SHIMA SEIKI MFG. (6222) FY2026 Q3 Earnings Report

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Executive Summary

Despite the increase in revenue, profitability in the core business has not improved accordingly, and the return to ordinary profitability is attributable to dependence on non-operating income. Revenue increased to ¥242.6B (+11.0% YoY), while Operating Income was ¥-10.6B, representing a narrower loss than the previous year’s ¥-97.9B. Ordinary Income of ¥5.0B (previous year: ¥-95.2B) and Net Income of ¥3.9B (previous year: ¥-112.8B) both returned to profitability; however, this resulted from ¥17.7B in non-operating income, including ¥7.0B in foreign exchange gains, ¥5.7B in interest income, and ¥2.8B in dividend income, absorbing the operating loss.

Factors Affecting Performance

【Revenue】Revenue increased 11.0% YoY to ¥242.6B. By segment, Flat Knitting Machine was the main business at ¥173.6B (71.6% composition ratio, 12.6% profit margin), followed by Gloves and Socks Knitting Machine at ¥4.2B (17.5%) and Design System Related at ¥20.0B (19.3%). Although the profit margins of both segments are higher than that of the main business and each segment remains profitable individually, company-wide Operating Income remains negative, indicating issues with the allocation of company-wide expenses, including those not attributable to reportable segments, and with the profitability structure.

【Profit and Loss】SG&A expenses at 41.7% of revenue exceeded the gross profit margin of 37.3%, leaving the Operating Income margin at only ▲4.4%. Ordinary Income of ¥5.0B resulted from non-operating income of ¥17.7B, centered on foreign exchange gains, interest income, and dividend income, offsetting the operating loss of ¥10.6B; thus, the composition of profit is not attributable to the core business. Extraordinary income of ¥0.9B (gain on sale of fixed assets) also accounted for more than 15% of Profit Before Tax of ¥6.0B, reducing the reproducibility of earnings as a temporary factor. In conclusion, the company experienced higher revenue but lower profit, although performance improved from the substantial loss in the previous year, and the increase in revenue has not translated directly into improved Operating Income.

Segment Analysis

The main Flat Knitting Machine segment generated revenue of ¥173.6B and Operating Income of ¥21.8B (12.6% profit margin), accounting for 71.6% of company-wide revenue. Gloves and Socks Knitting Machine is small in scale at ¥4.2B in revenue but highly profitable, with a 17.5% profit margin. Design System Related demonstrated the highest profitability among the segments, with revenue of ¥20.0B and a 19.3% profit margin. Each segment is profitable individually, suggesting that the company-wide operating loss is largely attributable to the burden of headquarters expenses and other adjustment items.

Key Financial Metrics

【Profitability】The Operating Income margin was ▲4.4% and the Net Income margin was 1.6%, both at low levels. The structural imbalance in which the SG&A expense ratio of 41.7% exceeds the gross profit margin of 37.3% is the cause of the operating loss. 【Cash Quality】Although Operating Cash Flow and other cash flow data have not been disclosed, accounts receivable of ¥363.0B exceed revenue in scale, and together with inventories of ¥130.1B, account for 45.1% of total assets, indicating substantial funds tied up in working capital. 【Investment Efficiency】ROE was 0.5%, while total asset turnover remained low, indicating insufficient earnings contribution relative to the substantial equity base. 【Financial Soundness】The Equity Ratio was 74.7%. Current assets of ¥818.4B versus current liabilities of ¥168.3B indicate ample liquidity, while interest-bearing debt of ¥126.7B is not excessive relative to equity.

Cash Flow Analysis

As Operating, Investing, and Financing Cash Flow disclosures are unavailable, fund movements are assessed based on changes in the balance sheet. Cash and deposits increased by ¥53.5B to ¥194.8B from ¥141.3B in the previous year, indicating expanded financial capacity. Meanwhile, accounts receivable of ¥363.0B and inventories of ¥130.1B remained at high levels, potentially indicating prolonged collection and inventory turnover relative to the scale of revenue. Accounts payable of ¥15.7B are small compared with the scale of accounts receivable and inventories, limiting the cash-generation effect of trade payables. Net Income of ¥3.9B includes items such as foreign exchange gains, interest and dividend income, and gains on the sale of fixed assets, for which the timing of cash realization differs; accounting profit must therefore be distinguished from actual cash-generation capacity.

