SHIMA SEIKI MFG. (6222) FY2026 FY Earnings Report

Quick View

Executive Summary

Although earnings recovered sharply from the substantial loss recorded in the previous fiscal year, this was a set of results still in the process of restructuring, with an operating loss remaining on a core business basis. Revenue was ¥335.1B (+3.0% YoY), Operating Income was ¥-17.2B (an improvement of ¥101.9B from ¥-119.1B in the previous year), Ordinary Income was ¥2.9B (compared with ¥-114.8B in the previous year), and Net Income attributable to owners of the parent was ¥8.6B (compared with ¥-142.7B in the previous year), with all of these items turning profitable. Improvements in the gross margin (26.5%→35.5%) and substantial reductions in SG&A expenses (63.2%→40.6% of Revenue) led the earnings recovery. However, Operating Income remained negative, and the profitability of Ordinary Income and Net Income was substantially supported by non-operating and special factors, including foreign exchange gains and gains on the sale of investment securities.

Factors Affecting Performance

【Revenue】Revenue increased 3.0% YoY to ¥335.1B. The core flat knitting machine business generated ¥238.7B (+2.7% YoY), accounting for 71.2% of total Revenue, while the design systems-related business generated ¥30.4B (+7.8% YoY), recording the highest rate of Revenue growth. Meanwhile, the glove and sock knitting machine business contracted to ¥5.2B (-31.1% YoY). By region, Europe and Japan expanded, while the Middle East declined significantly YoY, indicating substantial disparities in supply and demand among regions.

【Profitability】Operating Income was ¥-17.2B, narrowing substantially from ¥-119.1B in the previous year. The primary factors were an approximately 9pt improvement in the gross margin to 35.5% and a 33.7% YoY reduction in SG&A expenses to ¥136.2B. As company-wide expenses of ¥60.8B exceeded the total segment profit of ¥43.6B, consolidated operating results remained negative. Ordinary Income of ¥2.9B resulted from non-operating income of ¥22.9B—including foreign exchange gains of ¥9.4B and interest income of ¥7.6B, among other items—offsetting the operating loss. Net Income included special income of ¥13.2B, including a ¥12.3B gain on the sale of investment securities, less special losses of ¥5.0B, resulting in a net special gain of ¥8.2B. Temporary factors therefore accounted for approximately 74% of Profit Before Tax of ¥11.1B. While the combination of higher Revenue and improved operating results could be characterized as growth in Revenue and earnings, Operating Income itself remained negative; therefore, the results are best described as higher Revenue and improved profitability in the form of a narrowing operating loss.

Segment Analysis

The flat knitting machine business recorded Revenue of ¥238.7B (+2.7% YoY) and Operating Income of ¥25.6B (+151.0% YoY; margin of 10.7%), recovering substantially from the segment loss in the previous fiscal year and becoming the core contributor to company-wide profit. The design systems-related business generated Revenue of ¥30.4B (+7.8% YoY) and Operating Income of ¥6.7B (+493.8% YoY; margin of 22.1%), securing the highest profit margin. Other businesses, including parts and repair and maintenance services, generated Revenue of ¥60.8B (+6.4% YoY) and Operating Income of ¥10.5B (+888.0% YoY), representing a substantial increase in profit. The glove and sock knitting machine business contracted to Revenue of ¥5.2B (-31.1% YoY), but Operating Income increased modestly to ¥0.8B (+204.0% YoY). As company-wide expenses of ¥60.8B exceeded total segment profit of ¥43.6B, consolidated operating results remained in the red.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to -5.1% from -36.6% in the previous year, but remained negative. The Net Income margin was 2.6% and ROE was 1.0%, indicating that the recovery in capital efficiency remained limited.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥4.1B, only 0.5x Net Income of ¥8.6B. Together with EBITDA of ¥-6.4B, this indicates that accounting profitability has not translated into sufficient cash generation.【Investment Efficiency】ROIC remained negative, and improving the ability to convert the company’s substantial equity base into earnings remains a challenge. Capital expenditures of ¥13.0B represented 3.9% of Revenue, maintaining a level above that required for replacement investment.【Financial Soundness】The company had a strong liquidity position, with an Equity Ratio of 75.2% and cash and deposits of ¥212.9B. Although interest-bearing debt was limited relative to total assets, continued monitoring is necessary because negative EBIT and EBITDA indicate that interest payments cannot be absorbed by core business earnings.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥4.1B, improving from ¥-44.6B in the previous year but remaining modest relative to Net Income of ¥8.6B. A ¥7.8B decrease in inventories and a ¥3.8B decrease in trade receivables contributed to cash inflows, while a ¥6.6B decrease in trade payables exerted pressure on cash, offsetting the benefits of working capital improvement. Investing Cash Flow was ¥-14.7B, primarily reflecting capital expenditures of ¥13.0B. Financing Cash Flow was positive at ¥54.7B, including ¥100.0B in funding through long-term borrowings. This supported the increase in cash and deposits to ¥212.9B (+50.7% YoY), while the company also conducted share repurchases of ¥9.5B. Free Cash Flow was ¥-10.6B, indicating that investment and shareholder returns were not fully funded solely by cash flow from core operations. It should be noted that the increase in cash had a high degree of dependence on financing activities.

