SANSEI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.64B
• Operating Income: ¥240M
• Net Income: ¥176M
• EPS: ¥22.69

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Verdict: Strong top-line growth but weaker profitability; margins compressed and ROE/ROIC remain subdued in FY2026 Q2. Revenue rose 20.6% YoY to 26.41, signaling robust order execution and/or improved delivery timing. Despite higher sales, operating income fell 11.9% YoY to 2.40, and ordinary income declined 12.1% to 2.41, indicating cost pressure and/or mix deterioration. Net income decreased 13.3% YoY to 1.76, with EPS at 22.69 JPY. Operating margin compressed to 9.1%, down roughly 336 bps from an estimated 12.5% a year ago (based on YoY deltas). Net margin declined to 6.7%, down ~260 bps from an estimated 9.3% last year. Gross margin stands at 26.0%, but prior-year gross margin is unavailable; the gap between gross and operating margins narrowed as operating leverage turned negative. The company maintains a strong balance sheet with a current ratio of 358% and debt-to-equity of 0.36x, and interest coverage is very high at 96x. Liquidity is ample: cash and deposits of 13.36 exceed short-term loans (0.80) by a wide margin. ROE is low at 3.7% and ROIC is 4.6%, below the 5% warning threshold, highlighting capital efficiency concerns. Earnings quality cannot be validated due to unreported cash flow figures; OCF/NI and FCF are not available. The calculated payout ratio is high at 76.6%, which looks stretched against declining earnings and sub-5% ROIC. With margins under pressure and ROE/ROIC below desirable levels, reinvestment returns appear modest. Near-term performance hinges on cost control, pricing/mix management, and project execution to restore operating leverage. Forward-looking, margin recovery and cash conversion will be key to sustaining the dividend and improving capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.7% = Net Profit Margin (6.7%) × Asset Turnover (0.410) × Financial Leverage (1.36x). The largest change component versus last year appears to be Net Profit Margin, inferred from operating and ordinary income declines despite strong revenue growth (operating margin down ~336 bps; net margin down ~260 bps). Business driver: cost inflation, unfavorable product/project mix, and/or execution/timing effects likely eroded margin; SG&A ratio is 16.9% of sales (4.46/26.41), and with operating income falling, either gross margin compressed or SG&A rose faster than gross profit. Sustainability: margin pressure may ease if pricing/mix normalizes and cost control improves, but in project-based businesses timing and input cost volatility can persist; near-term sustainability is uncertain. Asset turnover at 0.410 is modest and typical for equipment/project businesses; improving turnover will depend on speeding project cycles and receivables collection. Financial leverage is low (1.36x), so ROE uplift from leverage is limited; absent margin recovery, ROE will remain subdued. Concerning trends: negative operating leverage is evident (OP down YoY despite higher sales); we cannot confirm whether SG&A growth exceeded revenue due to missing prior SG&A, but the outcome signals cost discipline issues or mix deterioration.

Growth Assessment

Revenue growth of +20.6% YoY to 26.41 is solid, suggesting healthy demand and/or favorable project deliveries in the half. However, profit growth is negative: operating income -11.9% and net income -13.3%, indicating growth is not translating into earnings due to margin compression. The quality of growth is mixed: top line is expanding but with weaker conversion to profit, implying pricing, mix, or cost headwinds. Non-operating items were nearly neutral (income 0.04, expenses 0.03), so the earnings decline is fundamentally operating-driven. With interest expense minimal (0.02) and effective tax rate around 27.0%, the bridge from operating to net is clean. Outlook hinges on restoring gross margin and controlling SG&A; given the strong cash and low leverage, the company has room to invest in cost improvements but must improve ROIC above the 7–8% benchmark to create value. Absent evidence of backlog strength or segment detail, sustainability of the top-line pace is uncertain; monitoring order intake and book-to-bill would clarify trajectory.

Financial Health

Liquidity is strong: current ratio 358% and quick ratio 358% (note: inventories unreported, so quick ratio equals current ratio by data limitation). There is no warning on current ratio (<1.0) or D/E; D/E is conservative at 0.36x. Maturity mismatch risk is low: cash and deposits (13.36) plus receivables (18.30) comfortably exceed current liabilities (9.64) and short-term loans (0.80). Long-term loans are 3.64, with noncurrent liabilities of 7.41; there is ample equity (47.37) to absorb obligations. Interest coverage is very strong at 96.31x, indicating low refinancing and interest-rate risk in the near term. No off-balance sheet obligations are disclosed in the provided data. Equity ratio cannot be confirmed from XBRL, but equity is 47.37 against assets of 64.41, implying an equity ratio of roughly 73.5%, consistent with a solid capital base.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported; thus OCF/Net Income and FCF coverage cannot be assessed. Without OCF data, earnings quality cannot be validated; we cannot confirm whether working capital absorbed or released cash. Receivables are 18.30, but without prior-period or inventory data, it is unclear if working capital increased disproportionately with sales. No signs of deliberate working capital manipulation can be inferred from the limited dataset. Given the project nature of the business, timing of collections can materially swing OCF; this remains a key monitoring area.

Dividend Sustainability

The calculated payout ratio is 76.6%, which is above the <60% benchmark for comfortable sustainability and looks elevated given declining earnings and sub-5% ROIC. FCF coverage is not calculable due to missing cash flow and capex data, so we cannot verify whether dividends are covered by internally generated cash. Balance sheet strength (net cash position on a current basis and low leverage) provides short-term flexibility to maintain dividends, but medium-term sustainability depends on restoring margins and improving cash conversion. Policy outlook is uncertain in the absence of disclosed DPS guidance; if profitability and ROIC remain subdued, maintaining a high payout could constrain reinvestment capacity.

Risk Assessment

Business Risks:

• Margin compression from input cost inflation and/or unfavorable product/project mix
• Project execution and timing risk affecting revenue recognition and OCF volatility
• Pricing power limitations if competitive intensity rises
• Supply chain and parts availability potentially impacting delivery schedules

Financial Risks:

• Low ROIC (4.6%) and ROE (3.7%) implying limited value creation buffer
• High payout ratio (76.6%) relative to earnings, risking cash retention if profits weaken
• Potential working capital build tied to receivables that could pressure OCF (data not available to confirm)

Key Concerns:

• Operating margin down ~336 bps YoY despite 20.6% revenue growth
• Net margin down ~260 bps YoY; earnings contraction outpacing operating cost relief
• Earnings quality unverified due to missing OCF/FCF data
• Capital efficiency below target thresholds (ROIC <5%)

Investment Implications

Key Takeaways:

• Strong sales growth did not translate into profit growth; operating leverage turned negative
• Operating and net margins compressed materially, weighing on ROE (3.7%) and ROIC (4.6%)
• Balance sheet is robust with high liquidity and low leverage, mitigating near-term financial risk
• Dividend payout appears high at 76.6% and could face pressure if margins do not recover
• Execution on cost control and mix/pricing is critical to restore profitability and capital efficiency

Metrics to Watch:

• Backlog/order intake and book-to-bill to gauge sustainability of revenue growth
• Gross margin trend and SG&A-to-sales ratio for signs of operating leverage recovery
• Operating cash flow and working capital movements (especially receivables)
• ROIC progression toward 7–8% management benchmarks
• Dividend policy updates relative to earnings trajectory

Relative Positioning: Within capital goods/project-oriented peers, liquidity and leverage are stronger than average, but profitability and capital efficiency are below peer mid-cycle norms due to margin compression; near-term focus should be on restoring margins and cash conversion 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