Sansei Technologies,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.98B
• Operating Income: ¥2.03B
• Net Income: ¥1.18B
• EPS: ¥65.50

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 earnings rebound in FY2026 Q2 with clear margin recovery and robust cash generation, albeit on still-low capital efficiency. Revenue rose 16.9% YoY to 319.8, with gross profit of 91.5 and operating income surging 326.6% YoY to 20.3. Ordinary income increased 192.7% YoY to 21.7, and net income jumped 294.2% YoY to 12.0. Operating margin expanded to 6.3%, supported by better project mix and cost control, while EBITDA margin improved to 8.6%. Based on growth rates, operating margin expanded by roughly 460 bps YoY (from ~1.7% to 6.3%). Net margin improved by about 263 bps YoY (from ~1.1% to 3.7%), and ordinary margin widened by around 407 bps (from ~2.7% to 6.8%). Earnings quality is high this quarter: operating cash flow of 37.7 was 3.15x net income, indicating strong cash conversion and benign working capital dynamics. Interest coverage improved to 12.4x, and liquidity remains solid with a current ratio of 196% and cash of 231.6 exceeding short-term loans of 43.0. Non-operating income contributed 3.38 (mainly interest income 1.65 and dividends 1.23), supportive but not the core driver of the rebound. Tax burden was elevated with an effective tax rate of 44.6%, tempering net profit flow-through. Balance sheet quality is mixed: cash-rich and moderate leverage (D/E 0.94x) but low ROE (2.6%) and ROIC (2.9%) highlight capital efficiency challenges. Goodwill and intangibles are sizable (goodwill 77.0; intangibles 92.7), a watchpoint for impairment risk in a project-driven business. Calculated free cash flow (OCF minus capex) was approximately 27.2, comfortably covering buybacks of 8.0 and implying room for balance sheet strengthening. Dividend payout ratio appears high at 88.8%, which may constrain flexibility if cash flow normalizes. Forward-looking, the improved margins and strong cash generation set a better base, but sustainability hinges on order intake, execution quality, and maintaining gross margins amid potential project mix volatility.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.6% = Net Profit Margin 3.7% × Asset Turnover 0.357 × Financial Leverage 1.94x. The largest change vs prior year appears in profitability (net margin), given operating income +326.6% and net income +294.2% far outpaced revenue growth of +16.9%. Business driver: improved project margins and operating leverage as SG&A grew slower than gross profit, plus tailwinds from non-operating financial income (interest/dividends totaling 2.88). Sustainability: partial—operating margin gains can persist if mix and execution hold, but the elevated effective tax rate and non-operating contributions may normalize; project-based businesses face inherent volatility. Efficiency remains a drag: asset turnover at 0.357 reflects a heavy balance sheet (large receivables and intangibles) relative to sales velocity. Financial leverage (1.94x equity multiplier; D/E 0.94x) is moderate and not the main ROE driver. Watchpoints: any acceleration in SG&A exceeding revenue growth would erode operating leverage; for now, operating income growth outpaced sales, signaling positive operating leverage this half.

Growth Assessment

Top-line growth of +16.9% YoY to 319.8 suggests healthy order execution and/or backlog conversion. Profit growth was outsized (OI +326.6%, NI +294.2%), driven by margin recovery rather than pure volume. Operating margin reached 6.3% (from an estimated ~1.7% a year ago), indicating improved pricing/mix and cost discipline. Non-operating income of 3.38 provided incremental support but was not the dominant profit driver. The effective tax rate of 44.6% capped net profit flow-through, leaving room for upside if tax rate normalizes. EBITDA of 27.6 (8.6% margin) shows improved operating cash generation capacity. Outlook: Near-term momentum depends on sustaining gross margins and timely project delivery; any slippage in large projects could impact both revenue recognition and margins. With cash rich balance sheet, the company has capacity to invest in capabilities and manage working capital without stressing leverage. Medium term, raising ROIC above 5% is critical; current 2.9% indicates returns below typical cost of capital.