Quality of Earnings

Net Income of ¥8.6B was highly dependent on non-recurring factors rather than recurring business activities. Non-operating income of ¥22.9B included foreign exchange gains of ¥9.4B, interest income of ¥7.6B, and dividend income of ¥2.8B, substantially offsetting the operating loss of ¥17.2B. Gains on the sale of investment securities of ¥12.3B accounted for the majority of special income of ¥13.2B. After deducting special losses of ¥5.0B, primarily valuation losses on investment securities, the net special gain of ¥8.2B accounted for approximately 74% of Profit Before Tax of ¥11.1B. Together with OCF remaining at approximately 0.5x Net Income, this indicates that the quality of current-period earnings was limited. Achieving profitability in Operating Income from the core business will therefore be a central issue in normalizing earnings going forward.

Earnings Forecasts and Guidance

For the full-year outlook, the company has indicated Revenue of ¥410.0B (+22.4% YoY), Operating Income of ¥3.0B, Ordinary Income of ¥10.0B (+246.3% YoY), EPS of ¥26.53, and a dividend of ¥20.00. Current-period results to date were Revenue of ¥335.1B, equivalent to 81.7% of the full-year forecast. Ordinary Income of ¥2.9B represented only 28.8% of the full-year forecast, while Net Income of ¥8.6B had already reached 95.1% of the full-year forecast of ¥9.0B. The fact that progress in Net Income is ahead of progress in Operating Income and Ordinary Income reflects the contribution of temporary special income to Net Income. Further improvement in core business profitability will therefore be necessary to achieve positive Operating Income for the full year.

Shareholder Returns

The annual dividend was ¥20 per share, an increase from ¥5 in the previous year, with total dividend payments of ¥6.7B. The Payout Ratio was high at 79.3% relative to Net Income of ¥8.6B. In addition, the company conducted share repurchases of ¥9.5B, resulting in a Total Return Ratio substantially exceeding the Payout Ratio. Free Cash Flow for the current period was ¥-10.6B, meaning that dividends and share repurchases could not be fully covered solely by internally generated funds. The conservative financial base, consisting of an Equity Ratio of 75.2% and cash and deposits of ¥212.9B, supports shareholder returns for the time being. However, the sources of such returns include temporary gains such as gains on the sale of investment securities, and the sustainability of the level of shareholder returns will depend on the extent of the recovery in cash flow from core operations.

Risk Factors

1. Concentration in the flat knitting machine business and regional demand imbalances: The flat knitting machine business accounts for 71.2% of Revenue, making performance susceptible to the capital investment cycle in the apparel and knitwear manufacturing industries. By region, demand fluctuations are significant, as evidenced by the substantial YoY decline in sales in the Middle East.

2. Dependence on non-recurring gains: Of Profit Before Tax of ¥11.1B, the net special gain of ¥8.2B, including gains on the sale of investment securities, accounts for a significant proportion. In addition, foreign exchange gains of ¥9.4B within non-operating income offset the operating loss of ¥17.2B, necessitating evaluation separately from recurring earnings power.

3. Interest burden and cash-generating capacity: Because Operating Income and EBITDA were negative, interest expenses could not be sufficiently absorbed by core business earnings. OCF remained at approximately 0.5x Net Income and Free Cash Flow was also negative, requiring close monitoring of the progress of cash flow improvement.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Although there was substantial improvement from the previous year, both the Operating Income margin and Net Income margin were below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate was approximately in line with the industry median, placing growth at a standard level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Although earnings recovered sharply from the substantial loss in the previous fiscal year, the operating loss remained at ¥-17.2B, indicating that the restructuring of the core business is still incomplete. The ongoing reduction in the break-even point through gross margin improvement and SG&A expense reductions is noteworthy as a structural change.

2. The substance of Net Income of ¥8.6B was highly dependent on non-recurring factors such as foreign exchange gains and gains on the sale of investment securities. Together with OCF of ¥4.1B remaining below Net Income, the progress in converting profit into cash should be monitored.

3. The conservative financial base, represented by an Equity Ratio of 75.2%, supports resilience until the business recovers. However, the 79.3% Payout Ratio and share repurchases conducted despite negative Free Cash Flow highlight that the quality of the funding sources for shareholder returns may change depending on the sustainability of future improvements in OCF.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,821–¥1,923 at Cost of Equity ±1%; ¥1,854–¥1,882 at ω±0.1.

Notes:

• To exclude the effects of temporary earnings, normalized EPS calculated from Ordinary Income and other figures is used (the company’s forecast EPS is ¥26.5).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional advisor where necessary.

---End of Report---