SANYU CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.67B
• Operating Income: ¥447M
• Net Income: ¥329M
• EPS: ¥49.90

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

Verdict: A solid FY2026 Q2 with clear margin improvement and strong cash conversion, albeit with structurally low capital efficiency. Revenue rose 5.8% YoY to 126.72, while operating income climbed 47.2% YoY to 4.47, evidencing operating leverage. Gross profit reached 17.44, yielding a gross margin of 13.8%, and SG&A of 12.97 held to 10.2% of sales. Operating margin improved to 3.53%, and ordinary income grew 44.2% to 4.83, supported modestly by net non-operating income of 0.36 (28 bps of sales). Net income increased 57.6% YoY to 3.01, lifting net margin to 2.38% (up ~79 bps YoY by our estimate). We estimate last year’s operating margin at ~2.54%, implying ~99 bps operating margin expansion YoY. The effective tax rate was 32.0%, consistent with a normalized rate and no evident one-time tax benefits. Cash generation was a standout: OCF of 9.14 was 3.04x net income, indicating high earnings quality and likely favorable working capital dynamics. Liquidity remains strong with a current ratio of 171% and quick ratio of 139%, and the company sits in a net cash position (cash 33.30 vs interest-bearing debt 15.07), keeping interest coverage extremely high (68.8x). Balance sheet conservatism is evident, with total liabilities of 85.77 vs equity of 107.28, and short-term loans (12.30) well-covered by cash. Despite these positives, capital efficiency is weak: ROE is 2.8% and ROIC is flagged at 3.4%, below the 5% warning threshold. DuPont signals that low net margins and moderate asset turnover constrain ROE, despite modest leverage (1.8x). Forward-looking, near-term earnings should benefit from the improved cost pass-through and disciplined SG&A, but structurally low ROIC suggests the need for mix upgrades, pricing power gains, or asset optimization to drive sustainable value creation. Dividend capacity appears supported by OCF (and our estimated positive FCF), with a calculated payout ratio of 44.5% looking reasonable. Key watchpoints are input cost volatility (steel/energy), demand conditions in end markets, and maintaining the better margin trajectory without sacrificing volume.

Profitability Analysis

ROE decomposition: 2.8% = Net Profit Margin (2.38%) × Asset Turnover (0.656) × Financial Leverage (1.80x). The most notable change YoY appears in profitability: net margin expanded to ~2.38% from ~1.59% (our estimate using prior NI ~1.91 and revenue ~119.7), a ~79 bps improvement. Operating margin rose to ~3.53% from ~2.54% (our estimate), a ~99 bps expansion, indicating operating leverage from cost control and improved gross-to-operating spread. Asset turnover of 0.656 (period metric) is stable-to-slightly improved given revenue growth, but we lack prior period asset data to confirm the change. Financial leverage of 1.80x is moderate and relatively unchanged in character; the company remains net cash, so leverage is not the ROE driver. Business drivers: better cost pass-through and SG&A discipline (SG&A at 10.2% of sales) lifted operating margin; non-operating income (net +0.36) added ~28 bps to ordinary margin but is not the core driver. Sustainability: operating margin gains look more durable than non-operating contributions; however, sustaining mid-single-digit OPM may depend on stable input costs and demand. Flags: We cannot compare SG&A growth vs revenue growth due to missing YoY SG&A; however, the current SG&A ratio is reasonable and below the gross margin, preserving positive operating leverage.

Growth Assessment

Top-line growth of 5.8% YoY (to 126.72) indicates resilient demand. Operating income growth of 47.2% far outpaced revenue, evidencing margin normalization and better cost structure. Ordinary income rose 44.2% with a modest lift from non-operating items (dividends 0.21, interest income 0.02, net non-op +0.36). Net income grew 57.6% to 3.01, aided by operating leverage and a normalized tax rate (32%). Revenue sustainability hinges on end-market conditions (likely steel-related/industrial customers), pricing power, and input cost pass-through. Profit quality appears high: OCF/NI at 3.04x reduces concern about accrual-driven earnings. Outlook: if pricing discipline and SG&A control persist, operating margin above 3.5% is attainable; key risks are commodity and energy cost volatility and potential demand softness. Mix upgrades (higher value-added products) would be needed to structurally lift ROIC beyond the current 3.4%.

