SANYO INDUSTRIES,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.72B
• Operating Income: ¥493M
• Net Income: ¥383M
• Earnings per Unit (EPU): ¥126.68

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

FY2026 Q2 was a softer quarter with resilient cash generation but pressure on profitability, resulting in lower earnings year over year. Revenue declined 4.7% YoY to 127.22, while operating income fell 29.3% to 4.93, and ordinary income decreased 25.5% to 6.00. Net income was 3.83 (-17.9% YoY), implying a net margin of 3.0%. Gross profit was 36.83 for a gross margin of 28.9%, while SG&A of 31.89 consumed 25.1% of sales. Operating margin compressed to 3.87%, down roughly 135 bps from an estimated 5.22% a year ago (based on back-calculated prior figures), evidencing negative operating leverage. Non-operating items net (+1.07) lifted ordinary margin by about 110 bps to 4.72%, with dividend income of 0.21 and interest income of 0.06 helping offset cost headwinds. Earnings quality was solid: operating cash flow of 6.57 exceeded net income by 1.72x, indicating good cash conversion. Balance sheet strength is notable with cash and deposits at 92.92, current ratio of 244%, and debt-to-equity of 0.41x, supporting financial flexibility. Nonetheless, capital efficiency remains weak: ROE is 1.8% and ROIC 2.6%, both below typical cost of capital, highlighting the need for margin or turnover improvement. SG&A intensity appears elevated versus sales, contributing to profit compression. A high calculated payout ratio of 96.5% is aggressive relative to cash earnings and, together with share repurchases of 4.97, tightened free cash coverage in the half. Capex of 3.22 was moderate; OCF minus capex yields a proxy FCF of about 3.35, slightly short of implied dividends if the payout ratio is accurate. Interest burden is negligible (interest expense 0.03; coverage 164x), and near-term liquidity risk is low given cash greatly exceeds short-term loans (6.65). Forward-looking, stabilization of revenue and recovery in operating margin will be key to lift ROIC above the 5% warning threshold. Management may need to recalibrate shareholder returns if earnings do not recover, to preserve balance sheet strength. Overall, the quarter shows defensible cash flow and liquidity but deteriorating profitability and capital efficiency that require operational improvement.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.0% × 0.433 × 1.41 = 1.8% (matches reported). The biggest drag YoY is the margin component: operating income declined 29.3% on a 4.7% sales decline, implying operating margin compressed by ~135 bps to 3.87%. Asset turnover remains subdued at 0.433 (half-year basis), consistent with a balance sheet heavy in cash and receivables relative to revenue. Financial leverage is modest at 1.41x (Assets/Equity ≈ 294.09/207.93), limiting ROE uplift from leverage. Business drivers: softer top line and elevated SG&A (25.1% of sales) reduced operating leverage, while non-operating gains helped ordinary profit but do not fully offset core margin pressure. Sustainability: the operating margin compression reflects core operations and is unlikely to reverse without pricing actions or cost control; non-operating contributions (dividends/interest) are recurring but relatively small and volatile. Concerning trend flags: SG&A growth appears to have outpaced revenue (given SG&A ratio at 25.1% amid revenue decline), suggesting cost stickiness; reliance on non-operating items to reach ordinary income is elevated (ordinary margin 4.72% vs operating margin 3.87%).

Growth Assessment

Revenue contracted 4.7% YoY to 127.22, indicating demand softness or pricing pressure in core markets. Operating profit fell 29.3% to 4.93, showing negative operating leverage as fixed costs did not flex down with volume. Ordinary income benefited from non-operating gains (net +1.07), cushioning the decline but not changing the underlying downtrend. Net income decreased 17.9% to 3.83, aided by non-operating items and a manageable tax rate (35%). With gross margin at 28.9% and SG&A at 25.1%, the operating margin is thin at 3.87%, leaving limited buffer against further sales declines. The reported non-operating income ratio of 38.1% underscores the importance of financial income in the current profit mix. Near-term growth will depend on stabilizing sales, improving mix/pricing, and SG&A discipline; without these, ROIC likely remains below the 5% threshold. Backlog, order intake, and pricing pass-through to offset input costs will be critical to watch. Absent explicit guidance in the data, the outlook is cautious given compressed core margins and low capital efficiency.

