Sintokogio,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥85.71B
• Operating Income: ¥1.43B
• Net Income: ¥373M
• EPS: ¥1.41

Income Statement

Balance Sheet

Cash Flow Statement

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: FY2026 Q2 was a mixed quarter with strong top-line growth and operating margin recovery, but bottom-line was weighed down by high taxes and non-operating expenses, leaving ROE and ROIC very low. Revenue rose 26.1% YoY to 857.1, with gross profit of 241.0 and gross margin at 28.1%, indicating solid pricing and mix against cost inflation. Operating income surged 125.9% YoY to 14.3, lifting the operating margin to roughly 1.7%. Ordinary income was 7.5 (+64.5% YoY), pressured by a net non-operating loss (non-operating income 8.7 vs expenses 15.4). Profit before tax was 12.0 but net income was just 0.73 as the effective tax rate spiked to 68.9%, materially depressing the bottom line. EBITDA reached 47.1, and interest coverage was a modest 2.45x, reflecting a still-tight cushion versus financing costs. On margins, the operating margin expanded sharply YoY (notably over 80–100 bps), while gross margin stood at 28.1%; the net margin remained tiny at 0.1% due to taxes and below-the-line items. Earnings quality appears high from a cash lens: operating cash flow of 36.1 vastly exceeded net income (OCF/NI ~49.5x), suggesting NI was depressed by non-cash or one-time factors. Liquidity is solid with a current ratio of 226% and cash and deposits of 356.6 against short-term loans of 79.6. Capital structure is conservative by D/E (0.85x) but looks stretched on a cash earnings basis (Debt/EBITDA ~10.4x), implying sensitivity to earnings volatility. Intangibles and goodwill total about 350.7 (~14.7% of assets), introducing impairment risk if profitability underwhelms. ROE is only 0.1% on DuPont (margin 0.1%, turnover 0.36x, leverage 1.85x), and ROIC is a low 0.5%, underscoring capital efficiency challenges. Free cash flow on a proxy basis (OCF − Capex) looks slightly negative at around −7.3 given capex of 43.4 and OCF of 36.1, limiting immediate room for aggressive shareholder returns. Dividend data are unreported; the calculated payout ratio appears inflated due to the tiny net income and should not be taken at face value. Forward-looking, sustaining revenue momentum and converting it into higher operating margin, normalizing the tax rate, and reducing non-operating drags are key to improving ROE/ROIC. Overall, the quarter shows operational progress but highlights structural issues in capital efficiency and below-the-line headwinds that need addressing.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (0.1%) × Asset Turnover (0.360) × Financial Leverage (1.85x) ≈ 0.1%. The most significant weak link is the net profit margin: despite operating margin improvement to ~1.7%, a high effective tax rate (68.9%) and net non-operating expenses compressed the net margin to 0.1%. Business driver: better demand lifted revenue (+26.1% YoY) and operating leverage improved, but interest expense (5.82) and other non-operating costs (total 15.42 vs 8.69 income) plus the elevated tax rate eroded earnings. Sustainability: revenue momentum could support operating margin if cost control persists; however, the tax rate should normalize over time, while interest burden persists unless deleveraging or lower rates occur. Watch for SG&A growth relative to revenue; current SG&A at 226.7 against 241.0 gross profit leaves a narrow operating spread—further SG&A efficiency is needed to sustain margin gains.

Growth Assessment

Revenue growth of 26.1% YoY reflects solid demand recovery in core equipment and services. Operating income growth of 125.9% YoY demonstrates operating leverage on higher volumes and improved gross margin discipline. Ordinary income growth (+64.5% YoY) lagged operating growth due to higher net non-operating expenses. Net income growth was muted (+8.8% YoY) as the tax rate spiked and below-the-line items compressed the net margin. The profitability mix is shifting positively at the operating level, but sustainability depends on managing financing costs and normalizing taxes. Near-term outlook hinges on backlog conversion and continued pricing/cost pass-through; absent reported backlog, we assume momentum into 2H if macro and FX remain supportive. Capital intensity remains meaningful (capex 43.4), which may cap FCF in the short term unless OCF steps up further.