Financial Health

Liquidity is strong: current ratio 196.2% and quick ratio 196.2%, with cash and deposits of 231.6 comfortably exceeding short-term loans of 43.0. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.94x, within a conservative-to-moderate range. Working capital is ample at 270.4, and accounts receivable of 241.0 are sizable versus half-year sales, implying elongated cash conversion but presently supported by strong OCF. Maturity mismatch risk appears low given the cash position and current assets of 551.4 against current liabilities of 281.0. Long-term loans are 109.6; refinancing risk seems manageable with solid coverage (interest coverage 12.36x). Off-balance sheet obligations are not disclosed; none can be assessed from provided data.

Cash Flow Quality

OCF/Net Income is 3.15x, comfortably above the 0.8 threshold, indicating high earnings quality and strong cash conversion this period. Calculated free cash flow (OCF 37.67 minus capex 10.48) is approximately 27.19, suggesting capacity to fund shareholder returns and debt service. Financing cash outflow of -15.21 includes share repurchases of -8.00; dividends paid were unreported, but buybacks were fully covered by FCF. Working capital indicators are favorable given strong OCF despite large receivables; no signs of aggressive working capital release are evident from the limited disclosures. Investing CF details are unreported, limiting visibility on growth vs maintenance capex mix.

Dividend Sustainability

The calculated payout ratio is 88.8%, which is high relative to the <60% benchmark and could be a constraint if earnings normalize. With calculated FCF of ~27.2 in the half, coverage for shareholder returns appears adequate this period; however, actual dividends paid are unreported, so precise FCF coverage cannot be confirmed. Balance sheet strength (cash 231.6) provides a buffer, but sustainably funding a high payout would require continued OCF strength and stable margins. Policy outlook: Absent disclosed DPS guidance, expect dividend policy to balance shareholder returns with the need to improve ROIC and invest in execution capabilities; any increase would likely be contingent on backlog visibility and margin sustainability.

Risk Assessment

Business Risks:

• Project execution and margin risk in large amusement/stage equipment contracts
• Order timing and backlog conversion volatility impacting quarterly revenue and margins
• Pricing pressure or input cost fluctuations that could compress gross margin
• High effective tax rate (44.6%) reducing net profit leverage
• Potential impairment risk given sizable goodwill (76.97) and intangibles (92.71)

Financial Risks:

• Low ROIC (2.9%) and ROE (2.6%) indicating capital efficiency challenges
• Receivables concentration and elongated cash conversion cycle risks
• Reliance on non-operating financial income (interest/dividends 2.88) for part of ordinary income
• Interest rate risk on floating-rate debt and financial income normalization
• Potential refinancing risk on 109.6 long-term loans if credit conditions tighten

Key Concerns:

• Sustainability of the sharp operating margin rebound (6.3%) in a project-based business
• High payout ratio (88.8%) potentially constraining reinvestment if earnings soften
• Data gaps (inventories, investing CF, SG&A breakdown) limiting visibility on cost structure and growth investment
• Tax rate volatility creating variability in net profit

Investment Implications

Key Takeaways:

• Earnings rebound is genuine, driven by margin recovery and strong cash conversion
• Liquidity robust and leverage moderate; balance sheet can support operations and shareholder returns
• Capital efficiency remains weak (ROIC 2.9%, ROE 2.6%), requiring continued margin and asset turnover improvements
• Non-operating income provides support but should not be relied upon for core profitability
• Watch goodwill/intangibles for impairment signals in case of project shortfalls

Metrics to Watch:

• Order intake and backlog, and their implied revenue coverage
• Gross margin by project/segment and SG&A trajectory vs revenue
• OCF/Net income and receivables turnover
• ROIC progression toward >5% and ideally 7–8%
• Effective tax rate normalization and interest income trend
• Capex mix (growth vs maintenance) and investing CF once disclosed

Relative Positioning: Compared to domestic industrial/project-engineering peers, the company exhibits stronger near-term cash generation and solid liquidity, but lags on capital efficiency with sub-5% ROIC; maintaining the improved margin profile and accelerating asset turnover are key to closing 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
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