Financial Health

Liquidity is strong: current ratio 244.3% and quick ratio 224.3%, with cash and deposits (92.92) exceeding current borrowings (short-term loans 6.65) by a wide margin. No warning: Current Ratio >> 1.0. Solvency is conservative: debt-to-equity 0.41x; interest coverage is very strong at 164.33x, and financial leverage is low at 1.41x. Equity constitutes roughly 70.7% of total assets (Assets 294.09; Equity 207.93), implying a solid capital base. Maturity mismatch risk is low as liquid assets substantially exceed short-term liabilities (current assets 188.19 vs current liabilities 77.04). Off-balance sheet obligations are not disclosed in the provided data; none can be assessed. There is no indication of long-term loans in the dataset (unreported), but even if present, cash provides a buffer. Overall balance sheet health is robust, supporting operational flexibility and shareholder distributions if maintained prudently.

Cash Flow Quality

OCF/Net Income is 1.72x (6.57/3.83), indicating high-quality earnings and good cash conversion. Using available data, a proxy free cash flow equals OCF minus capex ≈ 3.35, suggesting positive pre-financing cash generation; full FCF cannot be finalized because other investing flows are unreported. Financing cash flow was -6.87, driven by share repurchases of -4.97 and likely dividends (unreported exact amount). Working capital details are limited, but positive OCF alongside modest inventory (15.41) and receivables (48.40) suggests collections were healthy; no signs of aggressive working capital manipulation are evident from the summary. The cash balance increased/decreased cannot be concluded due to missing beginning/ending cash, but the absolute cash level (92.92) provides ample cushion. Overall, cash flow quality is strong this half, though shareholder returns nearly matched or exceeded proxy FCF, tightening coverage.

Dividend Sustainability

The calculated payout ratio of 96.5% is high relative to the benchmark (<60%) and not comfortably covered by proxy FCF (~3.35 vs implied dividends around 3.69 if the payout ratio applies), before considering buybacks of 4.97. With OCF strength, dividends are serviceable short term, but sustainability depends on profit recovery and capex discipline. Given low ROE (1.8%) and ROIC (2.6%), maintaining a near-100% payout risks constraining reinvestment for margin/turnover improvements. Policy outlook: without an earnings rebound, management may need to moderate payout or rely on the large cash balance to bridge; the latter is feasible in the short run but not a long-term solution. Lack of reported DPS and total dividends in the dataset limits precision; conclusions are based on the provided payout ratio.

Risk Assessment

Business Risks:

• Demand softness leading to negative operating leverage (revenue -4.7% YoY; operating income -29.3%).
• Input cost and pricing pressure compressing operating margin (~135 bps YoY compression to 3.87%).
• Potential reliance on non-operating income to support ordinary profit (non-operating net +1.07).
• Execution risk on SG&A control with elevated cost ratio (25.1% of sales).
• Industry-specific: raw material (e.g., steel/metal) price volatility impacting gross margin for industrial components/building-related products.

Financial Risks:

• Low capital efficiency (ROIC 2.6%, ROE 1.8%) relative to likely cost of capital.
• High payout ratio (~96.5%) plus buybacks (4.97) straining FCF coverage if earnings weaken.
• Potential ordinary income volatility due to financial income sensitivity (dividends, interest).
• Tax rate variability (effective 35%) can affect net margin with small base.

Key Concerns:

• Sustained margin compression and SG&A stickiness.
• ROIC below 5% warning threshold, risking value dilution if not improved.
• Shareholder returns outpacing proxy FCF this half, reducing cash buffer over time if continued.
• Limited disclosure on investing cash flows and dividends creates uncertainty on true FCF and payout coverage.

Investment Implications

Key Takeaways:

• Core profitability weakened with operating margin down to 3.87% and operating income -29.3% YoY.
• Cash generation is solid (OCF/NI 1.72x) and the balance sheet is very liquid (cash 92.92; current ratio 244%).
• Capital efficiency is a clear weakness (ROIC 2.6%, ROE 1.8%), requiring margin or turnover improvement.
• Non-operating income provided a meaningful cushion to ordinary profit, but is not a substitute for core margin recovery.
• Shareholder returns (high payout and buybacks) approached/exceeded proxy FCF, implying limited headroom unless earnings recover.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio (cost discipline and pricing power).
• Order intake/backlog and revenue trajectory to gauge demand recovery.
• Gross margin versus input cost trends (materials, logistics).
• ROIC progression toward >5% and eventually >7–8%.
• Cash balance versus cumulative dividends and buybacks (coverage of shareholder returns).
• Working capital turns (receivables and inventories) and asset turnover.

Relative Positioning: Financially conservative with strong liquidity and minimal leverage, but lagging on profitability and capital efficiency versus typical industrial peers; near-term resilience stems from cash rather than earnings power.

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