STG CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.04B
• Operating Income: ¥79M
• Net Income: ¥155M
• EPS: ¥30.47

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

STG Co., Ltd. (consolidated, JGAAP) reported FY2026 Q2 cumulative results showing mixed performance: topline growth but significant margin compression. Revenue reached ¥3,044 million, up 6.1% YoY, indicating demand resilience or price effects despite a tougher operating backdrop. Gross profit was ¥684.6 million, implying a gross margin of 22.5%, which appears compressed for an industrial manufacturer and likely reflects cost inflation or weaker mix. Operating income fell sharply to ¥79 million (-56.2% YoY), with an operating margin of 2.6%, pointing to elevated SG&A and/or limited pricing power. Ordinary income of ¥101 million exceeded operating income by roughly ¥22 million, suggesting a net non-operating gain offsetting part of the operating shortfall. Net income declined to ¥70 million (-54.6% YoY), for a net margin of 2.3%. Cash generation was solid relative to earnings: operating cash flow (OCF) of ¥288.3 million implies OCF/Net Income of 4.12x, supported by non-cash depreciation (¥184.3 million) and likely working capital movements. Liquidity appears adequate with a current ratio of 1.60x and working capital of approximately ¥1.48 billion. Leverage is moderate with total liabilities of ¥4.23 billion versus equity of ¥2.71 billion (debt-to-equity 1.56x); based on reported totals, the implied equity ratio is around 29% even though the “Equity Ratio” metric was shown as 0.0% (likely undisclosed). Interest expense was ¥34.1 million, and EBITDA of ¥263.3 million provides an interest coverage of about 2.3x, which is serviceable but leaves limited cushion if margins deteriorate further. DuPont decomposition yields a calculated ROE of 2.58% driven by a low net margin (2.30%), modest asset turnover (0.329x), and relatively high financial leverage (3.42x assets/equity). The company reported DPS of ¥0.00, implying a payout ratio of 0%, which is consistent with protecting liquidity during a margin trough. Investing cash flows were shown as 0 (likely undisclosed), so reported free cash flow is 0; this limits our ability to comment on true FCF after capex. Share count and cash balance were not disclosed in the dataset, constraining per-share and liquidity granularity. Overall, the narrative is one of volume/revenue resilience overshadowed by significant cost pressures, with decent cash conversion, adequate liquidity, and moderate leverage supporting near-term stability, but profitability normalization is key for ROE recovery.

Profitability Analysis

roe_decomposition: ROE 2.58% = Net margin 2.30% × Asset turnover 0.329× × Financial leverage 3.42×. The primary drag is the compressed net margin; leverage provides uplift but cannot offset weak profitability. margin_quality: Gross margin 22.5% and operating margin 2.6% indicate substantial pressure below gross profit (SG&A, logistics, energy, labor). Ordinary income exceeded operating income by ~¥22 million, indicating modest non-operating support (e.g., forex gains, subsidies, or financial income). The interest burden (¥34.1 million) absorbs a meaningful share of operating profit, contributing to the steep drop-through from operating to net. operating_leverage: Revenue grew 6.1% YoY while operating income fell 56.2% YoY, implying negative operating leverage in the period. Fixed cost absorption appears unfavorable; depreciation (¥184.3 million) at 70% of operating income (pre-D&A) underscores a high fixed-cost base typical of asset-intensive operations.

Growth Assessment

revenue_sustainability: Topline growth of 6.1% YoY suggests stable end-demand and/or pricing adjustments. Without segment or geographic detail, sustainability hinges on order backlog, customer mix, and ability to pass through input costs. profit_quality: The sharp margin compression indicates pricing/mix headwinds and rising costs. However, OCF exceeded net income by 4.1x, supported by depreciation and likely working capital release, which partially mitigates earnings volatility. outlook: For the second half, recovery depends on cost pass-through, stabilization in raw materials and energy, and improved utilization. If gross margin recovers by even 100–200 bps and SG&A is contained, operating margin could normalize; conversely, persistent cost inflation or weak volumes would keep ROE subdued.