Financial Health

Liquidity is strong: current ratio 226% (current assets 1,161.9 vs current liabilities 513.9); no warning on CR < 1.0. Cash and deposits (356.6) comfortably cover short-term loans (79.6), limiting near-term refinancing risk. Solvency is moderate by D/E (0.85x) and total liabilities 1,096.6 vs equity 1,284.4. However, leverage looks heavy relative to earnings: Debt/EBITDA ~10.35x and interest coverage ~2.45x signal sensitivity to earnings dips. Long-term loans (408.3) dominate, creating duration risk if cash flows wobble, though the maturity profile is not disclosed. Maturity mismatch risk appears low near term given ample liquidity versus short-term debt; the larger risk sits in long-term deleveraging capacity. Off-balance sheet obligations are not disclosed; data limitations prevent assessment of guarantees or leases beyond intangibles/goodwill.

Cash Flow Quality

OCF/Net Income is 49.5x, indicating cash conversion far exceeds reported earnings—quality is strong from a cash standpoint but skewed by very low NI. OCF of 36.1 versus capex of 43.4 implies proxy free cash flow around −7.3 this period; sustainability of positive FCF will require either higher OCF or lower capex pacing. Working capital details (inventory, payables timing) are incomplete; no concrete signs of manipulation are evident, but the large OCF/NI gap suggests accruals, tax timing, or one-offs depressed NI. Financing CF was −27.1, suggesting net debt reduction or dividends/repurchases, but dividends and buybacks are unreported, limiting visibility on cash uses.

Dividend Sustainability

Dividend metrics are largely unreported; the calculated payout ratio (3,289.8%) is not reliable given tiny net income and unknown DPS timing. With proxy FCF slightly negative this half (OCF 36.1 minus capex 43.4), internal coverage of dividends would be tight unless 2H cash generation improves. Balance sheet liquidity is adequate, but cash yields to shareholders should align with FCF and debt service capacity given interest coverage at 2.45x. Policy outlook cannot be assessed without guidance; prudence suggests dividends tuned to normalized earnings and cash flow rather than this quarter’s NI.

Risk Assessment

Business Risks:

• Operating margin sensitivity to volume and mix in industrial machinery demand
• Potential cost inflation in materials and labor compressing gross margin
• High effective tax rate volatility depressing net profit
• Intangible asset and goodwill impairment risk (~350.7, ~14.7% of assets)

Financial Risks:

• High leverage on a cash earnings basis (Debt/EBITDA ~10.35x)
• Modest interest coverage (2.45x) amid interest expense of 5.82
• Negative proxy FCF this period (−7.3), limiting room for deleveraging/shareholder returns
• Exposure to non-operating losses (net non-operating expense 6.7) impacting ordinary income

Key Concerns:

• Very low ROE (0.1%) and ROIC (0.5%) indicate poor capital efficiency
• Tax rate at 68.9% materially distorts net income
• Data gaps (investing CF, dividend details, inventory) limit full assessment of cash cycle and payout sustainability
• Earnings reliance on 2H improvement to fund capex and maintain liquidity buffers

Investment Implications

Key Takeaways:

• Top-line up 26.1% YoY; operating income up 125.9% with margin near 1.7%
• Net income suppressed to 0.73 by high taxes and non-operating costs; net margin ~0.1%
• Liquidity strong (CR 226%), but Debt/EBITDA ~10.35x and interest cover 2.45x are constraints
• OCF robust at 36.1 vs NI 0.73; proxy FCF slightly negative due to capex
• ROE 0.1% and ROIC 0.5% highlight need for structural profitability improvements

Metrics to Watch:

• Operating margin progression and SG&A efficiency
• Effective tax rate normalization
• Ordinary income drivers: net non-operating income/expense and interest costs
• Order intake/backlog (not disclosed) as a lead indicator for 2H
• OCF and working capital movements; capex cadence vs cash generation
• Debt/EBITDA and interest coverage trajectory

Relative Positioning: Within Japanese industrial machinery peers, the company shows better-than-average revenue momentum but lags on capital efficiency (ROE/ROIC) and leverage on an EBITDA basis; improving operating margin and normalizing below-the-line items are prerequisites 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