Earnings Quality

Of Ordinary Income of ¥5.0B, ¥15.6B comprising foreign exchange gains of ¥7.0B, interest income of ¥5.7B, and dividend income of ¥2.8B constituted the core of non-operating income, enabling ordinary profitability by offsetting the operating loss of ¥10.6B. Extraordinary income of ¥0.9B (gain on sale of fixed assets) also accounted for more than 15% of Profit Before Tax of ¥6.0B, meaning that a portion of Net Income of ¥3.9B depends on temporary factors. Operating Income, which reflects the earning power of the core business, remains at ¥-10.6B. Accordingly, the profitability of Ordinary Income and Net Income is supported by non-recurring and non-core factors such as foreign exchange gains, financial income, and gains on asset sales, and earnings quality cannot be considered high.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥330.0B (+1.5% YoY), Operating Income of ¥-13.0B, Ordinary Income of ¥2.0B, EPS of ¥38.28, and dividends of ¥20.00. The revenue progress ratio is 73.5%, approximately in line with a standard level of progress. Cumulative operating losses have reached ¥-10.6B against the full-year forecast of ¥-13.0B, making the key focus whether the reduction in losses will be carried over to Q4. Cumulative Ordinary Income is ¥5.0B, already exceeding the full-year forecast of ¥2.0B; it should be noted that this depends on temporary non-operating income, including foreign exchange gains.

Shareholder Returns

The Q2 dividend was ¥10.00 per share, and the company’s full-year dividend forecast is ¥20.00. Based on forecast full-year Net Income of ¥13.0B, the forecast Payout Ratio is approximately 52.3%, below the general sustainability guideline of 60%. However, relative to cumulative Net Income of ¥3.9B, the dividend burden is comparatively high, and maintaining the annual dividend depends on achieving the full-year earnings forecast, particularly improvement in operating results. Equity of ¥816.1B and cash and deposits of ¥194.8B support the company’s short-term capacity to pay dividends.

Risk Factors

1. Weak core-business profitability: The Operating Income margin is ▲4.4%, and the structure in which the SG&A expense ratio of 41.7% exceeds the gross profit margin of 37.3% continues. Even if revenue continues to increase, achieving operating profitability will be difficult unless this structure is corrected.

2. Working capital tied up: Accounts receivable of ¥363.0B and inventories of ¥130.1B account for 45.1% of total assets. Accounts receivable exceeding revenue of ¥242.6B suggests a prolonged collection cycle. Delays in collection and inventory liquidation could constrain capital efficiency and cash-generation capacity.

3. Dependence on non-operating income: Of Ordinary Income of ¥5.0B, ¥15.6B consists of financial and foreign exchange-related income, including foreign exchange gains of ¥7.0B. If foreign exchange conditions reverse, maintaining ordinary profitability may become difficult.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is significantly below the industry median, with both its Operating Income margin and Net Income margin ranking in the lower tier of the industry.

Growth and Capital Efficiency

The revenue growth rate is significantly above the industry median, and top-line expansion is at a high level within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue increased 11.0% YoY, but operating results remained a loss of ¥10.6B. The fact that higher revenue has not translated into improved Operating Income is the defining feature of the current earnings results.

2. The return to profitability in Ordinary Income and Net Income was largely attributable to non-operating income, including foreign exchange gains, interest income, and dividend income, as well as gains on the sale of fixed assets. This must be evaluated separately from earnings improvement originating in the core business.

3. While the company has a strong financial base, with an Equity Ratio of 74.7% and a current ratio equivalent to 486%, the high levels of accounts receivable and inventories mean that the extent to which funds remain tied up in working capital requires ongoing monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: 1,841円–1,945円 at ±1% in the cost of equity, and 1,876円–1,902円 at ±0.1 in ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.）

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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