Financial Health

liquidity: Current assets ¥3,967.4 million vs. current liabilities ¥2,485.7 million yields a current ratio of 1.60x and quick ratio of 1.60x (inventories not disclosed). Working capital is approximately ¥1,481.7 million, indicating adequate short-term liquidity. solvency: Total assets ¥9,265 million; total liabilities ¥4,228.9 million; total equity ¥2,708 million. Implied equity ratio ≈ 29.2% (vs. the disclosed metric 0.0%, which appears undisclosed rather than actual). Debt-to-equity 1.56x reflects moderate leverage. capital_structure: Financial leverage (assets/equity) is 3.42x, supporting ROE but increasing sensitivity to earnings volatility. Interest expense of ¥34.1 million is covered 2.3x by EBITDA (¥263.3 million), a modest cushion that warrants monitoring if rates or debt levels rise.

Cash Flow Quality

earnings_quality: OCF ¥288.3 million vs. net income ¥70.0 million yields OCF/NI of 4.12x, indicating strong cash conversion aided by non-cash D&A (¥184.3 million) and working capital. This suggests earnings are backed by cash in this period. fcf_analysis: Investing cash flow was shown as 0 (undisclosed), so reported FCF is 0 and not economically meaningful. Without capex detail, we cannot assess true FCF; given high D&A, maintenance capex is likely material, which would reduce economic FCF relative to OCF. working_capital: The OCF outperformance implies favorable working capital contributions (details not provided). Sustainability of this benefit is uncertain; reversals in receivables or payables timing could normalize OCF.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0.00 and payout ratio 0%, consistent with preserving cash amid compressed margins and moderate leverage. fcf_coverage: Reported FCF coverage is 0.00x due to undisclosed investing cash flows; thus we cannot assess dividend coverage on an FCF basis. On an earnings basis, current profitability would not support a high payout without improvement. policy_outlook: With ROE at 2.58% and operating margin at 2.6%, a conservative dividend stance is likely until margins and visibility improve. Balance sheet appears adequate to revisit distributions once profitability normalizes.

Risk Assessment

Business Risks:

• Raw material and energy cost volatility pressuring gross margins
• Pricing power constraints and delayed cost pass-through to customers
• Demand cyclicality in industrial end-markets
• Utilization risk due to fixed-cost base and high depreciation
• Supply chain disruptions affecting lead times and costs
• Customer concentration risk (not disclosed, but common in industrials)

Financial Risks:

• Modest interest coverage (~2.3x) amid rising rate environment
• Leverage sensitivity with D/E at 1.56x and financial leverage 3.42x
• Potential working capital reversals reducing OCF
• Limited visibility on capex/FCF due to undisclosed investing cash flows

Key Concerns:

• Sustained margin compression despite revenue growth
• Dependence on non-operating items to lift earnings above operating profit
• Lack of disclosure on cash, capex, and inventories limits analysis depth

Investment Implications

Key Takeaways:

• Revenue growth of 6.1% YoY but operating income down 56.2% indicates negative operating leverage
• Gross margin at 22.5% and operating margin at 2.6% highlight cost pressures
• OCF/NI of 4.12x shows strong cash conversion this period
• Leverage moderate (D/E 1.56x) with EBITDA interest coverage ~2.3x
• ROE at 2.58% is subdued due to low net margin despite leverage
• Dividend suspended (DPS ¥0) consistent with margin trough and prudence

Metrics to Watch:

• Gross margin and SG&A ratio trajectory
• Operating margin and EBITDA/interest coverage
• OCF sustainability and working capital trends
• Capex and true FCF once investing cash flows are disclosed
• Asset turnover and order/inventory dynamics (when available)
• Leverage (net debt/EBITDA) and interest expense trends

Relative Positioning: Within Japanese industrials of similar scale, STG shows resilient revenue but weaker near-term profitability and ROE, offset by adequate liquidity and moderate leverage; clearer disclosure on capex and cash would sharpen its positioning on FCF and return profile.

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