight: current ratio 103.2% is barely above 1.0, and quick ratio 44.4% signals dependence on inventory conversion; explicit warning threshold breached for quick ratio. Short-term loans of 18.83 are large versus cash (2.54) and receivables (5.66), creating a maturity mismatch risk if inventory (14.94) turns slowly. No explicit current ratio warning (<1.0) is triggered, but buffer is thin. Solvency is moderate with D/E 0.92x and total liabilities 29.77 against equity 32.41. Interest coverage is very weak at approximately -7.05x (OI/interest expense), raising debt service risk if rates rise or lenders tighten. Long-term loans are small (1.38), indicating reliance on short-term funding and rollover risk. Off-balance sheet obligations are not reported; data limitations prevent assessment of guarantees or leases beyond those embedded in liabilities.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income, FCF, and working-capital cash conversion cannot be evaluated. Given the operating loss and large inventories relative to receivables and cash, there is potential risk of working capital absorption, but this cannot be confirmed. Dividend and capex coverage by FCF cannot be assessed. No signs of working-capital manipulation can be inferred due to missing cash flow and detailed working capital movement data.

Dividend Sustainability

Dividend per share and total dividends are unreported; the calculated payout ratio (-389.9%) is not reliable without confirmed dividend cash out and reflects a mathematical artifact of negative earnings. With net income negative and cash flows unreported, there is insufficient evidence to assert dividend sustainability. If dividends are maintained, coverage would likely depend on external funding or balance sheet capacity; given weak interest coverage and tight liquidity, a conservative stance on distributions would be prudent until operating cash flow turns positive. Policy outlook cannot be inferred without guidance or historical payout information.

Risk Assessment

Business Risks:

• Demand softness evidenced by -10.5% YoY revenue decline, pressuring scale and utilization
• Thin margin structure: gross margin 21.7% vs SG&A 19.1% leaves little buffer against cost shocks
• Potential cost inflation (materials/energy) compressing operating profit
• Inventory dependence (14.94) elevates obsolescence and price markdown risk

Financial Risks:

• Debt service risk: interest coverage approximately -7.05x (warning)
• Refinancing/maturity mismatch risk: short-term loans 18.83 vs limited liquid assets (cash 2.54, AR 5.66)
• Tight liquidity: quick ratio 44.4% and current ratio only 103.2%
• Sensitivity to interest rate increases given reliance on short-term borrowings

Key Concerns:

• Negative operating income (-0.20) and net loss (-0.08) despite reported positive PBT suggest unreported special items or tax effects, reducing transparency
• ROIC at -0.3% well below 5% threshold highlights weak capital efficiency
• Lack of cash flow disclosure impedes assessment of earnings quality and dividend capacity
• Ordinary income remains negative, indicating core profitability not yet restored

Investment Implications

Key Takeaways:

• Core operations unprofitable with operating margin -1.9%
• Revenue decline (-10.5% YoY) and negative operating leverage are pressuring earnings
• Very weak interest coverage (~-7x) and reliance on short-term debt heighten financial risk
• Liquidity is tight; quick ratio 44.4% indicates dependence on inventory monetization
• ROE -0.2% and ROIC -0.3% reflect inadequate returns on capital this quarter
• Earnings visibility is low due to missing cash flows and unreported extraordinary items

Metrics to Watch:

• Gross margin vs SG&A ratio (target: expand operating margin to >2%)
• Inventory levels and turnover days to unlock cash and reduce reliance on short-term debt
• Operating cash flow and free cash flow once disclosed (OCF/NI >1.0 as quality marker)
• Interest coverage ratio (>2x minimum, >5x preferable)
• Short-term debt balance and average borrowing rates
• Revenue trajectory and order/backlog indicators for volume recovery

Relative Positioning: Relative to domestic small-cap industrial/material peers, the company currently exhibits weaker operating profitability, tighter liquidity, and poorer interest coverage, leaving it more exposed to cyclical and financing headwinds until margins and cash conversion improve.

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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