Financial Health

Liquidity is strong: current ratio 171% and quick ratio 139% (both above benchmarks). No warning on Current Ratio (<1.0) or D/E (>2.0); reported D/E is 0.80x, conservative. Maturity mismatch risk is low: current assets 136.91 comfortably cover current liabilities 79.88; short-term loans 12.30 are covered by cash 33.30. Total interest-bearing debt is 15.07 (ST 12.30 + LT 2.77) versus cash 33.30, implying net cash ~18.23. Interest coverage is robust at 68.8x, reflecting low interest burden (interest expense 0.06). Off-balance sheet obligations are not disclosed; no data on leases or guarantees, so hidden leverage cannot be assessed. Equity of 107.28 underpins solvency; total liabilities/equity at ~0.80x is manageable.

Cash Flow Quality

Earnings quality is high: OCF 9.14 vs NI 3.01 yields OCF/NI of 3.04x (>1.0 benchmark). Estimated free cash flow is positive at ~6.13 (OCF 9.14 minus capex 3.01), supporting internal funding of investments and dividends; note FCF is our calculation given unreported FCF. Working capital appears a tailwind or well-managed, given the OCF strength relative to earnings, but the exact drivers (AR, inventory, AP) are not disclosed. No signs of working capital manipulation are evident from available data, though disclosure is limited. Financing CF of -3.92 suggests net debt reduction and/or dividends; dividend cash out is unreported.

Dividend Sustainability

The calculated payout ratio is 44.5%, within the <60% benchmark and consistent with a sustainable profile. With estimated FCF of ~6.13, dividend coverage appears comfortable this period, even after capex of 3.01. Strong net cash and liquidity further support near-term dividend capacity. However, absent explicit DPS and total dividends paid, we rely on the payout ratio and NI to infer sustainability. Policy outlook: if operating margin gains persist and OCF remains strong, the company has room to maintain or modestly raise dividends within a disciplined payout framework.

Risk Assessment

Business Risks:

• Commodity/input price volatility (steel and energy) affecting gross margin
• Demand cyclicality in industrial/end markets impacting volumes and pricing
• Potential customer concentration typical in metal/industrial supply chains
• Supply chain and logistics disruptions affecting delivery and inventory levels

Financial Risks:

• Structurally low ROIC (3.4%) relative to cost of capital, pressuring value creation
• Margin sensitivity to raw material costs could quickly compress operating margin
• Tax rate variability (32% this period) could affect net margin if credits expire
• Limited disclosure on leases/off-balance sheet commitments

Key Concerns:

• Low capital efficiency despite net cash and improved margins (ROE 2.8%, ROIC 3.4%)
• Dependence on maintaining cost pass-through to sustain >3.5% operating margin
• Non-operating income contribution (net +0.36) adds some variability to ordinary income
• Data gaps (no DPS, limited segment detail) reduce visibility on recurring vs one-off drivers

Investment Implications

Key Takeaways:

• Solid margin recovery: operating margin ~3.53% (+~99 bps YoY) and net margin ~2.38% (+~79 bps YoY)
• High earnings quality: OCF/NI 3.04x and estimated FCF ~6.13
• Strong balance sheet: net cash ~18.23, interest coverage 68.8x, liquidity robust
• Capital efficiency remains weak: ROE 2.8%, ROIC 3.4% below 5% warning threshold
• Sustainability hinges on stable input costs and continued SG&A discipline

Metrics to Watch:

• Operating margin trajectory and SG&A ratio
• Gross margin versus raw material and energy cost trends
• OCF sustainability and working capital turns (AR/inventory days)
• Capex intensity versus growth (impact on ROIC)
• Dividend disclosures (DPS, total dividends) and payout discipline

Relative Positioning: Within Japanese industrial/materials peers, the company shows stronger near-term cash generation and a more conservative balance sheet than average, but lags on capital efficiency (ROIC/ROE). Sustained mix/pricing improvements are needed to close 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